Asset Protection for Business Owners

Planning ahead for protection from creditors, predators, lawsuits and bankruptcy is critically important for business owners. These strategies require planning before your issues arise.

All business owners’ deal with risks of legal action from employees, customers, and other third parties, but by planning ahead for those risks with the right legal tools, you can keep your family’s personal assets safe from those business risks. If it is important to keep claims against your business separate from claims against your personal assets such as your home, vehicles and life savings, then implementing asset protection strategies combining limited liability entities such as corporations and LLCs with asset protection trusts is a must.

Don't Let This Happen To You

Would you be prepared for such an event? Years ago, our firm had a client who operated a bicycle repair shop. One of his employees failed to repair a bicycle properly. A screw in the bike came loose while being used by their customer. It caused that person to flip over their handlebars and hit their head on some pavement. Brain injuries left them with a lot of medical bills and a host of issues for the rest of their life.

The customer took legal action, holding the bike shop responsible. Even though his employee was the one at fault, the business owner was the one on the hook for the damages. Suddenly everything was on the table for the owner of that repair shop. His home, his car and his hard-earned life savings were all at risk.

Protect Yourself From These Four Liabilities

As a business owner you know you have to deal with risk. A number of scenarios can put your assets in grave danger. Claims can come from at least four different areas;

  • Employee negligence
  • Debts due to vendors
  • Product liability
  • Professional liability

Planning ahead is the solution, and having insurance to satisfy a portion of these liabilities is only the start. Setting up the right legal vehiclesbefore claims arise limits the business claims to business assets. Your hard-earned personal assets are protected from liability.

Enhancing Your LLC is Mission Critical

Limited liability entities come in several different forms. The most common are corporations and limited liability companies (LLCs).Combining a trust with a limited liability entity offers better overall asset protection. Corporations and LLCs accomplish asset protection because they limit a creditor’s claims to only the assets of the corporation/company. However, this protection is only available if the corporation/company actually operates as a separate entity, and if appropriate insurance levels are maintained. If a creditor is able to show the entity is merely an alter-ego of its owners, and if there isn’t enough insurance in place to satisfy the creditor, the creditor may be able to “pierce the corporate veil” and reach beyond the corporation’s assets to the assets of the owners. This is why using additional asset protection tools, such as trusts, is vitally important.

Not All Trusts Are Created Equal

In many states, revocable trusts provide very limited asset protection and generally the limited assets protection offered is limited to a married couple while both the husband and wife are alive. Irrevocable trusts, however offer much stronger asset protection. Here's the rule of thumb; whatever you don’t want your creditors to have access to, you yourself also can’t have direct access to or direct control of. Depending on the type of asset (real estate and other non-liquid assets versus stocks, bonds and other liquid assets), different irrevocable trusts may be used for the best mixture of asset protection and control.

Plan Your Asset Protection Strategy Now

Planning ahead for protection from creditors, predators, lawsuits and bankruptcy is critically important for business owners. These strategies require planning before your issues arise as state laws allow creditors to satisfy claims from assets transferred to an asset protection vehicle while known claims are pending. If protection from creditors, predators, lawsuits and bankruptcy is important to you, consider combining trusts with limited liability entities now before it is too late.

Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting your business using legal strategies, please feel free to contact Brian at 636-394-7242 to schedule a consultation.

The Effect of Long Term Care on Business Owners

Long-term care doesn’t just impact the family of an elderly or disabled relative; it impacts your company’s bottom line. And it’s getting worse each year.

When a long-term care issue affects a loved one, that long-term care issue affects every member of the family. Unfortunately for a business owner, this means his or her employees are affected when one of their family members has a long-term care issue too. Recent studies have shown that any given individual has a 50% likelihood of being affected by long-term care in their lifetime, and 75% will be affected by a loved one’s long-term care issues.

An informal poll of our firm’s clients reflects the average costs for skilled nursing care in St. Louis, Missouri is $7,000.00 per month, or $84,000.00 per year. It is much higher than that in other areas of the country.

Given these costs, it’s no wonder an employee would devote more time to finding a solution to these issues than the job they have been hired to do. In fact, if they are also the ones providing care to their aging loved one, this is like your employee having another full time job. The ensuing decline in productivity costs a business owner money. According to the U.S. Bureau of Labor Statistics:

  • US businesses lose an average of 2.8 million work days each year to unplanned absences, which cost employers nearly $74 billion
  • Work day interruptions due to caregiving for adults cost employers about $3 billion
  • Absenteeism due to caregiving for adults cost employers about $5 billion

Unfortunately, this problem isn’t going away. It’s estimated that by 2020, one in three U.S. households will be involved in caring for elderly or disabled relatives, up from one in four today.

