The more money you have, the more susceptible you become to lawsuits, putting your wealth at risk. Unfortunately, your business expertise will do you a little good, but having comprehensive asset protection can help preserve your possessions. Here are some ways to obtain it:
As the size of your portfolio increases, so does the number of potential lawsuits. They can come from various directions, such as family members, neighbors, and employees. Estate planning is the most effective strategy to protect your assets. This refers to the process of arranging your finances, allowing easy transfer to legal heirs or beneficiaries upon death. But this is not a project you can do by yourself. You need to consult an estate attorney who can help you develop efficient wealth-transfer plans. This can include:
- Writing a will. This serves as a road map that expresses how you wish your assets and possessions to be distributed among your dependents.
- Creating a trust. You can either create an Inter Vivos or Testamentary. The former is a trust created during your lifetime, while the latter follows after death. Since it involves state and federal laws, it’s advisable to seek assistance from an experienced lawyer.
- Finding insurance. At a minimum, you might need multiple insurances to protect various aspects of your life, such as home, health, and auto. They can serve as your first line of defense against possible lawsuits and increase your trust value.
Set up an entity
Having only a sole proprietorship is not ideal for people with high net worth. As an entrepreneur, you know this involves multiple tax planning. Setting up the right business entity, such as a corporation, prevents your assets from lawsuit exposures.
Maintain company records
While setting up an independent business entity is a good start, that alone cannot protect you from legal challenges. Maintaining all your corporate records, such as business checkbooks, bank accounts, and documents, is essential to counter any claims held against you.
How your property is titled can have significant impacts when a lawsuit occurs. One thing you can do is naming your property after your spouse. This prevents creditors from forcing you to sell your share because the entirety of the property isn’t yours in the first place. This protects your property, particularly in states that lack home exemption.
Separate your personal and business assets
Separate your personal and business finances for tax and personal liability purposes. You don’t want your personal assets to get involved when you encounter a problem with your business, do you? Also, this allows you to determine which revenue is non-taxable during the tax season. Start by having different bank accounts, separating your company receipts, and getting a credit card intended solely for your business. By doing so, you prevent your personal finances from getting tangled with that of your business.
Use homestead exemption
This offers land protection if you declare bankruptcy. But the coverage depends on your state law. Some provide unlimited home protection, while others have little, so be aware of the law in your area. If they do provide sufficient homestead exemption, consider adding extra funds to your principal amount. Otherwise, you might lose access to the equity if the value of your property falls.
Transfer your assets to an irrevocable trust
If the property no longer belongs to you, how can the creditors go after them? Transferring them to irrevocable trusts is a great idea. You can turn over as much as $13000 to each family member without accumulating gift tax liability. Creating an advance will on your inheritance is ideal for people who have high-risk professions such as medical experts and business executives. This minimizes frivolous lawsuits, and you also get to see your heirs enjoy their share.
What Are the Possible Threats?
Trademark Infringement. The copyrighted song or quotation you used in your advertisement can upset the original owner, causing them to file a lawsuit against you.
Employment discrimination. The salary discrepancies or partial privileges provided to employees can get you sued.
Malpractice cases. This is common in lawyers and medical professionals, but even a finance officer can be held liable for giving unsuitable investment advice.
Business-related vehicle accidents. If your company driver gets involved in an accident, the victim’s lawyer is more likely to sue you and not the member staff at fault.
Work-related injuries. When a customer gets injured within your vicinity due to a hole or slippery area, your business will certainly be sued.
Don’t wait until you get a lawsuit before you take action. Unfortunate circumstances occur, and the next call you get might be from a lawyer, so it’s essential to obtain asset protection as early as possible.