Asset Protection

????????Who’s right? My attorney, accountant or financial advisor? When it comes to asset protection that’s a difficult question to answer. Each performs a different function and the current system provides little education on asset protection. Although asset protection is just starting to pick up steam among professionals only a select few actually specialize in asset protection.

So how do you make sense of all the differing opinion out there? How do you know if you should use a trust, off shore planning, LLC or other type of entity many claim will best protect you in the event of a lawsuit? Should you use an accountant or attorney?

 Well unfortunately the answer is ”it depends.” It’s possible your attorney wants you to set up several asset protection entities and your accountant tells you not to because of the tax ramifications. You can talk to ten different attorneys and get ten different answers. While it is true there are several ways to skin a cat, there are tried and proven methods that have worked again and again over time. Case law or court history on how an entity has been treated is probably the best way to know what entity has the best track record of protection, tax reduction and estate planning.

For example, the LLC or Limited Liability Company is very young and has only been around for a decade or so in most states. However, the Limited Partnership has been around for almost a hundred years and has very good court history. This means we know exactly how it will be treated in the court of law.

Be careful when you hear a new method  to protecting assets. While some of these entities may be great in the future, it is just about impossible for anyone to know exactly how it will be treated. You don’t want to be the Guinea pig when it comes to your hard earned assets.

Asset protection is a very specialized field. You wouldn’t go to a brain surgeon for a foot problem.  Likewise, you wouldn’t go to just any attorney, accountant or advisor to protection your assets. Always do your homework before trusting that your hard earned assets will be protected when it really counts. If the entity can stand the test of time then you are likely on the right track. Then you can work with your attorney, accountant and financial advisor in harmony.

Protecting your home is like a dance that requires all the right steps and timing. Negative tax consequences can make placing your personal residence into an entity, the most difficult asset to protect.

 There are some states that provide full homestead protection and do a fairly good job of protecting the homes equity. However, for the large majority of us who live in a state that provides little to no homestead protection we need to look at a few different options when it comes to protecting our homes.

A carefully drafted Limited Partnership (not a plain vanilla form you find anywhere) provides the best protection. The Limited Partnership is a great long term strategy but does have its limitations. Sometimes a trade off has to be made between asset protection and tax benefits.

 If you take a home out of your personal name and put it into a Limited Partnership you can lose the capital gain exclusion on the sale of the home. The current rule states that if a person has lived in their home two out of the previous five years to the sale of the home then you can exclude taxable gains of $250,000 single or $500,000 for a married couple.

If you have large gains then the Limited Partnership is a major concern. As a result many have chosen to keep the home in a Limited Partnership for asset protection purposes and then transfer the home into their own name two years prior to selling the home.

Unfortunately if you transfer the home into your personal name the equity is once again exposed. Sometimes placing your home into a SMLLC (Single Member Limited Liability Company) can give you some asset protection and is somewhat better than leaving it in your own name. The beauty of using a SMLLC is that it is disregarded by the IRS and the capital gain exclusion is not lost.

Remember that creditors are after the equity in your home. If you have no equity then there is essentially nothing attractive to the creditors. This is called equity stripping and is also effective. The problem is that many people don’t want to have a monthly payment.

 Ultimately the choice should be made based upon long and short term goals and a carefully drafted plan.

For more information on protecting your home and other assets go to www.protectwealth.org

Legal Disclaimer:  No earnings claims, warranties, or specific investment advice is allowed to be given from this office.  Any information contained is for illustrative or educational purposes only and is not intended to constitute specific legal, tax, or financial advice to any one person or organization.  The content of this communication has been developed from sources, including publications and research, which is considered and believed to be reliable, but cannot be guaranteed insofar as they apply to any particular situation.  Moreover, because of the technical nature of the material and the fact that laws are never static, but ever changing, the assistance of a competent, qualified attorney or accountant is recommended when implementing any plans or ideas discussed herein.

Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax strategies contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.

With the current housing market causing untold numbers of bankruptcies and foreclosures many homeowners are asking how they can protect their business and personal assets from creditors. One of the greatest tools for protecting your assets is a carefully drafted Limited Partnership.

