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It’s no secret that we live in a litigious world, but no business owner, advisor or other professional wants to view every client, customer or patient as a lawsuit waiting to happen. When you provide services to the general public, your risk of being sued is inevitably a little higher than that of the average person. To guard against this risk, consider the following steps – some simple, some untraditional – to protect yourself and your business.
Inherited Trust Assets. About $30 trillion will pass from baby boomers to younger generations over the next decade. With this transfer of wealth comes enormous opportunities for the recipients beyond the obvious financial gain.
When we think about asset protection planning, we usually start with how to protect our own assets, but what about the ones we will receive? Assets that are transferred to beneficiaries in trust and remain in trust are generally protected from the creditors of the beneficiary (subject to well-drafted trust agreements and good administration of the trust). In many cases, the beneficiary can even serve as trustee of the trust, allowing them to control and benefit from the assets of the trust while protecting the assets from current or future creditors. As a business owner, having assets immediately and permanently out of reach of creditors is not only financial gain, it is also invaluable peace of mind.
The conversation can be tricky, but consider talking with your parents to find out if their estate plans are in good order and if the assets are being held in trust. If not, suggest that they consult a qualified estate planning attorney. A little planning now can go a long way. And just as important, as a parent yourself, you can engage in the same type of planning to protect your children from their creditors, including a divorcing spouse.
Division of property between spouses. Property belonging to one of the spouses is not subject to the creditors of the other spouse. So, if one spouse is at higher risk of liability than the other, consider assigning major title deeds such as real estate and taxable investment accounts to the low-risk spouse’s name. Of course, these assets are still subject to low-risk spousal creditors, so an umbrella insurance policy can also be a wise investment for additional protection.
Funding of protected assets. Under federal and many state laws, certain assets are always beyond the reach of creditors. In Ohio, these include retirement accounts, life insurance proceeds, and life insurance cash value. To this end, consider, in consultation with a qualified financial advisor, fully funding retirement plans and building up the cash value of your whole life insurance policy to build a reserve of assets you know are safe for the long term. .
Asset protection trusts. Over the past decade, Ohio has been at the forefront of national asset protection laws, at least from the beneficiary’s perspective. If you’re married and have substantial assets that you don’t think you’ll need during your lifetime, you can donate those assets to a Spouse Lifetime Access Trust (SLAT). Beyond the tax advantage on inheritances, especially if the estate appreciates considerably (which is outside the scope of this article), an SLAT allows your spouse to benefit directly from the estate (and you indirectly through of your spouse), but it also allows the assets to be protected from your future creditors or those of your spouse.
Similarly, an Ohio Legacy Trust allows assets to be moved beyond the reach of future creditors, but allows you to continue to exercise a limited element of control and benefit from the assets of the trust. In either case, a qualified estate planning attorney should be involved to weigh the pros and cons and draft the appropriate paperwork, and in neither case should you transfer assets if you have even a suspicion. of concern from a current creditor.
Formalized commercial contracts. In the heat of running a business, it’s easy to get into a rut and let the important things fall on the back burner. However, one concern that still deserves our full attention is drafting good business contracts and following your procedures. Not only can a poorly drafted contract (or no contract at all) expose your business to unnecessary risk, but it can also make it easier for a creditor to pierce the corporate veil and attack personal assets. Appropriate lease and sales agreements, for example, should always be in place, and business assets should be titled in the name of the business, not the name of an individual. Formalizing your procedures will help reduce your personal and professional risks. And it doesn’t have to break the bank. As KMK Law’s Private Client Services team gets to know a company and its stakeholders, for example, many projects become easier and less time-consuming. Talk to your attorney about using great rates and efficient processes to build a long-term relationship that you both enjoy.
Originally posted by business journals.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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