How Professionals and Business Owners Can Protect Their Assets From Creditors
Professionals and businesspeople typically have a large amount of assets that they are vulnerable to creditors. This exposure makes them easy targets. Fortunately, there are steps that professionals and business owners can take to protect themselves and their assets from incidental or creditor claims. Here are some of them:
Special Needs Trusts
A Special Needs Trust is a type of special account that provides additional control to a disabled beneficiary. The person creating the account must be financially sound and a trustee must be selected who is familiar with governmental regulations. Funding a Special Needs Trust can come from any source, including inheritances, insurance proceeds, settlements, and income. Some of the assets that can be placed in a Special Needs Trust include Social Security disability benefits and lump-sum payments from disability insurance.
IRAs
Although you can protect your IRA with a federal law, state laws can offer greater protection. In many states, IRAs are offered the same protection as other retirement plans under ERISA. In addition, some states extend this protection to other retirement plans. However, you should be aware of any limitations that your state laws might impose. If you have assets in a retirement account, you should carefully evaluate them and consider how they may affect your situation.
LLCs
Many people wonder if LLCs offer protection from creditors. Well, yes and no. While an LLC protects the individual owner from personal liability, the protection only applies to minor negligent actions and fraudulent misrepresentations. Southern California Probate Attorney A creditor who fails to make timely payments of payroll taxes can still be held personally liable for the debt. If this happens, your personal assets are at risk. Here’s an explanation of how an LLC can protect you from creditors.
Spendthrift trusts
A spendthrift trust is an asset-protection strategy in which the beneficiary of a trust holds the property free of the beneficiary’s control and cannot be reached by creditors. Credit card companies can’t attach their claims to the trust’s property until after they receive payments from the beneficiary. This protects the beneficiary from creditors’ claims, which can be devastating. The key to a spendthrift trust is to avoid the common mistakes that often result in debtors being unable to pay their bills.
Business interruption insurance
Business interruption insurance protects against creditors and will reimburse you for business expenses incurred due to a disaster or sudden loss of income. While it’s difficult to predict the exact amount of financial loss that may occur, business interruption insurance is essential to ensure that your business can keep operating in the event of an unexpected unforeseen event. For example, a COVID-19 outbreak may lead to curtailments or shutdowns in a business.