Small Business Vulnerabilities

How can assets owned by a small business owner be taken?

• Lawsuits. Small business owners may be sued because of a defective product or service, a work-related accident, patent and trademark infringement, malpractice, breach of contract, or failure to maintain a safe workplace.
• Employment-related claims. A small business owner may face sexual harassment or discrimination claims from current and former employees.

Other claims may arise because of out-of-control debt. Divorces are another problem because the business owner may be left strapped for cash or the ex-spouse may even go after the business.

Protecting Small Business Owners

Fortunately, asset protection strategies may help.

• Business Structure. The type of business entity matters. Personal property owned by sole proprietors usually is not protected from any business-related claims. Partnerships can leave all partners vulnerable to the misfortunes of one. Limited liability companies and corporations offer the most protection for owners. Talk to a business attorney to make sure you are using the business entity that provides the best protection for you.
• Insurance. The type of insurance a business owner needs may depend on the business. For example, a doctor or lawyer typically will buy malpractice insurance. Other types of insurance may protect against business interruption and workers’ compensation claims. Life insurance may provide enough cash for your family or business partners to continue after you are gone. Finally, long-term care insurance may be used to protect the business from the owners’ incapacity.
• Trusts. Transferring assets to an irrevocable trust also offers protection for most kinds of creditors and predators. Creditors will find it hard to take assets not under the control of the small business owner. There are downfalls to using a trust so talk to an experienced trust attorney before attempting to establish any trust.
• Estate Planning. Many business owners may overlook this strategy. However, it’s crucial to consider business assets when preparing an estate plan.

Some people may need one asset protection strategy, while others need multiple strategies. It can be difficult to understand the legal implications of some of those strategies.

Small Business Owners Need to Consider Asset Protection

Attorney Bruce Adams assists clients like you with their business and estate planning matters, including protecting those all-important business assets. Call us at 256-237-3339 to schedule an appointment. We are located in Anniston, Alabama, but help clients in surrounding communities like Oxford, Jacksonville, Heflin, Gadsden, and Pell City.

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#1 – The Grantor Can Serve as Trustee

Trusts generally have:

• A grantor, who creates and then funds the trust;
• The trustee, who manages the trust assets for the beneficiaries;
• At least one beneficiary, who receives a benefit from the trust; and
• A purpose, a reason for the trust to exist.

With some trusts – but not all – the grantor can also be the trustee and a beneficiary. However, grantors usually should not be beneficiary of an irrevocable trust. This can remove the asset protection benefits of the irrevocable trust.

#2 – The Trust Must Be ‘Funded’

To form a trust, the grantor signs a trust document that contains information about the trust. However, unless the grantor transfers property to the trust and trustee, the trust is empty.

As soon as a trust is signed, it’s important that the grantor immediately start the property transfers.

#3 — Asset Protection Is Possible

Some trusts allow the grantors to shield their assets from creditors, predators, and civil judgments. However, it’s important to note that not all trusts offer asset protection. One very common trust, the revocable living trust, does not provide this benefit to the grantor and beneficiaries.

Asset protection trusts are irrevocable, which means the trust cannot be easily altered. Typically, the grantor does not serve as trustee. If the grantor has access to the trust assets, so will his or her creditors.

#4 –Generally, Trusts Are More Private Than Wills

When a deceased person’s Will is presented to the probate court, it becomes part of public record. Most other documents filed during the probate proceed also are open for the general public to review.

Keeping your estate distributions private could mean a lot to your heirs. When the grantor of a trust dies, the trust assets are distributed to heirs according to the terms of the trust. Trusts usually do remain confidential and do not have to be filed with the court.

#5 – Your Trust Can Work with Your Will

Let’s say you decide to create a revocable living trust. You want your assets to pass quickly and confidentially to your heirs. However, you acquire assets after forming the trust and before your death. What happens to those assets?

They become part of your probate estate unless you signed a pour-over Will. The pour-over Will transfers those additional assets to your trust. However, the assets still go through probate before being distributed to your Will.

Will a Trust Help You Meet Your Estate Planning Goals?

Attorney Bruce Adams is an Alabama attorney who knows how to listen to his client’s legal concerns and provide actionable advice. Please contact Bruce at 256-237-3339 to set up an appointment. Our office is located in Anniston, Alabama, but we assist clients in surrounding communities like Gadsden, Hoover, Talladega, Vestavia Hills.

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