Asset Protection Planning Tip: Separate your business assets
Your goal in asset protection planning is to work with a professional to plan to discourage lawsuits and increase negotiating leverage if you are sued. This type of planning is the subset of estate planning and its purpose is to place assets beyond the purview of future creditors. Many doctors, landlords and other professionals and business owners in high-risk businesses are drawn to asset protection planning. In this article, I will discuss an effective asset protection strategy. I emphasize that asset protection is a proactive type of legal planning, and there is no legal way to make such transfers any time there is a pending lawsuit, or threat, or other events occurring that would make the transfer considered a “fraudulent conveyance.” .”
Also, it is not “tax avoidance” in the sense that there are any tax benefits arising from this type of planning.
Asset protection planning involves a great deal of confidentiality and trust between the person protecting their assets and the attorney and other service providers who help prepare the plan. This is not a commodity product that can be purchased online; rather, it is a highly tailored plan made for the client.
One of the goals of asset protection planning is to discourage lawsuits by lowering your financial profile. Many service providers tout the need for domestic asset protection trusts as well as foreign asset protection trusts to achieve this goal. In this article, I will only focus on separating your business assets as an asset protection tool.
If you’re a real estate owner, doctor, or other high-risk business owner, the first thing you should do is take an inventory of your assets. Here are some strategies for working with specific assets:
1. Equipment: If you own valuable equipment, create an LLC or other legal entity and lease the equipment back to your operating entity, whether it is a business or professional practice.
2. Building/ Real estate: If your business or professional practice owns a building, you transfer ownership to a legal entity and have your business or practice lease it from that legal entity on a long-term lease with extremely favorable terms. Secure the lease payments through assets of your practice or business and file a security lien in the public records.
3. Receivables: This belongs to the business or your professional practice, so it cannot be transferred to another legal entity. What you would want a professional to help you with is, among other strategies: a) factoring the accounts, b) pledging the accounts, c) using the accounts to fund life insurance, and d) securing the lease referred to in paragraph 2 above with the receivables.
The purpose of receivables is to allow this asset to be seized from the practice in the event of a lawsuit. Again, all of this planning should be put in place as a proactive measure, not when there is a threat or a pending lawsuit.
Asset protection planning involves a great deal of confidentiality and trust between the person protecting their assets and the attorney and other service providers who help prepare the plan. This is not a commodity product that can be purchased online; rather, it is a highly tailored plan made for the client.
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