Business Structure Planning

Starting a business comes with great opportunities but also significant risks. Protecting personal and family assets is a key consideration for new business owners. The strategies below offer general guidance for asset protection and estate planning, but it’s important to remember that these ideas are not one-size-fits-all solutions. Your unique circumstances, goals, and local laws will determine the most effective approach for you. At Creative Planning, we aim to create holistic plans tailored to your needs by leveraging our immense team of experts across legal, financial, tax, and business advisory disciplines.

1. Choose the Right Business Structure

The structure of your business plays a significant role in protecting your personal assets:

• LLC (Limited Liability Company) or Corporation: These structures can shield personal assets from business liabilities. However, proper maintenance (e.g., separate business accounts and records) is critical to keeping liability protection intact.
• S Corporation Election: In some cases, electing S Corporation status can help reduce self-employment taxes while still providing liability protection.

2. Draft a Comprehensive Operating Agreement

If you form an LLC, an operating agreement outlines roles, responsibilities, and operational guidelines. It’s not legally required in every state, but it helps reduce misunderstandings and liabilities, especially if multiple members are involved.

3. Create a Trust

Trusts can play a powerful role in estate and asset protection planning:

• Revocable Trust: Offers flexibility during your lifetime and simplifies the transfer of assets to beneficiaries. However, these trusts generally don’t provide creditor protection while you’re alive.
• Irrevocable Trust: Assets transferred into this type of trust are removed from your personal estate, which may offer greater protection from creditors and estate taxes.

4. Consider a Family Limited Partnership (FLP)

An FLP is a legal entity that allows business owners to retain control over assets while transferring ownership to family members. This can help reduce estate tax liability and may offer asset protection from creditors.

5. Utilize Homestead Exemptions & Proper Titling

• In states with homestead exemptions, your primary residence may be partially or fully protected from creditors.
• For married couples, holding property as tenants by the entirety (where allowed) can offer additional protection against individual creditors.

6. Invest in Business Insurance

Insurance is an essential layer of protection. General liability insurance, professional liability coverage, and other business-specific policies help mitigate risk and protect both personal and business assets from unexpected claims.

7. Contribute to Qualified Retirement Plans

Retirement accounts, such as 401(k)s and IRAs, can be powerful tools for both wealth building and asset protection. In many cases, these accounts are shielded from creditors under federal or state laws.

8. Implement Estate Freeze Techniques

Techniques like Grantor Retained Annuity Trusts (GRATs) or Intentionally Defective Grantor Trusts (IDGTs) allow business owners to freeze the value of their business at current levels, passing future growth to heirs with minimized tax liability.

9. Regularly Review Your Estate Plan

As your business grows and evolves, your estate plan should too. Regular updates ensure your plan reflects changes in your business value, personal goals, family situation, and tax laws.

10. Consult Legal and Financial Experts

Every business is different, and asset protection laws vary widely by state and jurisdiction. At Creative Planning, we offer a comprehensive and integrated approach to estate and asset protection planning. By utilizing our diverse team of advisors—spanning financial, legal, tax, and business advisory disciplines—we craft plans that align with your short-term business goals and long-term personal objectives.

A Guide, Not a Rulebook It’s important to remember that these strategies are starting points—not strict rules. Some may apply to your situation, while others may not. The key is understanding the options available and tailoring them to your specific needs. At Creative Planning, our mission is to deliver clarity and confidence by ensuring all aspects of your financial and business life are working in harmony. Taking a proactive approach with the right advisors can help secure your business and personal financial future.