Developing an asset protection plan in California presents creative opportunities and interesting challenges. A relevant strategy must be in place for licensed professionals in high-risk occupations. Principal residences, real estate investments, liquid assets, and retirement accounts must be shielded from potential claims.
The business attorneys in Los Angeles at The Hakim Law Group specializing in asset protection want those in high-risk professions to understand why a strategic protection plan is necessary.
In California, licensed professionals, such as CPAs, attorneys, and doctors, cannot practice under an LLC entity where personal liability is limited. Practicing under a professional corporation structure could result in personal liability in malpractice claims.
This article will offer strategies to consider that have worked well for our high-net-worth clients.
Proposition 13
The impact of Prop 13 is a key consideration when developing an asset protection plan. Prop 13 limits the increase to 1% of the prior year’s assessed value. However, Prop 13 also requires a property to be reassessed to the purchase price when sold.
This reassessed value cannot increase by more than 1% in subsequent years. A property’s current market value does not affect the assessed value until the property is sold.
A properly developed asset protection plan will circumvent a reassessment when transferring ownership and maintain the property’s current assessed value.
Real Estate Holdings
The strategic plan to protect real estate assets is changing how titles are held. Depending upon individual circumstances, real estate holdings can be transferred into a specifically-structured trust or limited partnership. There can be instances where contracts creating security rights, like a mortgage or a lease, can be created to integrate the client’s business.
The objective is to transfer ownership without the impact of Prop 13.
Asset Protection Strategies
Unfortunately, no law or ownership structure exists to exonerate personal liability in damage claims. The best an attorney can do is to protect one’s assets from the reach of a charging order or a forced sale to satisfy a judgment. Below are explanations of structuring trusts, retirement plans, and limited liability entities to protect real and liquid assets.
Personal Residence Trust
In California, the range of protection for a home’s equity is $75,000-$175,000. Since property values in this state are far above the national median, those of high net worth cannot depend upon the codes of civil procedure to adequately protect their home’s equity.
A popular strategy is a Residential Property Trust. This grantor-type trust will protect a home from a forced sale while preserving the tax benefits of homeownership.
A transfer into this Trust will not trigger the reassessment requirement under Prop 13, and the owner will maintain the enjoyment and a substantial degree of control over the property.
Private Retirement Plans
Under a Private Retirement Plan, the value of the underlying assets is fully exempt from any judgment attachment or forced sale. IRS registration and qualification of the plan are not required.
Although the contributions to the plan are not tax deductible, the contributions are not capped, and employees do not need to be covered under the plan.
The assets under the plan must be for retirement, and cash distributions are shielded from judgments, charging orders, and bankruptcies.
Family Limited Partnerships and LLCs
These limited liability structures hold a certain degree of asset protection. However, creditors can foreclose on a limited partnership interest and force a sale of an underlying asset. Or a creditor can become part of the owning entity with voting rights.
The mechanics of asset protection planning are to structure the owning interests within a Family Savings Trust to shield the asset and owning interest from a creditor’s reach.
The partnership agreement or the operating agreement of an LLC must specifically allow for Family Saving Trusts to hold an owning interest in the entity.
Interested in Learning More About Asset Protection? Contact A Highly Experienced Business Attorney in Los Angeles Today
California is known as a plaintiff- and creditor-friendly state. If assets are not fully protected, those of high net worth in high-risk professions will be exposed to the reach of judgment creditors regardless of their business entity structure.
If you need advice and guidance on developing an asset protection plan, you need the experience of a law firm specializing in asset transfers to shield a creditor’s reach with the least exposure to higher taxes.
Our team of skilled and highly reputable business attorneys in Los Angeles have worked at top-tier international law firms and served as general counsel to major companies. This high level of diverse legal and business experience is paramount to our boutique approach.
For additional information or to schedule an appointment, please contact The Hakim Law Group at 310-993-2203 or visit www.HakimLawGroup.com to learn more.
