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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.

How Long Could Your Business Survive Without Revenue?

Imagine losing out on revenues from sales and operations and still dealing with ongoing expenses to pay.

Why Every Business Owner Needs Adequate Business Interruption and Extra Expense Coverage

Every year, after nearly every natural disaster, thousands of small businesses face a true acid test: Can their business survive an interruption? Hurricanes Andrew, Katrina and Sandy and the tornados that struck Joplin, Missouri in 2010 didn't just affect structures: They knocked thousands of small and medium-sized businesses out of commission for days, weeks and sometimes months. These business owners were caught in a double whammy: First, they lost out on revenues from sales and operations at affected locations. Second, they still had ongoing expenses to pay. If your business were hit by a disaster, do you have the cash on hand to continue making the following payments:

  • Your own salary as an owner-employee
  • Salaries of key people whom you can't afford to lose
  • Salaries and hourly wages of workers helping with clean-up and recovery
  • Insurance premiums on company vehicles
  • Payroll taxes
  • Fringe benefits
  • Health insurance premiums
  • Lease payments on critical equipment
  • Marketing and advertising expenses - many of which are done on a forward contract?
  • Temporary office and warehouse space
  • Utilities
  • Deductibles from other insurance coverage

If revenues from operations came to a halt, and you had to add up all these expenses and keep things going, how long could your business run? Would you be faced with the loss of key salespeople and staff? Would valuable institutional memory be forced to go to other employers because you can't pay them for an extended period of time? You may be at an elevated risk of severe economic harm from business interruption if the following conditions apply:

  • You have substantial business overhead in general
  • You rely on leased equipment or vehicles to operate, or if you have financed equipment subject to repossession if you don't apply.
  • You rely on vendor financing.
  • You have key employees not easily replaced
  • You have one location, or if you have multiple locations within the same geographic area
  • You cannot operate without electric power and generator power is not realistic or cost-effective for you.
  • You rely on being able to purchase gasoline or diesel locally.
  • You rely on your income from the business to get through each month.
  • You have to rent computers, vehicles or capital equipment on a temporary basis to continue to function.
  • You are locked into forward purchasing contracts for materials, inventory or advertising
  • You rely on income from e-commerce operations that would vanish in the event of a sustained power outage.

An insurance professional with experience in business interruption insurance and business overhead insurance helps you tailor your coverage to account for considerations specific to your industry. For example, some industries are seasonal: Damages from an unexpected shutdown in operations during tourist season or at some other critical time would be much more damaging than shutdowns at other times during the year. Your coverage should take this into account. What about Non-Disaster-Related Shutdowns?

Not every business shutdown is due to a natural disaster. Sometimes you may have a shutdown due to the illness or disability of a key employee. Depending on the circumstances, you may need to wait things out until a partner/owner or key employee is able to return to work. In other circumstances, you need to recruit and train up a replacement. In some instances, business could come to a near halt until this is accomplished.

Ordinary key-person coverage should provide some point-blank protection, for example, to pay the costs of recruiting and training a new key salesperson, executive or other vital individual. But you may need additional coverage, called business overhead insurance, to keep your business's key functions running while you deal with your personnel changes, or buy time for your key individual to recover from the illness or injury that took him or her out of action.

As a local St. Louis independent insurance agent, I know there has never been a better time than now to review your assets and financial protection portfolio to ensure you are fully protected against losing what you have worked so hard to build. There are solutions for every kind of insurance need. Contact my office for a consultation. I’d love to assist you.

Dawn R. Berry, CIC
Provident Insurance Agency, LLC
2875 Patterson Road
Florissant, MO 63031
Phone: (314) 831-9933
Email: dberry@providentinsagency.com