It's smart practice to protect your assets and mitigate risk whenever you have the option. Business owners and other professionals, such as doctors, lawyers, and more, should consider setting up a holding company in advance of any unfortunate events in order to protect their assets from creditors. Nobody expects to be in the unfortunate situation of a misconduct or malpractice suit, or a liability lawsuit involving your business, however, there remains the chance that it could happen to you. For this reason, it is better to take precautionary steps than to be scrambling after the fact.
Establish a Holding Company for Protection
In a scenario like the one described above, the best form of self-defense you can implement is through moving assets out of your name as far ahead of time as possible. This will help to shield you from the reach of creditors. It should be noted that judges do not often sympathize with individuals who take measures to defraud creditors. However, the farther back the transfer is made, the better chance you have the move will not be determined fraudulent.
The best way to transfer ownership of your assets while still maintaining control over them is through creation of a holding company. By setting up a company in which you maintain a majority of ownership shares (then divide remaining shares among family members), you can keep control while transferring assets out of your name. The next step is to gift your assets to the company. Once this structure is in place, creditors will only be able to come after the percentage amount you own in the company. Also, because the assets are tied up in the company, it is likely that creditors end up settling for a lesser and more liquid amount.
Consider Using a Family Trust
Setting up a family trust is an effective form of protection for your personal assets. This method works when you name yourself and an additional trusted person as beneficiary. The assets you wish to protect or pass along are then given to the trust. The trust stipulates that the assets cannot be claimed by creditors. These trusts are a great way of protecting inheritances and other assets from winding up in the hands of creditors.
Additional Benefits of a Holding Company
Beyond providing asset protection and limiting your risk exposure, the holding company structure can offer additional benefits, as well. Some of these benefits include:
- Potential to minimize taxes. Depending on the way your family holding company is formed and structured, you may be able to pay less in taxes than you otherwise would as a group.
- Option for growth and further development. If you choose to grow and diversify your business and other assets, the holding company structure is particularly well-suited to handle expansion while maintaining a clear, centralized control of the company.
If you are interested in forming a family holding company to protect your assets, consider using a professional attorney service with experience in this field. Our service ensures your company is formed correctly, so that your personal finances and other assets remain safely with you and your family.