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Transcript of Estate & Asset Protection Planning Brislawn & Associates, P.S. Attorneys at Law © C. Dennis...
Estate & Asset Estate & Asset Protection Protection PlanningPlanning
Brislawn & Associates, P.S. Brislawn & Associates, P.S. Attorneys at LawAttorneys at Law
© C. Dennis Brislawn, Jr. 1994 - 1997
Definition of Asset ProtectionDefinition of Asset ProtectionDefinition of Asset ProtectionDefinition of Asset Protection
Target: Organizing assets and affairs in Target: Organizing assets and affairs in advance to minimize against risks of lossadvance to minimize against risks of loss
Preventative, not curative (vaccines, not Preventative, not curative (vaccines, not antibiotics)antibiotics)
Target: Organizing assets and affairs in Target: Organizing assets and affairs in advance to minimize against risks of lossadvance to minimize against risks of loss
Preventative, not curative (vaccines, not Preventative, not curative (vaccines, not antibiotics)antibiotics)
Reasons to Protect AssetsReasons to Protect AssetsReasons to Protect AssetsReasons to Protect Assets
We Focus on Estate We Focus on Estate Building, But Fail to Building, But Fail to Consider RisksConsider Risks
““Sue Society”: Who Can Sue Society”: Who Can I Blame?I Blame?
Juries Play “Robin Juries Play “Robin Hood”; Take from the Hood”; Take from the Rich, Give to the PoorRich, Give to the Poor
We Focus on Estate We Focus on Estate Building, But Fail to Building, But Fail to Consider RisksConsider Risks
““Sue Society”: Who Can Sue Society”: Who Can I Blame?I Blame?
Juries Play “Robin Juries Play “Robin Hood”; Take from the Hood”; Take from the Rich, Give to the PoorRich, Give to the Poor
Cut Your Losses Cut Your Losses (Damage Control)(Damage Control)
Peace of MindPeace of Mind Concentrate on Your Concentrate on Your
JobJob Protect Your Family and Protect Your Family and
Your BusinessYour Business
Cut Your Losses Cut Your Losses (Damage Control)(Damage Control)
Peace of MindPeace of Mind Concentrate on Your Concentrate on Your
JobJob Protect Your Family and Protect Your Family and
Your BusinessYour Business
More Lawsuits Are Filed Each Year*More Lawsuits Are Filed Each Year**Over 20 Million Civil Cases Expected in 1994!*Over 20 Million Civil Cases Expected in 1994!
More Lawsuits Are Filed Each Year*More Lawsuits Are Filed Each Year**Over 20 Million Civil Cases Expected in 1994!*Over 20 Million Civil Cases Expected in 1994!
What Asset Protection Is NotWhat Asset Protection Is NotWhat Asset Protection Is NotWhat Asset Protection Is Not
Hiding assets, i.e. Hiding assets, i.e. confidentiality is a plus, but confidentiality is a plus, but secrecy is not the lynchpin of secrecy is not the lynchpin of the planthe plan
Taxation avoidanceTaxation avoidance
Hiding assets, i.e. Hiding assets, i.e. confidentiality is a plus, but confidentiality is a plus, but secrecy is not the lynchpin of secrecy is not the lynchpin of the planthe plan
Taxation avoidanceTaxation avoidance
Title to AssetsTitle to AssetsTitle to AssetsTitle to Assets
The Way You Hold Title to Your Property Affects The Way You Hold Title to Your Property Affects the Rights a Creditor Will Have!the Rights a Creditor Will Have!
The Way You Hold Title to Your Property Affects The Way You Hold Title to Your Property Affects the Rights a Creditor Will Have!the Rights a Creditor Will Have!
Community PropertyCommunity PropertyCommunity PropertyCommunity Property
Community PropertyCommunity Property• Acquired During MarriageAcquired During Marriage• Created by Law or by AgreementCreated by Law or by Agreement
• Result of an “Onerous Acquisition” or Result of an “Onerous Acquisition” or WORK !WORK !
Community PropertyCommunity Property• Acquired During MarriageAcquired During Marriage• Created by Law or by AgreementCreated by Law or by Agreement
• Result of an “Onerous Acquisition” or Result of an “Onerous Acquisition” or WORK !WORK !
Separate PropertySeparate PropertySeparate PropertySeparate Property
Separate PropertySeparate Property• Acquired Before MarriageAcquired Before Marriage• Acquired By Gift or InheritanceAcquired By Gift or Inheritance• Can Convert to Community By Agreement or Can Convert to Community By Agreement or
MistakeMistake• Personal Injury RecoveryPersonal Injury Recovery
Separate PropertySeparate Property• Acquired Before MarriageAcquired Before Marriage• Acquired By Gift or InheritanceAcquired By Gift or Inheritance• Can Convert to Community By Agreement or Can Convert to Community By Agreement or
MistakeMistake• Personal Injury RecoveryPersonal Injury Recovery
Joint TenancyJoint TenancyJoint TenancyJoint Tenancy
100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person
““Last One Left Standing Rule”: Last One Left Standing Rule”: Survivor Owns It All!Survivor Owns It All!
Your DefensesYour DefensesYour DefensesYour Defenses
InsuranceInsurance Exempt AssetsExempt Assets
• State and Federal LawState and Federal Law
• Retirement PlansRetirement Plans TrustsTrusts Property AgreementsProperty Agreements
InsuranceInsurance Exempt AssetsExempt Assets
• State and Federal LawState and Federal Law
• Retirement PlansRetirement Plans TrustsTrusts Property AgreementsProperty Agreements
Limited Liability Limited Liability CompaniesCompanies
CorporationsCorporations Family Limited Family Limited
PartnershipsPartnerships Offshore PlanningOffshore Planning
Limited Liability Limited Liability CompaniesCompanies
CorporationsCorporations Family Limited Family Limited
PartnershipsPartnerships Offshore PlanningOffshore Planning
A Liability DragonA Liability DragonA Liability DragonA Liability Dragon
Creditor ClaimsCreditor Claims Creditor ClaimsCreditor Claims
Types of ClaimsTypes of ClaimsTypes of ClaimsTypes of Claims
Officer/Director Officer/Director Liability (Corp.)Liability (Corp.)
