The Top Five Asset Protection Strategies For The Owners Of A Closely Held Business

by Bruce Givner on December 26, 2011

The owners of a closely held business that is operated as an “S” corporation may be the targets of lawsuits that will drain their insurance policies, that may even exceed the limits of their insurance policies and that may cause them sleepless nights. What steps should these business owners take so that if something goes wrong, they will not lose all or most of the assets that they have worked so long to accumulate?

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  • Qualified Personal Residence Trust (“QPRT”).  The personal residence, and up to two vacation residences should be transferred to a QPRT.
  • Family Limited Partnership (or FLLC).  The investment real estate and investment liquid assets should be transferred to an FLP or FLLC, with the parents (or their living trust) being only limited partners (or non-managing members).
  • Defined Benefit Pension Plan.  A DBPP allows the largest deductions for the closely held business.  Any tax qualified employee retirement plan (think O.J. Simpson) is protected from all creditors (except orders for child and spousal support and the U.S. government) as long as one rank and file employee is covered.
  • Private Retirement Trust.  Under California law a PRT can be used to protect the receivables and hard assets of the closely held business. For non-California businesses a similar result can be achieved using a children’s trust or an FLP.
  • Recapitalization.  The parents should exchange their 100 shares of common voting stock for 1 share of voting stock and 99 shares of non-voting stock.  There is no one correct next move.  There are lots of attractive alternatives.  For example, the parents might gift the 1 voting share to an irrevocable trust for the children and enter into a buy-sell agreement that strongly favors the children’s trust.

Find out what Givner & Kaye can do for you. Contact us today. www.GivnerKaye.com (310) 207-8008

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