When you own a business, there is always a probability of distraught with risks involved in the process. Even though if you are yielding better profits it is of utmost importance that you care much about asset protection with claims and lawsuits. Some of the risks involved are debts obligations to third parties, Employee damage claims, product or professional liability, and problems with consumer-protection. If you fail to deal with these things in a proper way, they could result in you losing the precious assets. Hence making a proper plan for asset protection will help you to run your business smoothly and successfully.
Importance of Asset Protection:
The main objective of asset-protection plan is to prevent or significantly reduce risk to your business by covering the assets from the claims of creditors. But it’s a fact that many of the business owners still don’t know the possible risks that can cause damage to their business and the protection options available. Asset-protection plan strategizes all the legal factors, helping to prevent the seizure of the assets after a judgment. The longer the asset protection plan has been in existence, it is likely to be stronger.
Using asset protection is a dynamic way to reduce the individual’s risk of accountability. You could be at a risk of losing all the wealth earned over a lifetime of hard work, if you do not carefully plan your finances. Asset protection will minimise the risks of creditors making claims to the assets, and protecting the business.
Family matters: Only the creditors and third party claims may not be the risk to your assets. Sometimes there may be disintegration in families due to one or more family members demanding their shares to property and wealth earned by their parents. Having strong and perfectly planned asset protection can help prevent this from occurring.
Lawsuit hurdles: You can prevent lawsuits from occurring by implying a strong asset protection strategy. If you are in a position to be sued, they can perform an asset search to see if your assets are of value equal to the expense of lawsuit. If there are assets in your personal name, then you will lose bigtime as they will be aware that a lawsuit will be the best bet for big payoff.
Theft Prevention: As there is increase in major data breaches, it is a good idea that you have your private information hovering around the deep net. Thieves can easily manipulate your assets by using the stolen information, if the assets are not protected. But, it is very much difficult process for any hacker to steal the information attached to the assets which are protected and not directly owned by you.
Does insurance cover enough?
While insurance does provide a measure of security—and is essential for some occupations and activities—it cannot shield your assets from all the threats. Insurance policies are limited in what risks they cover and how much they pay. Either of these limitations can spell disaster to the small business owner. More importantly, insurance can’t adequately protect you from economic downturns and inability to make payments to creditors.
Insurance will not cover all the risks as most insurance will not save you against far more probable events. Also, most of the policies have numerous exclusions from coverage. There was a case where a fire destroyed valuable assets of a company but was shocked to discover that its insurance would not come for rescue since the fire occurred in the building next door. Such incidents can trouble your life for decades exhausting away your earnings as you try to gain it.
Also, Insurance can’t protect against economic hard times. Insurance is not the best to protect you in the case of your business downfalls or when you are unable to pay your bills. If you don’t pay the liable persons, then they can get the judgement opposed to you for breach of contract. If you are a solitary owner, chances are that the lender can impose against the personal and business assets.
Common asset protection strategies:
- Trusts: You can put the assets in an irreversible trust, the assets will be in authority of a trustee. Positively, this will remove your name from the assets but you will have no control over the assets and cannot revoke the trust or change the terms of the trust. Also, laws pertaining to trusts vary widely.
- FLPs: Family Limited Partnerships are the business establishments commonly used in estate planning. The assets possessed by an FLP are in the name of the business. FLPs have some beneficial tax properties, but they can be tricky and complicated since they need all partners to be family members.
- LLCs: LLCs are one of the most regular and popular business entities. Just as they are in a trust or FLP assets in an LLC are not in the personal name. But, while trusts needs trustees and FLPs needs family members, LLCs are very less dependent on others. There is a provision to run a single-member LLC by own or you can choose anyone of your liking to share management responsibilities.
Regardless of any strategy you implement, keep a check on below points:
- Make sure that plans are done to fulfil legitimate business reasons or planning purpose.
- Keep a track of the all the legal business activities that you make.
- Keep the plans in place before you have any problems with creditors.
- Don’t execute a plan at a time when a lawsuit is approaching.
Bottom-line: Irrespective of any asset protection strategy you choose, it is of utmost important that they address all the legal and financial concerns along with the asset protection. Successful business owners will always be assured with effective asset protection strategies and their use is customized to the needs of them in useful times.