When you form an LLC there are many benefits including tax flexibility, low cost and simple requirements compared to a corporation. If you are currently operating as a sole proprietor, you can form a single member LLC and get access to more privacy.
However, probably the biggest benefit of forming an LLC is the limited liability protection. This offers separation between your business and personal assets meaning personal creditors can’t come after your business assets and business creditors can’t come after your personal assets. In order to maintain LLC asset protection, you need to meet LLC requirements such as filing your annual report. It’s also a good idea to follow best practices such as having a well drafted, signed operating agreement. There are structures beside LLCs that can protect your assets as well, such as trusts. In this article, we will go into more detail about your options.
Assets are resources with economic value that individuals or a corporation own or controls. There is an expectation that assets will provide a future benefit. Assets can include fixed, short-term, and intangible assets. Financial investments are also considered assets. Examples of assets may include the following:
Asset protection is part of financial planning meant to protect your assets from legal claims filed against you. This can include litigants filing lawsuits and creditors. Creditors can come after your bank accounts, properties, businesses, personal residence, investment accounts and properties. The ultimate aim of asset protection is to maintain your estate and allow you to pass it on to your desired beneficiaries or heirs. This will preserve your wealth and assets even after your passing.
There are many ways you may lose your assets. There are some more obvious ways of losing your assets but some more subtle ways that may need the aid of your lawyer to delineate and plan for. Below are some examples of ways individuals may lose their hard-earned assets.
Divorce: One of the most common ways to lose your assets is by obtaining a divorce. If no agreement states how you will divide your assets in a divorce, then your assets may be especially at risk. This can also occur when you pass to one of your beneficiaries if they also undergo a divorce. For instance, if proper safeguards were not placed earlier, a property you provide to one of your beneficiaries may be split in half and given to their ex-spouse during a divorce.
If you are at risk of many malpractice lawsuits, maybe because of your work, it is important to have some asset protection. Small business owners should also strongly consider protecting their assets against bankruptcy. Insurance is often not enough as it only covers part of what you will lose.
Beneficiaries may put your assets at risk either by overspending or through no fault of their own. Creditors or predators may seek out their inheritance for whatever reason. The good news is that by taking the initiative and just a little more effort in estate planning, you can protect your assets even after you pass, which goes to your beneficiaries.
Any person that owes significant amounts of money to creditors put their assets at risk if strategic action is not taken in advance. Asset planning is very important in risk management, and you can avoid losing your hard earned belongings through just some careful planning.
There are many potential benefits from asset protection trusts. These include those that are listed below.
Outside of the legal protections afforded to you by the state, you should highly consider taking additional action to protect assets, especially those not covered by Utah law.
A trust is a major way to protect your assets. It is an agreement between the creator and trustee. The trustee manages the assets included in the trust on behalf of a third party you have selected who directly benefits from it, your beneficiaries.
A popular way to protect your assets in Utah is to form an irrevocable trust. This trust cannot be changed or removed. When you establish this trust, you agree to let go of your control over this financial property. The control is given to a trustee who is legally responsible for managing the trust. If a creditor files a lawsuit against you, the asset is no longer considered yours and will be protected from them. An irrevocable trust is different from a revocable trust in that it can’t be changed without a court order or the approval of all the beneficiaries of the trust.
Another trust you can utilize to protect your assets from creditors is the foreign asset protection trust. This trust is also referred to as an offshore trust. It is established in a different country and has some pros and cons. It provides excellent protection over the assets included. The assets are governed by the laws of the territory it is located. This protects the trust from any U.S. court-ordered seizures. The downside is that you will need to familiarize yourself with the foreign territories' laws and regulations. It may also take more time and be more expensive to make initially. If the territory undergoes any economic or political trouble, your assets in the trust may be at risk as well.
Utah asset protection trust laws allow funding a trust with any type of assets you want to include. As long as you name a co-trustee to make distribution decisions, you are able to maintain control over the investment of the trust assets and you can yourself, your spouse, and family members as beneficiaries to receive your assets in the future. Utah’s asset protection laws do not prevent you from putting down a close friend, family member, or advisor as a co-trustee. To ensure this trust protects your assets effectively against creditors, the trust needs to have one Utah trustee, hold some Utah assets, and you will need to sign an affidavit that declares that you have more assets than liabilities after you set up the trust. The trust must be irrevocable, typically a kind of trust that cannot be changed or canceled after being created, to protect you from creditors. However, you can build flexibility into the trust so that you may remove and replace trustees and change the distribution of your assets upon your death. When you move your assets into your Utah domestic asset protection trust, future creditors can no longer claim them. Prior creditors are limited to bringing up fraudulent conveyance claims within two years after the property was transferred to your trust or one year after the creditor could have discovered the transfer. You can reduce this period to only 120 days by sending a notice to current creditors and publishing a notice to any unknown creditors.
The standard living trust does not protect your assets. It can help manage your property during your lifetime, avoid probate, and transfer property at your death. Unfortunately, creditors can have full access to your standard living trust. You can utilize the Utah Domestic Asset Protection trust to protect your assets instead.
Asset protection can be a complex field to navigate with evolving laws and regulations. In particular, the laws for Utah asset protection can be rather complex. Hiring an expert can help ensure that your financial protection strategy is satisfactory and preserve your wealth through retirement and legacy.