Thomas Goldman discusses the use of corporations and limited liability companies and how to decide which entity is right for you, including:
Transcript (edited for clarity)
Thank you for joining me today. I’m going to first introduce myself. My name is Tom Goldman and I’m a Florida attorney. I’ve been a member of the bar since 1995 but have spent most of my career, however, and did my Master’s at University in Nottingham in England before I moved down to the Nice area of France and practiced international law. Most of that work involved asset protection. I did that for 14 years in Monaco and returned to the States a few years ago. Since I came back to the States, I’ve been in the state of Florida, where I practice.
The title of this webinar is Corporate Entities and Asset Protection. The qualification there is for introductory considerations. The idea is I want to give you some basic intro but we’ll actually go into building structures at the end. The entities that we’re going to focus on are corporations and limited liability companies. That’s the foundation that we’re going to build today. Onto that, we’re going to add some vocabularies that you may or may not be familiar with that involve tax and personal liability. And then from there, we’re going to move into asset protection and actual structuring so you can see how it works.
The two most important issues that we’ll deal with today are liability protection and tax savings. The sole proprietorship, general partnership, and limited partnership has little to no liability protection. And the tax savings – there aren’t any built-in specific tax savings for them. However, limited liability companies and corporations have both. And we’ll get into the details as we go along.
Taking those one at a time, the sole proprietorship has the advantage of being set up quickly. It doesn’t require registration with your Secretary of State, and basically you operate in your own name. That, as well as an advantage of being quick and easy and inexpensive, is a disadvantage because you assume full personal responsibility for that and judgments that may be against you in a lawsuit.
General partnerships are set up not by the Secretary of State, but by a general partnership agreement. If you were interested in this entity, you would ask your attorney to prepare the partnership agreement and that would set out the rights between the partners or among the partners as to how the company will operate. They’re easy to form and inexpensive to form. It’s just a contract. They receive pass-through treatment on the taxation. Whatever the company makes, it’s actually reported directly on the partners’ tax returns, the individual tax returns. The disadvantage here isn’t the concept of personal liability, but joint and several personal liability. Joint liability means that everyone together is liable for all debt obligations and judgments. But worse than that is if you are an innocent partner and one of your other partners creates a debt or causes a problem that leads to a lawsuit, you are liable for that debt even if the other partner can’t pay it. Whoever has the money has to pay up in a lawsuit.
Limited partnerships are comprised of limited partners and general partners. The partners can be individuals or corporations or LLCs. They receive the same pass-through tax treatment we just talked about, so profit goes straight through to the partners according to their interest in the entity, and the limited partners have limited liability.
We’ll go into this concept in just a minute, but we’ve come now to our very first asset protection issue. And this is something that will come up several times. It’s very important so I’d like to go into some detail here. Charging orders are basically when a plaintiff files a lawsuit against you and wins, and the court enters a judgment against you, and then actually in the enforcement of that judgment says, “What we’re going to do is place a judgment lien against your interests in your partnership.” This is really, really bad in the sense that now some outside person has control over your interest to some extent, and most importantly for them, they have the right to receive distributions of profit that you would have taken. Where the charging order protection actually helps you is that, as a partner, you can decide not to take a distribution. If you don’t take the distribution, what you would have taken as a distribution is going to be reported on the K-1 of the creditor, the plaintiff. So that person is going to have to declare it on their taxes even though they didn’t receive it. They’re going to have to pay the taxes, even though they didn’t receive it, and you may not actually take a distribution of profit for years, which means every year they’re paying taxes on your profit that no one’s touching.
In effect, what this does is bring them to the negotiation table to settle. A lot of times you’ll see that they’ll settle for pennies on the dollar or just walk away because the legal fees are too high for a lawsuit. Charging Order Protection, very important, and we’ll come back to it later.
