When structuring and planning any asset protection strategy, one of the more important factors is often how the asset protection entity or multiple entity structure is funded. While the funding of the structure itself is of paramount importance, one of the major factors is to create an asset protection structure that titles assets in a manner that takes the equity away from the person who is of primary risk, and whose assets are to be protected.
Typically business organizations such as corporations, LLCs and limited partnerships, as well as trusts, are often used for this purpose. The typical strengths of some of these entities involve the ability to separate the equity from the management and control. However, a large portion of the structure would involve keeping a proper asset management strategy and distance from the equity of the assets for those with the highest exposure to future liability.
Typically, a trust would be used as a supplemental tool, since it involves a total removal of any form of control except for the trustee; however, the trustee still must operate as a fiduciary (individual who is controlling an asset and safeguarding it for the benefit of the beneficiary). Alternatively, in a limited liability company or a limited partnership, there can be a clear separation of equity ownership and management, and many obligations that would bind the trustee are not present or can be removed.
The limited partnership is structured as a general partner having a minority percentage of the equity but a maximum amount of control and management of the asset. In an LLC, this can similarly be structured with the manager having the control and the management of the asset while still separating the equity (units) from the Manager.
The most problematic entity is often a corporation which involves simple stock. The restrictions that can be placed upon using a simple corporation to separate the equity is more problematic, especially when more flexible structures involving LLCs and limited partnerships exist, since a corporation’s stock is treated as personal property and less easy to restrict transfers to third parties or attachment by third parties.
Typically, however, corps should not be overlooked as they do provide a strong level of protection of individual assets, if the primary business venture is within the corporation. The corporation or any other entity can be used to shield the individual owners from liability of the business that the corporation operates. They would typically only be responsible through extremely unusual circumstances or if they individually had personally guaranteed obligations of the corporation.
It is very important that the structure is maintained and that the proper format is followed so that the structure remains intact. This will prevent any potential creditors from accessing the assets meant to be protected through the asset protection structure.