Is Your Business Protected From Liability Risks?
Monica Edwards, attorney
Businesses and their owners are subject to liability exposure from numerous areas. The potential risks are many; and large judgments are awarded daily (e.g.; employee negligence, injury of a 3rd party or employee on your premises, wrongful termination of employee, age or race discrimination lawsuits, sexual harassment, defective products); not to mention large settlement payments business owners are forced to make just to make a lawsuit go away.
Statistics show that a person in business will be sued at least once during his or her career; the possibility of a disastrous judgment is a reality. Since we have no control of whether or not we are ever sued, failing to plan for that possibility can result in the loss of a lifetime’s accumulated wealth.
Defendants in a lawsuit are at an extreme psychological disadvantage. As the accused, the legal system can be brought against you to vindicate the broad and ever expanding rights of the plaintiff.
So, what can you do to protect yourself?
Think about a sound asset protection plan that makes your assets unattractive to potential creditors. This is only effective; however, if you implement the plan before the liability occurs. In other words, the time to protect yourself is now, before claims arise that bar you from making property transfers that may be considered fraudulent.
Protecting your assets generally entails transferring them to an entity (e.g., Family Limited Partnership, Limited Liability Company, Irrevocable Trust) you create. How much protection you will enjoy depends a large part on your choice of entity or entities, and how these entities are structured and maintained. Often, however, good plans are easy to implement and relatively inexpensive.
Remember, however, that protecting your assets should never be based on:
a. Hiding your assets. A properly devised plan will not rely on secrecy to be successful.
b. An excuse to defraud creditors. In fact, a very strong asset-protection plan must be built before there is an existing creditor problem. Once the liability arises, generally, little can be done from an asset-protection perspective. Therefore, effective asset protection should be done before the problem arises.
c. An excuse for evading taxes. A properly designed asset-protection plan is tax-neutral and will have no particular income, gift, excise or estate tax disadvantages.
The business entity of choice for protecting accumulated wealth is usually the Limited Liability Company (LLC). But depending on your circumstances, other entities, including certain kinds of trusts and limited partnerships may be more effective. By using the appropriate vehicles, assets that would otherwise be attractive to a creditor are rendered unattractive.
It’s clear that we live in a litigious society; it’s generally no longer a question of IF you’ll be sued, but rather, a question of WHEN. Will you be protected?
Speak to us today about our “Asset-Protection Blueprint Service” where we will analyze your particular situation (what you have, what you don’t have) and make recommendations based on your special circumstances. You’ll be surprised at how affordable peace of mind can be. Call 480-733-6800 and asked to be referred to Monica Edwards today.