A limited liability company (LLC) is a relatively new type of business entity that was first authorized in the U.S. in the 1970’s. It is considered a sort of hybrid, with the limited liability of a corporation and the pass-through taxation of a partnership or sole proprietorship. As a business structure, it has many advantages:
- Fewer ongoing legal formalities than a corporation
- Flexibility in management
- No double taxation (profits and losses are taxed solely to the members on their individual tax returns)
As it relates to asset protection, the most important aspect of the LLC is right there in the name: limited liability. As a LLC owner, your personal assets are protected from claims against the LLC itself.
Using the LLC for asset protection
For asset protection, the LLC is ideal for storing many types of assets, particularly those that carry a high degree of risk, like real estate. A rental property, for example, can open you up to personal injury claims, tenant disputes, or a foreclosure crisis. Transferring ownership to a LLC is a good first line of defense. Here’s why:
- First, let’s say you own the rental property in your own name. A tenant trips, falls down the stairs, and sues you. If there is a judgment against you, the tenant can go after your personal assets (not just the rental property) to satisfy the judgment.
- Now let’s say that instead of titling the property in your own name, you formed a LLC and transferred title there. The tenant sues the LLC and can only recover against the assets of the LLC, not your personal assets.
In the above example, if the LLC owned other property, those assets would also be at risk. For this reason, depending on the value of the property, you may need to form a LLC for each property.
In which state should I form the LLC?
Different states have different laws. Which state you choose will depend on your situation and your goals. One consideration is the remedies that are available to the creditor.
In many states, a “charging order” is the only remedy available to a creditor against the LLC. A charging order obligates the manager of the LLC to make distributions directly to the creditor. However, if no distribution is made for several years, the creditor must sit and wait. For this reason, states with charging orders as the sole remedy (such as Arizona and Delaware) are popular states in which to form LLC’s for their deterrent effect.
The LLC has many advantages, both for business purposes as well as asset protection. However, while it is a strong tool, it is only one piece of the puzzle, and must be used in conjunction with other tools to maximize your asset protection.
Sollertis can help with asset protection
The Sollertis Master Asset Protection Plan™ is the framework for protecting all of the individual assets that contribute to financial success. Based on an analysis of your needs, each plan is a customized blueprint outlining the types and mix of legal structures needed to best meet your specific goals and objectives.
Once a MAPP™ is designed, you have a plan in place to protect your assets and to guide business, personal and investment decisions. Unlike traditional asset protection plans that take a “one-size-fits-all” approach, a MAPP™ adapts to changing circumstances. Whether implemented all at once or over time, you will create greater financial freedom knowing you’ve legally protected the wealth you have earned.
Contact us today to learn more about the Sollertis MAPP™ and our unique approach to managing all of your legal needs.
This material has been prepared by Sollertis for informational purposes only and nothing herein is intended as legal advice for any particular or individual situation. You should not rely upon any information herein as a source of legal advice, and receipt of any such information does not create an attorney-client relationship between you and Sollertis. Viewers and readers should not act upon this information without seeking professional legal counsel. Prior results do not guarantee a similar outcome.
