Is an LLC an Option for Protecting Your Assets?
Creditor protection and asset protection are often used interchangeably; however, they are not the same. When it comes to your estate assets, these are any items of value that you own including business interests, financial accounts, real estate, and even personal property. Asset protection is taking the right steps to ensure your assets are less vulnerable in the event that your business or you personally ever face a lawsuit.
Asset Protection in a Litigious World
The unfortunate truth is that we live in a litigious society. It is very easy to hire an attorney to sue someone with little risk or out-of-pocket expense. Business disputes, creditor disputes, accidents, and more are all sources of liability and potential litigation, even for average people. While corporate American and the wealthy may be able to adopt complex strategies to protect their assets through trusts and business entities, what are the options that an average person has to obtain affordable protection for their assets?
The reality is that the average person will likely suffer more significant consequences from a random lawsuit, much more than a large corporation or wealthy person. Asset protection trusts are not cost effective for the average person that has less than one million dollars in liquid assets. However, the average person can create protection for their assets using a well-drafted LLC. This can offer business asset protection as well as shield personal accounts such as bank accounts, investments, collectibles, boats, and more. Here are three reasons that an LLC may be the perfect asset protection for you:
- LLCs are easy to create, flexible, and inexpensive to maintain. LLCs can be filed in Florida, and every other state, and may be utilized for investment purposes or for business. This means that if you have valuable assets you want to protect, an LLC can be used to hold title to those assets. LLCs are typically less expensive to create and maintain than trusts. To create an LLC, your attorney can draft the Articles of Organization and file them for you by paying the appropriate filing fee. When your LLC has been recorded, your assets can then be titled in the name of the LLC. Your LLC can even be assigned a separate tax identification number for investments or banking purposes and may hold the legal title to nearly any asset.
- LLCs offer enhanced protection through an operating agreement that is designed to protect your assets. In addition to filing with the state, a solid asset protection LLC also should include an Operating Agreement. Several different types of creditor protection provisions may be included in the agreement. These will restrict the options that a creditor may have in the event of a legal dispute or lawsuit. These provisions may extend even more protection than what the state’s LLC statutes would typically provide, which makes these highly recommended over filing a simple boilerplate LLC.
- LLCs have benefits beyond individual ownership such as charging order protection and survivor benefits. LLCs provide protection from creditors through charging order protection. This is like a garnishment order, but for a business entity. Charging order rights limit the options that a creditor has for remedies against an LLC and the creditor will be prevented from placing liens on property or forcing the sale of assets that belong to the LLC. The members of the LLC will also have the right to determine how income from the LLC is paid. In addition, LLCs offer the benefit of right of survivorship between the members so that probate isn’t required. This is an important consideration during estate planning.
- Not all LLC structures, however, offer these benefits! For example, LLCs with only one owner do not protect you against creditors. An LLC and LLC operating agreement must be carefully planned to obtain the protection you need.
Contact an Experienced Business and Estate Planning Attorney Today
If you want to protect your assets but aren’t sure how the best way to go about it may be, Tampa business transaction and formation attorney David Toback can help. Our office has years of experience dedicated to business and estate planning and can help you determine if an LLC or other option may be best for you. Contact us today to schedule a consultation.