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Yes, many people that are in this position use buy-sell agreements. With the agreement called the cross purchase plan, the partners agree upon the value of a share in the business. When this has been determined, they take out insurance policies on one another. The payouts would equal to the agreed-upon value of a share. When one partner dies, the insurance policy proceeds are used to buy the deceased partner’s share from their estate.
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Another widely used asset protection structure is the family limited partnership. As the name would indicate, the people that comprise the partnership must be members of the same family. If you are the driving force behind the establishment of a family limited partnership, you would be the general partner, and family members that you include would be limited partners. As the general partner, you would retain sole decision-making authority. To explain how this structure would work to your benefit, let’s say that you are a developer, and you own three shopping centers. Clearly, someone could get injured on one of these properties, and a lawsuit could be filed. This is one source of concern, and there are other types of suits. It would be possible to convey each of the shopping centers into separate family limited partnerships. If someone is injured at one of the centers, the other two would be protected, and the personal property that is owned by all of the partners would also be shielded. Plus, the three shopping centers would be untouchable if any of the partners are personally targeted by a litigant seeking redress, so there is 360 degree protection. These structures can also be used by wealthy families with the estate tax concerns. There are strategies that can be implemented to transfer property between the partners in a tax efficient manner.
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One very commonly used asset protection strategy is the limited liability company or LLC. If you establish one of these entities, generally speaking, your personal property would be protected if your business is sued by creditors or some other type litigant. The asset protection would work in the reverse manner as well. If you are personally sued, your business and all property that is owned by the business would be protected under most circumstances. It should be noted that you cannot make the business the owner of personal property after you know that you are going to be sued. This would be an illegal fraudulent conveyance. Aside from the asset protection, another benefit that you gain is the pass-through taxation. You can still claim business profits and losses on your personal income tax returns, so your accounting is streamlined.
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Let’s say that you establish some type of business, and you file taxes as a sole proprietor. There would be no legal separation between you as an individual and your business. As a result, if you are sued for any reason, all of your assets would be available to the litigant seeking redress. This would include property that you are using to operate your business. On the other side of the coin, your personal assets would be in play if your business activities trigger a legal action.
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If you would like to discuss asset protection and business succession planning with a licensed attorney, our doors are open. You can schedule a consultation appointment right now if you call us at 860-548-1000, and there is a contact form on this site you can use to send us a message.