In the event of a bankruptcy, the Limited Partnership Agreement controls the assets inside of a Limited Partnership. For example, if a partner with 20% interest applies for bankruptcy their 20% ownership can now be turned over to the bankruptcy trustee. The bankruptcy trustee only has minimal rights associated to the 20%. It is critical that the language of the Limited Partnership have provisions that provide protection and removal of a partner in the event of bankruptcy or foreclosure, therefore preventing the trustee from taking any control of the partnership. The trustee cannot even be a limited partner or a substituted limited partner. The bankruptcy trustee can only be presumed to be an assignee of potential income. Hence, the bankruptcy trustee has almost no negative impact on the partnership. The partnership must however, be established before the bankruptcy can reasonably be anticipated.

Keep in mind this does not mean you can set up a Limited Partnership for the sole purpose of protecting your assets in the event of a bankruptcy or foreclosure.  This would be called a fraudulent conveyance and all protections would be void.

 A transaction is considered to be “actually fraudulent” if it was made with the intent to hinder, delay, or defraud any creditor of the debtor without receiving a reasonably equivalent value in exchange for the transaction or obligation. Before making entity structuring transfers it’s important to ask yourself two questions. First, what is your motive for the transfer? Second, have you received reasonable value for the transfer?

A Limited Partnership can protect assets in just about any situation if you have a properly drafted agreement and have planned beforehand with the right intentions. For more information on properly drafted Limited Partnerships see our website at www.protectwealth.org

Legal Disclaimer:  No earnings claims, warranties, or specific investment advice is allowed to be given from this office.  Any information contained in this newsletter is for illustrative or educational purposes only and is not intended to constitute specific legal, tax, or financial advice to any one person or organization.  The content of this communication has been developed from sources, including publications and research, which is considered and believed to be reliable, but cannot be guaranteed insofar as they apply to any particular situation.  Moreover, because of the technical nature of the material and the fact that laws are never static, but ever changing, the assistance of a competent, qualified attorney or accountant is recommended when implementing any plans or ideas discussed herein.
 
Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax strategies contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.

Many business owners use the sole proprietorship because it is easy to set up, maintain, and take deductions. Unfortunately, this is where the benefits end.

Basically, if you do not choose a business entity then by default you become a sole proprietor and are limited by the number of deductions you can take. In other words, it is the “bottom of the barrell, ” for deductions. At least take a look at other entities like the LLC or Corporation. You might find that you have been missing out on some great tax deductions.

Statistically, by using a sole proprietorship you are ten times more likely to be audited by the IRS.  Most likely this is because there are so many more sole proprietors than any other business entity.

At the very least you should step back and take a look at your current business structure to make sure you are getting the most benefit from it. Many advisers should be able to give you a good idea of what you might be missing out on.

(Remember, this only discusses the management entity of the business and not asset protection. Other entities should be used in conjunction with your management entity to protect your assets.)

If you own a business you already know you need an entity to maximize deductions and provide a degree of protection. For asset protection purposes the corporation is easily penetrated by creditors and should not be used to hold significant assets.

Although the sole proprietor is the most common method of business formation, it is also the very worst for tax deductions.

The corporation is very well established and should be strongly considered (can also be an LLC taxed as a corporation). When you file with the IRS you need to specify how the corporation will be taxed, S or C (some states require professionals to use a P-Corp). Let’s discuss some of the advantages and disadvantages of each:

C-Corporation (Taxed at separate tax rates)

Advantages

• Lower tax brackets
• Fiscal year planning
• Substantial medical, dental, and vision deductions under section 105
• Section 179 deductions on business equipment
• Meals, travel, lodging, entertainment deductions
• Life insurance, disability insurance
• Pension plans

Disadvantages

• Separate tax return requirements with a possibility of double taxation
• Required paperwork for minutes, meetings and resolutions

 S-Corporation (Considered a flow-through entity for federal tax purposes)

Advantages

• Losses flow through to individual shareholders offsetting income in the current year
• Avoids double taxation
• Not subject to personal holdings tax or accumulated earnings tax
• Generally no corporate tax on liquidation or sale of corporate assets

Disadvantages

• Shareholders are subject to tax on profits (even if funds are not distributed)
• Limited to 75 shareholders
• Generally only persons or select trusts may be shareholders
• Shareholders names must be revealed to the IRS
• Must be a calendar year taxpayer
• Limited tax deductions

The C-Corporation has quite the advantage when it comes to deductions. For those who are W2 employees with a small side business the S-Corporation may be sufficient since you do not have to worry about many of the medical, dental and insurance costs of full time business owners.

