When you start a business, one of the first things you’ll do once you have a few employees or business partners is incorporate your company into an LLC. A limited liability company has the ability to safeguard your assets in some contexts, but many new entrepreneurs and high-net-worth individuals don't know whether this is enough asset protection for long-term security.
So, does an LLC protect your personal assets? Let’s take a look at this question from two different perspectives: both in terms of what an LLC does and does not do and what else you should do in the pursuit of comprehensive, truly robust asset defense.
What is an LLC?
An LLC or limited liability company is a type of corporate structure that legally separates personal and corporate liability in matters of legal dispute. Put in simpler terms, an LLC ensures that you can’t be held responsible for issues with your company, at least to some extent.
Here’s a basic example. Imagine you have a small business that you incorporate into an LLC. After a few months, one of your business customers decides to sue you because of a product malfunction or something else. Your LLC – on paper – protects your assets by separating your business and personal assets. Any successful lawsuit will revolve around business assets, not personal assets.
In truth, an LLC can’t really safeguard your assets, as it’s trivially easy for a lawyer to show that you’ve “pierced the corporate veil” at least once.
Think of an LLC as a way to protect your personal wealth and assets from tanking alongside your business if a particular venture is less than successful. LLCs are highly valuable tools for entrepreneurs, startup executives, inventors, and dreamers of all stripes. But that’s only because of their business structural and tax benefits, not asset defense.
How Does an LLC Protect Your Personal Assets?
An LLC “protects” your personal assets by standing in as a separate legal entity in business disputes and lawsuits.
Again, let’s return to the example of a business customer suing your company. If their lawsuit is successful, you might be required to pay damages. But since the lawsuit was levied against your company, you cannot personally be held liable for damages… or so you might think.
The truth of the matter is this: as soon as you ever mix business and personal money or assets – and you will, make no mistake – a lawyer can prove that your LLC is worthless in terms of defense.
Ever used the company car to pick up your kid? Or have you swiped the business credit card at a gas station instead of your personal card? Just one slip up is enough to demolish the asset protection an LLC can “provide.”
Maybe you paid yourself from the business account without documenting it. Or maybe you accidentally deposited a personal check into the business account. These innocent mistakes can easily happen, especially if you’re juggling multiple accounts.
In fact, a staggering 75% of small business owners admit to blurring the lines between personal and business finances at some point. This seemingly harmless commingling of funds is a legal time bomb waiting to detonate your asset protection. And once the IRS knows, they can seize everything you own.
But there’s a way to fortify your defenses: the asset protection trust. By strategically placing your LLC within this legal fortress, you erect an impenetrable barrier between your personal wealth and the hungry creditors lurking outside. It’s like having a secret vault where your treasures are hidden from prying eyes.
When Doesn’t an LLC Safeguard Your Personal Assets?
All the time, practically. Since the legal protection afforded by an LLC is so flimsy, there are more instances where it doesn’t protect your assets than there are instances where you can rely on these business structures.
You Co-Mingle Business and Personal Assets
Your LLC is only as effective as you practice good business sense, particularly when it comes to not mixing your business and personal assets.
For instance, if you have one bank account that you use for both your personal expenditures and expenditures for your company, you can’t tell the court that you don’t have enough money to pay a creditor whatever you owe them.
The court will look at your bank account, determine that you effectively treat your business’s money as your own money, and tell you to pay up however you can.
By the same token, you shouldn’t use business assets for personal purposes. If you use your company warehouse to store moving stuff for your family, for example, you’ll be effectively breaching the corporate veil that’s supposed to make LLCs defensible in court.
Co-mingling your business and personal assets is a surefire way to negate the legal protection that an LLC can provide.
You Do Something Illegal
Of course, if you engage in illicit or illegal business activities, your LLC won’t protect your personal assets, either. Those assets could be seized by law enforcement and by the courts. Furthermore, those assets might be used to pay off any debts that you incur if you are put in prison.
Does an LLC Protect Your Personal Assets from Personal Lawsuits?
Not at all! Therein lies the chief vulnerability of limited liability companies. As you build up wealth, such as over $10 million in net worth, you’ll become an increasingly valuable target for creditors, lawsuit plaintiffs, ex-business partners, and anyone with a bone to pick with you (legitimate or otherwise).
If someone decides to sue you personally, your LLC will be as defensive as a piece of wet tissue paper. For example, imagine that your ex-business partner claims that you stole the idea for a million-dollar product. If they decide to sue you as an individual, your LLC won't matter one iota. You'll have to rely on your lawyers and other defenses to keep your assets safe.
The same is true for creditors that come after you, not your company. It doesn’t matter if you have a successful company and millions of dollars in net worth. If a creditor comes knocking on your door because of a bill that you owe from several years ago, you’ll need to either pay up or protect your assets in some other matter.
Fortunately, there are ways to safeguard your assets aside from limited liability companies.
How to Protect Your Personal Assets Completely
To truly defend your assets against all types of legal hazards, you’ll want to rely on an asset protection trust instead.
An asset protection trust – especially a Dominion-drafted, offshore asset protection trust – is the go-to means of wealth defense for all kinds of high-net-worth individuals. Here's why.
When you put your assets into an irrevocable asset protection trust, you effectively give up ownership of those assets. The trust takes ownership of them instead. Then, even if a lawsuit is successful against you or a creditor has a successful claim for an existing debt, you can’t be forced to use the assets in the trust to pay.
Why? You don’t own those assets anymore! It’s a legally airtight defense that a creditor or court won’t be able to get past, particularly if the trust is set up in an offshore jurisdiction. If that’s the case (and it always is with Dominion trusts), the trust itself may not even be beholden to US court rulings.
By using an asset protection trust, you can remove valuable assets like liquid capital, real estate, or other things away from the reach of your opponents. Simultaneously, you can draft your trust so that you continue to receive distributions and other benefits from the assets within. The same is true for any beneficiaries you name, like kids, your spouse, or anyone else.
In other words, an asset protection trust lets you truly have your cake and eat it too. You can keep your personal assets safe and secure, but still ensure that those assets work for you and benefit you after earning them. With the right savvy investments, your assets will build money for you over time – that’s the kind of value we can offer at Dominion.
In contrast, an LLC can only protect you against certain kinds of legal hazards, and only if you take great pains to make sure that your personal and business assets never co-mingle. That’s essentially impossible – sooner or later, you’ll slip up or do something that a cunning lawyer can use to breach the defenses of your LLC.
Using an LLC and an Asset Protection Trust
There’s no rule against using both of these instruments at the same time. In fact, a well-rounded asset protection plan might involve leveraging both your trust and your LLC in conjunction.
Your LLC will be useful for growing your business and providing you with certain tax benefits. Meanwhile, your asset protection trust will protect your wealth from any legal threats that come your way. In this way, you can use your LLC and your asset protection trust as vital tools to help you grow your business and your money consistently and safely over time..
Dominion will help you set up an asset protection plan like this – a plan that protects you not just against one threat but several.
Contact Dominion Today
When all is said and done, the only way to make sure your assets are kept safe and secure is to put them in an offshore, irrevocable asset protection trust from Dominion. That’s because Dominion-style trusts are formulated with the right legal language and in the right jurisdictions to make them effectively invulnerable to court injunctions, creditor pursuits, and ex-spouse claims.
Indeed, our fully defensible asset protection trusts are the premium, highest-value vehicles you can use to keep your liquid capital, real estate, and other assets secure against any possible threat. To protect your personal assets now and in the future, get in touch with one of our representatives today.
