According to news reports, Sacramento has lost two very popular music venues in only a week’s time. These losses have left a gaping hole in Sacramento’s independent music scene. First, the Starlite Lounge, located on 21st Street hosted its final show on June 25, 2017. The Naked Lounge coffee shop, a smaller venue located downtown, hosted its final show on June 30, 2017. The closing of these two venues should remind all business owners of the need for asset protection planning.
Struggling business owners make tough business decisions
Starlite, previously known as the Town House, was often a host of various music genres but was reportedly best known for its heavy metal events and its ability to attract national and international touring music acts. Yet, according to a Facebook post, Starlite reported it was “out of options,” adding that managing a live music venue was a “constant uphill battle.”
The Naked Lounge offered primarily all-ages acoustic and singer/songwriter events but also included indie and punk bands. However, recently all-ages shows are being held more frequently at the Silver Orange in East Sacramento, Cafe Colonial and the Colony on Stockton Boulevard. Closure of the Naked Lounge will reduce the all-ages music venue options in Sacramento.
Why you should never overlook asset protection planning
Especially if you own a business or commercial property, asset protection can be a big concern for you. The possibility of legal claims and constant existence of creditors make it even more important to have an asset protection plan so that you don’t run the risk of losing everything through some unexpected turn of events. There are different ways to legally protect your assets, including irrevocable trusts. Not every type of trust can accomplish proper asset protection. Let your asset protection lawyer help with your planning.
The primary goal of asset protection
Creating an asset protection plan involves a careful analysis of your assets and appropriate organization of those assets in a way that provides protection against risk or loss. A common misconception is that asset protection requires some type of fraud or “hiding” of assets. However, when done properly and within the bounds of the law, asset protection is entirely legal. You can be prepared for any unexpected situation that would otherwise put your assets at risk, and you can do so without engaging in any type of tax evasion or fraud.
Legal entities for asset protection
An often effective strategy to limit the adverse financial effects on one’s personal assets if a business venture does not thrive is to set up an liability limiting entity. Among the most common of such entities are corporations, limited liability companies and limited partnerships. Each has its pros and cons and it is wise to first consult with a qualified and experienced attorney to determine which might be best for you and how to create and implement these entities. Don’t be penny wise and pound foolish by trying to create these entities on the cheap using some web-based document company or d0-it-yourself manual. You will most likely be sorry you did.
Trust terms necessary for asset protection
Asset protection can also be built into trust-based planning. In order to ensure that your assets will actually be protected, certain terms are required to be included in your trust agreement. For example, any interests that you leave to your beneficiaries must be contingent on a future event or subject to the trustee’s sole discretion. Another helpful provision is referred to as a “spendthrift” provision. Spendthrifts also guard assets against creditors, who are not able to make claims against the beneficiary’s interest.
Property must remain in the trust to be protected
Simply transferring an asset to a trust does not accomplish asset protection, unless the assets remain in the trust. In other words, if you ever remove the property from the trust, it no longer falls under the trust’s protection. Once removed, the property will become subject to creditor’s claims once again.
The difference between revocable and irrevocable living trusts
A revocable trust is the opposite of an irrevocable trust, in that it can be changed or revoked at any time, during your lifetime. Revocable living trusts are become effective during your lifetime and allow you to manage the trust and the trust property completely. Then, upon your death, the trust property is transferred on to your named beneficiaries. Living trusts are typically used in conjunction with a will in estate planning. While irrevocable trusts are great for asset protection, revocable living trusts are great for avoiding the time and expense of the probate process.
Start asset protection planning before trouble is at the door
If you want your asset protection plan to be the most effective you need to put your plan in place long before creditor claims and legal judgments have arisen. Otherwise, your attempts to move your assets will likely appear to be fraudulent. Put another way, if you transfer your assets after a creditor has made a legal claim or a lawsuit has been filed against you, it may be considered a fraudulent transfer and, therefore, ineffective. You shouldn’t wait because you may not recognize a potential source of liability early enough to protect your assets from that risk.
Download our FREE estate planning checklist today! If you have questions regarding asset protection or any other small business planning matters, please contact the experienced attorneys at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!