The C-Corporation is ideal for maximizing tax deductions and can save you thousands. The C is more complicated when it comes to meetings and paperwork, but the savings, if done right, far outweigh costs. The laundry list of deductions available in the C-Corporation are significantly larger than other entities, you should have a conversation with your accountant about the options available to you.

If you own a business you have probably been told to just set up an LLC or Corporation and you are protected. Unfortunately, this strategy may not protect you. In many cases it is most effective to have multiple entities to separate the business from the assets. Yes, you can use an LLC to manage the business but it may be unwise to hold significant assets in the LLC. Really you will need to have at least 2 entities to run a business. This causes more separation and therefore more protection for you and your family.

Simply owning a business can help you save thousands on taxes and help protect what you own. This holds true more most Americans even if they do not have a large business. Home based or asset management businesses can do wonders for your tax bill.

 Although every business is different, the general rule of thumb is to have at least two business entities. One to manage the business and one to own the assets of the business.

 This may seem overkill for many of your accountants and advisers from a cost and tax standpoint but if you stand back and take a look at the overall picture, it is easy to see the benefits. When in doubt, asset protection is most important, but you may as well work in as many tax benefits as possible.

The hardest thing is balancing the tax benefits and the asset protection strategies. The fact is, if you own a business you will need both. Verify with your advisor the asset protection strategies. If you would like more information on selecting an advisor see our article on How to select an Asset Protection Attorney at http://www.protectwealth.org/attorney.htm this applies to most financial advisers as well.

Recently we published an article about Asset Protection Myths in our monthly electronic newsletter. The purpose of the article was to dispel common myths about asset protection. We receive a lot of questions about liability insurance and whether or not it is sufficient to protect a person if involved in a lawsuit.

Here’s the bottom line. Liability Insurance is an absolute must to satisfy legitimate claims against you. However, I always like to do a comparison between two Doctors. Doctor #1 has a million dollar liability insurance umbrella policy. Doctor #2 has everything properly structured in Limited Partnerships and carries a reasonable amount of liability insurance. Which Doctor is more likely to be targeted in a lawsuit?

 It’s pretty obvious that Doctor #1’s “easy money” umbrella policy would quickly be targeted. You have to keep in mind that insurance has pages and pages of what is not covered and can leave you exposed. Even if you are covered, the average lawsuit now exceeds the average coverage amount.

The fact is that insurance can only go so far and increasing coverage can make you a target for a lawsuit. Proper structuring can make all the difference in a lawsuit. In fact, if you are properly structured its likely that the suit will be dropped before even getting started because your estate is impenetrable.

The recent November Las Vegas 3-Day Summit was a huge success. We had a lot of great comments from the attendees. Take a look at an outsider perspective of those who just finished the 3-Day Summit:

This is a class you cannot afford to miss.  A definite necessity for everyone to attend.  Ignorance is no longer an excuse.  Finally a class you can really apply for life.

It was a very helpful and enjoyable conference.  I am just starting out and I am glad I now have to the knowledge and contacts to do it correctly the first time around.  I plan to invite my friends & family to get involved with your program.

This was everything we needed.  This was packed with super instructors.  We enjoyed learning!

Excellent information presented in easy to understand a way as possible.  All staff was pleasant and helpful.

High intensity, large topic coverage & thought provoking.  Gives us the tools for implementation of protection! Make everybody bring  study materials.  It will be very helpful in a process of absorbing new stuff.  For us, I believe, the most explaining is done on diagrams – the easier it will be to follow the speaker.  