This is the liability issue in a limited partnership. Great disadvantage. The general partners? They manage the partnership. They are fully and personally liable. The limited partners, although they have the benefit of limited liability, have no management and control. A couple of negatives there that would really tend to support the idea of looking into a different type of entity. That’s not to say that these are not good. It’s just to say that they have negatives that some of the other entities don’t.
A limited liability company, or LLC, is perhaps the most flexible corporate entity that exists in the United States. Actually, United States LLCs are well known throughout the world because of their flexibility. They’re so flexible – this is an aside – that they’ve been used by people for criminal purposes. In relation to other companies, in jurisdictions, even offshore jurisdictions, they have been abused. And that has led to changes in the law that tighten up their use and their creation. Whereas before, they were a little bit loose. Now, in the United States, laws are a lot tighter to protect against money laundering. So anti-money laundering legislation has come in. This will be an important issue as we go forward into asset protection. But limited liability companies are flexible and they are legitimate, and they are known worldwide for their flexibility.
LLCs are either member-managed or manager-managed. The member is basically the equivalent to a shareholder in a corporation. In an LLC, you’re not a shareholder. You’re a member. And the distinction with a manager-managed LLC is the person actually running the company would be a manager, as opposed to one of its owners or members. They’re formed with the Secretary of State, so they’re actually registered. You need to keep in mind that there are different aspects of an LLC that change depending on the state that you incorporate. Some states are better than others so it’s important to know what you’re trying to achieve and where you want to carry on your business before you actually create your LLC. You can incorporate in one state and then actually have it operate in another.
This leads us to the definitions of domestic versus foreign LLCs. A lot of people think that “foreign” means that it’s from a foreign country. Actually, what it means is it’s a foreign state. If I create a Delaware LLC, it is a domestic company in the State of Delaware. But if I registered to do business where I live, which is in Florida, then it is a foreign company registered to do work in the state of Florida. Now, this can be an asset protection tool because it could be that in certain circumstances, Delaware law would protect me and my company better than Florida law would. Also, if I were to be sued, my company were to be sued, I could request the court apply Delaware law to the lawsuit as opposed to Florida law. These are legal questions and conversations you’d want to have with your attorney, but definitely worth looking into.
Flexibility. There are three basic types of tax treatment for an LLC. You can choose any of the three. The standard would be that profit passes through to the partners in accordance with the partnership interest. If you’re two people, 50/50, each receives 50% of the profit which is reported on the individual tax returns of two partners in the LLC. Alternatively, you could elect that the LLC be treated as an S corporation for tax treatment. It remains an LLC but, for taxes, it’s considered an S corporation. We’ll go into that a little bit later. The third option would be to have it taxed as a C corporation. It remains an LLC, but it’s taxation is like a C corporation. These are tax considerations that are beyond the scope of this discussion today, but definitely worth considering.
Advantages. The key here for us today is looking at asset protection and limiting your liability. The LLC is great at limiting your liability to whatever the value of that LLC is. If your company is to be sued and a judgment is entered for $1 million and the company is worth $1 million, they could conceivably take the assets of the LLC. But if the lawsuit were to be entered a judgment of $2 million and the assets are worth $1 million, the liability stops at the $1 million. So there’s a limitation. They’re not going to get that extra $1 million from you personally. You’re protected. And the legal fiction here of protection is called the corporate veil. The corporate veil separates you as an owner from the company itself, which is an independent legal person.
There are ways that a plaintiff is going to try and get through that to attack you personally, and that’s called piercing the corporate veil. There are three key ways they can do that. The first one is the alter ego doctrine. This is to say that the plaintiff would want to try to prove that in his lawsuit against the LLC and against its owners, that the owners are behaving in such a way that they cannot be separated from the identity of the company. They’ll want to show that you commingled the bank account – your bank account with the company bank account, that you commingled actual accounting of the company with your personal finances, that you use the bank account of the company to buy personal items like watches and vacations that had no business purpose. They can also look at signing agreements. If you have an LLC and you’re the president and you sign in your name, you’ve just signed basically to be personally liable for that contract. What you always want to do is sign your name plus your office or title. Owner, president, CEO, whatever it is, you want to make sure you put the title when you sign something on behalf of the company.
