Reducing Liability & Asset Protection

1. Reducing Liability & Asset Protection RICK ZAPATA - CEPM REGIONAL EXTENSION AGENT Alabama Cooperative Extension

2. Setting Up Business Structure Sole proprietor : single owner of business, files income on schedule C or Schedule F (Totally Liable) Pass Through Entities Partnership: more than one owner, generally files on form 1065. General, Limited, Limited Liability Limited Liability Company: treated as prt, corp business privilege tax return required Corporation: Sub Ch. S (<100 share holders) or full “C”, requires 1120 return

3. Scales of Justice - Tilted ?????

4. Who Gets Sued Generally people who do not follow best business practices often will be sued The farm business (by name) The owner of the business (Public Record) The employee of the business If a corporation or LLC or Partnership, the officers or partners will be named in the legal action Anyone they think who has $$$$“deep pockets” (shot gun approach)

5. Litigation Someone gets MAD !!!! “Mad” hires an Attorney (% fee/contingency) Served with Complaint You hire an Attorney (Paid by the Hour) Deposition (Discovery= Who did what, Who owns what) Court (Judge or Jury Trial) Verdict for or Against Against = Judgment

6. Judgment Granted Plaintiff petitions court to reduce Judgment to Lien Lien sent to County Sherriff to collect (bank accounts, person property, business property, real property, cash or liquid assets Judgment good for 20 years in Alabama and plaintiff can collect balance owed plus 12% interest per year (compounded yearly)

7. How They and Their Attorney Win They must persuade the Judge or the Jury that you are liable for the loss. They must receive a favorable verdict. There must be something for them to get. There must be assets that can be attached (Lien). They can GET only what is TITLED in your name or in the businesses’ name

8. Litigation Someone gets MAD !!!! “Mad” hires an Attorney (% fee/contingency) Served with Complaint You hire an Attorney (Paid by the Hour) Deposition (Discovery= Who did what, Who owns what) Court (Judge or Jury Trial) Verdict for or Against Against = Judgment

9. Insurance: Friend or Foe A Liability Insurance policy has a section of exclusions where they do not have to pay I call them the “OUTS” The insurance company will send their attorney to the discovery meeting and they will try to establish: Fraud or Misrepresentation or any other outs The attorney will then petition the court to exclude them from any liability

10. Asset Protection : Trusts • Definition: Is a legal entity that a person creates. Usually drawn by an attorney. • Trusts hold “TITLE” to real and personal property that is transferred to trust • The trust provides financial benefits for people or organizations named in the trust • The manager of the trust is called the trustee • The persons or organization receiving benefits from the trust are called beneficiaries • Trusts protect assets from Judgment/lien creditors and Divorce Actions

11. Loss Prevention Tips Trusts can protect Business and Personal assets Have nothing in the name of the owner Do not put spouse’s name on the business Do not “mix” business and personal assets Keep bank accounts separate Rent business assets from separate party Leverage all assets when possible

12. Need for Professional Advice • The information in this presentation and accompanying material is provided for educational purposes only. It is not a substitute for competent financial or legal advice. You are encouraged to seek professional financial and or legal advice. This information is provided to help you better communicate with your professional advisors in analyzing your specific situation.