An LLC can protect your personal assets from business liabilities. Creating a limited liability company is the first step in protecting your personal assets from being used to pay business debts.
This is something that we witnessed from the beginning while helping clients create the best possible protection strategies.
From my experience, running a business while keeping assets safe should be everyone’s top priority. After years and years of running different LLCs, I have gathered the most important tips and tricks so you can have all info in one place.
Learn how to keep your house, savings, and investments out of the hands of business creditors with LLC asset protection strategies.
Quick Summary
- LLC asset protection strategies are created to protect the assets of the LLC from various lawsuits.
- These strategies are carefully designed to keep an LLC safe from judgments, sudden accidents, and possible negative circumstances.
- Some of the aspects that LLC asset protection strategies can protect include financial plans, trusts, and even legal tools.
What Is Asset Protection?
Asset protection is a legal strategy to prevent creditors from getting their hands on your money or possessions.
For example, if someone gets injured on your property and decides to sue you, an asset protection plan can shield your house and other savings from being used to pay the judgment.
How You Can Use an LLC for Asset Protection
To protect your assets, you should first consult with a business attorney.
It is crucial to reach out to a professional before you make any final decisions. This way, you will actually know how to shield your assets. In the meantime, here are the most important things that you should be aware of.
Develop an Asset Protection Strategy
Developing an asset protection strategy before any unforeseen situation occurs, is the best strategy possible.
It is important to make a plan for how you will protect your assets before you are sued. When deciding what legal strategies to use, be sure to consult with your attorney about which ones are best suited for your circumstance.
Establish Separate LLC Accounts
- Set up an LLC business account at a separate bank or credit union from your personal account.
- Keep business and personal money separate by not depositing any of the LLC's income into your personal bank accounts [1].
- Don't co-mingle assets - By keeping them separate, if one account is frozen or garnished, you will still have access to your other savings and property.
- Transfer assets - Before a creditor can take your house, savings, or investments to pay the debt, they must first sue you and get a court judgment. By moving your assets around before a lawsuit is filed, a creditor may not know where your savings are and will have to spend more money trying to find them.
- Open an LLC savings account - This is a different bank account than the business account, and it should be in a separate financial institution from your personal accounts.
Why Use an LLC For Asset Protection?
Use an LLC for asset protection to prevent attacks on savings and property in the future.
Asset protection strategies may be superior to other methods of protecting assets because they can prevent attacks on savings and property in the future.
LLCs can protect assets from lawsuits and other claims in almost every state (check with a local attorney for exceptions) [2].
Additionally, the limited liability company offers flexible management and tax reporting, as well as is inexpensive to start and maintain.
How an LLC Protects Assets?
An LLC protects assets by providing limited liability and separating personal and business debts. With this legal separation, only the LLC can be sued, shielding personal assets from potential lawsuits.
Cases When an LLC Cannot Protect Your Assets
There are cases when the LLC does not protect personal assets. Some of these are:
- You use your personal account to fund the LLC - This is an important factor when establishing a business bank account.
- The LLC has bad or poor business practices - If you do something illegal, risky, or dangerous with your business that causes someone else to get hurt, you lose your asset protection plan.
- You are personally named in the lawsuit - If you are being sued for your own conduct, not your business's actions, then an LLC will not protect you from liability.
Choose the Appropriate Levels of Insurance
To choose the appropriate levels of insurance, ensure that your policies cover all assets and debts, including business debts and personal liabilities.
Remember, an LLC does not guarantee immunity from lawsuits, but it can safeguard assets.
Consulting a business attorney will help you establish an LLC and protect your personal savings and property. Seek legal counsel to determine the best asset protection strategies for your specific needs.
Use a Registered Corporate Entity
A registered corporate business entity can be a C corporation, S corporation, Limited Liability Company (LLC), Limited Partnership (LP), and Non-Profit Corporations.
Regardless of the entity type, protecting assets is a top concern for business owners. A properly formed and managed Registered Corporate Entity provides maximum protection.
Registration with the Asset Protection Unit is typically unnecessary, as filing the necessary incorporation documents suffices.
While different entity types offer some protection, LLCs, C Corporations, and S Corporations provide the highest level of asset shielding, safeguarding personal assets from business claims.
Explore Trusts Options to Protect Assets
Trusts are one option that may be recommended as a way to protect your assets from creditors. There are many types of trusts, and attorneys can advise you on which ones provide the most protection for your situation.
- The Client Trust
- The Generation-Skipping Trust
- Credit Shelter Trust
- A Family Trust
- A Charitable Lead Trust (CLT)
Put Your Revenues Toward Certain Assets
Another way to protect your assets is to keep them out of the hands of creditors. You can do this by setting up a bank account in the name of your LLC and paying for business expenses with the LLC funds.
FAQs
Does a Single-Member LLC Protect Your Personal Assets?
A single-member LLC business entity does not provide asset protection for the owner in the event of personal liability.
Using your individual name when forming the LLC generally results in insufficient protection if you are personally sued for business debts or claims.
Can My LLC Protect Business Assets from Lawsuits?
Your LLC may help protect your personal assets and business property from lawsuits. The individual property of the owner is still at risk if the owner is found personally liable for a debt or lawsuit.
Is My Business Still Liable for Damages or Unpaid Bills?
Your business is liable for damages or unpaid bills, in the event of a lawsuit. The owner of the LLC is generally not at risk unless they have direct responsibility for the unpaid bills or damage.
Asset Protection Strategies LLC
As a business owner, you must know that LLCs can protect your personal and business assets under the right conditions.
It is important to speak with an attorney about what type of LLC can best suit your needs and how to properly structure your business and asset protection strategies in accordance with the laws of your state.
When it comes to LLC asset protection strategies, utilizing reliable legal services is essential. We personally experienced the efficiency and professionalism of online legal services, making them our top recommendation for effective asset protection.
References:
- https://www.irs.gov/irm/part5/irm_05-001-02
- https://www.bankofamerica.com/smallbusiness/deposits/resources/documents/limited-liability-company/
