I am often surprised by how many of my clients, who should have structures in place to protect their assets, have nothing of the sort. Whether it’s an extra rental home, farm equipment or even a fully functioning business complete with employees I often find shocking holes in Utah business structures. For those with even minimal income producing assets, a Limited Liability Company (LLC) or similar structure can help preserve wealth in the event of catastrophe.
The first example of a catastrophe where a Limited Liability Company can be helpful is a lawsuit. For example if I own a rental and am sued because of something that occurs on the rental property the potential creditors can come after not only my rental property but also my personal residence, my car, my fishing rod, pretty much anything I own. That is where an LLC comes into play; if my rental property is in an LLC it adds a layer of insulation between my personal assets and my business assets. If set up and managed correctly the LLC will limit creditors reach to only those assets inside an LLC. For those with two rental homes the same principal applies.
Another example of a catastrophic event is the death or incapacity of the business owner. Death or incapacity of an owner can kill operations and run a business into the ground. Structuring an LLC with the correct formation documents as well as a succession plan can ensure that others will be prepared to step in and keep things running. Most small businesses do not make it past the first generation in significant part because of lack of planning for a future beyond the current owner. When a business owner plans for serious, life-altering events there is a greater chance that wealth will not be needlessly wasted.