Asset Protection
Many people believe that asset protection is only a concern for the wealthy; this could not be further from the truth. Anyone who has accumulated assets should have a strategy for protecting them from taxes and/or unforeseen circumstances. A properly structured asset protection plan can help those who may have real estate equity, a successful business, or those trying to protect assets for their children's education or their own retirements.
Some of the keys to a successful asset protection plan are that it should:
- Discourage litigation
- Allow access to funds
- Be easy to understand
- Work with the estate plan
- Insulate assets from liability
Family Limited Partnerships
A Family Limited Partnership (FLP) is a special limited partnership where there are one or more general partners responsible for managing partnership affairs. Limited partners of the FLP cannot participate in management decisions. The FLP allows the individual or family to maintain control over their property while being removed from its ownership. This puts any property held in the FLP (real estate, cash, investments, etc...) outside the reach of creditors and/or IRS.
Limited Liability Company
The Limited Liability Company (LLC) is a legal entity that is separate and distinct from the personal affairs and other business involvements of its owners. The LLC gives its owner(s) a very flexible, adaptable business organization that provides liability protection comparable to that of a corporation. Where there are at least two members, the LLC is allowed to be taxed as a partnership. Income deductions and losses may be allocated to the members in any proportion. Offering fractional ownership interest of the LLC as a gift in annual amounts less than the tax-free limits can be advantageous when such transfers are authorized in the articles of organization. If desired, it is possible to transfer part or all of the ownership interest from the older generation to the members of the younger generation while retaining management control.
S- Corporations
S-Corporations (S-Corps) allow their owners to enjoy the limited liability of a corporation with the tax treatment of a sole proprietorship or partnership. Operating as an S-Corp rather than a regular or C-Corp may be wise for various reasons. First, the S-Corp allows you to pass business losses through to your personal income tax, using it to offset any income that you have from other sources. Second, when you sell your S-Corp, your taxable gain on the sale of the business may be less than if you operate the business as a C-Corp.
Family and Living Trusts
A living trust allows an individual to control the distribution of their estate upon death. While all assets are transferred into the trust while alive, the individual retains ownership control of the assets. As its creator, they have the power to amend or revoke it at any time during their lifetime.
Without a trust, once an individual has died, the only person who can transfer the decedent's assets is an executor or administrator. With a properly drafted and funded trust, however, the assets held in trust will not require the appointment of an executor and can avoid costly probate proceedings. A trustee can carry out your instructions regarding the distribution of your property following death without court interference.
Because there are numerous strategies that may be employed for asset protection, it is important to consult the appropriate professionals who can help you craft a plan that meets the specific needs of you and your family.