How Can an LLC Help in Asset Protection Planning?

An LLC by itself can be great in asset protection planning because a charging order the sole remedy under an LLC in Tennessee is called the charging order. If you have various creditors suing you for maybe a car accident or some other sort of liability. When you have an LLC they usually cannot attach the assets titled in the name of the LLC. If you are only a member of the LLC, like a shareholder, they could try to file a suit and become what we call an assignee, meaning that they have a right to the distributions that you make under the LLC. However, if you do not make any distributions, then the creditor will not receive any money. You can take the net profit as a management fee or reinvest it into the business even if the assignee does not receive any money, they could still be liable for the tax obligations.

If a lawsuit arises from a slip and fall accident or a death trap on land or rental property that you have and you’ve placed that toxic asset inside of that LLC, what you’ve done is essentially bubble wrapped that property and that liability. Now they can file a lawsuit against the LLC and potentially make a claim against the assets. All of your other personal assets that are in your other LLCs or in your personal name are protected from that creditor. When we couple the LLC with a Domestic Asset Protection Trust, we are just building an added layer to keep the creditors from being able to touch your assets.

Is Asset Protection Still Effective When a Business is Threatened With Litigation?

If a lawsuit has been filed, if you do nothing, you know the result. You know that if they win at trial or see all your assets, they are going to pursue as hard and as fast as they can. There is really no harm in doing the asset protection planning even if it gets unwound at the end of the day. You’ve created more leverage and you are essentially conveying to the other side that it’s going to be difficult to attach these assets. Maybe they can go to court, maybe they can get these transactions set aside, but it’s going to cost them tens of thousands of dollars in attorney’s fees to be able to do that and may dissuade them because it will be a waste of time. Even doing asset protection after the fact is better than not doing it at all because if you do nothing then you are totally at risk. It’s better to give yourself a fighting chance to protect your assets and put yourself in a better position leverage wise to be able to settle the lawsuit for as little as possible.

What General Steps Should Someone Take When They Want to Start Protecting Their Assets?

First of all, when a client calls in with asset protection concern we schedule an appointment and send them an estate planning questionnaire to complete. In the initial consultation we discuss their asset protection concern. If I am recommending, let’s say, a domestic asset protection trust, they need to provide all bank statements and asset information. We need to know who they want as their Tennessee trustee. They need to consider whether they are going to be the manager of the LLC or defer to a third party to provide an added layer of asset protection. They need to consider ongoing fees for an LLC. There is the initial filing fees, annual reports to be filed with the State of Tennessee. If they are out of state and they are trying to create a Tennessee Asset Protection Trust, they need to consider a third party trustee, such as a trust company like Cumberland Trust or others. Then I would usually file the articles or formation for the LLC, and prepare other corporate documents like membership certificates, formation resolutions, and an operating agreement. I then finalize the trust and bring the client in. We review the business documents and the trust agreement. We also have the trustee come in and execute all the documents. I then work with the client and their trustee to fund the trust or the LLC, which may include retitling of real property, opening new accounts, and getting a tax ID number. Once all that’s done, the plan is mostly in place until some sort of liability issue arises.

What Are Some Tips You Would Give to Someone Looking to Start Asset Protection With an Attorney?

Someone looking to start asset protection with an attorney should not wait; that’s the big issue. If there is a concern that is keeping you up at night, do the planning. The longer you wait then the more likely that you are going to take away your ability to do proper planning and to protect yourself. Act now, get informed, and put the plan in place.

For more information on Role Of LLC In Asset Protection, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (615) 628-7775 today.

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