All professionals are aware of the challenges of running their business amidst a barrage of lawsuits. The number of lawsuits filed each year against physicians and small businesses is staggering and has reached over 15 million. That works out to one new lawsuit every two seconds! Or one lawsuit filed for every 12 adults in America. This is truly a large number of lawsuits.
Professional small business owners are at risk of losing their business assets, savings, and livelihood with one malpractice case. Steps can be taken to minimize the threat of these lawsuits and insulate assets from liability.
What Asset Protection Options are Available?
Professionals in most states cannot limit their liability for their own malpractice. However, like any business owner, a professional can transfer titles of assets into another’s name or entity in order to avoid estate taxes and minimize the chance that those assets will be at risk in litigation.
- Assets held in a Limited Liability Company (LLC) are effective in limiting the exposure of a claim to only those assets held inside the LLC. Assets held outside the LLC, such as your personal residence is not at risk to a malpractice claim.
- Consider protecting the assets in the LLC by transferring them to a company that leases them back to you. That way, you don’t have any ownership over the assets in the practice either.
- Separately incorporate your business. If you have more than one clinic or business, they should be held in separate LLC’s. If someone sues one clinic or business, the other business or clinics then, aren’t affected. Similarly, property should be held in separate LLC’s and away from cash assets.
- Never give any personal guarantees. A personal guarantee eliminates the liability protection that is inherent in a Limited Liability Company.
- Personal Residence Trusts can be used effectively to protect your personal residence. When properly formed, it also preserves the tax benefits of the mortgage interest deduction and the ability to avoid gain on the sale. The Personal Residence Trust is an excellent technique for accomplishing asset protection without losing the unique tax advantages of home ownership.
There are many other asset protection strategies available. This includes setting up limited family partnerships or putting assets into a Nevada Corporation or Delaware Corporation to protect real estate and other business property. Another option is to transfer assets to a loved one or partner by means of asset protection to an revocable or irrevocable Trust.
Reduction of income and estate taxes is an additional benefit of implementing an asset protection strategy.
This article has only touched on some of the simpler strategies available to protect assets. There is a multitude of techniques that can be utilized to reduce the risk of losing all your hard-earned assets to a lawsuit.
As litigation rises, the concern for asset protection by professionals is growing along with it. Our Personal Family Lawyers® at Gerald L. Kane & Associates are devoted to assisting professionals with asset protection by means of various estate planning options and tools. Please call on us, and we will help you find the best method to protect and preserve your assets.
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