Estate & Asset Estate & Asset Protection Protection PlanningPlanning

Brislawn & Associates, P.S. Brislawn & Associates, P.S. Attorneys at LawAttorneys at Law

© C. Dennis Brislawn, Jr. 1994 - 1997

Definition of Asset ProtectionDefinition of Asset ProtectionDefinition of Asset ProtectionDefinition of Asset Protection

Target: Organizing assets and affairs in Target: Organizing assets and affairs in advance to minimize against risks of lossadvance to minimize against risks of loss

Preventative, not curative (vaccines, not Preventative, not curative (vaccines, not antibiotics)antibiotics)

Target: Organizing assets and affairs in Target: Organizing assets and affairs in advance to minimize against risks of lossadvance to minimize against risks of loss

Preventative, not curative (vaccines, not Preventative, not curative (vaccines, not antibiotics)antibiotics)

Reasons to Protect AssetsReasons to Protect AssetsReasons to Protect AssetsReasons to Protect Assets

We Focus on Estate We Focus on Estate Building, But Fail to Building, But Fail to Consider RisksConsider Risks

““Sue Society”: Who Can Sue Society”: Who Can I Blame?I Blame?

Juries Play “Robin Juries Play “Robin Hood”; Take from the Hood”; Take from the Rich, Give to the PoorRich, Give to the Poor

We Focus on Estate We Focus on Estate Building, But Fail to Building, But Fail to Consider RisksConsider Risks

““Sue Society”: Who Can Sue Society”: Who Can I Blame?I Blame?

Juries Play “Robin Juries Play “Robin Hood”; Take from the Hood”; Take from the Rich, Give to the PoorRich, Give to the Poor

Cut Your Losses Cut Your Losses (Damage Control)(Damage Control)

Peace of MindPeace of Mind Concentrate on Your Concentrate on Your

JobJob Protect Your Family and Protect Your Family and

Your BusinessYour Business

Cut Your Losses Cut Your Losses (Damage Control)(Damage Control)

Peace of MindPeace of Mind Concentrate on Your Concentrate on Your

JobJob Protect Your Family and Protect Your Family and

Your BusinessYour Business

More Lawsuits Are Filed Each Year*More Lawsuits Are Filed Each Year**Over 20 Million Civil Cases Expected in 1994!*Over 20 Million Civil Cases Expected in 1994!

More Lawsuits Are Filed Each Year*More Lawsuits Are Filed Each Year**Over 20 Million Civil Cases Expected in 1994!*Over 20 Million Civil Cases Expected in 1994!

What Asset Protection Is NotWhat Asset Protection Is NotWhat Asset Protection Is NotWhat Asset Protection Is Not

Hiding assets, i.e. Hiding assets, i.e. confidentiality is a plus, but confidentiality is a plus, but secrecy is not the lynchpin of secrecy is not the lynchpin of the planthe plan

Taxation avoidanceTaxation avoidance

Hiding assets, i.e. Hiding assets, i.e. confidentiality is a plus, but confidentiality is a plus, but secrecy is not the lynchpin of secrecy is not the lynchpin of the planthe plan

Taxation avoidanceTaxation avoidance

Title to AssetsTitle to AssetsTitle to AssetsTitle to Assets

The Way You Hold Title to Your Property Affects The Way You Hold Title to Your Property Affects the Rights a Creditor Will Have!the Rights a Creditor Will Have!

The Way You Hold Title to Your Property Affects The Way You Hold Title to Your Property Affects the Rights a Creditor Will Have!the Rights a Creditor Will Have!

Community PropertyCommunity PropertyCommunity PropertyCommunity Property

Community PropertyCommunity Property• Acquired During MarriageAcquired During Marriage• Created by Law or by AgreementCreated by Law or by Agreement

• Result of an “Onerous Acquisition” or Result of an “Onerous Acquisition” or WORK !WORK !

Community PropertyCommunity Property• Acquired During MarriageAcquired During Marriage• Created by Law or by AgreementCreated by Law or by Agreement

• Result of an “Onerous Acquisition” or Result of an “Onerous Acquisition” or WORK !WORK !