Number two is corporate formalities. This means governance. It is really important to keep your minute books, basically your corporate governance book, up to date. In an LLC, you’ll have an operating agreement and in a corporation that would be the equivalent of bylaws. If there are resolutions to make key decisions – Is the company going to hire somebody? Is it going to invest in buying a building? – you’d want a resolution of the members that decides that. You want to make sure you issued the certificates to show your percentage of ownership. They’re called units in an LLC, as opposed to shares in a corporation. And have an annual meeting. This is really important because it helps to show that you are not your company. It is a separate entity. And it helps you in the event of a lawsuit. I say all of this because a lot of people follow what the law says for an LLC, and most states say that LLC corporate governance doesn’t even matter. They don’t require you to do annual meetings or minutes or anything. I recommend against that because I think the more substance you can give to the company, the more you can separate it from you personally.
The third one would be fraud. If the plaintiffs can show that you committed fraud or your company committed fraud, that’s when the judge is going to say, “Okay, now we’re going for an individual to pay for this.”
The charging order is the next advantage, and we’ve already talked about that, but basically, just to remind you one more time, when you need to get a judgment against the company, you can get a lien on your interest in that company. Your defense, or your strategy, would be to opt not to distribute profit to yourself. That way, they have to declare it on their tax, they pay tax on it and eventually come to the table to negotiate.
The last advantage would be looking at how you actually set it up. Do you set up the LLC yourself as a single member or as a multi-member? I’ll just tell you now, multi-member is best. We’ll get into the reason why later.
These are not really bad disadvantages to an LLC, but they’re worth mentioning. If you want to go public with the company, you’re going to need to convert it to a C corporation. And this is possible. The document that you file to convert it over to a C corporation, not a C corporation for tax purposes, but a C corporation so it’s no longer an LCC. And then as a result, it will have corporate taxation. And then you lose the pass-through tax treatment, of course, when you become a C corporation.
C corporations: They are incorporated like an LLC through the secretary of state that you decided to operate in. They have the same corporate veil protection of the shareholders. So, if someone sues the company, there’s that veil of protection for the shareholders. They have the possibility to do upstreaming, which is carrying out business activities for other companies that you may set up and establish, and we’re going to look at how you can do that. And they can retain earnings for certain periods longer than an LCC can.
The key disadvantage of the C corporation is it’s subject to double taxation. In other words, when the corporation finishes its year and has a positive result, it’s going to pay tax on that profit. And then when the profit that’s left is distributed out as a dividend to the shareholders, they are each going to pay tax on what they receive so the same money is taxed twice.
S corporations, the key here is you don’t go to the state and form an S corporation. When we say S corporation, we’re talking about a tax status so it’s electing a tax status, and there’s an IRS form for this. Also, there is a time period during which you can do this after formation, so be sure to check that if you want to do it. An S corporation receives pass-through taxation, so profit will not be taxed at the corporate level. It’s going to be actually taxed like an LLC. And if we look at an example, $100,000 in net profit passes through directly to the individual and the K1. The distribution of any cash that may be remaining on the company will not be taxed on the individual level. There’s no double taxation on the S corporation.
Sole proprietors, general partners, and the general partner on the limited partnership have unlimited liability. Whereas in the C corporation, S corporation, and LLC, the owners, shareholders are not personally liable.
Now, this is the section where we’re going to actually see how asset protection works. Keep in mind that a corporation is a legal person. An LLC is a legal person. It can be sued. Because it can be sued, the people who are behind it are protected, so it limits their liability unless, again, there is piercing of the corporate veil. Then there can be personal liability of the shareholders or the members. To explain how this works and why you would want to make sure you pick the right jurisdiction for you, we’re going to compare California with Nevada. In California, the courts are going to look to how they can pierce the corporate veil. We’ve talked about some of that. They would look at failure to maintain the corporate formalities for governance. If you’re not following what the bylaws say, you’re not holding annual meetings, you don’t keep minutes or resolutions, you don’t elect officers according to how the bylaws say you actually elect, then the court can say, “Well, look, this corporation is not behaving as a corporation. Therefore, we’re going to pierce the corporate veil and go after shareholders.”
