Limited liability companies are the entity chosen for many businesses because they are easy to set up, simple to run on a day-to-day business, are pass-through entities for income tax purposes, and offer asset protection. Is a limited liability company (LLC) right for your business?

Asset Protection as a Huge Benefit

LLCs are used in comprehensive estate planning to insulate liability and prevent assets from being seized by creditors.

An Example:  When Asset Protection Matters

Frank, Jim, and Pam owned their lighting supply business in an LLC.  In addition, they owned the business’s 3 delivery vans in a separate LLC. 

When Jake, an employee, crashed into a school bus full of cute little first graders, killing 3 and seriously injuring 12, Frank, Jim, and Pam were sued.  The jury verdict was $33 million. 

• The auto insurance paid the first $500,000.
• The business umbrella liability insurance paid the next $5 million. 
• The remaining $27.5 million was never paid.  The business assets were protected; Frank, Jim, and Pam’s personal assets were protected.

Why?

The delivery van that Jake was driving was owned in an LLC.  Liability was insulated to that LLC alone.  The only assets in the LLC were 2 other delivery vans valued at about $15,000 each.

A charging order was issued, meaning that the creditors would receive whatever was distributed within the LLC.  There were no assets to distribute.

Even if the jurisdiction allowed the court to foreclose on the assets in the LLC, recovery would be limited to the $30,000, the fair market value of the 2 remaining delivery vans.

Consult with a Qualified Estate Planning Attorney

If you would sleep better at night knowing your assets are protected, consult with a qualified estate planning attorney to determine whether a limited liability company (LLC) is a good fit for your business.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

You have worked hard to build your small business. You’ve given it the best years of your life and you can’t imagine giving it up. To protect its financial health, its day-to-day operations and develop a plan for succession, you’ll need a estate planning documents.

By creating a living trust you can . . .

. . . Prevent your business assets from being used to settle the debts of your personal estate. If you don’t want to endanger the continued operations of your business, set up a living trust to retain ownership and continue the operations of the business.

. . . Create a plan of succession if you want your business to continue long after you pass away. A trust can name a trustee for the trust and name a separate person that will succeed you. If you were a sole proprietor, you can name an entire board of trustees that will take over for you. They can be business associates, employees or relatives to whom you’ve passed on a share of the company as their inheritance.

When preparing the trust document, you may also wish to draw up a healthcare power of attorney and a financial power of attorney and name a person or persons to make decisions for you and your business if you become incapacitated. If you are the only one authorized to make financial decisions for your business, your business may not survive.

For more information on setting up a living trust and related documents to protect your business, give our office a call today.

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Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.