Why Annual Reviews Matter

Most new business owners are concerned that everything is favorable for the success and safety of their business, including obtaining the protection of business insurance. However, longevity and success can cause complacency.

Let’s say you started your business 10 years ago with just a small space and computer desk. Today, you have an office full of employees and equipment. Do you still have the same insurance policies from 10 years ago? If so, you might not realize how under-insured you’ve become.

Business owners need to ensure they’re annually reviewing their business insurance programs. Errors happen and circumstances change, even when policies were initially obtained with care and caution. Without yearly examinations, substantial expense and risk can ensue.

It’s common for small businesses to start out with basic insurances, such as commercial property and general liability policies. However, as they evolve, most find they need other types of insurance, such as:

• Excess Liability or Umbrella – covers claims exceeding your standard policy’s limits
• Workers’ Compensation – once your business reaches a certain number of employees, this type of insurance will actually be required in most states to provide payments for an employee’s lost wages and medical expenses following a workplace injury
• Professional Liability – covers your service-provided mistakes and usually your attorney fees.
• Auto, Hired & Non-owned – protects your business should an employee cause a vehicle accident in their personal or rented vehicle
• Commercial Auto – coverage not under personal auto policies, such as to your business and for employees unloading and loading
• Employment Practices Liability – coverage for HR issues, such as those related to termination, harassment, and discrimination laws
• Directors & Officers Liability – financial protection for Directors and Officers should they be sued for wrongful acts stemming from performance of their duties
• Employee Benefits Liability – covers liability issues from an omission or error in the administration of an employee’s benefits that results in the employee incurring a cost, such as a terminated employer losing benefits after not being providing with COBRA information

Depending on your business, many of these insurances may be essential to adequately protect yourself. An annual insurance review is an ideal time to discuss these insurances, as well as your need for them, with your agent. Ensure the following elements are considered as you begin the review:

• Revenue. More business is good, but it also means a greater potential for liability. Have annual sales changed?
• Property. Have you added equipment, computers, and such that would create a need to increase your commercial property policy’s limits?
• Location. Your business owner’s or general liability policy could be impacted if you’ve added, closed, or moved locations.
• Travel. A hired and non-owned auto policy may be needed if your employees are frequently driving rented vehicles.
• Employees. Have you had an increase in your workforce, turnover rate, or use of contractors? Consider
• Employment Practices Liability Insurance for high turnover rates. Workers’ Compensation insurance may be a new requirement if you’ve added to your workforce.
• Services. Are you offering additional services? For certain types of work, you may need additional endorsements to your general liability policy.
• Customers. Are you serving new clients or industries? This may cause problems with your professional liability policy if you’re servicing high concentrations of high-risk clients/industries.

The above answers will be different for every business and usually won’t remain the same over the business’s life. That’s why insurance isn’t a one-size-fits-all, unchangeable product. Take advantage of these attributes and annually review your business for exposures and insurance needs. Insurance may not cover everything, but it can certainly mitigate your risks. Start your annual business insurance review today by setting up a meeting with Cleary Insurance to discuss the above issues and how they relate to your current insurance needs.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700 or click here to contact us by e-mail.

A Vital Part of a Wealth Management Plan

Thanks to a soft economy, the up and down stock market, and the loss of equity in many homes, more people than ever are considering ways to protect their assets. Threats such as a forced bankruptcy filing, a frivolous lawsuit or an IRS audit are all reasons to implement strategies to shield your property from potential creditors, litigation and other legal hazards. Let’s explore two asset protection techniques that may be right for your situation.

1. Transferring assets to a trust

Placing assets into a trust is one way to protect them from potential creditors. But not all types of trusts will provide asset protection. A common estate planning tool, the irrevocable life insurance trust (ILIT), is a trust that does. You set up and fund a trust that uses those funds to buy an insurance policy on your life — or you can transfer an existing policy to the trust. Either way, the policy’s value is protected because you’re no longer considered the legal owner. (This also means the policy isn’t included in your taxable estate.) At the same time, the trust also protects it — until funds are distributed — from your beneficiaries’ creditors.

Other trusts also are available to protect your assets. In recent years, several states have followed Alaska’s lead and passed laws to provide protection to “self-settled” trusts. These trusts are available to residents of any state, but the costs of setting them up and maintaining them are typically higher than with normal living trusts and should be weighed against their asset protection benefits.

Offshore trusts are an option, but they come with their own set of costs and risks. These trusts can offer significant protection. But they not only must comply with the laws in the country in which they’re established, but also must be structured in accordance with U.S. tax laws and regulations.

2. Establishing a family limited partnership

A family limited partnership (FLP) is another estate planning tool that shields assets from creditors. You establish an FLP by setting up a partnership and transferring assets to it in exchange for limited partnership interests for you and your family. You also can use a properly structured FLP to reduce gift and estate taxes.
In general, a limited partner’s creditors cannot reach the FLP’s assets — they can only obtain rights to receive any distributions made from the FLP to the limited partner. By retaining a small general partnership interest (1%, for example), you can retain control over the property while providing some level of protection from potential creditors.

In recent years the IRS has challenged valuation discounts on FLP interests and also attempted to have FLP assets included in the taxable estate of the person who funds the partnership. But a properly structured and operated FLP likely will survive most challenges.

Who owns that asset?

Your ability to protect a certain asset greatly depends on how you own it. One type of ownership, tenancy by the entirety, is common and easy to accomplish.

Tenancy by the entirety is a form of joint tenancy with right of survivorship that can apply to personal residences. Available in most states, it’s perhaps the simplest and least intrusive form of asset protection and allows you to protect your home for as long as you and your spouse continue to use it. Unfortunately, persistent creditors can eventually succeed to ownership of the property when you sell or on your or your spouse’s death, regardless of who dies first.

If one spouse is more likely to be the object of a lawsuit than the other, an alternative approach is to shift assets to the “safer” partner to protect them. Understand, though, that shifting too much property to one spouse could interfere with the estate planning goal of balancing assets to take advantage of each person’s estate tax exemption. Then again, holding a home in tenancy by the entirety may not help achieve your estate planning goals either.

Consider your options

No matter what the economic climate is, asset protection should always be part of your overall wealth management plan. Setting up trusts and FLPs are just two techniques to help ensure your assets stay with you or go where you want them to. Discuss with your financial advisor these and other asset protection measures that fit your specific situation.

At Cleary, we are committed to a holistic approach of protecting and preserving our clients’ financial assets. Give us a call today at 617-723-0700 or contact us by e-mail and let us know how we can help you.