Another thing that California would look at is thin capitalization. If the capital contributions of the shareholders are too low with respect to the performance of the company, they may consider that it’s not set up properly and pierce the corporate veil. Failure to issue the stock or keep the register of the stock and who owns what is another means to attack and pierce the corporate veil. Business bankruptcy. If the business goes bankrupt and there’s still debt owed that could not be paid, it’s possible that they would come after the shareholders. And then, as we’ve already talked about, there’s the alter ego doctrine. California would look at any way that the person was actually acting as if they were the company so that the company was therefore equivalent to the person. In that case, the judge will go after the person, the shareholder, to satisfy the judgment.
Nevada is very different. Nevada, in my experience, offers the most protection for shareholders or for members of an LLC. There are really two ways to pierce the corporate veil in Nevada, but they’re both tied into number one which is fraud. As far as I’m aware, in the last 25 years, there has not been but one successful piercing of the corporate veil in Nevada against a Nevada corporation. And that was because the person set up the company with the purpose of carrying out fraud. They have a very strict alter ego test. They’re going to look at, “Did the alter ego shareholder influence the corporation?” Well, that should be easy to show. Plus, they have to show the unity of interest and ownership was such that the shareholder and the corporation were completely inseparable. In other words, it wasn’t behaving as a company, it was actually behaving as an individual. And, finally, adherence to the corporate fiction of a separate entity would really result in committing a fraud. So we’ve come back to step one. That is a lot act of protection. Nevada and a few other states have the charging order protection that we saw for the partnership and for LLCs. There’s a little bit of a trend going on in corporations to add this protection for shareholders, which is really good. Until recently, Nevada, I think, was the only state and I know Florida has now changed the corporation law to allow for some charging order protection.
Confidentiality is an issue. Some states require full disclosure of who the members of an LLC are or who the shareholders are, for example, for the setting up, or the creation, of the corporation. When you file with the state, those names are all published, and they’ll always be published on the register. The downside of this, of course, is if you want confidentiality, you’ve just lost it. And if you’re being sued, the plaintiff’s attorney is going to do a search on secretary of state site, find out who’s behind the company, and then serve process on all of those people, all the shareholders, and start looking into what assets they may have that they can attack. When it’s as confidential as possible, it may frustrate the plaintiff’s attorney’s attempt to find other people to sue and result in either the plaintiffs not suing or having less of a target.
There is no minimum capitalization requirement in Nevada, and the corporation can indemnify shareholders, directors, and officers. What this means is the corporation basically steps into your shoes. If the shareholder was to be sued, the corporation would step in and pay for whatever the shareholder owes. Now, I would say all states may actually allow for this, but only in limited circumstances whereas Nevada has pretty much a broad stroke that says no matter what happens, so long as it’s not fraud, the company can actually step into the shoes of the shareholders, directors, and officers and pay whatever debts they have.
If you’re interested in taking advantage of no corporate tax, Nevada would be an option for you but the issue, of course, would be in order to get that tax benefit you have to have a presence in Nevada: a headquarters, telephone, bank account, and an address, usually the registered address, but if there’s a substance issue you wouldn’t get to take advantage of that. So for many of you, it might not be practical to seek the tax benefit to being in Nevada. But even if you don’t have the tax benefits, you can still get limited liability and asset protection from Nevada. And I am not selling Nevada, just to be clear. I chose Nevada because it is so extreme in its protection that I wanted to compare that to jurisdictions that might be less protected, for example, California. But there are other good, good states. I’ve dealt a lot with Delaware and also Florida. Those are the two that I’ve probably dealt with the most over the past 15-20 years, and I’ve found them to be very good.