With the likelihood of a long-term care issue affecting a business owners employees, and the devastating costs associated with them, it makes sense to provide some solutions to employees in advance, but what can be done?

What is Long Term Care?
When someone has a long-term care issue it means they have issues with at least two activities of daily living or a cognitive impairment (such as dementia or Alzheimer’s). The activities of daily living are bathing, eating, dressing, toileting, continence, and transferring (getting in and out of bed or a chair). The care is considered “long-term” when the need for these activities is expected to continue for at least 90 days.

What Can a Business Owner Do?
Providing long-term care insurance to the business owner, executives and key employees is one piece of the puzzle. In many businesses, especially small to medium size businesses, if long-term care were to prevent a business owner or key employee from being able to work, the business would go under quickly. Providing long-term care insurance to a select group of employees is a great way to hedge your exposure to the risks of long-term care directly affecting your business, plus there are tax incentives associated with providing this insurance.

Premium payments made by an individual are included as a personal medical expense if you itemize on your taxes. Medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible. However, self-employed individuals (including those in sole proprietorships, partnerships, LLCs, and S-Corporations) can write off 100% of the individual limit regardless of the 10% AGI limit, as a reasonable and necessary business expense.

This treatment is similar to traditional health insurance premiums. Likewise, for C-corporations, premium payments are also fully deductible as a reasonable and necessary business expense. This can apply to owners, their spouses, their dependents, and all employees. Tax treatment for benefits received from the policy for employees is very favorable as well. Employer-paid long-term care insurance is excluded from an employee’s gross income and the benefits received are tax free.

But what about the indirect consequences of an employee’s loved one needing long term care that a business owner can’t insure against? Start by providing education to your employees about the risks of long-term care and give them resources to seek out for professional guidance. Long-term care solutions are one of the most misunderstood set of legal and financial rules that exist, and without proper education, it can take years to figure out how to plan appropriately. Inviting a local elder law attorney or a qualified financial professional to speak to employees about these issues can avoid hours of lost productivity.

Long-term care issues are something that can be planned for in advance. A business owner should encourage his or her employees to seek guidance from a legal professional to pre-plan for any issues that may arise with their loved ones. Like most legal and financial issues, advance planning leads to the best (and least stressful) solution when those issues arise.

Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting yourself, your family, or your business using legal strategies, please contact Brian at 636-394-7242 to schedule a consultation.

The 2013 Fiscal Cliff Deal and What It Means for You and Your Estate

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 into law, addressing lingering concerns about the expiring Bush era tax rates, estate and gift tax rates, and many other tax related concerns. This bill impacts nearly every American citizen in some aspect of his or her life.  Here is a summary of what it means for you and your estate.

What It Means for Income Earners

Current tax rates continue for individuals earning less than $400,000 and couples earning less than $450,000.  For those individuals making more than $400,000, and families earning more than $450,000, federal income tax rates will rise to 39.6%, up from 35% in 2012.  Taxes on capital gains and dividends will increase to 20%, up from 15% in 2012.  Married couples earning more than $300,000 and individuals earning at least $250,000 will face a phase-out of the personal exemption.  Payroll taxes will also rise in 2013 to 6.2%, up from 4.2% in 2012.

What It Means for Your Estate

For those interested in transmitting their wealth to beneficiaries, both after their death or by a gift during their lifetime, some rules remain the same and some rules change in 2013.  The estate tax exemption will remain at $5.12 million per person, and will be indexed for inflation in the future.  However, for those individuals who pass away with more than $5.12 million (or couples passing away with more than $10.24 million in their estate subject to tax) the top estate tax rate will increase to 40%, up from 35% in 2012.  Portability of a spouse’s exemption is also extended, meaning that if one spouse passes away without using their full estate tax exemption, the second spouse to die gets to use other spouse’s unused exemption, potentially transferring more wealth tax free with the right estate planning.

As for the taxes on gifts to others, the lifetime gift tax exemption will remain at $5 million.  However, the annual per donee exclusion (how much you can gift to one person during the year without the lifetime gift tax exemption being affected) rises to $14,000 per donee.

What It Means for Older and Disabled Americans

The bill establishes the Commission on Long-Term Care, which will “develop a plan for the establishment, implementation, and financing of a comprehensive, coordinated, and high-quality system that ensures the availability of long-term services and supports.”  The commission will investigate the interaction between Medicare, Medicaid, and private long-term care insurance.  The commission will try to make recommendation to address the growing long-term care problems facing our country and the budget problems from government spending on long-term care.  The bill also extends Medicare programs for older Americans and specialized Medicare Advantage plans for those with special needs.