Separate PropertySeparate PropertySeparate PropertySeparate Property

Separate PropertySeparate Property• Acquired Before MarriageAcquired Before Marriage• Acquired By Gift or InheritanceAcquired By Gift or Inheritance• Can Convert to Community By Agreement or Can Convert to Community By Agreement or

MistakeMistake• Personal Injury RecoveryPersonal Injury Recovery

Separate PropertySeparate Property• Acquired Before MarriageAcquired Before Marriage• Acquired By Gift or InheritanceAcquired By Gift or Inheritance• Can Convert to Community By Agreement or Can Convert to Community By Agreement or

MistakeMistake• Personal Injury RecoveryPersonal Injury Recovery

Joint TenancyJoint TenancyJoint TenancyJoint Tenancy

100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person 100% Co-ownership by More Than One Person

““Last One Left Standing Rule”: Last One Left Standing Rule”: Survivor Owns It All!Survivor Owns It All!

Your DefensesYour DefensesYour DefensesYour Defenses

InsuranceInsurance Exempt AssetsExempt Assets

• State and Federal LawState and Federal Law

• Retirement PlansRetirement Plans TrustsTrusts Property AgreementsProperty Agreements

InsuranceInsurance Exempt AssetsExempt Assets

• State and Federal LawState and Federal Law

• Retirement PlansRetirement Plans TrustsTrusts Property AgreementsProperty Agreements

Limited Liability Limited Liability CompaniesCompanies

CorporationsCorporations Family Limited Family Limited

PartnershipsPartnerships Offshore PlanningOffshore Planning

Limited Liability Limited Liability CompaniesCompanies

CorporationsCorporations Family Limited Family Limited

PartnershipsPartnerships Offshore PlanningOffshore Planning

A Liability DragonA Liability DragonA Liability DragonA Liability Dragon

Creditor ClaimsCreditor Claims Creditor ClaimsCreditor Claims

Types of ClaimsTypes of ClaimsTypes of ClaimsTypes of Claims

Officer/Director Officer/Director Liability (Corp.)Liability (Corp.)

Employee SuitsEmployee Suits Business or Professional Business or Professional

LiabilityLiability DivorceDivorce Tax LiabilityTax Liability Creditor LawsuitsCreditor Lawsuits

Officer/Director Officer/Director Liability (Corp.)Liability (Corp.)

Employee SuitsEmployee Suits Business or Professional Business or Professional

LiabilityLiability DivorceDivorce Tax LiabilityTax Liability Creditor LawsuitsCreditor Lawsuits

Vicarious Liability for Vicarious Liability for Other PeopleOther People

Partnership LiabilityPartnership Liability Unknown ClaimsUnknown Claims

• Product LiabilityProduct Liability

• Environmental LiabilityEnvironmental Liability

Vicarious Liability for Vicarious Liability for Other PeopleOther People

Partnership LiabilityPartnership Liability Unknown ClaimsUnknown Claims

• Product LiabilityProduct Liability

• Environmental LiabilityEnvironmental Liability

Attempts to Avoid Creditor ClaimsAttempts to Avoid Creditor ClaimsAttempts to Avoid Creditor ClaimsAttempts to Avoid Creditor Claims

Gimmicks are Methods ThatGimmicks are Methods That

Don’t WorkDon’t Work• Fraudulent TransfersFraudulent Transfers• ““Hiding” Assets (2005 Bankruptcy Act Hiding” Assets (2005 Bankruptcy Act

now requires 3 years of tax returns)now requires 3 years of tax returns)• Joint OwnershipJoint Ownership• ““Constitutional” TrustsConstitutional” Trusts

Gimmicks are Methods ThatGimmicks are Methods That

Don’t WorkDon’t Work• Fraudulent TransfersFraudulent Transfers• ““Hiding” Assets (2005 Bankruptcy Act Hiding” Assets (2005 Bankruptcy Act

now requires 3 years of tax returns)now requires 3 years of tax returns)• Joint OwnershipJoint Ownership• ““Constitutional” TrustsConstitutional” Trusts

