R. Glen Woods 1349 Galleria Drive Henderson, Nevada 89014 702.433.9696 fax: 702.434-0615 E-Mail:...
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Transcript of R. Glen Woods 1349 Galleria Drive Henderson, Nevada 89014 702.433.9696 fax: 702.434-0615 E-Mail:...
R. Glen Woods
1349 Galleria DriveHenderson, Nevada 89014
702.433.9696 fax: 702.434-0615 E-Mail: [email protected]
2001 R. Glen Woods
TTAXAX ANDAND E ESTATE STATE PPLANNINGLANNING
Page 2R. Glen Woods 2001 R. Glen Woods
Reasons for Asset Protection PlanningReasons for Asset Protection Planning
Unpredictable legal system Result-oriented judges and juries Expanding legal theories of liability Explosion of litigation Excessive jury awards Cost and availability of insurance Exclusions from insurance coverage
Page 3R. Glen Woods 2001 R. Glen Woods
Candidates for Asset Protection Candidates for Asset Protection Planning:Planning:
Professionals Officers and directors Investors Real estate owners exposed to environmental and
landlord-tenant claims Business owners Individuals exposed to potential lawsuits
(harassment, wrongful termination, libel and slander, etc.)
Alternative to prenuptial agreements
Page 4R. Glen Woods 2001 R. Glen Woods
Goals of Asset Protection PlanningGoals of Asset Protection Planning
Deter litigation Incentives for settlement Simplicity Avoid loss of control
Page 5R. Glen Woods 2001 R. Glen Woods
Asset Protection – Part of an Asset Protection – Part of an Integrated Estate and Business PlanIntegrated Estate and Business Plan
Access to property until death Retain rights to income Retain management control Protection from creditors Save income taxes Reduce estate taxes
Page 6R. Glen Woods 2001 R. Glen Woods
Effective Asset Protection PlanningEffective Asset Protection Planning Complements existing liability insurance
(homeowners liability, business liability, malpractice and umbrella insurance)
Is undertaken before problems arise Is comprehensive throughout one’s financial
affairs and estate planning Provides options and alternatives when
problems arise Does not involve excessive complexity
Page 7R. Glen Woods 2001 R. Glen Woods
Effective Asset Protection Planning Effective Asset Protection Planning is is notnot
a tax avoidance scheme; based upon secrecy or hiding assets; a means of defrauding creditors; or a substitute for liability insurance
Page 8R. Glen Woods 2001 R. Glen Woods
Legal Considerations/Fraudulent Legal Considerations/Fraudulent Conveyance StatutesConveyance Statutes
Based upon the Statue of Elizabeth (1573) A transfer that is made with the actual intent to hinder, delay or defraud
creditors is a fraudulent transfer.
Note: The debtor’s intent is the key.
Also, a transfer that is made without adequate consideration is deemed to be fraudulent if:
(1) The debtor was left with unreasonably small capital for the debtor’s business; or
(2) The debtor intended to incur, or believed he would incur, more debts that the debtor would be able to pay; or
(3) The debtor was insolvent at the time of the transfer or as a result of the transfer.Note: Lack of adequate consideration is the key.
Page 9R. Glen Woods 2001 R. Glen Woods
Types of CreditorsTypes of CreditorsPresent Creditor: Contract has been signed or cause of action
has accrued.
Note: Present creditors are protected by the uniform fraudulent transfers act.
Subsequent Creditors: Narrow group of creditors who can establish a harm caused by the transfer.
Note: Requires actual fraudulent intent.
Future Potential Creditors: Unidentifiable persons who may happen to become creditors of the transferor in the future.
Note: Asset protection is most effective against this type of creditor.
Page 10R. Glen Woods 2001 R. Glen Woods
A Well-Designed Asset Protection PlanA Well-Designed Asset Protection Plan Is part of the overall estate plan Is undertaken after a cost-benefit analysis Maintains flexibility Does not result in loss of control Maintains rights to income Provides protection from unjust obligations Combines effective asset protection strategies
where appropriate Avoids unnecessary complexity
Page 11R. Glen Woods 2001 R. Glen Woods
Types of Asset Protection Plans:Types of Asset Protection Plans:
Outright gifts Use of exemptions Liability insurance Limited partnership Nevada asset protection trust Offshore asset protection trust Expatriation of assets
Page 12R. Glen Woods 2001 R. Glen Woods
Outright GiftsOutright GiftsExample:
Doctor gives all of his assets to his wife and children to protect assets from potential future lawsuits. Frequently inconsistent with personal and retirement goals Results in loss of control of assets Can easily backfire:
– Divorce (of either the transferor or the transferee)– Change in nature of relationship (hostile transferee)– Transferee’s financial difficulty– Death of transferee: “People have a way of dying in the
wrong order.” Often has unintended consequences:
– estate and gift tax considerations– legal problems of transferee
May not work in any event (consider community property laws)
Page 13R. Glen Woods 2001 R. Glen Woods
Use of ExemptionsUse of Exemptions Federal ERISA protection
Note: Does not protect benefits in pay status
State retirement exemptions (Nevada exempts $500,000 total IRA balances)
Homestead exemption ($125,000 in Nevada)Note: Homestead exemption does not prevent loss of home if equity exceeds $125,000.
