Asset protection planning may be described simply as the process of organizing one’s assets and affairs in advance so as to guard against loss by reason of some future fiscal calamity. The phrase “in advance” warrants strong emphasis for the client must be cautious and avoid the negative legal implications of planning to protect assets “after the fact”. There are many common law and statutory remedies available to creditors under fraudulant conveyance theories if one tries to protect assets after the deed is done.
The plaintiff’s bar has been marvelously creative in its practice over the last few decades in contriving and concocting new theories of liability in the malpractice, products liability, contract, securities and employer areas. Equally expansive have been the measure of damages (compensatory, punitive, and exemplary) for psychological, emotional, and other highly subjective injuries to plaintiffs. There is nothing wrong with liability insurance and, in fact, it is encouraged. But liability insurance has its monetary limits as well as exclusions in many situations.
The idea of guarding in advance against the potential of a future legal liability is not a new one. Lawyers know and understand the concept that “once you have been sued – you have lost”. Countless scenarios happen each day wherein a defendant is found not liable three years and tens of thousands of dollars in legal fees after the lawsuit has been filed. In the interim the defendant has had many sleepless nights and has suffered tremendously both in terms of anxiety and inconvenience. This writer has seen many business owners allow their business to go downhill during a lawsuit because of the energy required to successfully defend a lawsuit. His business and marriage have suffered in the interim – “but . . . he won!” It is clearly preferable to have either discouraged the suit in the first place or to have been in a position to encourage an early and inexpensive settlement.
Insulating one’s personal assets from the legal problems of an operating business or professional practice are generally well understood legal principles. Ohio statutes clearly protect the owners of corporations, limited liability partnerships, and limited liability companies by legislating that business owners are not personally liable for the debts of the business entity. There are exceptions to this rule which are not within the scope of this website. As an example, unpaid employee taxes which have been withheld by the business entity but not paid over to the Internal Revenue Service or to the State of Ohio can ultimately be the personal responsibility and liability of the owner of the business.
In addition to the garden variety protection offered by corporations, limited liability companies and limited partnerships, aggressive asset protection planning can be achieved through the use of family limited partnerships, various trust arrangements, retirement plans, annuities and life insurance. While originally conceived for the purpose of tax planning or wealth transfer, these vehicles offer the additional benefit of creditor protection.
In conclusion, creative asset protection planning has a mandate in the 21st century to protect the assets of a client. Multiple-entity planning is a common approach which dictates that wealth should be segregated and placed in isolated, sheltered compartments. Opportunities abound in domestic legal vehicles such as corporations, limited partnerships, limited liability companies, limited liability partnerships, trusts, retirement plans, spousal arrangements, and creative inheritance planning. The nature of a client’s assets and his or her sources of income dictate the choices as to the type of asset protection vehicles to be utilized.
As Cincinnati Tax Lawyers and Cincinnati IRS Lawyers we can help you with your asset protection entities. If you have questions regarding asset protection entities as IRS Tax Lawyers in Cincinnati we will assist you.