Creditor RightsCreditor RightsCreditor RightsCreditor Rights

Can Set Aside Fraudulent TransfersCan Set Aside Fraudulent Transfers All Community Property is Exposed to All Community Property is Exposed to

Community CreditorsCommunity Creditors Separate Property is Exposed to Separate Separate Property is Exposed to Separate

Creditor, 1/2 Community Property May Be Creditor, 1/2 Community Property May Be Exposed to Exposed to Separate CreditorSeparate Creditor

Can Set Aside Fraudulent TransfersCan Set Aside Fraudulent Transfers All Community Property is Exposed to All Community Property is Exposed to

Community CreditorsCommunity Creditors Separate Property is Exposed to Separate Separate Property is Exposed to Separate

Creditor, 1/2 Community Property May Be Creditor, 1/2 Community Property May Be Exposed to Exposed to Separate CreditorSeparate Creditor

Creditor Rights (cont.)Creditor Rights (cont.)Creditor Rights (cont.)Creditor Rights (cont.)

Divorce Court May Have Jurisdiction Over Divorce Court May Have Jurisdiction Over Both Community and Separate PropertyBoth Community and Separate Property

All Joint Tenancy Property is at Risk of Any All Joint Tenancy Property is at Risk of Any Single Joint Tenant’s Creditors!Single Joint Tenant’s Creditors!

Divorce Court May Have Jurisdiction Over Divorce Court May Have Jurisdiction Over Both Community and Separate PropertyBoth Community and Separate Property

All Joint Tenancy Property is at Risk of Any All Joint Tenancy Property is at Risk of Any Single Joint Tenant’s Creditors!Single Joint Tenant’s Creditors!

Fraudulent TransfersFraudulent TransfersFraudulent TransfersFraudulent Transfers

Intent to Defraud, Hinder or Delay Known or Intent to Defraud, Hinder or Delay Known or Likely CreditorsLikely Creditors

Intent is Generally PresumedIntent is Generally Presumed Badges of FraudBadges of Fraud

such as insolvency, lack of consideration for a transfer, such as insolvency, lack of consideration for a transfer, close relationship with transferee, pending or close relationship with transferee, pending or threatened litigation, concealment, deviation from usual threatened litigation, concealment, deviation from usual practice, transfer of all assets, retaining possession, practice, transfer of all assets, retaining possession, benefit, or control after transferbenefit, or control after transfer

Intent to Defraud, Hinder or Delay Known or Intent to Defraud, Hinder or Delay Known or Likely CreditorsLikely Creditors

Intent is Generally PresumedIntent is Generally Presumed Badges of FraudBadges of Fraud

such as insolvency, lack of consideration for a transfer, such as insolvency, lack of consideration for a transfer, close relationship with transferee, pending or close relationship with transferee, pending or threatened litigation, concealment, deviation from usual threatened litigation, concealment, deviation from usual practice, transfer of all assets, retaining possession, practice, transfer of all assets, retaining possession, benefit, or control after transferbenefit, or control after transfer

Fraudulent ConveyanceFraudulent ConveyanceFraudulent ConveyanceFraudulent Conveyance

Pending or present creditors will have a greater Pending or present creditors will have a greater presumption of a fraudulent conveyance than future presumption of a fraudulent conveyance than future creditorscreditors

Generally, fraudulent conveyance is NOT our common Generally, fraudulent conveyance is NOT our common understanding of fraud. Fraudulent conveyance is understanding of fraud. Fraudulent conveyance is remedial, i.e. a conveyance which can be undone only remedial, i.e. a conveyance which can be undone only to the point a creditor is hindered. No other damages to the point a creditor is hindered. No other damages are usually allowed. However, some states allow for are usually allowed. However, some states allow for criminal or civil penalties, including for the advisor.criminal or civil penalties, including for the advisor.