Employee SuitsEmployee Suits Business or Professional Business or Professional
LiabilityLiability DivorceDivorce Tax LiabilityTax Liability Creditor LawsuitsCreditor Lawsuits
Officer/Director Officer/Director Liability (Corp.)Liability (Corp.)
Employee SuitsEmployee Suits Business or Professional Business or Professional
LiabilityLiability DivorceDivorce Tax LiabilityTax Liability Creditor LawsuitsCreditor Lawsuits
Vicarious Liability for Vicarious Liability for Other PeopleOther People
Partnership LiabilityPartnership Liability Unknown ClaimsUnknown Claims
• Product LiabilityProduct Liability
• Environmental LiabilityEnvironmental Liability
Vicarious Liability for Vicarious Liability for Other PeopleOther People
Partnership LiabilityPartnership Liability Unknown ClaimsUnknown Claims
• Product LiabilityProduct Liability
• Environmental LiabilityEnvironmental Liability
Attempts to Avoid Creditor ClaimsAttempts to Avoid Creditor ClaimsAttempts to Avoid Creditor ClaimsAttempts to Avoid Creditor Claims
Gimmicks are Methods ThatGimmicks are Methods That
Don’t WorkDon’t Work• Fraudulent TransfersFraudulent Transfers• ““Hiding” Assets (2005 Bankruptcy Act Hiding” Assets (2005 Bankruptcy Act
now requires 3 years of tax returns)now requires 3 years of tax returns)• Joint OwnershipJoint Ownership• ““Constitutional” TrustsConstitutional” Trusts
Gimmicks are Methods ThatGimmicks are Methods That
Don’t WorkDon’t Work• Fraudulent TransfersFraudulent Transfers• ““Hiding” Assets (2005 Bankruptcy Act Hiding” Assets (2005 Bankruptcy Act
now requires 3 years of tax returns)now requires 3 years of tax returns)• Joint OwnershipJoint Ownership• ““Constitutional” TrustsConstitutional” Trusts
Creditor RightsCreditor RightsCreditor RightsCreditor Rights
Can Set Aside Fraudulent TransfersCan Set Aside Fraudulent Transfers All Community Property is Exposed to All Community Property is Exposed to
Community CreditorsCommunity Creditors Separate Property is Exposed to Separate Separate Property is Exposed to Separate
Creditor, 1/2 Community Property May Be Creditor, 1/2 Community Property May Be Exposed to Exposed to Separate CreditorSeparate Creditor
Can Set Aside Fraudulent TransfersCan Set Aside Fraudulent Transfers All Community Property is Exposed to All Community Property is Exposed to
Community CreditorsCommunity Creditors Separate Property is Exposed to Separate Separate Property is Exposed to Separate
Creditor, 1/2 Community Property May Be Creditor, 1/2 Community Property May Be Exposed to Exposed to Separate CreditorSeparate Creditor
Creditor Rights (cont.)Creditor Rights (cont.)Creditor Rights (cont.)Creditor Rights (cont.)
Divorce Court May Have Jurisdiction Over Divorce Court May Have Jurisdiction Over Both Community and Separate PropertyBoth Community and Separate Property
All Joint Tenancy Property is at Risk of Any All Joint Tenancy Property is at Risk of Any Single Joint Tenant’s Creditors!Single Joint Tenant’s Creditors!
Divorce Court May Have Jurisdiction Over Divorce Court May Have Jurisdiction Over Both Community and Separate PropertyBoth Community and Separate Property
All Joint Tenancy Property is at Risk of Any All Joint Tenancy Property is at Risk of Any Single Joint Tenant’s Creditors!Single Joint Tenant’s Creditors!
Fraudulent TransfersFraudulent TransfersFraudulent TransfersFraudulent Transfers
Intent to Defraud, Hinder or Delay Known or Intent to Defraud, Hinder or Delay Known or Likely CreditorsLikely Creditors
Intent is Generally PresumedIntent is Generally Presumed Badges of FraudBadges of Fraud
such as insolvency, lack of consideration for a transfer, such as insolvency, lack of consideration for a transfer, close relationship with transferee, pending or close relationship with transferee, pending or threatened litigation, concealment, deviation from usual threatened litigation, concealment, deviation from usual practice, transfer of all assets, retaining possession, practice, transfer of all assets, retaining possession, benefit, or control after transferbenefit, or control after transfer
Intent to Defraud, Hinder or Delay Known or Intent to Defraud, Hinder or Delay Known or Likely CreditorsLikely Creditors
Intent is Generally PresumedIntent is Generally Presumed Badges of FraudBadges of Fraud
such as insolvency, lack of consideration for a transfer, such as insolvency, lack of consideration for a transfer, close relationship with transferee, pending or close relationship with transferee, pending or threatened litigation, concealment, deviation from usual threatened litigation, concealment, deviation from usual practice, transfer of all assets, retaining possession, practice, transfer of all assets, retaining possession, benefit, or control after transferbenefit, or control after transfer
Fraudulent ConveyanceFraudulent ConveyanceFraudulent ConveyanceFraudulent Conveyance
Pending or present creditors will have a greater Pending or present creditors will have a greater presumption of a fraudulent conveyance than future presumption of a fraudulent conveyance than future creditorscreditors
Generally, fraudulent conveyance is NOT our common Generally, fraudulent conveyance is NOT our common understanding of fraud. Fraudulent conveyance is understanding of fraud. Fraudulent conveyance is remedial, i.e. a conveyance which can be undone only remedial, i.e. a conveyance which can be undone only to the point a creditor is hindered. No other damages to the point a creditor is hindered. No other damages are usually allowed. However, some states allow for are usually allowed. However, some states allow for criminal or civil penalties, including for the advisor.criminal or civil penalties, including for the advisor.
Pending or present creditors will have a greater Pending or present creditors will have a greater presumption of a fraudulent conveyance than future presumption of a fraudulent conveyance than future creditorscreditors
Generally, fraudulent conveyance is NOT our common Generally, fraudulent conveyance is NOT our common understanding of fraud. Fraudulent conveyance is understanding of fraud. Fraudulent conveyance is remedial, i.e. a conveyance which can be undone only remedial, i.e. a conveyance which can be undone only to the point a creditor is hindered. No other damages to the point a creditor is hindered. No other damages are usually allowed. However, some states allow for are usually allowed. However, some states allow for criminal or civil penalties, including for the advisor.criminal or civil penalties, including for the advisor.