LCCs as a method of asset protection. This gets us to the subject we touched on earlier, and that is why would you do a multi-member as opposed to a single member, sole member, LCC? Well, the multi-member is usually best. You can do more with it in the sense that you can distribute the profit flexibly because there’s more than one person. So if it’s two spouses, one spouse may decide one year to take more out than the other. There may be a reason for doing so, for example, the charging order. Let’s imagine that there’s a charging order and the plaintiff has won a suit against your LLC and they want to attack, for example, “husband.” And they get a judgment lien issued against the husband’s interests. Well, “husband” would just decide that year, “I am not going to take a distribution of profit.” And “wife” may say, “Well, I am. I’m taking mine.” And the husband and wife can live off that distribution. That gets us back into the benefits of the charging order that we talked about earlier.
Largely, LLCs avoid the alter ego doctrine when they’re multi-members because there’s more than one person. When it’s a single-member LLC, it’s difficult at times to distinguish the sole member from the actual company. It’s possible, but it’s much easier to say they’re one and the same. There is no charging order protection under a single-member LLC.
Now, what happens in a lawsuit? If an LLC is sued, as we said earlier, the limit of exposure in the lawsuit is the value of the LLC. For example, if it owns a building, then it may be that, if you lose, you have to sell the building to pay off whatever the debt is. But if there’s some debt left over and you have to go above and beyond it, typically, the corporate veil is going to stop the suit at that point, and they will not be able to go through and ask the members to pay the difference unless they can pierce the corporate veil.
Alternatively, if you have assets in an LLC and you get sued personally, but not your LLC, whatever is in the LLC is not your personal assets, it’s company’s assets. If you were to be sued personally, you may lose what you have in your own name, but what’s in your LLC would continue to be yours.
Bankruptcy: In the state of Nevada, if a business has debt and ends up closing, the debt will not carry over to the shareholders or the members. Other states would say, “Oh, yes, it does. If the company can’t pay, then the shareholders and members have to pay.” Every state treats this differently, so you want to definitely check out what bankruptcy protection there would be in the state that you choose.
We’ve talked about confidentiality. Just to give you an example of the way this works in practice and in Nevada, the members’ names of an LLC are not published. If I were to enter a lawsuit against a Nevada corporation and I wanted to find out who was behind it, I could look at the secretary of state’s site and I would not see the names of the members. Or if it were a corporation, I wouldn’t see the shareholders’ names. However, Nevada requires that you show the names of directors and officers and these could be different from the members or the shareholders. Another interesting point that is true in a lot of states is the director, president, secretary, and treasurer can all be the same person. This gets us back to the key concept for LLCs. They’re so flexible.
How you sign on behalf of the company is important. You want to put the company name, “By,” and then your signature and then underneath print your name and your title as president, CEO, secretary, whatever your function is. By not putting the company name and by not putting your title, you are personally on the line for whatever that obligation is if it’s a contract or a debt that’s created.
This is how you do not want to structure your assets. If you create an LLC and you think, “Well, it’s much simpler if I just put all of my assets in it and then I get this protection, they can’t go after me because I have the corporate veil,” that’s true. But although they can’t go after you, the plaintiff can go after everything that the LLC owns. If you put your airplane, your boat, your house, your rental properties, your cars, everything in the LLC and someone gets in an accident when they go fishing on your boat with you, then they can sue the LLC and make all of the assets be put up for sale to pay off the debt. Instead, what you should do is separate things out. Put your private plane in an LLC. Put your boat in an LLC. You may even want to put a car in an LLC and your rental property in an LLC or your secondary residence. This is going to limit each LLC. Its liability will be capped at the value of its assets.
