Protecting The Family Jewels

Protecting the Family Jewels in a Struggling Economy

Independent Jewelers Organization

Charlotte, North Carolina

July 18, 2009

Brian T. Whitlock CPA, JD, LLM

• Identify your Risks– Business – Personal

• Protect Yourself and Your Loved Ones• How and When to Transfer Financial Assets• Minimize Taxes and Administration Expenses

Overview

• Employee Theft• Customer Theft • Fire or Business interruption• Economic

Identify your Business Risks

•Employee Theft

– Opportunity– Incentive (Alcohol, Drugs, Infidelity, Gambling, Medical) – Rationalization

Protection from Business Risk

• Business Insurance– Theft– Flood & Fire - Business Interruption– Key Person Life/Disability Insurance– Workman’s Compensation Insurance

Protection from Business Risk

• Shield from Business Liability (Creditors)– Sole Proprietorship and General Partners– Corporation vs. Limited Liability Company– Limited Partnership

Protection from Business Risk

•Priority of Creditors– Secured (Mortgage against Real Estate) (UCC against assets)– IRS and State Department of Revenue (Trust fund liability for payroll taxes and sales taxes)– Unsecured Creditors– Personal Guarantee

Protection from Business Risk

• Property– Auto– Fire– Slander/Libel

• Personal – Medical Health– Death – Disability

• Divorce

Identify your Personal Risks

• Insurance– Personal (Health, Disability, Life, Long Term Care)– Property (Auto, Home, Umbrella)

• Statutorily Protected Assets– Homestead Property (e.g., Florida, Texas)– Tenants by the Entirety– Qualified Plans (pension, IRA, ROTH IRA, etc.)– Annuities and Life Insurance

Personal Asset Protection

• “They can’t take what you don’t have”– When is it too late to transfer?

• Preferential payments in Bankruptcy can be unwound• State Law – Generally transfers within 180 days• Clawback provisions (“Madoff”)• Courts can unwind transfers made to “Defraud Creditors”

– Before there is a problem• Estate Planning Reasons

Personal Asset Protection

Self-Settled Irrevocable Trusts

(created by you for you)• US Based Trusts

– Alaska– Delaware– South Dakota

• Foreign Trusts– Cook Islands– Nevus

Personal Asset Protection

• The “Family” Plan • Guardianship for Minors• Distribute at 18 Years of Age• Second Marriage?• Ignore Tax Saving Opportunities

Protecting Your Family - Death

Your Free Will - You Get What You Pay for!

What is Probate?

• Persons Covered– Deceased– Subject to a Legal Disability

• Jurisdiction – Assets in that State• Role of Court

– Identify and Collect Assets– Identify and pay claims against the estate

ANSWER: The Court Process for Collecting and Administering Assets

Avoiding Probate

• Joint Tenancy with Rights of Survivorship (JTWOS)

• Tenants by the Entirety• Payable on Death (POD)• Transfer on Death (TOD)• Beneficiary Designation• Trust

Federal Transfer Taxes

Estate Tax• Applicable Exclusion

– $3.5 million (2009)– Unlimited (2010)– $1 million (2011)

• Marital Deduction• Flat Tax Rate

– 45%

Gift Tax• Annual Exclusion

– $13,000 per person per year

– Spouse can double

• Applicable Exclusion– $1 million (not currently

changing)

Remember

“You Ain’t Dead Yet!”Irving L. Blackman CPA, JD

What are your Objectives?

Health Care Directives

• Living WillDirective to Doctor

regarding termination of life support

• Durable Power of Attorney for Health Care– Organ Donation– Access to Medical Records

(HIPPA)– Right to Make Medical

Decisions– Life Support or Termination

Choices– Ability to name Successors

The Family Safety Net

• Revocable Living Trusts– Minimize the Exposure to Probate– Maximize use of Credit Shelter

• Pour-Over Wills– Probate May be Necessary or Advisable

• Durable Power of Attorneys for Health Care

• Irrevocable Life Insurance Trust

Transfer Tax Minimization Formula

Credit Shelter Trust• Receives Applicable

Exclusion amount• Holds for benefit of

Spouse and children• Not Subject to

Transfer Tax at Spouse’s Death

Marital Deduction Trust• Receives excess over

Applicable Exclusion Amt• Holds for Benefit of

Spouse• Subject to Transfer Tax at

Spouse’s Death

Irrevocable Life Insurance Trust

• Ironies of Insurance– Large Dollar Value at Death– Small Value During Life

• Death Benefit is Income Tax Free• Death Benefit is Estate Tax Free

– Without “incidents of ownership”

Beyond the Basics

• Maximize Exclusions– Lifetime Gifts– Annual Exclusions

• Minimize Taxable Transfers– Leverage Cash Flow – Minimize Valuation

• Asset Protection – Trusts for others– Control Access– Protect Family Members– Keep Potential Creditors Away– “They can’t take what you never had”

Advanced Transfer Strategies

• Dynasty Trusts• Intentionally Defective Income Only

Trusts (IDIOTs)• Family Limited Partnerships• Charitable Transfers

– Charitable Lead– Charitable Remainder– Private Foundation – Donor Advised Funds