Another DragonAnother DragonAnother DragonAnother Dragon
Estate TaxesEstate Taxes Estate TaxesEstate Taxes
Estate TaxesEstate TaxesEstate TaxesEstate Taxes
Changing ownership of assets often also Changing ownership of assets often also removes them from the estate, offering the removes them from the estate, offering the additional benefit of reduced estate taxes along additional benefit of reduced estate taxes along with asset protectionwith asset protection
Changing ownership of assets often also Changing ownership of assets often also removes them from the estate, offering the removes them from the estate, offering the additional benefit of reduced estate taxes along additional benefit of reduced estate taxes along with asset protectionwith asset protection
Asset Protection TechniquesAsset Protection TechniquesAsset Protection TechniquesAsset Protection Techniques
Methods That WorkMethods That Work• Save Administrative Fees and CostsSave Administrative Fees and Costs• Reduce TaxesReduce Taxes• Provide Multiple Layers of DefenseProvide Multiple Layers of Defense• Allow Opportunity for Early SettlementAllow Opportunity for Early Settlement
Methods That WorkMethods That Work• Save Administrative Fees and CostsSave Administrative Fees and Costs• Reduce TaxesReduce Taxes• Provide Multiple Layers of DefenseProvide Multiple Layers of Defense• Allow Opportunity for Early SettlementAllow Opportunity for Early Settlement
First Line of DefenseFirst Line of DefenseFirst Line of DefenseFirst Line of Defense
InsuranceInsurance InsuranceInsurance
Strengths and WeaknessesStrengths and WeaknessesStrengths and WeaknessesStrengths and Weaknesses
Covers LossCovers Loss Cash to SettleCash to Settle Duty to DefendDuty to Defend Fund Buy-SellsFund Buy-Sells
• DisabilityDisability
• DeathDeath Pay Estate Taxes With Pay Estate Taxes With
Discounted $$Discounted $$
Covers LossCovers Loss Cash to SettleCash to Settle Duty to DefendDuty to Defend Fund Buy-SellsFund Buy-Sells
• DisabilityDisability
• DeathDeath Pay Estate Taxes With Pay Estate Taxes With
Discounted $$Discounted $$
Getting CostlyGetting Costly May not QualifyMay not Qualify Insolvency of CarrierInsolvency of Carrier May get CancelledMay get Cancelled Coverage ExemptionsCoverage Exemptions
• Hazardous WasteHazardous Waste
• Intentional ActsIntentional Acts
• Punitive DamagesPunitive Damages
Getting CostlyGetting Costly May not QualifyMay not Qualify Insolvency of CarrierInsolvency of Carrier May get CancelledMay get Cancelled Coverage ExemptionsCoverage Exemptions
• Hazardous WasteHazardous Waste
• Intentional ActsIntentional Acts
• Punitive DamagesPunitive Damages
StrengthsStrengths WeaknessesWeaknesses
Second Line of DefenseSecond Line of DefenseSecond Line of DefenseSecond Line of Defense
Exempt Exempt PropertyProperty
Exempt Exempt PropertyProperty
HomesteadHomesteadHomesteadHomestead
Colorado allows up to $30,000 Colorado allows up to $30,000 Other states allow unlimited (e.g. Florida) but Other states allow unlimited (e.g. Florida) but
new 2005 bankruptcy act requires purchase new 2005 bankruptcy act requires purchase 1215 days before filing or limit is $125,0001215 days before filing or limit is $125,000
2005 Act also limits protection to $125,000 2005 Act also limits protection to $125,000 where claim arises from RICO, breach of where claim arises from RICO, breach of securities laws, fiduciary fraud, and other securities laws, fiduciary fraud, and other specified crimes or tortsspecified crimes or torts
Colorado allows up to $30,000 Colorado allows up to $30,000 Other states allow unlimited (e.g. Florida) but Other states allow unlimited (e.g. Florida) but
new 2005 bankruptcy act requires purchase new 2005 bankruptcy act requires purchase 1215 days before filing or limit is $125,0001215 days before filing or limit is $125,000
2005 Act also limits protection to $125,000 2005 Act also limits protection to $125,000 where claim arises from RICO, breach of where claim arises from RICO, breach of securities laws, fiduciary fraud, and other securities laws, fiduciary fraud, and other specified crimes or tortsspecified crimes or torts
InsuranceInsuranceInsuranceInsurance
Federal exemption is for death benefits and limited Federal exemption is for death benefits and limited cash value (less than $9,000)cash value (less than $9,000)
Colorado exemption is $50,000 where estate is Colorado exemption is $50,000 where estate is beneficiary and contributions were more than 4 years beneficiary and contributions were more than 4 years before filingbefore filing
State exemptions can be more generous, e.g. Florida, State exemptions can be more generous, e.g. Florida, Hawaii, Louisiana, but new 2005 Act requires Hawaii, Louisiana, but new 2005 Act requires residency in that state for at least 2 yearsresidency in that state for at least 2 years
Federal exemption is for death benefits and limited Federal exemption is for death benefits and limited cash value (less than $9,000)cash value (less than $9,000)
Colorado exemption is $50,000 where estate is Colorado exemption is $50,000 where estate is beneficiary and contributions were more than 4 years beneficiary and contributions were more than 4 years before filingbefore filing
State exemptions can be more generous, e.g. Florida, State exemptions can be more generous, e.g. Florida, Hawaii, Louisiana, but new 2005 Act requires Hawaii, Louisiana, but new 2005 Act requires residency in that state for at least 2 yearsresidency in that state for at least 2 years
Retirement PlansRetirement PlansRetirement PlansRetirement Plans
2005 Act makes clear contributions to ERISA 2005 Act makes clear contributions to ERISA covered plans are exempt, as are entire interest covered plans are exempt, as are entire interest in IRAs (up to $1 million?).in IRAs (up to $1 million?).