The next thing we’re going to go into are the techniques of structuring your company so that you can improve performance of your business and at the same time reap asset protection benefits. If we at, say, a Medical Office, the LLC or C Corporation. This is the entity that you have as your main business where there’s the most chance of you receiving a lawsuit. What you may want to do to protect that company is actually create a separate company and it’s going to be an asset holding LLC, and in that LLC, you’re going to put your valuable assets. This can be office furniture. It could be office equipment, anything that really has value that you don’t want to lose in a lawsuit. And then what you would do is set up a lease agreement so that the asset holding company leases the use of the equipment to the office and the office pays rent for its use. Cash is leaving the medical office and going into the asset holding LLC and the use of the equipment comes to the medical office without the threat of losing the expensive equipment in a lawsuit.
Loans can be used also. It may be that you find that you’re structuring requires some financing and rather than making a personal loan or shareholders’ loan into your office, you may want to set up a financing LLC. In this case, you would have a loan agreement between the two, and the main office would pay back capital and interest to the financing LLC. There may be tax benefits to this. In order to get into the depth of that discussion, you’d be best served speaking with your tax professional or with your accountant.
Something else you may want to look at is trademarks. Your company name may have an established reputation and therefore value. And you may want to protect it so that you don’t lose that. What you can do is put the registered trademark in a trademark-owning company that you create, and then create a license agreement so that your office uses the trademarks. This allows money to be paid out of the medical office or the law firm or the dental office, whatever your main activity is, and that money flows into the trademark owning company. And if the medical office or the main activity were to close down, those trademarks wouldn’t go with it. They wouldn’t be lost. They’re actually held by the other company.
Property. This is probably the one that I see the most often. If you own a building, it would be better to separate out the ownership of the building from the actual activity that you carry out because, by combining them, you put everything at risk. If you create a building-owning LLC, you can have title to the building in the LLC, and then put it in a lease agreement between the office and the building-owning company. The medical office gets use, and the building-owning company receives rent. In the event of a lawsuit against the office, you don’t lose the building. So, in theory, you’re everywhere. But you’ve removed a lot of the assets from the main office and put them into other entities that are less likely to be sued and are therefore better protected.
Now, one we haven’t talk about yet is the office management company. You may want to create a company, it could be an LLC or a corporation, that would offer management services to your main office activity, and it would receive management fees. Again, this is going to be a tax consideration that you’d want to see with your tax professional, your accountant, or your tax attorney in your state.
Trusts are another excellent means of providing two things, one is asset protection, and the other is estate planning and avoiding probate. The idea being that if assets are held by a trust, they’re no longer in your name, therefore they’re no longer in your estate. And when you die, your heirs or the beneficiaries of the trust receive without having to go through probate. Also, in certain circumstances, they create a lot of asset protection.
The three parties to a trust are, one, the settlor or the Grantor. This isn’t you. This is the person who creates the trust, who will contribute assets into the trust. The trust is not a registered entity like an LLC or corporation. It’s a private document called the trust deed. And that trust deed sets out how it will function, who it functions for the benefit of, and it’s managed by number two, the trustee or the trustees. They have fiduciary duty. They have to always act in the best interests of the named beneficiaries or the beneficiaries that can be determined at a later time. They don’t act in their best interest; they have to act in the best interests of the beneficiaries. The beneficiaries can include the Settlor, or you and your spouse.
So, the settlor creates the trust, and a trust deed would be drafted. That’s done by an attorney or trustee. Trustees will be named to manage the trust. They will act in the best interest of the beneficiaries. And, like I said, the settlor can also be a beneficiary. And the trust will own title to, for example, the LLCs that you set up or to your company. And then that company owns title to the assets, which could be a bank account or car or yacht or whatever you want to put in. So, the trust owns the shares, and those companies own the assets.
There are two basic types of trusts, and then we’ll look at subtypes. The first one would be domestic trusts, a trust that’s formed under U.S. laws. For example, a Nevada trust or a Delaware trust. The first subtype is a revocable trust. This is what you see a lot of, especially if you start thinking estate planning, you could do a revocable living trust. The revocable trust is going to allow you to pass assets on to your beneficiaries and have full control. What you have is the settlor is you, the trustee is you, and the beneficiary is you, spouse, and kid. That would be really common. The problem with that is, because you’re everywhere and because you can revoke it and take everything back, it’s not protected. There’s no asset protection value there.
