Have you ever tried to research how to best protect your asset just to be overwhelmed with so much information that now you have more questions and less answers than you started with?
As an Asset Protection attorney, friends and family always ask whether their LLC will protect them or if they should put their asset into a trust. The answer, in typical attorney fashion, is it depends. It depends on several aspects:
What type of asset are you looking to protect?
What is your main objective - Asset Protection, tax or estate planning?
Where is the asset located?
What is your plan for the asset - will you sell it or pass it down?
These are the types of questions that you should ask yourself when coming up with your Asset Protection Plan.
So, will an LLC or a trust give you greater Asset Protection? The answer will depend on your answer to the questions above, and a working knowledge of how both entities function.
An LLC, or Limited Liability Company, is a type of business entity that shields its members from certain liabilities when doing business. LLCs can be owned by only one person, or many people, and do not need to have any employees. There are advantages to doing business under an LLC instead of a corporation – no double taxation and charging order are a couple to start. Members of an LLC may not be held personally liable for the acts of the LLC, so their personal assets may not be at risk from any issues stemming from the business. Upon the passing of all the members of an LLC, the LLC interest will pass through to the estate just like any other probate asset unless otherwise planned for.
A trust is a type of legal entity that holds assets for the benefit of another. A trust will always have a settlor, a trustee and a beneficiary. The settlor creates the trust, the trustee manages the trust for the benefit of the beneficiary. There are several types of trusts, the three main types are (1) revocable trusts, (2) irrevocable trusts, and (3) testamentary trusts.
With revocable trusts, the benefit is that any asset is kept out of probate and not subject to the estate tax that your beneficiaries would pay on a probate asset. There is, however, no Asset Protection for the assets held in a Revocable Trust. This is because assets held in a revocable trust can be revoked or taken back at any time.
With irrevocable trusts, you are afforded great Asset Protection and avoid probate however you lose control. The trust may not be altered after the fact, and the asset is completely managed by the trustee. Plus, the rate of taxation is high.
A testamentary trust is one that is created through your will and forms at the time of your death, meaning your assets are unprotected during your lifetime.
So, should you protect your asset using an LLC or a Trust? That will depend on you, but there are some pros and cons to both. Advantages of an LLC include protecting your assets from personal liability or creditors and avoiding probate if your Operating Agreement contains the needed language, there are annual maintenance fees, company documents and upkeep required. Advantages of a Trust is that it is completely private and avoids probate, however unless the trust is irrevocable there is no protection from creditors.
This is the type of conversation you should be having with your team when discussing protecting your wealth.
Not protected yet? Be sure to reach out to book your Preliminary Consultation so we can ensure that your business and personal assets are protected.
The Presser Law Firm P.A. 6830 N. Federal Highway, Boca Raton FL 33487 (561) 953-1050 or e-mail info@assetprotectionattorneys.com