2005 Act makes clear contributions to ERISA 2005 Act makes clear contributions to ERISA covered plans are exempt, as are entire interest covered plans are exempt, as are entire interest in IRAs (up to $1 million?).in IRAs (up to $1 million?).
529 Plans529 Plans529 Plans529 Plans
529 Plans are Exempt if:529 Plans are Exempt if:
Funded more than 2 years before filingFunded more than 2 years before filing
Funded by parent, grandparent, stepparent, Funded by parent, grandparent, stepparent, stepgrandparent of beneficiary of plan stepgrandparent of beneficiary of plan
$5,000 limit if funded more than one year $5,000 limit if funded more than one year but less than two years before filing but less than two years before filing
Fraudulent transfer rules still applyFraudulent transfer rules still apply
529 Plans are Exempt if:529 Plans are Exempt if:
Funded more than 2 years before filingFunded more than 2 years before filing
Funded by parent, grandparent, stepparent, Funded by parent, grandparent, stepparent, stepgrandparent of beneficiary of plan stepgrandparent of beneficiary of plan
$5,000 limit if funded more than one year $5,000 limit if funded more than one year but less than two years before filing but less than two years before filing
Fraudulent transfer rules still applyFraudulent transfer rules still apply
Other Exemptions in ColoradoOther Exemptions in ColoradoOther Exemptions in ColoradoOther Exemptions in Colorado
Property of business partnership where held in Property of business partnership where held in name of partnershipname of partnership
Burial plotBurial plot Health AidsHealth Aids Business or professional supplies up to $10,000Business or professional supplies up to $10,000
Property of business partnership where held in Property of business partnership where held in name of partnershipname of partnership
Burial plotBurial plot Health AidsHealth Aids Business or professional supplies up to $10,000Business or professional supplies up to $10,000
Third Line of DefenseThird Line of DefenseThird Line of DefenseThird Line of Defense
Property Property AgreementsAgreements
Property Property AgreementsAgreements
Partitioning PropertyPartitioning PropertyPartitioning PropertyPartitioning Property
Works for Families Where One Spouse has Works for Families Where One Spouse has Significant Liability ExposureSignificant Liability Exposure
Use With Additional TechniquesUse With Additional Techniques
CAUTION: MARITAL DISSOLUTIONCAUTION: MARITAL DISSOLUTION
Works for Families Where One Spouse has Works for Families Where One Spouse has Significant Liability ExposureSignificant Liability Exposure
Use With Additional TechniquesUse With Additional Techniques
CAUTION: MARITAL DISSOLUTIONCAUTION: MARITAL DISSOLUTION
ExampleExampleExampleExample
““At-Risk” Spouse Owns:At-Risk” Spouse Owns:
Exempt AssetsExempt Assets
Risky AssetRisky Asset
““At-Risk” Spouse Owns:At-Risk” Spouse Owns:
Exempt AssetsExempt Assets
Risky AssetRisky Asset
““Safe” SpouseSafe” Spouse
Owns:Owns:
Non-Exempt AssetsNon-Exempt Assets
Family HomeFamily Home
““Safe” SpouseSafe” Spouse
Owns:Owns:
Non-Exempt AssetsNon-Exempt Assets
Family HomeFamily Home
First FortificationFirst FortificationFirst FortificationFirst Fortification
Revocable Revocable Living Trust Living Trust (RLT)(RLT)
Revocable Revocable Living Trust Living Trust (RLT)(RLT)
RLT Asset Protection FeaturesRLT Asset Protection FeaturesRLT Asset Protection FeaturesRLT Asset Protection Features
No Court Involvement on DeathNo Court Involvement on Death• PrivatePrivate• No Forum Provided for CreditorNo Forum Provided for Creditor• Can “Cut Off” CreditorsCan “Cut Off” Creditors
If Property is Partitioned:If Property is Partitioned:• Two Separate Property Trusts; Each Spouse Shares Two Separate Property Trusts; Each Spouse Shares
ManagementManagement
No Court Involvement on DeathNo Court Involvement on Death• PrivatePrivate• No Forum Provided for CreditorNo Forum Provided for Creditor• Can “Cut Off” CreditorsCan “Cut Off” Creditors
If Property is Partitioned:If Property is Partitioned:• Two Separate Property Trusts; Each Spouse Shares Two Separate Property Trusts; Each Spouse Shares
ManagementManagement
Asset Protection Features (Cont.)Asset Protection Features (Cont.)Asset Protection Features (Cont.)Asset Protection Features (Cont.)
