Your goal in thinking of asset protection planning is to work with a professional to plan to discourage lawsuits and enhancing leverage in negotiations if a lawsuit is filed against you. This type of planning is the subset of Estate planning and its goal is to place assets beyond the range of future creditors. Many physicians, landlords, and other professionals and business owners in high risk businesses are attracted to asset protection planning. In this article, I will discuss one effective asset protection strategy. I emphasize that protection of assets is a proactive type of legal planning, and there is no legal way to make such transfers at any time a lawsuit is pending, or threatening, or other events are occurring which would render the transfer to be deemed a “fraudulent conveyance.”
Also, this is not a “tax dodge,” in the sense that there are any tax benefits arising from this type of planning.
Asset Protection Planning involves a great deal of confidentiality and trust between the person shielding their assets and the lawyer and other service providers assisting in setting up the plan. It is not a commoditized product that can be purchase online; rather, it is a highly tailored plan made for the client.
One of the goals of planning for protection of assets is to discourage lawsuits by lowering your financial profile. Many service providers advertise the need for domestic asset protection trusts, as well as foreign asset protection trusts, in order to accomplish this goal. In this article, I will focus only on dividing the assets of your business as an asset protection tool.
If you are a real estate owner, a physician, or other business owner with high risk, the first thing to do is take an inventory of the assets. Here are a few strategies to deal with specific assets:
1. Equipment: If you own valuable equipment, set up an LLC or other entity and lease the equipment back to your operating entity, whether it be the business or professional practice.
2. Building/ Real Estate: If your business or professional practice owns a building, you transfer ownership to an entity, and have your business or practice lease it from that entity, on a long-term lease with extremely favorable terms. Secure the lease payments by assets of your practice or business, and file a security interest lien on the public records.
3. Accounts Receivable: This belong to the business or your professional practice, so they cannot be transferred to another entity. What you’ll want a professional to help you with is, among other strategies: a) factoring the accounts, b) pledge the accounts, c) use the accounts to fund life insurance and d) secure the lease referred to in paragraph 2 above with the accounts receivable.
The goal with the accounts receivable is to permit this asset to be seized by the practice in the case of a lawsuit. Again, all of this planning must be put in place as a proactive measure, and not when a lawsuit is either threatened or pending.
Asset Protection Planning involves a great deal of confidentiality and trust between the person shielding their assets and the lawyer and other service providers assisting in setting up the plan. It is not a commoditized product that can be purchase online; rather, it is a highly tailored plan made for the client.
