Any person who owns property or a business needs to engage in asset protection strategies. Otherwise, assets they have worked years to acquire could be taken away in the event of a liability or personal injury lawsuit.
Establishing asset protection not only safeguards property, but also provides peace of mind. Unfortunately, we live in a sue-happy society with thousands of lawsuits filed every day. While this can be good for lawyers, it's not so great for small business owners or property owners who earn a living from the assets they've worked hard to acquire.
If a person or business is sued and the Plaintiff is awarded a settlement, creditors can seize assets and apply the value toward reducing the judgment. Most often, assets are sold at public auction with the highest offer taking the goods.
In order to prevent assets from being seized, owners need to remove their name from the legal title. Two of the most common methods are setting up a limited liability company or trust.
The type of trust established depends on several factors. It's always best to talk with an attorney to learn about the pros and cons of each. Trusts commonly used for asset protection include discretionary trusts, spendthrift trusts, blend trusts, and self-settled trusts.
Regardless of the type of trust chosen it is imperative to set it up as irrevocable. This means that once the trust is in place it cannot be altered without permission from the court.
As with most legal contracts, there are certain situations which do allow modifying irrevocable trusts. These are very limited and often require legalese to be written into the trust when it is established.
Limited liability company (LLC) is used to safeguard business assets. LLCs are also a good way to protect real estate, intellectual property, planes, and boats. The advantages of LLCs is personal assets are shielded from business liabilities and business assets are protected against personal creditors.
Each of these strategies involves transferring ownership of property to another entity. It does not mean owners no longer have access to property or that they lose control of owned assets. Instead, they hand-off ownership rights in order to keep it safe in the event of litigation.
Most people would like to believe they will never be sued. Unfortunately, there are many reasons for people to initiate a lawsuit. It could be a tenant residing in rental property. It could be an employee who gets hurt on the job. It could be a customer suing over a faulty product. It could be a person driving a car that slams on their brakes or turns in front of you. Those who fail to plan could end up losing everything or spend the rest of their life paying off an award settlement.
Establishing asset protection strategies isn't difficult or expensive. It is certainly much cheaper than the price you'll pay if you don't plan ahead. At EstatePlanningTrusts.com we provide a vast library of informative articles to help visitors make informed decisions.
Our experienced team is on hand to answer your questions about asset protection, trusts, estate planning, business succession and more. Give us a call to discuss your needs or arrange an appointment to meet with us in person.
Published on October 23, 2012