Asset Protection Tips
Yorkville and Oswego Wealth Accumulation and Management Lawyer
Tip 1: Plan Ahead of Time
Procrastination is a major threat to properly protecting your assets. Asset protection is legal and proper, as long as your asset protection planning begins before a claim arises. A fraudulent transfer is a transfer of assets that is designed to hinder, delay, or defraud a claim. Fraud is often alleged when a person or entity attempts to protect assets only after a lawsuit or claim has arisen.
Tip 2: Husband and Wife Should Not Own the Same Business
Family-owned businesses can be successful business enterprises, and they represent the majority of small businesses in the Naperville area. When a husband and wife own the same business together, however, there are two liability targets instead of one. Joint ownership may also create complications in the event of a divorce. In Illinois, creating a Limited Liability Corporation (LLC) costs only $150 and can provide protection for both spouses. Unlike an S-corporation, a husband and wife can work together under an LLC, with one person as a manager of the LLC and the other owning the membership interests.
Tip 3: Make Sure You Are Adequately Insured
Liability insurance and a comprehensive umbrella policy are recommended for most situations. You should consult your insurance agent to discuss your insurance options. An umbrella policy is an insurance policy that provides coverage beyond the limits of your basic insurance policies. An umbrella policy also protects you against bodily injury and property damage claims, as well as other things that may not be covered by an automobile or homeowners’ policy.
Tip 4: Your Closest Family or Key Employees Are Your Greatest Liability Threat
A divorce or custody case or an employment lawsuit by a key employee are your greatest liability threats. Those people closest to you typically understand your net worth, as well as your strengths, weaknesses, and vulnerabilities. Preventive planning is necessary to properly protect yourself and your business from such threats. An outside and objective advisor can assist you in identifying and addressing potential concerns.
Tip 5: Place Your Vacation Home or Investment Real Estate Into an LLC
Often, we talk with couples and individuals who own vacation homes or real estate investments that are in their personal names or their joint names. Joint tenancy with right of survivorship is a poor structure to protect one against a creditor claim or liability. Joint tenancy is where two or more people own real estate together that is not their primary residence. For example, a husband and wife who own a vacation property in both of their names is an example of joint tenancy. One of the joint owners of property can cause liability concerns for the mutually owned real estate. If, for instance, the husband in the example above has a business dispute, a creditor may threaten to place a lien and foreclose against the jointly owned property. Unlike tenancy by entirety, a creditor can foreclose on real estate when one of the joint tenants has a creditor or liability concern.
Tip 6: Business Partners Should Not Own Their Business Interests in Their Personal Name
Years ago, I had a client who had a business dispute with his partners and got a judgment in the amount of $1.5 million. Unfortunately, settlement was not a possibility, because the interest alone on the judgment was too much. Most business partners set up an LLC or Corporation and own their individual membership or shares in their personal names, potentially leaving their interests subject to creditor or liability claims. See Tip #4: Your greatest liability concerns are those closest to you, such as business partners. Set up your business interests in an LLC or separate corporation to limit your personal exposure.
Tip 7: Professionals Should Not Rely on an LLC or Corporation to Protect Their Personal Assets
Limited liability and corporate protection do not apply to malpractice and professional negligence claims. Professionals such as physicians, lawyers, and architects are personally liable for professional negligence matters. Asset protection plans and strategies are critical in protecting yourself and your assets.
Tip 8: Invest More of Your Wealth into Retirement Accounts
In Illinois, retirement accounts such as IRAs and 401(k)s enjoy liability protection created by federal and state law. Assets in such accounts are also protected against creditor concerns. Federal law provides asset protection for pensions and retirement accounts up to $1.095 million dollars. A recent U.S. Supreme Court case ruled that inherited retirement accounts may be seized during a bankruptcy, so it is important to take steps to protect your assets.
Tip 9: Plan Against Incapacity by Setting Up Powers of Attorney
A Power of Attorney for Property is a document in which a person appoints an attorney-in-fact to make decisions on the person’s behalf. The Short Durable Power of Attorney form may be used in the State of Illinois. A Power of Attorney for Healthcare or advance healthcare directive appoints a person to make important healthcare decisions for them in case they cannot make these decisions.
Tip 10: Set Up a Private Land Trust for Real Estate Ownership if You Have Substantial Equity in Real Estate
A Private Land Trust is a form of real estate ownership in the State of Illinois that can be used to protect your real estate interests against creditor and liability concerns, including liens being placed against your house. Again, advance planning is critical, because otherwise, the title company may not provide title insurance due to a fraudulent transfer. A Private Land Trust has two components: legal ownership and the beneficial interest. Legal ownership is generally in the land trust company. Beneficial interests are the person or persons that enjoy the benefit of real estate ownership. A beneficial interest holder is similar to the way many own their real estate property now. As an owner, you can inform the trustee of your land trust that you want to refinance your property or sell your property, among other things.
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We are a knowledgeable asset protection and wealth preservation lawyer with more than 15 years of experience. To learn more about our firm, contact our Yorkville, IL office. Call 630-780-1034 for a free consultation today.