ASSET PROTECTION STRATEGIES FOR BUSINESS PROFESSIONALS
Professionals providing services to others are at risk for liability claims. It is important to engage in asset protection strategies to protect wealth and minimize potential liability. Asset protection strategies include:
Gifting strategies are powerful wealth transfer tools. Gifts may be effectuated via (a) an outright gift of an asset, (b) use of an irrevocable trust for the benefit of others, (c) establishing a family limited partnership, or by creating an (d) irrevocable life insurance trust.
Domestic Asset Protection Trust
Under a fundamental Domestic Asset Protection Trust, a person may transfer assets to a trust while retaining the right to receive distributions from the trust. In comparison to gifting, the settlor continues to receive wealth from his assets.
Pre-Marital Asset Protection Planning
Preparing a prenuptial agreement will assist in sheltering assets during a divorce as well as against claims against the married couple.
Tenants by the Entirety Property
Instead of titling assets jointly, assets may be titled tenancy by the entirety. This property designation is recognized in New Jersey, however it only applies to married couples. It is difficult for creditors of only one spouse to reach assets held as tenancy by the entirety to satisfy claims.
Qualified Retirement Plans and IRAs
Qualified retirement plans and certain IRAs are protected from creditor claims to a certain extent. Maximizing contributions to these investment vehicles will enable a person to growth wealth and minimize claims from potential creditors.
Choice of Business Entity
Generally, forming a business entity for a professional services practice will not eradicate a professional’s personal liability from a malpractice claim related to his or her work, however, it will help shield the professional’s personal assets from claims arising from the workplace. Selecting the proper business entity is also important for business succession planning.
Segregation of Business and Investment Assets
It is not uncommon for professionals to own other business assets such as real estate, investments, equipment, collectibles, or land. It is important to consider shielding these assets in separate business entities and leasing these assets back to the operating entity. For instance, a physician may own an office building from which he operates his practice. This physician could create one entity as the operating entity for his practice. A separate entity could own the building from which the practice operates. The physician would remit rental payments to the entity that owns the building.
In addition to having business insurance, professionals should ensure that their home and auto insurance coverage is sufficient to protect against claims. An umbrella policy will cover gaps in other policies or policies in which the claims exceed the policy limits.