Most business owners are looking for additional liability protection when establishing their estate plan. They are typically fearful of an employee or customer suing for more than their insurance will allow for, or piercing the corporate veil and then coming after the owner’s personal assets.
A revocable living trust is a great tool for incapacity, privacy, tax planning, probate avoidance, and peace of mind, however, a revocable trust alone does not provide liability protection. Instead, what we often do for business owners in this scenario is to create additional asset protection entities, such as asset protection trusts, family limited partnerships, or family LLC’s.
A hypothetical family of four owns a grocery store in Rochester, MN, which is set up as a corporation. The family also owns several farms in addition to other investments. The family has transferred all of their property to a revocable living trust but continues to have concerns about liability exposure from the grocery store. For example, they fear if a plaintiff were able to “peirce the corporate veil” or obtain a judgment exceeded insurance coverage against the grocery store, that plaintiff may come after their farms, which have been in the family for generations. Given this scenario, one asset protection strategy the family might consider is creating a Family Land, LLC. This could be accomplished by deeding the family’s various farm properties from the parents’ revocable living trust(s) into a Family Land, LLC. The parents’ revocable living trust(s) would most likely be the largest member of the Family Land, LLC. The parents may also consider bringing the children into the new Family Land, LLC as minority members.
By utilizing a Family Land, LLC, this family can accomplish several estate planning objectives. First, the new LLC creates a practical way to get the children involved in the family farm business while leaving the parents in control. Second, the new LLC allows the parents to begin reducing any possible estate tax liability by gifting fractional membership interests to their children. Third, and most importantly for those concerned with asset protection planning, the newly formed limited liability company provides another liability barrier between grocery store liability exposure and the family’s farm property assets.
For families, farmers and other business owners interested in learning more about the various asset protection strategies available to them, contact Rochford & Langins attorney Peter Langins today at 507-534-3119.