If there was ever a Catch-22 situation for business owners, it is this: most do not take the necessary legal steps to protect their personal wealth until it is threatened by creditors or litigants – and by then, it’s too late to implement effective asset protection strategies.
A survey of 242 business owners conducted by private wealth management firm Prince & Associates several years ago showed that nearly 65% of those surveyed said they had been the target of unjust litigation, including divorce proceedings. Over 89% said they were concerned about this kind of litigation, but only 27% had an asset protection plan in place.
Survey respondents said the primary reason for neglecting to implement an asset protection program was that no one had showed them how to do it. One-fourth thought it was too complicated. A Creative Business Lawyer™ has the answers to both those concerns.
There are several asset protection strategies that business owners can implement to protect personal wealth, including:
Equity stripping – this strategy can be used to reduce an owner’s equity in a business while still maintaining their ownership position. Other advantages of this practice include:
- Eliminates the necessity to transfer ownership of real estate, thereby avoiding the resulting transfer and property taxes
- Offers protection of multiple properties without having to create separate LLCs
- Protects property equity from inside liability claims
- Offers protection for cash flow and other assets used to operate the business
- Provides ability to use business equity to generate income
Captive insurance company – created to allow businesses to insure themselves against specific risks.
Qualified retirement plans – using defined benefit plans can enable business owners to accumulate significant cash amounts in these plans.
Wealth Creation Trusts — these can be useful for establishing the ownership of business assets inside a domestic asset protection trust and are best used before a company is even created.
Offshore asset protection trusts – these can be useful if executed properly; you’ll need an experienced legal adviser to see that they are established and managed properly.
There are a number of other asset protection strategies business owners can deploy to protect personal wealth. Just remember that you need to do it before you really need it.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.