A good asset protection plan puts dangerous assets in limited liability companies (LLCs). There should be a separate LLC for each dangerous asset in order to insulate your other assets from liability arising from this dangerous asset. By insulating the asset with its own LLC, only this asset will be taken if a judgment arises against the LLC. A judgment against any of the members will result in a charging order only against any distributions to be made to the member. In other words, a judgment against you will not affect the asset in the LLC.
One of the greatest advantages of the LLC is that it is an extremely effective liability shield (for which you pay a $800 yearly Franchise tax deposit in California), yet is able to operate as a sole proprietorship or partnership with income passing through to its members in lieu of corporate taxation. In California there is also a fee based on gross income due after income exceeds $250,000.
Each state has unique laws that pertain to LLCs. In California, there are many restrictions applicable to who can and cannot operate as an LLC and how many members are required. An LLC can be operated as a pass-through entity or a corporation depending upon the choices it makes and the way it operates.
You can now shelter your home with an LLC
The IRS has now come out with rulings that allow us to shelter our principal residences and vacations homes in single member LLCs and in two member husband and wife LLCs in community property states. Instead of completely divesting yourself of ownership and control with a Qualified Personal Residence Trust, the LLC can be used to asset protect your home (and second home).
In our simplified asset protection plan, with exceptions, your safe assets are transferred to a family limited partnership, your home and/or vacation home are transferred to an LLC if you still may need to refinance your home or a qualified personal residence trust if not, your business is transferred to an LLC or S corp. depending on the type of business, rental or commercial real estate is transferred to an LLC and the remainder of the assets go to the FLP. All interests in these entities are held by your living trust.
