Asset Protection Strategies For Ohio Business Owners – Corporate and Company Law

It’s no secret that we live in a litigious world, but no
business owner, advisor or other professional wants to look at
every client, customer or patient as a lawsuit waiting to happen.
When you provide services to the general public, your risk of being
sued is inevitably a bit higher than the average person’s. To
hedge against that risk, consider the following measures —
some simple, some nontraditional — to protect yourself and
your business.

Inherited trust assets. Approximately $30 trillion will pass from baby boomers to
younger generations over the next decade. With that transfer of
wealth comes enormous opportunity for the beneficiaries beyond the
obvious financial gain.

When we think of asset protection planning, we generally start
with how to protect our own assets, but what about those we will
receive? Assets that pass to beneficiaries in trust, and remain in
trust, are generally protected from the beneficiary’s creditors
(subject to well-drafted trust agreements and proper trust
administration). In many cases, the beneficiary can even serve as
the trustee of the trust, allowing him or her to control and
benefit from the trust assets while protecting the assets from
current or future creditors. As a business owner, having assets
that are immediately and permanently out of reach of creditors is
not only a financial win, it’s also invaluable peace of
mind.

The conversation may be awkward, but consider discussing with
your parents whether their estate plans are in proper order and if
assets are retained in trust. If not, suggest they consult with a
qualified estate planning attorney. A little planning now can go a
long way. And just as important, as a parent yourself, you can
engage in the same type of planning to protect your children from
their creditors, including a divorcing spouse.

Dividing assets between spouses. Assets titled
to one spouse are not subject to the creditors of the other spouse.
As such, if one spouse has a higher risk of liability than the
other, consider titling large assets such as real estate and
taxable investment accounts in the name of the lower-risk spouse.
Of course, these assets are still subject to the lower-risk
spouse’s creditors, so an umbrella insurance policy may also be
a wise investment for additional protection.

Funding protected assets. Under federal and
many state laws, certain assets are always beyond the reach of
creditors. In Ohio, these include retirement accounts, life
insurance proceeds and life insurance cash value. To that end,
consider — in consultation with a qualified financial advisor
— fully funding retirement plans and building up the cash
value in your whole life policy to bank a reserve of assets that
you know are safe over the long term.

Asset protection trusts. For the past decade,
Ohio has been at the forefront of the nation’s asset protection
laws, at least from the protectee’s perspective. If you are
married and have substantial assets you do not expect to need
during your lifetime, you may gift the assets to a spousal lifetime
access trust (SLAT). Beyond the estate tax benefit, especially if
the assets appreciate considerably (which is outside the scope of
this article), a SLAT allows your spouse to benefit directly from
the assets (and you indirectly through your spouse), but it also
allows for the assets to be sheltered from future creditors of you
or your spouse.

Similarly, an Ohio Legacy Trust allows assets to be moved beyond
the reach of future creditors but permits you to continue to
exercise a limited element of control and benefit from the trust
assets. In both cases, a qualified estate planning attorney should
be involved to assess the pros and cons and draft the appropriate
documents, and in neither case should you transfer any assets if
you have even an inkling of concern of a current creditor.

Formalized business contracts. In the heat of
running a business, it’s easy to get into a routine and let
important things fall to the back burner. One concern that always
deserves full attention, however, is the drafting of proper
business contracts and adhering to your procedures. Not only can a
poorly drafted contract (or no contract at all) subject your
business to unnecessary risk, it can also make it easier for a
creditor to pierce the corporate veil and attack personal assets.
Proper lease and vendor agreements, for example, should always be
in place, and business assets should be titled in the name of the
business, not in any individual’s name. Formalizing your
procedures will help to reduce your personal and business risk. And
it doesn’t have to break the bank. As KMK Law’s private
client services team gets to know a business and its stakeholders,
for example, many projects become easier and less time consuming.
Talk to your attorney about using favorable rates and efficient
processes to build a long-term relationship you both value.

Originally published by The Business
Journals.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.