Estate Planning, PLUS
A foreign man, who was very interested in the people of the United States and the differences of people between geographic regions, asked an American friend he knew "How can I tell if someone is a native of New England, just by looking at him?" His friend replied "If he is eating apple pie for breakfast, he is a native of New England." So the foreigner found a man eating apple pie for breakfast and asked if all people native of New England ate apple pie for breakfast? The man replied "No, lots of people eat apple pie for breakfast. People native to New England eat warm apple pie for breakfast." So the foreigner found a man eating warm apple pie for breakfast and asked if all people native of New England at warm apple pie for breakfast? The man replied, "No, people native to New England have cheddar cheese on their warm breakfast apple pie." So the foreigner found a man eating warm apple pie with cheddar cheese for breakfast and asked if all people native to New England eat warm apple pie with cheddar cheese for breakfast? "Ah-yep, they sure do", said the man, "but REAL folks who are native to New England, are eating it with a spoon."
For the purposes of estate planning, it is best to look at high wealth as a fluid definition with specific benchmarks. Wealth defined as high is fluid because the benchmarks are subject to change depending on numerous factors, including where you live and current federal and state tax policy. The benchmarks best used are the amount of wealth necessary to where the beneficiaries will be forced to pay estate tax or "death tax" on their inheritance. Currently (2017), in Illinois the bench mark for owing estate tax is $4 million, and the Federal benchmark is $5.49 million. So if you live in Illinois and your total taxable estate exceeds $4 million you have what would be considered high wealth and you would benefit from incorporating asset protection strategies so that your heirs will not be forced to pay a second tax on assets where taxes have already been properly paid. If you live in a state with no state estate tax, but you have a total taxable estate of more than $5.49 million you have what would be considered high wealth, and again you would benefit from incorporating asset protection strategies.
Recent numbers show that Illinois has more than 272,000 businesses, with more than 221,000 of them employing 20 people or less. While these business owners are working towards lofty goals, the vast majority of them is not yet falling into the high wealth category, and still will value incorporating asset protection into their estate planning.
It is important for all business owners, regardless of industry, capital, or income to draw bright lines around what are business assets and what are personal assets. Should the business ever be named as a defendant in a lawsuit, and if the plaintiff is able to ‘pierce the corporate veil’ as it is known, or name the owner of the business as a person, into the suit, the personal assets of the owner could be at risk. For this reason, it is important to protect not only the business assets from litigation, but also the personal assets. This is why all business owners, even those who may not be high wealth earners, benefit greatly from incorporating asset protection strategies in their estate planning.
The best asset any professional carries is their insurance policy.
It also helps to use asset protection strategies in order to protect personal assets from professional judgements. For example, if a doctor gets sued, and the judgment is above their insurance limit, the plaintiff can go after the doctors personal assets, such as their house or bank accounts. But, if the doctor uses asset protection strategies and creates an LLC to hold the house and other personal property items, and the LLC names both the doctor and the spouse as officers, each with a 50% share. And, according to the rules of the business it requires a majority of shares to agree in order to dispose of any asset, it would make that asset much less desirable to anyone wanting to attach any judgment on that asset.
One of the real challenges of asset protection is how comfortable someone is giving up control of an asset. Depending on the level of control they are comfortable retaining or relinquishing, can dictate the proper strategy for the asset protection. Short of being embroiled in a current lawsuit, there is never a bad time to begin incorporating asset protection strategies. The best time would be when creating or reviewing your Estate Plan, the sooner the better.