The following are a few tips on protecting your assets from financial disaster:
1) Hold property in an entity.
A properly established and administered entity can protect your assets from lawsuits and claims made against you. It is necessary, however, to be sure to follow all formalities necessary in administration of the entity; otherwise, you risk a court “piercing the veil” and attaching your assets to a claim or lawsuit.
2) Never enter into a General Partnership.
A general partnership will form as the default entity of a mutual business agreement. Without a proper business entity, all of your assets are liable to be lost in a lawsuit.
3) Subdivide Property Holdings into Separate Entities
By creating separate entities for each unit of real estate, you protect each individual parcel from suits on the other.
4) Consider the tax impact.
Holding real estate in a C-Corp, for instance, is a poor idea due to the tax costs of liquidation under subchapter C of the Internal Revenue Code. Any appreciating asset should be held in an LLC to avoid any great tax burden upon sale and liquidation.
5) Carry adequate insurance.
This is one of those “duh” kind of things. Insure your assets, as there is no greater protection from depletion.
6) Dilute ownership
By removing 100% ownership of an entity, any suit against you personally will be sure to protect a portion of the companies assets. For closely held businesses, a family estate plan may be utilized to help dilute assets through separate classes of stock and annual gifts.
7) Buy-sell agreements with fellow shareholders, partners or members.
Purchase life insurance on one another and enter into an agreement that any remaining business partners will purchase your share in the company with the value of the life insurance. This eliminates what otherwise could be a giant headache.
8) Consider creating a trust.
There are a vast number of trust planning strategies that allow for the protection of assets. What kind of trust to use depends greatly on your particular circumstance.
9) Create a QPRT.
Placing your personal residence in a Qualified Personal Residence Trust can help protect yourself from judgments and creditors and prevent you from homelessness.
10) Invest in exempt assets.
An IRA, 401(k), SEP and annuities are all examples of exempt assets that will be protected from creditors.