Asset Protection Strategies:
Asset Protection is the term used to describe the strategic arranging of your financial affairs so that your assets and income streams are not exposed to predatory claimants, which may sometimes include family members (or ex-members), and from over-zealous government officials including IRS.   The simple objective of asset protection planning is to enable you to enjoy the assets you have accumulated, benefit from the income streams you have established, and use them to benefit your family for generations to come and to benefit the causes or institutions about which you care.

Good planning is concerned with the accumulation of wealth within protected structures for the benefit of those who generate the wealth and their future generations. It is concerned with protecting your income streams, providing you with the maximum flexibility to manage or to influence the management of your assets and income streams. And, it is concerned about effective tax planning.

Effective tax-planning is a vital part of asset protection planning.   It is concerned about your current tax burden, about arranging your affairs to reduce future tax costs when assets or businesses are sold, for example, it is concerned with establishing means to generate current income tax deductions that result in tax-free or reduced rate distributions in the future, and it is concerned about the costs of ultimately transferring your wealth to future generations.

Asset Protection takes many forms – from complex trusts and financial structures to a simple will or a living trust to avoid the excessive costs of probate. Because each family is unique, every asset protection (or wealth protection) plan will have different features.   However, there are certain principles that should guide the creation of every plan.   These include:

·         What you do not own cannot be taken from you!

·         Own nothing and control everything -indirectly!

·         It is generally too late to protect your assets and income stream after a claim/suit is filed. We recommend that you click on Avoiding Fraudulent Transfer Issues to gain a better understanding of the issues and how to avoid having the court reverse all that you do to protect your assets. 

·         Carefully structured asset protection strategies pay for themselves with immediate savings and provide a means through which to earn protected income for future needs.

·         Asset protection programs should include a careful review of the contracts and procedures utilized by your business, including hiring procedures, employment contracts, how and by whom vehicles are used; and should include a review by independent commercial insurance professionals. 

What do asset protection plans cost?
A well designed plan should result in current tax savings far in excess of the costs of designing, implementing and maintaining the plan. One of the unique aspects of our firm is that our staff includes business and tax specialists that will advise you about on-going and future operations so as to generate important income, gift, and estate tax savings. that are generally far in excess of our fees. In addition, we are frequently able to assist our clients to utilize the assets they have protected to earn substantial returns -- often in a tax-free or tax-deferred environment. 

My assets are too small; my business is too new!
“When you do what you is as important as what you do.” Properly designed and timely established asset protection structures and strategies are as important to your financial future as the foundation of your home. Every structure built on a faulty foundation is at risk, whether it is a building or a business.

The best time to setting up your asset protection program is now, before something happens to endanger what you have. Your base business or investment strategy should be reviewed and the necessary changes made to provide you with the best protection available. Then, as your business and investments grow and diversify, additional measures may be employed.

Creating a secure and tax-efficient structure, or series of structures, provides a safer and less expensive platform for building wealth and for transferring that wealth to future generations. Gifting assets and interests to heirs should be generally done as soon as possible to minimize the tax costs of the transfers, to start the "clock" running on the transfer, and to allow the growth to be attributed to the heir, rather than the benefactor. Other reasons will appear depending upon the age and health of the benefactor, the beneficiary, the type asset transferred and the income stream that flows from the subject asset.

 Why do I need asset protection?
Asset Protection strategies and structures are designed to protect your assets and income streams in the event of many different types of situations including:

·         Lawsuit against you or a family member. These claims may be related to your business, or an investment, or may relate to a personal issue or that of a family member.

·         Lawsuit against a business or investment you own or in which you have an interest.

·         Professional liabilities.

·         Divorce, death, family issues.

·         Disputes with partners

·         Disputes with lenders

·         Disputes with employees

·         Disputes with competitors

·         Disputes with customers/clients

·         Disputes with patients you treat

·         Disputes with those who have followed your investment advice

·         Environmental issues

·         Spurious lawsuits and claims of a business or personal nature

·         Overzealous government officials

·         Your dog bites the “gentleman” next door! 

We highly recommend that our clients work very closely with qualified business insurance professionals to obtain appropriate coverage and limits.   There are, however, risks that are not insurable. When government becomes involved, or environmental issues, or issues of public health, or moral turpitude are the subject of the claim, insurance limits will generally be exhausted very quickly. Even when there is insurance, the interruption and costs and the intrusion into your personal and business affairs may be severe.   A properly structured asset protection program will serve to limit your exposure to predatory claimants, will limit your exposure to the interruption of your business and intrusion into your personal life that so often accompanies substantial claims and especially those claims that relate to accusations or issues of a personal nature or public health. 

What is the process - how do you do your work? 

