Critical Mistakes To Avoid In Your Asset Protection Plan

Mistakes to avoid in your plan

Signing for your limited partnership is a mistake you want to avoid. Your limited partnership should never guarantee loans or conduct business, unless you are using that particular entity to conduct a certain business. If you are using it to hold that asset, then it shouldn’t be conducting another business. You don’t want it creating more risks and most importantly you should not use it for the purpose to guarantee loans.

I’ve seen a few clients get in trouble these last few years because they actually signed on behalf of their asset protection plan with a limited partnership on the loan they did. Of course the reasons are understandable. The bank required it or sometimes people don’t realize or know that they could have said no. Most people don’t think there is a chance that they are not going to repay the loan. A personal guarantee should remain a personal guarantee. The key is to make sure that you don’t inadvertently obligate your asset protection structure to a guarantee.

Respect the corporate formalities

Not respecting the corporate formalities is a very common mistake that many people make. Often people make this mistake without noticing that they are. Some of the common mistakes people make are failing to set up segregated accounts for the limited liability company or limited partnership and using a limited partnership or LLC to pay for personal expenses.

The reality is that maintaining an LLC or limited partnership is extremely easy. They don’t require minutes like a corporation does. For the most part the states that we use for our clients don’t require annual filings, so it’s very hard to miss a filing and have your plan inadvertently dissolved.

If you have a rental property in an LLC that LLC should have a bank account. Rents paid to that rental property should be deposited into that bank account and that bank cash should be used to pay expenses related to it. People often use the money from the LLC bank account or limited partnership to go shopping at Costco or to cover other personal expenses.

Spending money from your asset protection plan

You are in control of your plan and are always free to take money from your plan. The proper way to spend money from your asset protection plan is to take it out and put it into your personal account. If the money is in your business account it should be used on business expenses.

We don’t want your plan conducting business this way it isn’t creating a liability. Although there is one exception, we want your plan conducting one business and that’s the business of managing your assets. That’s the business its allowed to be in and that business is allowed to have its own expenses and accounting.

Do you have questions about asset protection or want to know more about other common mistakes to avoid? Tell us your situation, we would be happy to address any questions you have in detail. Call us at Lodmell & Lodmell.