Avoid storms ahead: asset protection and estate planning strategies for the business owner.

• Author: Decker, Jennifer
• Position: Legal Brief

With the economy still in recovery and business owners attempting to cover their losses, how can you devise an asset protection and estate plan that will work for you? An asset protection and estate plan is designed to keep your assets safe from the claims of potential creditors and preserve them for you and your family Even individuals who are not employed in high-risk professions should engage in basic planning techniques.

The most important aspect is to plan early and to do it right. Protection planning is most effective when the planning occurs well before winds of trouble start to blow.

Insurance--Your First Line of Defense

The simplest way for a business owner to cope with risk and protect his or her assets is to shift the risk to an insurance company. So before you do anything else, you should contact your insurance agent to determine if you have an adequate amount of coverage. This coverage would be in addition to any professional liability insurance you may also carry, e.g., lawyers, doctors and accountants generally carry malpractice insurance, and directors of for-profit and not-for-profit companies carry director's insurance. Increasing insurance premiums may prompt you to lower your coverage to a minimum. Still, for the dollars expended, insurance can be one of the cheapest and best forms of asset protection. Finally, verify the insurance policies name both the business name and your personal name, if possible.

Statutory Exemptions

Federal and/or state law exempts certain assets from creditors (called "exempt assets"). Another fairly simple component of an asset protection and estate plan is to build up the value of exempt assets, such as retirement plans (like certain 401(k) plans and qualifying IRAs) and homestead property. Utah's homestead statute, for example, protects up to $40,000 of home equity for married couples and $20,000 for single individuals. But there are some exceptions to contributions made within the most recent year, which means once you learn of creditor trouble you can't simply throw all your money into an exempt asset and be protected. Instead, you'll need to determine what those exceptions and limitations are before developing an asset protection plan.

Transfers to Others

Corporations, limited liability companies (LLCs) and limited partnerships (LPs) are business entities that were created for asset protection and estate planning purposes. While most sophisticated business owners already operate their...