It takes a great deal of concerted effort to accumulate resources, so you have to take all the right steps to protect your assets. There are various different threats out there, especially when you view the subject from an estate planning perspective. This being stated, we are going to focus on asset protection for people that have concerns about litigation in this post.
A very commonly used estate planning tool is the revocable living trust. It is the best choice for a wide range of people, and one benefit that is appealing to many is the flexibility factor. Plus, if you establish a living trust, you could act as the trustee and the beneficiary while you are alive and well.
Though the ongoing control can be viewed as a positive on the one hand, you are retaining incidents of ownership from a legal perspective. This means that assets in the trust would not be protected from litigants seeking redress, because you would have direct access to the resources.
This being stated, if you are creating a trust to protect assets, you could use an irrevocable trust. One option that is available for people in the state of Ohio where we practice law is the self-settled asset protection trust. These devices are alternately referred to as domestic asset protection trusts.
It should be noted that while Ohio is one of the 15 states that allow for the creation of self-settled asset protection trusts, it is possible to establish this type of trust in a state that you don’t live in. This could be the right choice for some people when certain circumstances exist.
If you are the grantor of a domestic asset protection trust, you would have no direct access to the funds that have been conveyed into it. A trustee that you choose would act as the trust administrator. Resources in the trust would be protected from future creditor claims, and the trustee could distribute trust assets to you, or anyone else that you name, on a discretionary basis.
There are however some types of debts that fall outside of the protected realm. These would include child support, alimony or spousal support, delinquent taxes, and some court judgments.
Family Limited Partnerships and Limited Liability Companies
Now we can move on to a couple asset protection structures that can be very effective for businesses and investors. First, we will look at the family limited partnership, and the best way to explain its usefulness is through the presentation of a hypothetical example.
Let’s say that you own two shopping centers, and you are concerned about being sued by individuals that may get injured on your property. You could convey each shopping center into a different family limited partnership.
If you establish the partnership, you would be the general partner, and people from your family that you choose to include would be the limited partners. As the general partner, you would have sole decision-making authority.
Should someone get injured at one of the shopping centers, the entity that could be sued would be the family limited partnership that owns it. The other center would be protected, and the personal property of every member of the partnership would also be out of the reach of litigants seeking redress.
A limited liability company is another commonly used asset protection structure for businesses. An LLC would clearly separate your personal property from your business activities, and vice versa. It should be noted that you cannot establish a limited liability company and convey property into it after you know that you are going to be sued personally.
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If you would like to discuss asset protection or any other matter with a licensed attorney, we would be glad to gain understanding of your needs and make the appropriate recommendations. You can give us a call at 513-721-1513 to schedule a consultation appointment, and there is also a contact form this website that you can use to send us a message.