Pending or present creditors will have a greater Pending or present creditors will have a greater presumption of a fraudulent conveyance than future presumption of a fraudulent conveyance than future creditorscreditors

Generally, fraudulent conveyance is NOT our common Generally, fraudulent conveyance is NOT our common understanding of fraud. Fraudulent conveyance is understanding of fraud. Fraudulent conveyance is remedial, i.e. a conveyance which can be undone only remedial, i.e. a conveyance which can be undone only to the point a creditor is hindered. No other damages to the point a creditor is hindered. No other damages are usually allowed. However, some states allow for are usually allowed. However, some states allow for criminal or civil penalties, including for the advisor.criminal or civil penalties, including for the advisor.

Another DragonAnother DragonAnother DragonAnother Dragon

Estate TaxesEstate Taxes Estate TaxesEstate Taxes

Estate TaxesEstate TaxesEstate TaxesEstate Taxes

Changing ownership of assets often also Changing ownership of assets often also removes them from the estate, offering the removes them from the estate, offering the additional benefit of reduced estate taxes along additional benefit of reduced estate taxes along with asset protectionwith asset protection

Changing ownership of assets often also Changing ownership of assets often also removes them from the estate, offering the removes them from the estate, offering the additional benefit of reduced estate taxes along additional benefit of reduced estate taxes along with asset protectionwith asset protection

Asset Protection TechniquesAsset Protection TechniquesAsset Protection TechniquesAsset Protection Techniques

Methods That WorkMethods That Work• Save Administrative Fees and CostsSave Administrative Fees and Costs• Reduce TaxesReduce Taxes• Provide Multiple Layers of DefenseProvide Multiple Layers of Defense• Allow Opportunity for Early SettlementAllow Opportunity for Early Settlement

Methods That WorkMethods That Work• Save Administrative Fees and CostsSave Administrative Fees and Costs• Reduce TaxesReduce Taxes• Provide Multiple Layers of DefenseProvide Multiple Layers of Defense• Allow Opportunity for Early SettlementAllow Opportunity for Early Settlement

First Line of DefenseFirst Line of DefenseFirst Line of DefenseFirst Line of Defense

InsuranceInsurance InsuranceInsurance

Strengths and WeaknessesStrengths and WeaknessesStrengths and WeaknessesStrengths and Weaknesses

Covers LossCovers Loss Cash to SettleCash to Settle Duty to DefendDuty to Defend Fund Buy-SellsFund Buy-Sells

• DisabilityDisability

• DeathDeath Pay Estate Taxes With Pay Estate Taxes With

Discounted $$Discounted $$

Covers LossCovers Loss Cash to SettleCash to Settle Duty to DefendDuty to Defend Fund Buy-SellsFund Buy-Sells

• DisabilityDisability

• DeathDeath Pay Estate Taxes With Pay Estate Taxes With

Discounted $$Discounted $$

Getting CostlyGetting Costly May not QualifyMay not Qualify Insolvency of CarrierInsolvency of Carrier May get CancelledMay get Cancelled Coverage ExemptionsCoverage Exemptions

• Hazardous WasteHazardous Waste

• Intentional ActsIntentional Acts

• Punitive DamagesPunitive Damages

Getting CostlyGetting Costly May not QualifyMay not Qualify Insolvency of CarrierInsolvency of Carrier May get CancelledMay get Cancelled Coverage ExemptionsCoverage Exemptions

• Hazardous WasteHazardous Waste

• Intentional ActsIntentional Acts

• Punitive DamagesPunitive Damages

StrengthsStrengths WeaknessesWeaknesses

Second Line of DefenseSecond Line of DefenseSecond Line of DefenseSecond Line of Defense

Exempt Exempt PropertyProperty

Exempt Exempt PropertyProperty

HomesteadHomesteadHomesteadHomestead

Colorado allows up to $30,000 Colorado allows up to $30,000 Other states allow unlimited (e.g. Florida) but Other states allow unlimited (e.g. Florida) but

new 2005 bankruptcy act requires purchase new 2005 bankruptcy act requires purchase 1215 days before filing or limit is $125,0001215 days before filing or limit is $125,000

