We answer many of the same questions when we speak with clients, so we know what people are curious about. In this post, we will answer some frequently asked questions about asset protection.
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Why is asset protection important for honest businesses?
If you are starting a business and you intend to be able to take care of all your responsibilities, you may wonder why you should be concerned about asset protection. After all, if you act with integrity, you should never be faced with any creditor problems or legal actions, right?
In reality, you never know what may happen in the future, even if you have the best of intentions.
Plus, you can face personal financial responsibility for accidents that cause damages and/or injuries. You can make sure that there is a layer of protection if you develop the appropriate asset protection strategy, and we can help you do just that.
How does a limited liability company work?
A limited liability company (LLC) can be the ideal asset protection structure for some businesses.
If you establish a limited liability company, you would have a very simple tax situation. Your profits and losses would be claimed on your personal income tax return that is attached to your Social Security number. This is called “pass-through taxation.”
With a limited liability company, you would not be personally responsible for debt that is incurred by your business. On the other side of the equation, if you are sued as an individual, in most cases, the LLC and its property would be protected.
You do have to be aware of the concept of fraudulent conveyances. You can’t transfer assets to an LLC to protect them after you know you are being sued.
Are there any other commonly used asset protection structures for businesses, professionals, and real estate investors?
Another very popular asset protection tool is the family limited partnership. If you establish a family limited partnership, you would be the general partner.
You would add family members as limited partners, and the limited partners would not have any decision-making authority. The general partner is the only member who can make decisions on behalf of the partnership.
To explain by way of example, let’s say that you are a surgeon, and you own your own medical practice. You are also an investor with four restaurant franchises and an apartment building. You could convey your practice into one limited liability company, the restaurants into four different limited liability companies, and the apartment building into another FLP.
It would also be possible to convey your personal bank accounts and brokerage accounts into a separate family limited partnership, and your home could be owned by an FLP. If you are personally sued for malpractice, you wouldn’t own this property yourself, so it would not be in play.
If someone is injured in the apartment building, they could not seek to attach any of the other assets that are in all of these separate family limited partnerships.
Remember, as the general partner, you have absolute authority over all of the actions of each of these partnerships. In essence, you control everything, but you own nothing.
Plus, if you are exposed to the federal estate tax, assets can be transferred among the partners in a tax-efficient manner.
I have heard the term “nursing home asset protection.” What is this all about?
Most senior citizens rely on Medicare for health insurance, and it will certainly help. However, this program will not pay for a stay in a nursing home or assisted living community, and it won’t pay for an in-home health aide.
How expensive is it? According to Genworth Financial, in 2024, the median annual charge for a private room in a nursing home in Westport, CT is just over $222,000.
This is why nursing home asset protection is necessary. Medicaid can be the solution for many because the program will pay for custodial care. We assist clients who want to protect their assets from stifling nursing home costs.
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