Asset Protection for the Entrepreneur
To us entrepreneurs, our businesses are our babies. We do everything we need to do to ensure our baby arrives safely and has a healthy existence. In many cases, however, we get so wrapped up in coddling the baby that we forget to take care of our own future.
Take asset-protection planning, for example. It should be a critical part of any entrepreneur’s plans for a safe and structured existence. Yet many mistakenly believe that if they have a corporation, Plc., ltd. or llC, they are shielded from trouble. No matter the business type, entrepreneurs can always find themselves and their assets in jeopardy. Here are a few lessons I’ve learned that shed some light on asset protection:
Address the personal and business sides when choosing asset- protection plans. I recently had a client ask me to restructure his uS$30 million worth of commercial real estate holdings. Each property was individually held in an US-based llC. Through our research, we found several issues. For example, the operating agreements offered no protection, and each llC was owned by an S-corporation operating company. The problem here is that if he is sued for any personal reason, the entire portfolio is at risk, because his S-corporation shares can be attached in a judgment. And since the S-corporation owned the llCs, his entire portfolio was in trouble. By moving the property llCs under a master llC holding company, we segregated the assets away from the operating company, creating a veil of privacy with the additional layer of the holding company.
Obtain proper advice on how to structure your asset holdings. A properly structured asset-protection plan addresses the two main threats to your wealth: litigation and government intervention. Regardless of where you live in the world, these are very real concerns. The more money you have, the bigger the bulls-eye. With the global economy in crisis mode there is a heightened awareness of “wealth through litigation.” Do you think this impacts your cost of doing business? If you’re an entrepreneur, you’re a target.
When I was a child, there was a fatal accident on a job site at my father’s commercial construction company. The roofing contractor had no insurance to protect the safety of his two workers. When the roof collapsed and one of his men died, the victim’s family sued for damages, leaving my father’s company liable for millions of dollars. The insurance company paid the majority of the cost, but not all of it. As a result, my father’s company ended up paying the employee’s salary for 18 years, including cost-of-living increases for the man’s newborn child. While this was certainly an unfortunate accident, the point is you never know where risks will emerge. By getting proper advice on how to structure your asset holdings today, you can prepare yourself for unexpected surprises tomorrow.
Shield your wealth from unknown risks. The other risk I mentioned is government intervention. This can take on many forms, ranging from currency controls and inflationary policies to the big one— taxation. While these risks vary by country, government risk appears in every region around the world. This is why it’s important to protect your wealth and diversify your assets. Some of the tools we use for asset-protection planning include US and off-shore llCs and iBCs, limited partnerships, hybrid and off-shore trusts, private- placement life insurance, captive insurance, and private banking and investment solutions. A simple structure that offers great asset protection may be to have your company shares owned by an off- shore llC, which is then owned by an asset protection trust. This creates a shield of privacy and legal protection from creditors. Off- shore insurance options offer great tax advantages, while private banking and investment solutions give you opportunities for increasing your wealth.
From a financial security standpoint, it’s imperative that entrepreneurs protect themselves from potential threats to their hard-earned wealth. Think of asset protection as an insurance policy— would you buy health insurance after you get sick? By addressing your business and personal needs, obtaining proper advice and setting up barriers for unexpected crises, you can sleep better knowing that everything you’ve worked hard to acquire is safe and sound.
Bobby is the founder and managing director of global Wealth Protection LLC, an asset-protection consulting firm. GWP works exclusively with high-net- worth entrepreneurs and investors from around the world. E-mail Bobby at [email protected].