The LLC Does Not Protect What You Think It Protects
Most Georgia business owners who form an LLC believe it creates a wall between their business debts and their personal assets. It does — but only for debts you did not personally guarantee.
The moment you sign a personal guarantee on a business loan, line of credit, or equipment lease, you have stepped outside the LLC’s liability protection for that specific debt. The lender now has a direct claim against your personal assets — your home, your bank accounts, your personal investments — regardless of how the LLC is structured. Personal guarantees are standard in commercial lending, and most business owners sign them without understanding that each one creates a targeted gap in the LLC’s protection.
A second exception is unpaid payroll taxes. Under IRC § 6672, the IRS can assess a 100% trust fund recovery penalty against any person responsible for collecting and remitting payroll taxes who fails to do so. This applies regardless of entity structure. If your business falls behind on payroll taxes, you face personal liability for the full amount — not a proportional share, but 100%.
A third exception is the alter ego doctrine. Georgia courts will disregard LLC liability protection when an owner has “overextended its privileges in the use of the corporate entity to defeat justice, to perpetrate fraud, or to evade statutory, contractual, or tort responsibility.” (Kissun v. Humana, Inc., 267 Ga. 419, 421 (1997)). In practice, this is triggered when owners run personal expenses through the business account, deposit business revenue into personal accounts, or use the LLC as an interchangeable wallet. The LLC protection that cost $150 to form is undone by a consistent pattern of mixed transactions.
Georgia Does Not Allow Self-Settled Asset Protection Trusts
Some Georgia business owners have heard that self-settled domestic asset protection trusts (DAPTs) can shield personal assets from future creditors. Georgia does not recognize these trusts.
Under O.C.G.A. § 53-12-80, a trust in which the settlor is also a beneficiary provides no protection against the settlor’s creditors. Georgia’s legislature attempted to pass DAPT legislation in 2018 (HB 441), but the governor vetoed it. No comparable statute has been enacted since. Georgia business owners who want self-settled trust protection must form a trust in Nevada, South Dakota, or Wyoming — states with active DAPT statutes — and meet the formation and residency requirements of those states.
An estate planning attorney who suggests a self-settled Georgia trust as a creditor-protection vehicle either does not know Georgia law or is misrepresenting what the trust can do.
A Revocable Trust Does Not Shield Assets From Creditors
Georgia business owners commonly assume that assets placed in a revocable living trust are protected from creditors. They are not.
Under O.C.G.A. § 53-12-82, assets in a revocable trust remain reachable by the grantor’s creditors during the grantor’s lifetime. Because you retain control of the trust — you can revoke it, amend it, and access the assets at any time — those assets are legally still yours for creditor purposes. A revocable trust protects against probate and transfers assets to your family without court involvement at death. It does not create a creditor barrier while you are alive.
A revocable trust is the right tool for probate avoidance and succession planning. It is not the right tool for asset protection. Confusing the two is a common mistake that a business estate planning attorney should clarify at the first meeting. For a direct comparison of when a Family LLC provides creditor protection versus when an Irrevocable Trust is the right structure, see Family LLC vs. Irrevocable Trust for Business Succession in Georgia.
Keeping an Entity-Redemption Buy-Sell Agreement After Connelly
If your business has a buy-sell agreement structured as an entity-redemption — meaning the company buys out a deceased owner’s interest using life insurance proceeds — that structure may now produce a larger estate tax bill than you planned for.
In Connelly v. United States (2024), the U.S. Supreme Court ruled 9-0 that life insurance proceeds held by a corporation to fund a redemption buy-sell are a corporate asset that must be included in the company’s fair market value for estate tax purposes. The redemption obligation does not reduce that value. The Connelly family paid $889,914 in additional estate taxes as a result of a structure that was assumed to be tax-neutral.
Before the June 6, 2024 ruling, most entity-redemption agreements were structured assuming the insurance proceeds and the buyout obligation canceled each other out. Under current law, they do not. Georgia business owners with existing entity-redemption buy-sell agreements should have them reviewed immediately. For a full breakdown of the ruling and the cross-purchase alternative, see Cross-Purchase vs. Entity Redemption Buy-Sell Agreement in Georgia.
No Plan for the Estate Tax Liquidity Problem
The federal estate tax is due within 9 months of death under IRC § 6161. For a Georgia business owner whose estate is largely composed of a closely held business interest, that deadline is a problem — the business is illiquid.
A business interest worth $8 million does not produce $3.2 million in cash in 9 months without selling or liquidating part of the business. The IRS offers an installment option under IRC § 6166, which allows certain closely held business estates to spread estate tax payments over up to 14 years — but only if the business interest exceeds 35% of the adjusted gross estate, and only if the election is made on time. Not every estate qualifies.
Business owners who do not plan for liquidity in advance leave their heirs with limited options: sell the business under deadline pressure at a distressed price, draw on personal liquid assets if available, or qualify for and elect IRC § 6166 installment treatment. The first outcome is the most common and the most costly. A business estate planning attorney can structure key-person life insurance, installment-sale provisions, or entity-level liquidity in advance to prevent it.
For a full cost breakdown of what happens when a Georgia business estate goes through probate without a plan, see What It Costs to Die Without a Business Succession Plan in Georgia.
Using a General-Practice Attorney for Business-Specific Planning
The most foundational mistake Georgia business owners make is hiring a general-practice attorney — or a real estate attorney — to do estate planning that involves a business.
A general-practice attorney may prepare a will, a durable power of attorney, and a revocable trust without knowing that: the operating agreement has no successor trustee authority provision so the trust provides no operational control; the S-Corp shares cannot be held by the type of trust they drafted under IRC § 1361(b)(1); the buy-sell agreement is now structurally incorrect under Connelly; or that Georgia does not recognize self-settled asset protection trusts.
Each of these is a specific gap that a business succession attorney is trained to catch and a general-practice attorney is not. The documents will look complete. The plan will have real legal and tax exposures that will not surface until the owner is dead or incapacitated.
For a complete overview of what a working business estate plan must include, see Best Estate Planning for Business Owners in Georgia. For pricing, see How Much Does Estate Planning Cost for a Business Owner in Georgia. To book a review with Melissa Breyer, see Business Succession Planning.
For a direct comparison of what a business succession attorney covers versus what a general practice attorney covers — including the S-Corp trust election window and post-Connelly buy-sell compliance — see Business Succession Attorney vs. General Practice Attorney in Georgia.
