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Asset protection is essential for enhancing the current and future value of a business. Business owners, including small-business owners, need to be prepared for unforeseen external attacks, such as a lawsuit, product liability, and internal events, including employee fraud, or actions by a business partner or family member. Having an asset protection plan in place can reduce the risk of loss of assets to creditors, protect the personal assets of individual owners and shareholders, and deter a claimant from attempting to initiate legal proceedings in the first place.

Before considering the options for asset-protection, it is important to understand the purpose, benefits, and tradeoffs of different types of assets.

Understanding Different Types of Assets

While business assets are often described as being either “safe” or “dangerous,” they actually fall into three separate types, each with different benefits and tradeoffs.

Protected assets are significantly less prone to risk and liability, since they are individually owned and kept separate from a business. Some examples of protected assets include:

  • Home equity

  • Retirement plans, including traditional and Roth IRAs

  • College 529 plans

  • Life insurance

  • Annuities

  • Irrevocable trusts

Irrevocable trusts are designed to transfer assets to a beneficiary, and prevent the grantor from being sued for those assets.

Exposed assets are more vulnerable to lawsuits or claims, and carry a significant risk of liability. Therefore, business owners typically need to keep individual ownership separate from exposed assets. Exposed assets include:

  • Sole proprietorships

  • Real estate

  • Cash and securities

  • Revocable trusts

It’s important to understand that assets contained in a revocable trust do not benefit from asset protection.

Deterrent assets are legal entities designed to protect a business’s assets and shield its shareholders from liability. Some common types of deterrent assets include:

  • LLCs

  • Partnerships

  • Corporations

Deterrent assets are structured to protect the business owner’s personal assets if the business is sued. However, if a business owner is sued personally, their assets may be exposed.

Working with a professional financial advisor, one who is well-versed in asset protection and wealth-planning for business owners, can help you understand, in greater detail, the relative benefits and tradeoffs of different types of assets, and create an effective plan for asset protection.

Comprehensive Wealth-Planning in Houston

AltruVista provides independent wealth-planning guidance designed to address the unique needs of successful entrepreneurs. We provide our clients with clarity and confidence in their financial decisions, and offer a level of expertise well-beyond that of the traditional client/advisor relationship. If you have questions about the benefits of and options for asset protection, and other strategies to achieve your wealth goals, contact us today. We look forward to speaking with you.

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AltruVista Offices

3555 Timmons Lane, Suite 915

Houston, TX 77027

Investment advisory services offered through AltruVista LLC, an SEC registered advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431. 1-800-765-5201. AltruVista LLC is a separate entity from ValMark Securities, Inc.

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