Can Provide Can Provide “Spendthrift” “Spendthrift” ProtectionProtection• Grantor not ProtectedGrantor not Protected• Creditors of Other Beneficiaries Cannot Look to Creditors of Other Beneficiaries Cannot Look to
Trust for PaymentTrust for Payment• Beneficiary Cannot be Forced to Pledge or Assign Beneficiary Cannot be Forced to Pledge or Assign
Trust AssetsTrust Assets• Keep Assets in Trust to Protect Adult Children Keep Assets in Trust to Protect Adult Children
from Divorce, Lawsuitsfrom Divorce, Lawsuits
Can Provide Can Provide “Spendthrift” “Spendthrift” ProtectionProtection• Grantor not ProtectedGrantor not Protected• Creditors of Other Beneficiaries Cannot Look to Creditors of Other Beneficiaries Cannot Look to
Trust for PaymentTrust for Payment• Beneficiary Cannot be Forced to Pledge or Assign Beneficiary Cannot be Forced to Pledge or Assign
Trust AssetsTrust Assets• Keep Assets in Trust to Protect Adult Children Keep Assets in Trust to Protect Adult Children
from Divorce, Lawsuitsfrom Divorce, Lawsuits
Second FortificationSecond FortificationSecond FortificationSecond Fortification
Irrevocable Irrevocable TrustsTrusts
Irrevocable Irrevocable TrustsTrusts
Irrevocable Trust FeaturesIrrevocable Trust FeaturesIrrevocable Trust FeaturesIrrevocable Trust Features
Grantor is Usually not TrusteeGrantor is Usually not Trustee Not Part of Grantor’s Taxable EstateNot Part of Grantor’s Taxable Estate May Own Life InsuranceMay Own Life Insurance
• Income and Federal Estate Tax-Free Income and Federal Estate Tax-Free When ReceivedWhen Received
Spendthrift ProtectionSpendthrift Protection Controlled Distribution to BeneficiariesControlled Distribution to Beneficiaries
Grantor is Usually not TrusteeGrantor is Usually not Trustee Not Part of Grantor’s Taxable EstateNot Part of Grantor’s Taxable Estate May Own Life InsuranceMay Own Life Insurance
• Income and Federal Estate Tax-Free Income and Federal Estate Tax-Free When ReceivedWhen Received
Spendthrift ProtectionSpendthrift Protection Controlled Distribution to BeneficiariesControlled Distribution to Beneficiaries
Special Irrevocable TrustsSpecial Irrevocable TrustsSpecial Irrevocable TrustsSpecial Irrevocable Trusts
BERT TrustsBERT Trusts• Each spouse is trustee and beneficiary of separate Each spouse is trustee and beneficiary of separate
trusttrust• Grantor is other spouseGrantor is other spouse• Assets of trust are separate property providing asset Assets of trust are separate property providing asset
protection from claims against other spouseprotection from claims against other spouse• Assets of trust are outside estate of either spouseAssets of trust are outside estate of either spouse
BERT TrustsBERT Trusts• Each spouse is trustee and beneficiary of separate Each spouse is trustee and beneficiary of separate
trusttrust• Grantor is other spouseGrantor is other spouse• Assets of trust are separate property providing asset Assets of trust are separate property providing asset
protection from claims against other spouseprotection from claims against other spouse• Assets of trust are outside estate of either spouseAssets of trust are outside estate of either spouse
Third FortificationThird FortificationThird FortificationThird Fortification
CorporationsCorporations CorporationsCorporations
Corporate FeaturesCorporate FeaturesCorporate FeaturesCorporate Features
Limited LiabilityLimited Liability Liable for Personal Liable for Personal
GuaranteesGuarantees May have Income Tax May have Income Tax
BenefitsBenefits• Pension, Profit Sharing Pension, Profit Sharing
PlansPlans
• Fringe Benefits, Etc.Fringe Benefits, Etc.
Limited LiabilityLimited Liability Liable for Personal Liable for Personal
GuaranteesGuarantees May have Income Tax May have Income Tax
BenefitsBenefits• Pension, Profit Sharing Pension, Profit Sharing
PlansPlans
• Fringe Benefits, Etc.Fringe Benefits, Etc.
Must Keep Status Must Keep Status Current with StateCurrent with State
Must Observe Must Observe FormalitiesFormalities• Adopt BylawsAdopt Bylaws
• Keep Minutes of MeetingsKeep Minutes of Meetings
• Issue StockIssue Stock
Must Keep Status Must Keep Status Current with StateCurrent with State
Must Observe Must Observe FormalitiesFormalities• Adopt BylawsAdopt Bylaws
• Keep Minutes of MeetingsKeep Minutes of Meetings
• Issue StockIssue Stock
Fourth FortificationFourth FortificationFourth FortificationFourth Fortification
Family Limited Family Limited PartnershipsPartnerships(FLP)(FLP)
Family Limited Family Limited PartnershipsPartnerships(FLP)(FLP)
FLP FeaturesFLP FeaturesFLP FeaturesFLP Features
File Certificate with StateFile Certificate with State Partners: General and LimitedPartners: General and Limited General Partner has 100% ControlGeneral Partner has 100% Control Income Tax NeutralIncome Tax Neutral Easy to Gift SharesEasy to Gift Shares May Substantially Lower Federal Estate TaxMay Substantially Lower Federal Estate Tax
File Certificate with StateFile Certificate with State Partners: General and LimitedPartners: General and Limited General Partner has 100% ControlGeneral Partner has 100% Control Income Tax NeutralIncome Tax Neutral Easy to Gift SharesEasy to Gift Shares May Substantially Lower Federal Estate TaxMay Substantially Lower Federal Estate Tax
FLP Features (Cont.)FLP Features (Cont.)FLP Features (Cont.)FLP Features (Cont.)
Converts Real Property to Personal PropertyConverts Real Property to Personal Property Can Set Up Multiple FLPs to Protect Different Can Set Up Multiple FLPs to Protect Different
AssetsAssets• Divide and ConquerDivide and Conquer
Charging Order is the Exclusive Remedy for Charging Order is the Exclusive Remedy for Claims Against a PartnerClaims Against a Partner
Converts Real Property to Personal PropertyConverts Real Property to Personal Property Can Set Up Multiple FLPs to Protect Different Can Set Up Multiple FLPs to Protect Different
AssetsAssets• Divide and ConquerDivide and Conquer
Charging Order is the Exclusive Remedy for Charging Order is the Exclusive Remedy for Claims Against a PartnerClaims Against a Partner
Claims vs. PartnershipClaims vs. PartnershipClaims vs. PartnershipClaims vs. Partnership
Take InsuranceTake Insurance Take Partnership AssetsTake Partnership Assets Collect Against General PartnerCollect Against General Partner
Use Entity General PartnerUse Entity General Partner Use Multiple PartnershipsUse Multiple Partnerships
• Divide and ConquerDivide and Conquer
Take InsuranceTake Insurance Take Partnership AssetsTake Partnership Assets Collect Against General PartnerCollect Against General Partner
Use Entity General PartnerUse Entity General Partner Use Multiple PartnershipsUse Multiple Partnerships
• Divide and ConquerDivide and Conquer
Claims vs. Individual PartnerClaims vs. Individual PartnerClaims vs. Individual PartnerClaims vs. Individual Partner
Does Not Become PartnerDoes Not Become Partner No Right to Partnership AssetsNo Right to Partnership Assets Charging Order Sole RemedyCharging Order Sole Remedy
• If GP Distributes, Can GetIf GP Distributes, Can Get Creditor MUST PAY INCOME TAX Even if Creditor MUST PAY INCOME TAX Even if
No Income Received!No Income Received!• Phantom IncomePhantom Income
Does Not Become PartnerDoes Not Become Partner No Right to Partnership AssetsNo Right to Partnership Assets Charging Order Sole RemedyCharging Order Sole Remedy
• If GP Distributes, Can GetIf GP Distributes, Can Get Creditor MUST PAY INCOME TAX Even if Creditor MUST PAY INCOME TAX Even if
No Income Received!No Income Received!• Phantom IncomePhantom Income
Creditor NightmareCreditor NightmareCreditor NightmareCreditor Nightmare
Does not Become a Does not Become a Limited PartnerLimited Partner
No Right to Demand No Right to Demand AssetsAssets
No Transfer of Assets No Transfer of Assets Without Partner Without Partner ApprovalApproval
Does not Become a Does not Become a Limited PartnerLimited Partner
No Right to Demand No Right to Demand AssetsAssets
No Transfer of Assets No Transfer of Assets Without Partner Without Partner ApprovalApproval
No Fraudulent Transfer No Fraudulent Transfer When FLP EstablishedWhen FLP Established
Can’t Force Termination Can’t Force Termination of FLPof FLP
General Partner General Partner Maintains Income Maintains Income ControlControl
No Fraudulent Transfer No Fraudulent Transfer When FLP EstablishedWhen FLP Established
Can’t Force Termination Can’t Force Termination of FLPof FLP
General Partner General Partner Maintains Income Maintains Income ControlControl
FLPs Leverage GiftsFLPs Leverage GiftsFLPs Leverage GiftsFLPs Leverage Gifts
Each Person May Gift Up to $10,000 per Each Person May Gift Up to $10,000 per Person in SharesPerson in Shares
Value of Gifts is the Fair Market Value of GiftValue of Gifts is the Fair Market Value of Gift Partnership Rules Can Allow Value of Shares Partnership Rules Can Allow Value of Shares
to be Deeply Discounted!to be Deeply Discounted!
