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Business and Personal Asset Protection Tips for Closely-Held Business Owners
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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