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The Business Owner's Guide to Asset Protection

December 14, 2017

 

Asset protection is about protecting the “things” you’ve worked your lifetime to accumulate.  It may sound easy but yet many people don’t seek to take the necessary asset protection steps until it’s too late.  This article will first explain why asset protection planning is a crucial part of any comprehensive estate plan and then it will provide an overview of Florida’s asset protection strategies. 

 

Safeguarding Your Assets

 

The mechanism used to safeguard assets is different for everyone.  For some, it’s hoarding cash under a mattress.  For others, it may be having a safety deposit box.  While others, may choose to take more drastic measures such as using an offshore bank account and hiding assets in trusts with obscure names.  For all, the best asset protection mechanism depends on the type of business in which they are engaged, is it risky or subject to lawsuit, what is their net worth, how highly do you value your “things”, what are you financial goals?

 

 Asset Protection: Defined

 

What is an “asset”?  Simply put, an asset is everything you own that has value.  Some assets produce income, some do not, others increase in value, while other things decrease in value.  An asset that decreases in value may not be considered an asset at all.  It is up to you to decide what assets deserve protection.  The most common types of income producing assets may be ownership in a Florida business, investment accounts and rental properties.  Examples of non-income producing assets include antique cars, stamp collections (I am still waiting for that client with an interesting stamp collection to walk through my doors), and your reputation.

 

What Are You Protecting Your Assets From?

 

While this may be obvious, we live in a society with a legal system that tends to favor creditors, so an effective asset protection plan is crucial before beginning any business endeavor and certainly before getting sued.  Once a lawsuit is filed against you, it is impossible to move assets into asset protection vehicles, as such a transfer would constitute fraud under the State of Frauds.

 

Who May be a Creditor?

 

The following is the short list for who may become a creditor:

  • IRS

  • Ex-spouse

  • Plaintiff with a judgment

  • Other businesses

  • Landlords

  • Lenders

 

Asset Protection Strategies You May Use in Florida

 

The following is a list of options available for how to protect your assets:

  • Homestead or personal residence protection

  • Annuities and life insurance

  • Qualified accounts (IRAs, 401ks, and 403bs) and wage accounts

  • Domestic business entities (LLCs, corporations and limited partnerships)

  • Marital agreements (pre-nuptial and post-nuptial)

  • Domestic trusts (revocable (living), DAPTs, land trusts, other irrevocable trusts)

  • Offshore trusts and offshore business entities

 

The list above starts with the most common options used by most people and moves down to end at the least common approach.  Each asset named above is in a special class that the law gives greater creditor protection, however, the assets listed below are in another special class, a class that offers little or no creditor protection. 

 

Those assets that offer little to no protection include:

  • Personal property held in your individual name

  • Real estate held in your own name and not used as a personal residence

  • Checking accounts, savings accounts, CDs

  • Businesses owned as a sole proprietorship or as a general partnership

  •  Non-qualified investment accounts (i.e. mutual funds or trading accounts)

 

I hope this high level overview provides you with a kick-start in strategizing how you are going to take action in protecting your assets.  Whenever you learn more about each of the different options mentioned above, I urge you seek guidance from a licensed Florida attorney to ensure the strategy will work best for your goals.

 

Good Luck!

 

Ashley Zohar

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