Each Person May Gift Up to $10,000 per Each Person May Gift Up to $10,000 per Person in SharesPerson in Shares
Value of Gifts is the Fair Market Value of GiftValue of Gifts is the Fair Market Value of Gift Partnership Rules Can Allow Value of Shares Partnership Rules Can Allow Value of Shares
to be Deeply Discounted!to be Deeply Discounted!
FLP DiscountsFLP DiscountsFLP DiscountsFLP Discounts
What is a FLP Share Worth?What is a FLP Share Worth?• Can’t be Easily Sold or TransferredCan’t be Easily Sold or Transferred• Can’t be PledgedCan’t be Pledged• Can’t Demand DistributionsCan’t Demand Distributions• Income Allocated to LP for Income Tax Even if not Income Allocated to LP for Income Tax Even if not
PaidPaid FMV of LP Share May Be Substantially Less FMV of LP Share May Be Substantially Less
than the Value of the Assets! than the Value of the Assets!
What is a FLP Share Worth?What is a FLP Share Worth?• Can’t be Easily Sold or TransferredCan’t be Easily Sold or Transferred• Can’t be PledgedCan’t be Pledged• Can’t Demand DistributionsCan’t Demand Distributions• Income Allocated to LP for Income Tax Even if not Income Allocated to LP for Income Tax Even if not
PaidPaid FMV of LP Share May Be Substantially Less FMV of LP Share May Be Substantially Less
than the Value of the Assets! than the Value of the Assets!
FLP SummaryFLP SummaryFLP SummaryFLP Summary
Juicy Red Apple is a Sour Lemon for CreditorsJuicy Red Apple is a Sour Lemon for Creditors Family Involved, Parents Control the AssetsFamily Involved, Parents Control the Assets Estate Tax ReductionEstate Tax Reduction Can Distribute Income to Children or Others at Can Distribute Income to Children or Others at
Lower Tax RatesLower Tax Rates
Juicy Red Apple is a Sour Lemon for CreditorsJuicy Red Apple is a Sour Lemon for Creditors Family Involved, Parents Control the AssetsFamily Involved, Parents Control the Assets Estate Tax ReductionEstate Tax Reduction Can Distribute Income to Children or Others at Can Distribute Income to Children or Others at
Lower Tax RatesLower Tax Rates
Typical FLP StructureTypical FLP Structure
FLPFLP*EntityEntity*Corp, LLC, Corp, LLC,
TrustTrust
Husband RLTHusband RLT
Child TrustChild Trust
CharityCharity
Wife RLTWife RLT
General PartnerGeneral Partner
Limited PartnersLimited Partners
Fifth FortificationFifth FortificationFifth FortificationFifth Fortification
Limited Limited Liability Liability CompaniesCompanies(LLC)(LLC)
Limited Limited Liability Liability CompaniesCompanies(LLC)(LLC)
LLC FeaturesLLC FeaturesLLC FeaturesLLC Features
Limited Liability Like a CorporationLimited Liability Like a Corporation Control is Flexible; Few FormalitiesControl is Flexible; Few Formalities Taxable Like a PartnershipTaxable Like a Partnership All States Have ThemAll States Have Them Professionals May Require InsuranceProfessionals May Require Insurance Entity of Choice for Most Small BusinessEntity of Choice for Most Small Business
Limited Liability Like a CorporationLimited Liability Like a Corporation Control is Flexible; Few FormalitiesControl is Flexible; Few Formalities Taxable Like a PartnershipTaxable Like a Partnership All States Have ThemAll States Have Them Professionals May Require InsuranceProfessionals May Require Insurance Entity of Choice for Most Small BusinessEntity of Choice for Most Small Business
LLC vs. FLPLLC vs. FLPLLC vs. FLPLLC vs. FLP
May be comparable. Some states, like May be comparable. Some states, like Wyoming, allow for “Close Limited Liability Wyoming, allow for “Close Limited Liability Companies”, which specify the only remedy for Companies”, which specify the only remedy for creditors of a member is a charging ordercreditors of a member is a charging order
May be comparable. Some states, like May be comparable. Some states, like Wyoming, allow for “Close Limited Liability Wyoming, allow for “Close Limited Liability Companies”, which specify the only remedy for Companies”, which specify the only remedy for creditors of a member is a charging ordercreditors of a member is a charging order
Sixth FortificationSixth FortificationSixth FortificationSixth Fortification
PersonalPersonalAssetAssetProtectionProtectionTrustsTrusts
PersonalPersonalAssetAssetProtectionProtectionTrustsTrusts
ConceptConceptConceptConcept
Set Up a Trust that Limits or Eliminates Set Up a Trust that Limits or Eliminates Creditor Rights to Seize AssetsCreditor Rights to Seize Assets
Integrated With Your Estate PlanIntegrated With Your Estate Plan• You can be a BeneficiaryYou can be a Beneficiary• You can Remove Assets from Your EstateYou can Remove Assets from Your Estate• You can Sleep SoundlyYou can Sleep Soundly
Set Up a Trust that Limits or Eliminates Set Up a Trust that Limits or Eliminates Creditor Rights to Seize AssetsCreditor Rights to Seize Assets
Integrated With Your Estate PlanIntegrated With Your Estate Plan• You can be a BeneficiaryYou can be a Beneficiary• You can Remove Assets from Your EstateYou can Remove Assets from Your Estate• You can Sleep SoundlyYou can Sleep Soundly
