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If you own your own business, you can be held personally responsible for actions or inaction of the business or its employees, including you, if you are a sole proprietor. There is no asset protection. If someone is injured on property you own, you can be liable if a negligence claim is filed against you. This also applies to creditor claims.When you implement an asset protection strategy, you create a shield or separation between your personal affairs and your business activities.What is the most commonly used asset protection structure for small businesses? It is the limited liability company or LLC. When you establish a limited liability company, your personal property is protected from most legal actions initiated against your business.Remember, though, if you personally and directly damage someone while conducting business, you can be personally liable.The other side of the coin is that if you are the target of a lawsuit, the property and assets of your limited liability company are generally protected. The court may, however, issue a charging order that attaches distributions of net distributable income to an indebted LLC owner.But what if you have already injured someone else? The fraudulent conveyance rules say you cannot use a limited liability company to protect assets if you know you (and the assets) are already being targeted.
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The family limited partnership (FLP) is another structure that protects assets. As the name indicates, the partnership participants must be members of the same family.You do not need to surrender control of assets you convey to an FLP. You can be the general partner, so you have sole decision-making authority over the actions of the partnership.Let’s look at an example. You own two apartment buildings and are concerned about possible legal suits, so you convey the property into a separate family limited partnership.If someone is injured in one of the buildings, the other building is protected and all property personally owned by the partners is out of the reach of the litigant.This asset protection works in both directions. If any partner is sued, the property held by the partnerships is protected and the other partners cannot be held personally liable.These options work for businesses. Is there a similar structure for personal asset protection?In many states, you can establish a self-settled asset protection trust. Assets you convey into this trust are generally protected from future creditors and other types of litigants.Oklahoma does not recognize these types of trusts, but you can always establish a self-settled trust in a different state.
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As elder law and estate planning attorneys, we help clients protect assets from some additional threats. For example, only a small percentage of people are subject to federal estate tax, but the federal tax rate of 40 percent can take a significant bite out of your legacy if you happen to be one of those affected.This 40% tax rate only applies to that portion of your estate that exceeds $11.7 million in 2021. If your assets exceed $11.7 million, or the applicable exclusion for future years, you can take steps to mitigate this tax bite.Some states assess their own estate tax. Oklahoma does not have an estate tax, but if you own property in a state that has one and the value of the property exceeds the state exclusion, your estate will be liable for that tax. State-level exclusions are typically much lower than the federal exclusion.What about the risk of losing everything if you require extended long-term care? Medicare does not pay for long-term care and most senior citizens, currently 70% of those 60 or older, will need living assistance eventually.Our office assists clients worried about these long-term care costs. An available nursing home asset protection strategy involves qualifying for Medicaid benefits, since Medicaid is the government program that covers custodial care.Because Medicaid is a needs-based program, you have to divest yourself of excess assets to qualify. Rather than spending this excess, you can transfer it to an income only irrevocable trust. Until you need to apply for Medicaid, you will receive the trust earnings, but will surrender access to the principal. Intelligent advance planning is necessary, however, because you have to fund this irrevocable trust at least five years before you apply for Medicaid.
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If any of this strikes a responsive chord, schedule a Consultation Today!
We are here to help if you would like to work with an Oklahoma City estate planning lawyer to develop an asset protection plan. To request a consultation appointment, you can send us a message or you can call us at 405-843-6100.
