Hello All. Are you passionately working hard every day to build your dream career or small business but neglecting the important, but never quite urgent (until it’s too late), task of creating an asset protection strategy for your family and business? Are you also unknowingly leaving your family and business assets to the mercy of a plaintiff’s attorney working on a contingent fee basis for their clients, who could sue you, with their attorney seeking to access your personal assets?
While there is no true security in this world, and we are all building castles in the sand, here are some very basic and affordable strategies and techniques in Pennsylvania to build solid, sturdy, “castles” on rockier ground with surer footing.
- Incorporate: First, your small business in almost all circumstances should be operated as a separate legal entity from yourself. Let it take the fall, not you. For most small businesses a Limited Liability Company (LLC) or a S-Corporation is the best choice. The purpose of these entities is to provide an iron shield between your personal assets and business assets. If your business is sued for any reason, and the entity is managed properly, the potential plaintiff or creditor will not be able to touch your personal assets like your home, retirement, etc… The real key is the entity being “managed properly” and you dutifully performing the required “corporate formalities” that we can discuss with you. If the entity is not managed properly a good attorney can “pierce the corporate veil”, have access to you personal assets, and wash your castle away.
- Which One? Generally speaking, an LLC will give you more flexibility with less formalities, but in some cases an S-Corp is the better choice. Both of these entities avoid the “double tax” problem whereby earned income is taxed twice, both when earned by the entity and when paid to you as a salary, inherent in the classic C-Corporation. An LLC can elect to be taxed as an S-Corp which can in certain cases be beneficial in reducing your self employment tax burden. Pennsylvania professionals (doctors, lawyers, etc..) must be set up as either a Professional Corporation (PC) or a Restricted Professional Limited Liability Company (RPLLC). The RPLLC in Pennsylvania has a burdensome annual fee per LLC member, which can factor into the entity decision. Entity selection should be a team sport with your accountant, insurance agent, and attorney working together with you to decide which is best.
- Investment Real Estate In most cases, investment rental real estate should be held in an LLC as well and segregated from your personal assets. The best strategy is to segregate each real estate asset and thus ideally each large property, or practically every few smaller real estate properties, should be deeded in and owned by a separate and distinct LLC that you own and control. This segregation will limit your risk, only exposing a limited portion of your real estate assets to any potential potential plaintiff at one time. Pennsylvania also has some helpful asset protection advantages for married couples that own property jointly as “tenants by the entireties”, that you will want to discuss and explore.
- Insurance – Don’t Forget Your “Umbrella” An often overlooked and very affordable method of asset protection is available through your auto insurance agent. Normally, for a very small annual premium, you can obtain millions of dollars of insurance coverage for suits dealing with injuries occurring on your Real Estate that you own personally. This may be an affordable alternative if you already own the investment real property personally and it is not worth transferring into an entity because the property is small and the transfer will incur high county transfer taxes. Contact your auto insurance agent for more information.
- Get Started Before It’s Too Late Once lawsuit has been filed against you, your business, or your property you will likely be frozen and unable to avail yourself of these strategies, so make asset protection a priority, and don’t be penny wise and dollar foolish.
- More Details. This is just the very tip of the iceberg in the world of asset protection. Feel free to call our office to schedule a free consultation to discuss these issues in more depth. Have a lovely weekend. Dominus Vobiscum!
412.443.3319 · 724.654.8111
All content on this website is intended for general information only, and should not be construed as legal advice, tax advice, or financial advice applicable to your particular situation. No attorney-client relationship is created unless and until a binding written representation agreement is signed by both you and our office. Before taking any action based on this website, you should consider your personal situation and seek professional advice.