Life insurance (exemption limited to the coverage that is purchased with $1,000 premium)
Other state exemptions (limited exemptions exist for books, tools of trade, vehicles, personal and household possessions)
Can play a role where advance planning is inadequate Protection is limited, particularly for those with large estates Exemptions change as transferor’s residence changes
Page 14R. Glen Woods 2001 R. Glen Woods
Insurance and Asset Protection PlanningInsurance and Asset Protection Planning General Business Insurance
Often excludes acts outside employment, intentional acts, punitive damages, environmental liabilities, employment and discrimination claims, officer and director liability
Can also exclude service or voluntary boards of charitable organizations and homeowners associations
Usually excludes contract claims
Malpractice Insurance Coverage is usually limited Often excludes gross negligence, grossly negligent acts of subordinates, punitive damages,
products liability, and acts of personal not specifically named on the policy Gross negligence differs from ordinary negligence in manner or degress
Personal Liability Policies Usually excludes liability arising out of business, trade or profession and intentional acts May contain other exclusions, such as gross negligence, punitive damages, environmental
liabilities, libel and slander
Possibility of Coverage Disputes with Insurance Carrier
Page 15R. Glen Woods 2001 R. Glen Woods
A Well-Designed Asset Protection PlanA Well-Designed Asset Protection Plan Is part of the overall estate plan Is undertaken after a cost-benefit analysis Maintains flexibility Does not result in loss of control Maintains rights to income Provides protection from unjust obligations Combines effective asset protection strategies
where appropriate Avoids unnecessary complexity
Page 16R. Glen Woods 2001 R. Glen Woods
(1) Transferor transfers investment assets to a limited partnership organized under Nevada law.
(2) Transfer receives in exchange a partnership interest in the limited partnership.
(3) Transferor and/or spouse can be the general partner(s); transferor and/or spouse (or others) can also be the limited partner(s).
(4) As general partners, Husband and Wife are responsible for managing partnership assets and directing all partnership activities.
(5) Limited partners have no management rights or authority.
(6) General Partners make all decisions regarding partnership distributions.
(7) The name of the partnership should not be readily identifiable with Husband and Wife.
Limited Partnerships:Limited Partnerships:
Husband Wife
LIMITEDPARTNERSHIP
Page 17R. Glen Woods 2001 R. Glen Woods
Limited Partner Waits for Distribution Limited Partner Waits for Distribution from the General Partner:from the General Partner:
Page 18R. Glen Woods 2001 R. Glen Woods
Considerations:Considerations: Charging Order Protection Phantom income to judgment creditor Nature of assets held by partnership -- only “safe” assets
should be transferred to the limited partnership. Note: Assets that present liability risks can be owned by single-member LLCs.
Liability of general partners Control by general partners Distributions from partnership Not suitable for some assets: - S corporation stock - Annuities - Personal residence
Page 19R. Glen Woods 2001 R. Glen Woods
A Limited Partnership Drafted for A Limited Partnership Drafted for Asset Protection PurposesAsset Protection Purposes
Concentrates control in the general partner(s) Provides for general partner(s) to remain in office
notwithstanding the existence of judgment, garnishments, etc.
Provides for discretion in the general partner(s) to accumulate partnership assets, rather than make distributions, if the general partners so determine
Requires the consent of all general partners to dissolve or liquidate the partnership
Makes use of Nevada’s favorable partnership legislation
Page 20R. Glen Woods 2001 R. Glen Woods
Nevada Asset Protection TrustNevada Asset Protection Trust Trust must be irrevocable. Trust must be discretionary as to the grantor’s interest. The transfer to the trust must not be a fraudulent transfer. Statute of limitations: A creditor in existence at the time the transfer is
made must bring action within the later of:
1. two years after the transfer, or 2. six months after the creditor discovers or should have reasonably discovered the transfer
A creditor whose claim arose after the transfer must bring action within two years after the transfer to the trust is made.
Trustee must be a Nevada resident or a bank or trust company that maintains an office in Nevada to transact business.
Grantor may retain the right to veto distributions from the trust. Grantor may hold a testamentary special power of appointment.
Page 21R. Glen Woods 2001 R. Glen Woods
A Nevada Asset Protection TrustA Nevada Asset Protection Trust
Provides flexibility to the grantor Is part of the overall estate plan Can incorporate flight causes Can provide for a protector Can be coupled with limited partnership
provisions Provides for duress
Page 22R. Glen Woods 2001 R. Glen Woods
Considerations:Considerations: Selection of trustee Office of the protector Section of assets to be transferred to the trust:
- S corporation stock
- Personal residence
- Other residences Tax considerations Choice of law issues
Page 23R. Glen Woods 2001 R. Glen Woods
Offshore Asset Protection TrustOffshore Asset Protection Trust Certainty regarding nonrecognition of foreign
judgments Standard of proof required: Beyond a
Reasonable Doubt Statute of limitations Burden of proof on creditor Contingency fee litigation Selection of trustee Investment of trust assets
Page 24R. Glen Woods 2001 R. Glen Woods
Nevada Asset Protection Plan:Nevada Asset Protection Plan:
LLC
LLCLLC
LIMITEDPARTNERSHIP
IndividualTransferor
Nevada AssetProtection Trust
1%GeneralPartner
99%LimitedPartner
100%
100%
100%
Page 25R. Glen Woods 2001 R. Glen Woods
Advantages of the Nevada Asset Advantages of the Nevada Asset Protection PlanProtection Plan
Coordinates with overall estate plan Provides multiple layers of protection Adaptable as needs and circumstances change Avoids loss of control for assets held in limited
partnership Makes use of Nevada’s favorable partnership and trust
laws Provides protection from unjust obligations Does not complicate tax reporting; in some cases tax
reporting burden is lessened Avoids unnecessary complexity