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Overview of Corporations
Limited Liability Companies
Limited Liability Partnerships
Family Limited Partnerships
Irrevocable & Revocable Trusts
Equity Stripping

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Corporations Are Not a Shelter for Personal Assets

For a corporation to provide you 'outside-in' protection, you must transfer your personal wealth to the corporation. You then no longer personally own your boat, car, paintings and so forth; your corporation does. A personal creditor cannot directly claim assets owned by the corporation, however, your personal creditors can possibly seize your corporate shares, which is the problem with outside-in strategies. Your ownership interest in the corporation can be claimed by your creditor and if you own a controlling share of the corporation, your creditor could control the corporation. That's why you can never safely use the corporation independently to protect your personal assets and you must use the corporation with other Asset Protection tools.

You have several options to protectively title your corporate shares:

  • Transfer most or all of the corporate shares to your less vulnerable spouse, who would then control the corporation. This action requires careful estate and divorce considerations because the corporation would now be owned by your spouse.
  • Title the shares to a family limited partnership (FLP) that your spouse could become the general partner and control the partnership assets. Or, a spouse along with children, friends and charities could become limited partners. As a general partner, the spouses control the partnership that owns the corporation, which in turn owns the assets. Indirectly, the spouses control the assets, but do not personally own the assets or the shares of the corporation that owns the assets. Assets owned by the corporation cannot be claimed by the couples' personal creditors, provided that the asset transfer to the corporation was not fraudulent and was properly conducted.
  • Transfer the corporate shares to an irrevocable trust for your children (or other beneficiaries). A couple can indirectly control corporate assets without directly owning corporate shares by making the husband and wife be the co-trustees of the trust and manages the trust that controls the corporation.
  • Title the shares to an LLC. An LLC member's personal creditors—just like a limited partnership—cannot seize a debtor's membership interest in the LLC. Strict observance of fraudulent transfer laws is required if you have creditors at the time of transfer.
  • Title the shares to an international trust or foreign LLC. international trusts and foreign LLCs can protect corporate shares. Combining international trusts with limited partnerships as the corporate shareholder substantially strengthens such a strategy. By titling shares of a U.S.-based corporation to an International entity, ownership is privatized—however, a U.S. court can force you to surrender shares fraudulently transferred internationally, making it an unattractive option when you have existing creditors.
  • Title your shares as tenants-by-the-entirety. If only one spouse has creditors, in certain states you can co-own your shares with a spouse where tenancy-by-the-entirety laws protect stock ownership.

Each of these strategies require adaptation to your personal needs and requires the guidance of an asset planning professional. Layering of protection is essential and trust, limited partnership and other protective entities can protect your personal assets, provided you do not directly own the corporate shares.

If outside-in protection is a requirement then a passive personal corporation is an option. Any corporation that engages in business incurs liabilities and you risk losing personal assets owned by the corporation to businesses creditors. Another danger is that corporations used primarily to hold personal assets can create serious holding corporation tax problems as C corporations are subject to double taxation. While S corporations are singly taxed, they cannot be owned by a trust, partnership or other protective entity and US tax laws levy heavy taxes on passive income of personal holding corporations. Yet another problem with a corporation holding personal assets is that if you contribute personal assets to a corporation and later wish to re-claim the assets, it is possible that you may be required to pay taxes on the returned capital. A redistribution of partnership or LLC assets (where the LLC has not elected corporate tax treatment) does not typically trigger a tax. These "tax traps" are complex and require careful review with financial and legal advisors to avoid tax consequences. But the use of limited partnerships, limited liability companies and other entities can provide highly effective protection of personal assets and are worthy of exploration with your professional advisors.


The best defense is a good offense.