Asset protection is an important consideration for small business people, investors, and others. You should take the right steps to protect the resources for your own purposes, and you will also preserve your legacy for the benefit of your loved ones.

Let’s look at some of the different ways that you can keep your resources out of harm’s way.

Small Business Asset Protection

If you conduct business on your own as a sole proprietor, you are taking a risk. Your personal property would be in play if a business-related lawsuit is filed against you, and there is no reason to take this risk.

One widely used asset protection entity is the limited liability company (LLC). When you establish a limited liability company, generally speaking, your personal assets would be protected if the LLC is sued.

There is an exception if you are personally responsible for damages that are inflicted on someone else while you are on the job. The asset protection works both ways, so for the most part, the LLC would be protected if you are the target of a lawsuit.

We use the term “for the most part” because the court can order the LLC to divert the owner’s compensation to the damaged party. And in rare cases, the court can order the dissolution of an LLC.

You should understand the fact that you cannot use an LLC to protect property after you already know that you are the target of a legal action. This would be a fraudulent conveyance, and the attempt would fail.

A family limited partnership (FLP) is another commonly used asset protection structure that can be the right choice for some people. If you create a family partnership, you would be the general partner, and members of your family that you designate would be limited partners.

The general partner has absolute decision-making authority, so an FLP is not a democracy. If a lawsuit is filed against the family limited partnership, separate property that is owned by the individual partners would be protected.

Once again, the asset protection flows in both directions, so the property that is held by a partnership would be protected if a partner is sued. In addition to the asset security benefits, these entities are also used by high-net-worth families to gain estate tax efficiency.

Self-Settled Asset Protection Trust

A self-settled asset protection trust is a legal device that is alternately referred to as a domestic asset protection trust. You can use this type of trust to protect assets from future creditors.

They are not recognized in the state of New York where we practice, but you can potentially establish this type of trust in a state that allows them. Nevada and Delaware are two of the states that recognize self-settled asset protection trusts.

Nursing Home Asset Protection

The term “asset protection” usually conjures images of lawsuits, but there is another utilization that you should definitely recognize. Most senior citizens will need long-term care at some point in time, and more than one third of seniors will reside in nursing homes.

You can expect to pay somewhere in the vicinity of $175,000 or more for a year in a nursing home in the Rochester area, so we are talking about a significant amount of money. Medicare does not cover a stay in a nursing facility, and it does not pay for in-home care.

Medicaid will cover these costs, so it is the widely embraced nursing home asset protection solution. Though it is a need-based program, if you take the right steps in advance, you can create a financial profile that will lead to Medicaid eligibility.

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