Now my homework really begins.  This class was a good “kick” in the pants to get me going and get these documents done.  Then it’s on to more real estate investing and without the stress and worry over lawsuits.  Give me deals, deals, deals!  I have now done 8 seminars through James Smith – this one via Network Marketing.  Without exception this has been the best and most helpful.  Here’s why: 1. GK does not try and sell anything.  He provides all you need to know to “get it”.  There is no agenda of: now spend more money on our other seminars.  He is devoted to teaching.2. Presentation of information is excellent.  He has a great energy, sense of humor, and like all great teachers, repeats key points till they sink in.  The light at the end of the tunnel is very clear.  Thank you.3. Food was outstanding – both in content, presentation & services.    

Thank you for 3 full days of learning and tools on how to survive better in this hectic world of money hungry people that live to sue others for a living instead of their own welfare and dependency and caring for others.

 Most information from the kit and the 3-day summit was very helpful.  Until I heard Robert Bulm presentation at the wealth expo, I had no idea how personaly exposed I was.  I thought I was protected because I’m insured.  It’s the best thing I purchased and used and would highly recommend.  Great seminar! GK is a great speaker! Great facility and service.  Would recommend seminars to others. I would recommend this seminar to everybody.  It has been an eye-opener.  Good job! 

I have owned the program for two years and I haven’t used it.  After being in seminar for 3 days I had the thought, “Thank goodness I didn’t try to do it myself.”  After 3 days, I feel I could do it (my personal feeling is that it is better to do 3 day first rather than vice-versa).  The one thing the 3 day can’t give me is years of experience & knowledge; but, I now have people who do have it.  Thanks.

 I really enjoyed 3-Day

Summit for Asset Protection & Wealth Creation.  The program truly help me change a complete concept by how to protect your key assets and create my wealth legally.  It was such a wonderful summit.  The knowledge and experiences of the presenters/speakers are extremely helpful and beneficial to audiences especially G. Kent Mangelson, Scott Estil, Scott Soelberg, Alan Russell and Don Pendleton for your inspirations to change your life.  We love you all.  We’ll come back!

 I appreciate the spirit of both GK, Chris and the rest of the staff.  I really appreciate your concern for others.  I feel you all are very special.  All the speakers were excellent, and very professional.  I was never bored, but I was sleepy at times because of the hours.  But being here was well worth it.A life changing seminar that exposes you to good even great concepts that most attorneys and CPAs don’t know! 

Really clarified some things I knew about but couldn’t figure out how to use.  Now I see how all the pieces fit together so we can protect what we have worked hard to accumulate and pass to our children & grandchildren.

 I expect your sessions will save me tons of money.  In addition, I expect to sleep at night.  The inputs that I was to able to absorb is sufficient to give me tranquility for the rest of my life. I was extremely pleased that the tone of this 3 days was educational rather than a high pressure sales pitch.  I somewhat anticipated being “sold”.  All the professionals were incredibly quick to grasp the nature of my question & encouraged me as to how to solve it.  I learned a lot & would definitely attend another seminar – if it were different material.  My only complaint is all the dessert!  I haven’t eaten that much & sat down so much in years!  Genuinely impressed with everyone’s sincerity.  Speakers, wives, professionals, assistants.  

An overall educational experience for every business, & property owner.  A must, to protect assets accumulated during a person’s productive years.  Overall, a great seminar with a lot of valuable knowledge presented in only three days. This is something we will use.  We go to lots of presentations where I wouldn’t say that. 

Everything about the conference was phenomenal!!  As a CPA, I’ve been to my share of tax reduction & wealth preservation/accumulation seminars.  Without a doubt, the 3-Day

Summit takes the cake and blows all the other others, combined, away!  Awesome!

 My second time through the material after struggling with implementation brought it all together.  I now feel confident that I understand how to move forward and secure my assets.  Working one on one with members of the team allowed clarity on issues that wasn’t before able to resolve.  Thank you so much for helping me to protect my family and their future security. First let me say thank you for this awesome team here.  Some many professionals working together – in harmony – really has provided me with tools that I will be able to use and draw on for the rest of my life and pass on to my family!  I always wondered how the other did it?  Lowered taxes, etc . . . Now I can have quality too!  As the days passed – each day worked out strategic problems that came out of no where!  This authentic presentation has changed my life! 

In conjunction with the creation of www.protectwealth.org we have created this blog. We will be posting comments, questions and informative articles on the latest asset protection and tax reduction strategies.

 Please feel free to make comments and add any suggestions for the blog.