LLC for Asset Protection
The initials “LLC” in a financial planning context stand for a "limited liability company." (Note that the “C” stands for company rather than corporation.) The limited liability company is somewhat of a hybrid enterprise that has some of the characteristics of a corporation while also resembling a sole proprietorship or partnership depending on whether or not there is more than one member.
The practice of asset protection involves positioning personal assets outside of the reach of creditors. Creation of a limited liability company can protect your personal assets from being attached by creditors who have a claim against the LLC. They cannot levy upon the owner's interest in the limited liability company, so on this level the LLC does provide asset protection.
However, creditors can seek to have a charging lien placed on cash distributions made from the LLC to the member or members. There are other pitfalls that go along with the creation of a limited liability company as well so this avenue is not a panacea for people seeking asset protection.
For one thing, single-member limited liability corporations can be viewed as an alter ego of the individual owner. It is not uncommon for courts to rule in favor of creditors who contend that the sole purpose of the LLC is to shield the owner from debt responsibilities.
Another potential pitfall is the fact that LLC agreements generally require all members to receive equal cash distributions should such payouts take place. So if there was a charging lien placed on one member, the LLC couldn't cease making distributions to this individual alone to avoid this attachment.
Despite the imperfections, limited liability companies can be a good choice for many people if they are properly created and utilized. If you're interested in learning more, simply arrange for a consultation with an experienced financial planning attorney.
ABOUT THE AUTHOR: Kevin Pillion
Experienced estate planning attorneys Sarasota FL of the Co-Executor PLLC offers estate planning and business planning resources to residents of Sarasota FL.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.