WealthManagement.com column: entity structure determines what a judgment can reach

A personal judgment usually cannot reach the money a client holds in their business, according to a WealthManagement.com column. What the owner typically loses instead is access to their own assets, and possibly the assets themselves, the column says.

Corporations, limited partnerships, LLCs and trusts are not created equal when it comes to personal asset protection, the column says, and the choice is not one to rush. Entity structure is the variable the column stresses. It notes that distressed business owners often arrive after discovering their structure did not protect them as they expected, sometimes because the entity was set up long ago by a generalist CPA, or because the owner used an online program or artificial intelligence.

The column's example is a couple near retirement who own a family corporation, hold a revocable trust for probate avoidance, and have already gifted some non-voting company stock to a son. They spend most of their time in Florida and keep a summer home up north; their oldest son runs the business day to day.

The car at the center of the column's example was owned jointly by mom and dad, not by the corporation or the trust. The couple's other son visited with his new fiancée, and the pair borrowed that car for dinner. After wine at dinner and more drinks at a local bar, the son knew he was too intoxicated to drive, but the fiancée said she could. She hit a doctor and his wife walking across the street, killing the wife and leaving the doctor maimed for life.

The corporation, the trust and the gifted shares were all in place. Each does a separate job — running the business, avoiding probate, moving value out of the estate — and none of them is the asset the column describes as owned jointly by two people. That suggests two separate reviews for advisors: the entity that holds the business, and the personally titled assets, jointly owned property included, that a judgment can actually reach.