If you’ve worked hard and saved for a number of years, and especially if you have a family or own a business, protecting what is yours is a priority. Have a Texas estate planning lawyer discuss asset protection strategies with you and take the steps necessary to protect your assets.
What asset protection strategy will work best for you? How can your assets be legally protected against claims, creditors, and other potential liabilities? How can you limit access to particular assets while remaining compliant with the law?
If you’ll keep reading, these questions will be answered below. Everyone’s financial situation and circumstances are different, so there is no one-size-fits all asset protection strategy. That is why you will need sound, personalized advice from a Texas asset protection attorney.
What Is a Limited Liability Company?
A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies combine some of the characteristics of corporations with those of a sole proprietorship or a partnership.
If you are the owner of a sole proprietorship or a partnership, forming a limited liability company or LLC may be the best strategy for protecting your assets against creditors and liability claims.
If you are starting up a business – or considering a start-up – you should also consider taking advantage of the protection that a limited liability company can provide by forming an LLC with the advice and guidance of a Texas estate planning lawyer.
How Do LLCs Work?
The rules for LLCs are spelled out by the laws of each state, and those rules may vary from state to state. A limited liability company’s owners are usually called “members.” An LLC is easier to set up than a corporation, and LLCs offer more protection and flexibility to owners or members.
The essential difference between a sole proprietorship or a partnership and an LLC is that a limited liability company keeps the company’s business assets separate from the personal assets of the sole proprietor or partners, legally shielding them from the LLC’s liabilities and debts.
If the limited liability company goes bankrupt, or if it is targeted with a lawsuit, the personal assets of the owners may not be pursued.
A corporation’s profits are taxed first at the corporate level and then in effect a second time after the profits are distributed to individual shareholders, but LLCs typically allow the profits to pass directly to the owners so that the profits are only taxed once, as part of an owner’s personal income.
How Do LLCs Protect an Owner’s Personal Assets?
Transferring property and assets to a limited liability company is an effective strategy for real estate investors, landlords, and new businesses. You will need to have a Texas asset protection attorney help you document the transactions and advise you about the possible tax consequences.
As a limited liability company owner or member, you may transfer personal property and assets into the limited liability company for either or both of these reasons:
To provide capital for your new business: Your capital contribution could be real estate, personal property, cash, or a combination of these. In return, you acquire equity in the company.
To protect you from liability if you own investment property: A limited liability company can shield a real estate owner’s personal assets should a lawsuit or other debt collection activity involve a rental or investment property.
How Should You Transfer Cash or Property to Your LLC?
If you start up a business, you will likely invest some of your own cash. You might also move personal property to your new business: tools, office equipment, or vehicles, for example. To avoid any tax problems, record and document the transfers by taking these steps:
- Determine the fair market value of whatever you transfer to the limited liability company.
- If you transfer a personal asset in return for equity in the company, record in your LLC’s operating agreement the asset, the purchase price, the fair market value, and any depreciation.
- If the limited liability company is purchasing your asset for cash, record the transaction in your accounting records.
- With titled assets, be sure that the titles are transferred properly. If there is a loan on a vehicle, you may have to obtain approval from the lender before transferring the asset.
- Have an asset protection attorney help you fully document property and asset transfers to the LLC.
How Should You Transfer Real Estate Into Your LLC?
Landlords sometimes transfer real estate into a limited liability company as a strategy for asset protection. If you are a landlord in Texas, ask a Texas estate planning attorney, an asset protection attorney, or a business attorney to help you set up a limited liability company.
If there is a mortgage on the real estate you intend to transfer to a limited liability company, contact the lender to learn if there are any limitations on transfers and to obtain approval for the transfer.
Then, have your attorney prepare a warranty deed or a quitclaim deed that says you are passing the interest you have in the real estate to the LLC. After the deed is signed, file it with the local government agency that maintains real estate records.
Be sure that you have set up a bank account for your limited liability company and that you handle all of the expenses and income for your rental property through that account.
Is An LLC Right for You?
A number of factors will determine if establishing a limited liability company is the right asset protection strategy for you: your current financial circumstances, the effect on your taxes, your possible liability exposure, and whether your mortgage lender will sign off on a transfer.
Establishing an LLC may be only one aspect of creating the comprehensive estate plan you need. Speak to your asset protection attorney about setting up an estate plan that will protect your assets and provide financial security to your family – even when you can’t.
To learn more, or to set up an LLC, to review your current asset protection strategy, or to begin the estate planning process, consult a Texas asset protection lawyer as soon as possible. It’s the first step toward achieving peace of mind about your business, your assets, and your loved ones.