APT PlanningAPT PlanningAPT PlanningAPT Planning
Choose Your Jurisdiction (e.g. Alaska or Offshore)Choose Your Jurisdiction (e.g. Alaska or Offshore)• Generally Unfriendly to CreditorsGenerally Unfriendly to Creditors• Offshore has Similar Legal ConceptsOffshore has Similar Legal Concepts• English LanguageEnglish Language
Tax Neutral for U.S. Tax PurposesTax Neutral for U.S. Tax Purposes Alaska is Convenient and FamiliarAlaska is Convenient and Familiar Offshore is Disclosable, but not Answerable to Offshore is Disclosable, but not Answerable to
U.S. Courts U.S. Courts
Choose Your Jurisdiction (e.g. Alaska or Offshore)Choose Your Jurisdiction (e.g. Alaska or Offshore)• Generally Unfriendly to CreditorsGenerally Unfriendly to Creditors• Offshore has Similar Legal ConceptsOffshore has Similar Legal Concepts• English LanguageEnglish Language
Tax Neutral for U.S. Tax PurposesTax Neutral for U.S. Tax Purposes Alaska is Convenient and FamiliarAlaska is Convenient and Familiar Offshore is Disclosable, but not Answerable to Offshore is Disclosable, but not Answerable to
U.S. Courts U.S. Courts
APT Planning (cont.)APT Planning (cont.)APT Planning (cont.)APT Planning (cont.)
Eliminates or Reduces Coercion in LawsuitsEliminates or Reduces Coercion in Lawsuits Is Done For Estate Planning and Business Is Done For Estate Planning and Business
ReasonsReasons Is not a Suitcase of Money on a Midnight FlightIs not a Suitcase of Money on a Midnight Flight Is not a Violation of U.S. LawIs not a Violation of U.S. Law Is not Tax EvasionIs not Tax Evasion
Eliminates or Reduces Coercion in LawsuitsEliminates or Reduces Coercion in Lawsuits Is Done For Estate Planning and Business Is Done For Estate Planning and Business
ReasonsReasons Is not a Suitcase of Money on a Midnight FlightIs not a Suitcase of Money on a Midnight Flight Is not a Violation of U.S. LawIs not a Violation of U.S. Law Is not Tax EvasionIs not Tax Evasion
Domestic JurisdictionDomestic JurisdictionDomestic JurisdictionDomestic Jurisdiction
A Castle MoatA Castle Moat• Judgments May not Be Judgments May not Be
Enforceable Against TrustEnforceable Against Trust
• U.S. JurisdictionU.S. Jurisdiction
• Perpetual TrustsPerpetual Trusts
• Use With Domestic FLPs and Use With Domestic FLPs and LLCsLLCs
• Power to RelocatePower to Relocate
• States with APT laws include States with APT laws include Alaska, Delaware, NevadaAlaska, Delaware, Nevada
A Castle MoatA Castle Moat• Judgments May not Be Judgments May not Be
Enforceable Against TrustEnforceable Against Trust
• U.S. JurisdictionU.S. Jurisdiction
• Perpetual TrustsPerpetual Trusts
• Use With Domestic FLPs and Use With Domestic FLPs and LLCsLLCs
• Power to RelocatePower to Relocate
• States with APT laws include States with APT laws include Alaska, Delaware, NevadaAlaska, Delaware, Nevada
Offshore JurisdictionsOffshore JurisdictionsOffshore JurisdictionsOffshore Jurisdictions
The UltimateThe Ultimate
Castle MoatCastle Moat• U.S. Judgments not U.S. Judgments not
EnforceableEnforceable
• Actions Must be Actions Must be RelitigatedRelitigated
• Short Statutes of Short Statutes of LimitationLimitation
• Power to RelocatePower to Relocate
The UltimateThe Ultimate
Castle MoatCastle Moat• U.S. Judgments not U.S. Judgments not
EnforceableEnforceable
• Actions Must be Actions Must be RelitigatedRelitigated
• Short Statutes of Short Statutes of LimitationLimitation
• Power to RelocatePower to Relocate
New 2005 Act RestrictionsNew 2005 Act RestrictionsNew 2005 Act RestrictionsNew 2005 Act Restrictions
Can avoid transfers made 10 years before the date of the filing Can avoid transfers made 10 years before the date of the filing of the petition, if--of the petition, if--
(A) such transfer was made to a self-settled trust or similar (A) such transfer was made to a self-settled trust or similar device;device;
(B) such transfer was by the debtor;(B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; (C) the debtor is a beneficiary of such trust or similar device;
andand (D) the debtor made such transfer with actual intent to hinder, (D) the debtor made such transfer with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.on or after the date that such transfer was made, indebted.
Can avoid transfers made 10 years before the date of the filing Can avoid transfers made 10 years before the date of the filing of the petition, if--of the petition, if--
(A) such transfer was made to a self-settled trust or similar (A) such transfer was made to a self-settled trust or similar device;device;
(B) such transfer was by the debtor;(B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; (C) the debtor is a beneficiary of such trust or similar device;
andand (D) the debtor made such transfer with actual intent to hinder, (D) the debtor made such transfer with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.on or after the date that such transfer was made, indebted.