Other Provisions

Automatic spending cuts slated to take effect immediately were delayed by two months until March 1, 2013, with the current spending levels to be paid equally by tax increases and later spending cuts.  What happens on March 1, 2013 will be an ongoing issue in January and February of 2013.
Medicare physicians are happy with the “doc fix” portion of the bill because it prevents the scheduled 27% reimbursement cuts to Medicare physicians.

The deduction of state and local general sales taxes, the above-the-line deduction for qualified tuition, the research credit, and the credit for energy-efficient appliances are all extended.  Federal unemployment benefits and some other related services are extended for a year.  Also included was a one-year extension of many agricultural programs.

Remaining Challenges

While this bill contains fixes for many lingering issues, it does not contain a solution for the debt ceiling debate.  The United States reached its borrowing limit at the end of 2012, and the debt issuance suspension period will last through February 28, 2013, meaning that Congress will again be faced with the challenge of raising the debt ceiling.

Perhaps the most important concerns to watch, for those with estate planning concerns, are the deficit reduction discussions that will remain an issue through 2013.  These discussions could impact retirement accounts, charitable giving arrangements, and certain types of trusts.  Additionally, Medicare and Medicaid programs, as well as VA benefits for disabled and elderly veterans, could be affected.
If these changes or any others come about which affect you or your estate, please consult your professionals as soon as possible.

About the Author

Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri.  If you are interested in learning more about protecting yourself, your family, or your business using legal strategies, please contact Brian at 636-394-7242 to schedule a consultation.

Why a Business Owner Needs a Buy-Sell Agreement

A Buy-Sell Agreement is a legally binding agreement between partners or co-owners that eases resolution if one person dies, becomes disabled, or leaves the business, preventing infighting among family and co-owners.


A business client came into my office the other day with a problem that could have been avoided if he'd had a buy-sell agreement.

Let's call my client Max. Max’s business partner owned half the business. The partner died, leaving behind a wife and two adult children.

Max had always gotten along with his partner's family. But he never had any business discussions with them. A few months after the funeral his partner’s wife called asking questions about the business. His partner’s children also called asking questions. They all claimed to be co-owners of the business according to his partner’s estate plan. They either wanted money to buy out their shares or they wanted to make important decisions about the company’s future.

“I don’t have money to buy their shares in the business.” Max said “So, am I really in business with my partner’s family now?” The answer was difficult to take. Without money on hand to buy out the shares, Max was indeed in business with his partner’s family. Max wasn't happy.

That leaves us with two questions. What are Max's options now, and how could he have avoided this mess?

What Is a Buy-Sell Agreement?

One of the most crucial documents for a company with multiple business owners is a Buy-Sell Agreement. A Buy-Sell Agreement is a legally binding agreement that governs what happens when a partner or owner of a business either dies, becomes disabled, is forced to leave the business or chooses to leave the business.

A buy-sell agreement can provide liquidity for dealing with these major events in a business. It also helps to avoid infighting among family members, co-owners, and spouses.

For Max, having a buy-sell agreement could have answered the following questions after his partner died:

  • Is my new co-owner my deceased partner’s wife and kids?
  • Do I have to buy them out?
  • If I have to buy them out, what amount do I need to pay them?
  • If I need to buy them out, where does the money come from?
  • Can they sell their interests in the business to my competitors if they need money?
  • Can I start a new business or do I have to stick with the old one?

How Does a Buy-Sell Agreement Work?

A buy-sell agreement legally binds people who sign it and their heirs as well. That means any co-owners wives, children, and other beneficiaries are also bound by terms of the agreement. The agreement can also establish a manner of valuing the business for buy-out and purchase purposes, so there are no disputes as to how much money needs to change hands.

How is a Buy-Sell Agreement Funded?

A life insurance policy is generally used to fund a buy-sell agreement. When someone dies, insurance money flows into the business. The money is used to purchase business interests from heirs of the deceased co-owner. It also provides enough money to stay afloat during the transition. Finally, it ensures the business interests stay in-house and the original owners can control with whom they partner.

Are There Any Options?

There are many different types of buy-sell agreements. They can address many issues such as disability and retirement, beyond just death of an owner. An estate planning and business attorney experienced in drafting buy-sell agreements can help you choose and draft the right type of agreement for you.

Who Needs a Buy-Sell Agreement?

For any business owner in business with others, an updated buy-sell agreement is an absolute must have. Just like many other legal issues in business, if you prepare in advance, you are better off when something unforeseen happens. If protection for your business and family is important to you, act now before it is too late.

Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting your business using legal strategies, please feel free to contact Brian at 636-394-7242 to schedule a consultation.