There are several business asset-protection strategies that owners should consider implementing to help ensure that their business will remain a valuable asset for their heirs. These include creating separate entities, stripping the company of equity, or distributing accumulated earnings to the owners. But, the time to implement asset-protection strategies is well before the company runs into trouble with creditors’ claims. Otherwise one could run afoul of fraudulent conveyance laws.
Are you protecting your business interests?
If you’re a business owner, your company likely is the biggest asset you own, and you know you must account for it in your estate plan. But did you know that there are several business asset-protection strategies you should consider implementing to help ensure that your business will remain a valuable asset for your heirs?
Building an asset barrier
Most asset-protection strategies for businesses involve putting up walls between a company and its assets. One way to do this is to divide the business into separate entities. For example, you may want to form separate entities to conduct any business activities that are riskier than others. Doing so allows you to limit the liability risk associated with them. Provided the entities are structured and operated properly, you can prevent creditors from going after assets owned by other entities within the group, even if they have common ownership.
Another way to protect valuable business assets is to sell them to another entity created by the company’s owners and then lease them back. If done right, these assets no longer belong to your company, so they’re beyond the reach of the company’s creditors.
You also can strip the company of equity, leaving less wealth exposed to creditor claims. Equity stripping involves pledging company assets as collateral for a loan. The company then lends the funds to its owners, who protect the loan proceeds with their own personal asset-protection arrangements.
Still another option is to distribute accumulated earnings to the owners. So long as the business retains a reasonable amount of working capital, this strategy allows you to shield excess funds against the business’s creditors. (This assumes that the business is conducted within an entity that allows your personal assets to be protected from the business’s liabilities.)
Finally, it’s important to ensure that the company is left with sufficient funds to meet its future operating needs. If a court finds that the company is grossly undercapitalized, these walls may quickly tumble down.
Take the right steps
Owning a business is a huge responsibility, and you want your children to benefit from your hard work after you’re gone. Thus, it’s important to implement business asset-protection strategies. These strategies can be complex so don’t try this on your own.
Beware of fraudulent conveyance laws
Sometimes timing is everything. And the time to implement asset-protection strategies is well before your company runs into trouble with creditors’ claims. Otherwise you could run afoul of fraudulent conveyance laws.
Although specifics vary from state to state, these laws are intended to prevent you from transferring property with the intent to hinder, delay or defraud present or future creditors. The reference to “future creditors” doesn’t mean that fraudulent conveyance laws protect anyone that could potentially become your creditor some day. But if someone has threatened a claim or if you have reason to believe that a legal problem may arise in the future, the fraudulent conveyance laws may pose an obstacle to asset protection planning.
Contact our office at 817.462.5454 for an appointment to discuss your situation.
800 N. Industrial Blvd., Suite 106
Euless, TX 76039
While my address is Industrial Blvd, we are actually on Clinic Drive. Look for the tall red Super Value Pharmacy sign. Whether coming from the North or the South, you will turn off of Industrial Blvd. onto Clinic Dr. Our building is located up the hill just past the Super Value Pharmacy at the far end of the building.
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