Some debts not dischargeable in Some debts not dischargeable in bankruptcybankruptcySome debts not dischargeable in Some debts not dischargeable in bankruptcybankruptcy
Examples include domestic support (alimony Examples include domestic support (alimony and child support) and liability from operating and child support) and liability from operating motor vehicle while under influence alcohol or motor vehicle while under influence alcohol or drugsdrugs
Examples include domestic support (alimony Examples include domestic support (alimony and child support) and liability from operating and child support) and liability from operating motor vehicle while under influence alcohol or motor vehicle while under influence alcohol or drugsdrugs
Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.
Orthopedic SurgeonOrthopedic Surgeon• Six Suits in Ten Years; Six Suits in Ten Years;
All SettledAll Settled
• Large Insurance Large Insurance PremiumsPremiums
Professional Corp.Professional Corp.• Leases BuildingLeases Building
• Owns EquipmentOwns Equipment
Orthopedic SurgeonOrthopedic Surgeon• Six Suits in Ten Years; Six Suits in Ten Years;
All SettledAll Settled
• Large Insurance Large Insurance PremiumsPremiums
Professional Corp.Professional Corp.• Leases BuildingLeases Building
• Owns EquipmentOwns Equipment
Married to JanetMarried to Janet• Former TeacherFormer Teacher
• Expert InvestorExpert Investor Two ChildrenTwo Children
• Mary, TimMary, Tim Family Owns Home, Family Owns Home,
Investments, Retirement Investments, Retirement PlanPlan
Married to JanetMarried to Janet• Former TeacherFormer Teacher
• Expert InvestorExpert Investor Two ChildrenTwo Children
• Mary, TimMary, Tim Family Owns Home, Family Owns Home,
Investments, Retirement Investments, Retirement PlanPlan
Cutter Family GoalsCutter Family GoalsCutter Family GoalsCutter Family Goals
Protect Nonexempt AssetsProtect Nonexempt Assets• Keep Home Absolutely SafeKeep Home Absolutely Safe
Protect Practice AssetsProtect Practice Assets• Building and EquipmentBuilding and Equipment
Lower Malpractice PremiumsLower Malpractice Premiums Maintain Control and PrivacyMaintain Control and Privacy Plan for Federal Estate TaxesPlan for Federal Estate Taxes
Protect Nonexempt AssetsProtect Nonexempt Assets• Keep Home Absolutely SafeKeep Home Absolutely Safe
Protect Practice AssetsProtect Practice Assets• Building and EquipmentBuilding and Equipment
Lower Malpractice PremiumsLower Malpractice Premiums Maintain Control and PrivacyMaintain Control and Privacy Plan for Federal Estate TaxesPlan for Federal Estate Taxes
FLPFLPNon-Exempt Non-Exempt
AssetsAssets
Cutter Family PlanCutter Family Plan
1% Husband RLT1% Husband RLT
2% Wife RLT2% Wife RLTWith Voting Agmt.With Voting Agmt.
Husband RLTHusband RLT
Child TrustsChild Trusts
CharityCharity
Wife RLTWife RLT
General PartnerGeneral Partner
Limited PartnersLimited Partners
FLPFLPPractice Practice AssetsAssets
Insurance TrustInsurance Trust
Estate ExampleEstate ExampleEstate ExampleEstate Example
1% LP Shares Gifted to Each Child’s Trust 1% LP Shares Gifted to Each Child’s Trust and a Charity in 1994 and 1995and a Charity in 1994 and 1995
Parents are General PartnersParents are General Partners At Death, Parents Own 93% LP SharesAt Death, Parents Own 93% LP Shares
1% LP Shares Gifted to Each Child’s Trust 1% LP Shares Gifted to Each Child’s Trust and a Charity in 1994 and 1995and a Charity in 1994 and 1995
Parents are General PartnersParents are General Partners At Death, Parents Own 93% LP SharesAt Death, Parents Own 93% LP Shares
Plan HighlightsPlan HighlightsPlan HighlightsPlan Highlights
Cuts Malpractice Coverage to a More Cuts Malpractice Coverage to a More Reasonable Level ($1,000,000)Reasonable Level ($1,000,000)
No ProbateNo Probate Privacy MaintainedPrivacy Maintained Creditor Protection for Entire FamilyCreditor Protection for Entire Family
• Spendthrift Trusts for ChildrenSpendthrift Trusts for Children Spreads Income at Lower BracketsSpreads Income at Lower Brackets
Cuts Malpractice Coverage to a More Cuts Malpractice Coverage to a More Reasonable Level ($1,000,000)Reasonable Level ($1,000,000)
No ProbateNo Probate Privacy MaintainedPrivacy Maintained Creditor Protection for Entire FamilyCreditor Protection for Entire Family
• Spendthrift Trusts for ChildrenSpendthrift Trusts for Children Spreads Income at Lower BracketsSpreads Income at Lower Brackets
Plan HighlightsPlan HighlightsPlan HighlightsPlan Highlights
Federal Estate Tax is Substantially Reduced!Federal Estate Tax is Substantially Reduced! Pay Estate Tax With Discounted DollarsPay Estate Tax With Discounted Dollars CREATES PEACE OF MIND!CREATES PEACE OF MIND!
Federal Estate Tax is Substantially Reduced!Federal Estate Tax is Substantially Reduced! Pay Estate Tax With Discounted DollarsPay Estate Tax With Discounted Dollars CREATES PEACE OF MIND!CREATES PEACE OF MIND!
Before PlanningBefore PlanningBefore PlanningBefore Planning
Your Entire Estate is at Risk!Your Entire Estate is at Risk!Your Entire Estate is at Risk!Your Entire Estate is at Risk!
After PlanningAfter PlanningAfter PlanningAfter Planning
Your Estate has Defenses!Your Estate has Defenses!Your Estate has Defenses!Your Estate has Defenses!
Keys to a Successful PlanKeys to a Successful Plan
Team ApproachTeam Approach
Custom DesignCustom Design
Cutting Edge SolutionsCutting Edge Solutions
Team ApproachTeam Approach
Custom DesignCustom Design
Cutting Edge SolutionsCutting Edge Solutions