If there was ever a Catch-22 situation for business owners, it’s this: most don’t take legal steps needed to protect their wealth until it’s threatened by a creditor or lawsuit – 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. We have 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
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.
Qualified retirement plans – using defined benefit plans can enable business owners to accumulate significant cash amounts in these plans.
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.
Captive insurance company – created to allow businesses to insure themselves against specific risks.
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 at (209) 877-7457 today to schedule your comprehensive LIFT (legal, insurance, financial and tax) Foundation Audit. Call and mention this article and we’ll waive our normal fee (availability permitting).