The typical process is as follows: 

·         Initial Meeting: The initial meeting allows us to get an understanding of the concerns of the prospective clients, to determine whether our wealth planning strategies may be appropriate for them, and to provide them with an understanding of our capabilities and experience. At the conclusion of a successful initial meeting, we will agree upon a “Pre-engagement Review” which will outline the work to be done and the fees and costs to be incurred.  

·         Pre-engagement Review: As a part of the pre-engagement review, we will be provided with copies of all pertinent agreements, company documents, tax returns, insurance plans, retirement plans, and other financial documents or agreements. We will request that our “Confidential Personal Information Checklist” be prepared. We will also request additional information to help us understand the clients business, investment and family goals. The final step of the pre-engagement review will be to meet with the client to discuss what we believe are areas of concern, areas in which income taxes may be reduced and exposure to litigation may be reduced, and, we will review the family’s business, investment and family goals in the light of our document review. At the conclusion of a successful pre-engagement review we will have formed conclusions as to areas in there is a need for our services, understood our client’s goals and will have agreed to work with the client to achieve those goals. This will lead to a “Design Engagement” which will outline the work to be done and the costs and fees to be incurred. 

·         Design Engagement: In the design process w work with the information gathered in the Review Engagement to formulate alternative structures and strategies for the client to consider to fulfill their expressed goals.   The process may require us to meet with other of the client’s advisors and require us to work with calculations of projected taxable income, income and estate tax rates and exclusions, actuarial assumptions, and with other professionals that are allied with our firm.   We will hold these consultations and coordinate the work of affiliated professionals to assure a coordination of strategies and to maintain the highest level of confidentiality available to us.  

At the conclusion of the Design Engagement, we will meet with you and with such of your other advisors as you may feel is appropriate, to review illustrations and diagrams to better explain the planning structures we have developed and among which we believe you should choose.   We will then take those features which are determined to be appropriate for your situation and produce a final design.   We will again meet with you and appropriate advisors to assure complete understanding and applicable agreement.   This will lead to an “Implementation Agreement” which will outline the work to be done to implement the design and the costs and fees to be incurred in the process. 

·         Implementation Agreement: The structures, strategies and agreement revisions or other actions outlined in the revised Design Engagement Summary and more fully described in the diagrams provided during that meeting will be created and implemented as a part of the Implementation Agreement. When these have been put into operation we will then propose a Maintenance Engagement which will outline the services to be provided to you on an on-going basis to assure that the structures and strategies remain effective and efficient. This agreement will also outline the fees and costs to be incurred. 

What does a tax-efficient asset protection plan look like?
Asset Protection (Wealth Planning) plans are unique to the individuals for whom they are designed.   There are common elements to many plans, however.   The chart below illustrates a typical design for a professional in the early stages of his or her career. 

This outline includes these features:

·         Professional income is received into an LLC form in the state in which the practice operates.

·         Family LLC, designed to hold family assets and liquidity, is formed in Delaware (or certain other states based on other factors).

·         Family LLC is principally owned by a dynasty trust for heirs and a domestic asset protection trust for the practitioner and spouse (as appropriate) generally formed in the state in which the family LLC is formed.

·         Buildings and equipment are owned in separate LLCs which are principally owned by the family LLC.

·         Management LLC is formed which has the duty to manage the entire enterprise.   It receives fees from each operating entity, pays salaries and benefits, reports for tax purposes as a “C Corp”, and generally has a mid-year fiscal year-end.

·         The Family LLC is initially funded with a substantial note that is supported with personal guaranteed and a mortgage against real property, such as a residence, and other assets that will not be transferred into the family LLC.   Assets such as brokerage accounts and other passive investments will be transferred into the Family LLC as a payment on the note.   The intention is to strip as much equity as possible out of every asset that cannot be moved into the family LLC and to lien every cash investment held in other entities.  

There are, of course, many other features to this plan that are not shown. 

In conclusion:   Because we live in a very litigious society and face a growing array of overzealous government officials, asset protection planning is the necessary work of every prudent business person, investor, employee and homeowner. We are surrounded by people who would rather take what we have than earn their own. And, as Federal, state and local governments become more desperate to make up the budget shortages caused by their excesses and become more and more zealous to redistribute wealth, your assets and income streams are seen as theirs. 

Asset Protection Strategies may provide very effective protection if put into place prior to an event that gives opportunity to a predatory claimant or overzealous official attempting to take control of your assets and income streams. Careful planning provides the opportunity for you to grow wealth in protected structures and both personally benefit from the wealth and pass it to future generations without significant tax consequences. 

“When you do what you do may be as important as what you do in asset protection planning.”   Now is the time to begin the process.   Call us, we will be pleased to help.