When you are starting a small business, you have some decisions to make. One of the most important ones will be the business structure that you choose to utilize. Asset protection should be a priority, and we will explain two possible solutions in this post.
Family Limited Partnership
A family limited partnership (FLP) can be a good choice for some people. If you establish a family limited partnership, you would be the general partner. You would add members of your family as limited partners, and as the general partner, you would have sole decision-making authority.
The best way to explain the value of a family limited partnership is through the utilization of a hypothetical example. Let’s say that you own two shopping centers and an apartment building. Clearly, there is always the possibility that someone will be injured on your property, and this can result in legal actions.
To protect your assets, you could convey each of the investment properties into a separate family limited partnership. If someone was to file a lawsuit after being injured in one of the shopping centers, the other two properties would be protected.
Plus, all of the personal property of the partners would also be out of the reach of litigants seeking redress. You could take a further protective step by leveraging the property so that there is very little equity that could be attached.
The asset protection works in the opposite direction as well. If any member of the partnership is personally sued, the property that is held by the partnership would be protected.
In addition to the asset protection, people that are exposed to the estate tax can use family limited partnerships to facilitate transfers among one another at a tax discount.
Limited Liability Company
The other asset protection structure that we will look at here is the limited liability company (LLC). When your business is designated as a limited liability company, you would not be personally responsible for the debts that are incurred by the business. In most cases, the property would be protected from legal actions.
Once again, on the other side of the coin, your business would be protected if you are personally sued for some reason. Another benefit is the pass-through taxation that you enjoy when you have a limited liability company. The asset protection is there, but your accounting is simplified, because you can claim profits and losses on your personal income tax returns.
Download Our Estate Planning Worksheet
Our firm has prepared a very useful worksheet that you can utilize to gain a more thorough understanding of the estate planning process. We get a lot of positive feedback from people that have used this resource, so we urge you to take advantage of it.
This worksheet is being offered free of charge, so you have everything to gain and nothing to lose. To get your copy, visit our worksheet access page and follow the simple instructions.
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If you have already come to the conclusion that you are ready to discuss your estate planning goals with a licensed attorney, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 585-374-5210.