Under an irrevocable trust, you can set it up, but you’re not the trustee. You may be a beneficiary, but you’ve effectively lost control. Since the title is in the trust and you can’t control it anymore, there is more asset protection, and you get the same estate planning tools, and you avoid probate. However, they’re not perfect, and there have been a lot of lawsuits where the plaintiffs succeeded in breaking the trust and actually going through and getting the trust assets. You shouldn’t do it thinking this is the perfect solution because they can be broken in certain cases.
The strongest would be setting up an offshore trust in a foreign jurisdiction. They’re irrevocable, and they provide the most asset protection, and they also provide the estate planning tools. But it’s more complicated, and there’s not time for us to go into that today. I just mentioned it to complete the thought. There is going to be the same kind of analysis of which jurisdiction you want to use according to what you want to accomplish and where you’re comfortable. Kind of like the way we looked at which state should you incorporate your LLC or your company or your corporation.
Asset protection doesn’t just mean how you are structuring things. It also means, what are you doing with your money and the assets on a daily basis. An easy way to have asset protection of your cash is on your bank account with your spouse. If you own or you set up, you title, your bank account as spouse plus spouse as joint tenants with rights of survivorship, you’re not getting asset protection because you’re seen as two different individuals, whereas husband and wife can title, in most states, as tenants by the entirety. What happens in this case is the legal fiction of unity occurs. They say that the spouses are actually one unit. If spouse number one is sued, loses, and owes money, and the plaintiff tries to get that bank account, if it’s titled tenants by the entirety, they can’t because the money is just as much the wife’s as it is the husband’s. Since she was not sued and there’s no judgment against her, not one dollar can be taken out of the account. The same would be true for investments. If your state allows tenants by the entirety as a way to title investments, you should look into that.
Homestead property. A lot of states have homestead, like in Florida. In Florida, it’s without limit. Whatever the value of the home is, the principal residence, if you’re sued, the judge cannot make you sell the home to satisfy the judgment. It’s protected.
If you want to make gifts to your children, those funds are no longer in your name. They’ve become your children’s property. They are also protected unless it can be proven by the plaintiff that the gift was made in order to avoid paying a debt that was owed to them.
The next one is IRAs, your retirement accounts. There are several different kinds. Most of those are going to receive full asset protection. You might want to look into that.
Life insurance. In the state of Florida, life insurance, annuities, pre-paid college plans are all protected. In a lawsuit, you will not lose them. On a federal level, social security income and disability payments are also protected from lawsuit.
Another way you can protect yourself is having full professional liability insurance. A lot of people actually don’t do this. They don’t have employees, directors, and officers insurance. And then, Errors and Omissions Insurance. For lawyers, for dentists, for doctors, this is malpractice insurance. While most people would probably have the malpractice insurance, they may actually forget to put in place Directors and Officers Insurance. I would encourage you to have a conversation with your insurance agent and make sure you’ve got these both in place.
Business liability is going to protect you for damages or injuries caused on the property. Umbrella insurance is bodily or personal injury, property damage, landlord liability in relation to auto and homeowner’s insurance. When your auto insurance policy has hit its limit, the umbrella can come in and provide you more cover. Those are typically very inexpensive, considering the amount of money that they can provide to protect you. Worth looking into.
Now, this is my disclaimer, and it’s really important. Although I’m an attorney, I don’t have an attorney-client relationship with you individually. So what I would encourage you to do is take this information and show it to your CPA, show it to your tax attorney, show it to your estate planning attorney, and have the conversations to see what you can do to improve your protection or restructure your company. Every single state is different. It’s going to be important that you get their advice for how you would be affected in your state.
I appreciate the opportunity to speak with you and look forward perhaps to the chance of meeting you sometime in the future.
To learn more about TSP Family Office and the services we offer, call us at (772) 257-7888.