2005 Act also limits protection to $125,000 2005 Act also limits protection to $125,000 where claim arises from RICO, breach of where claim arises from RICO, breach of securities laws, fiduciary fraud, and other securities laws, fiduciary fraud, and other specified crimes or tortsspecified crimes or torts

Colorado allows up to $30,000 Colorado allows up to $30,000 Other states allow unlimited (e.g. Florida) but Other states allow unlimited (e.g. Florida) but

new 2005 bankruptcy act requires purchase new 2005 bankruptcy act requires purchase 1215 days before filing or limit is $125,0001215 days before filing or limit is $125,000

2005 Act also limits protection to $125,000 2005 Act also limits protection to $125,000 where claim arises from RICO, breach of where claim arises from RICO, breach of securities laws, fiduciary fraud, and other securities laws, fiduciary fraud, and other specified crimes or tortsspecified crimes or torts

InsuranceInsuranceInsuranceInsurance

Federal exemption is for death benefits and limited Federal exemption is for death benefits and limited cash value (less than $9,000)cash value (less than $9,000)

Colorado exemption is $50,000 where estate is Colorado exemption is $50,000 where estate is beneficiary and contributions were more than 4 years beneficiary and contributions were more than 4 years before filingbefore filing

State exemptions can be more generous, e.g. Florida, State exemptions can be more generous, e.g. Florida, Hawaii, Louisiana, but new 2005 Act requires Hawaii, Louisiana, but new 2005 Act requires residency in that state for at least 2 yearsresidency in that state for at least 2 years

Federal exemption is for death benefits and limited Federal exemption is for death benefits and limited cash value (less than $9,000)cash value (less than $9,000)

Colorado exemption is $50,000 where estate is Colorado exemption is $50,000 where estate is beneficiary and contributions were more than 4 years beneficiary and contributions were more than 4 years before filingbefore filing

State exemptions can be more generous, e.g. Florida, State exemptions can be more generous, e.g. Florida, Hawaii, Louisiana, but new 2005 Act requires Hawaii, Louisiana, but new 2005 Act requires residency in that state for at least 2 yearsresidency in that state for at least 2 years

Retirement PlansRetirement PlansRetirement PlansRetirement Plans

2005 Act makes clear contributions to ERISA 2005 Act makes clear contributions to ERISA covered plans are exempt, as are entire interest covered plans are exempt, as are entire interest in IRAs (up to $1 million?).in IRAs (up to $1 million?).

2005 Act makes clear contributions to ERISA 2005 Act makes clear contributions to ERISA covered plans are exempt, as are entire interest covered plans are exempt, as are entire interest in IRAs (up to $1 million?).in IRAs (up to $1 million?).

529 Plans529 Plans529 Plans529 Plans

529 Plans are Exempt if:529 Plans are Exempt if:

Funded more than 2 years before filingFunded more than 2 years before filing

Funded by parent, grandparent, stepparent, Funded by parent, grandparent, stepparent, stepgrandparent of beneficiary of plan stepgrandparent of beneficiary of plan

$5,000 limit if funded more than one year $5,000 limit if funded more than one year but less than two years before filing but less than two years before filing

Fraudulent transfer rules still applyFraudulent transfer rules still apply

529 Plans are Exempt if:529 Plans are Exempt if:

Funded more than 2 years before filingFunded more than 2 years before filing

Funded by parent, grandparent, stepparent, Funded by parent, grandparent, stepparent, stepgrandparent of beneficiary of plan stepgrandparent of beneficiary of plan

$5,000 limit if funded more than one year $5,000 limit if funded more than one year but less than two years before filing but less than two years before filing

Fraudulent transfer rules still applyFraudulent transfer rules still apply

Other Exemptions in ColoradoOther Exemptions in ColoradoOther Exemptions in ColoradoOther Exemptions in Colorado

Property of business partnership where held in Property of business partnership where held in name of partnershipname of partnership

Burial plotBurial plot Health AidsHealth Aids Business or professional supplies up to $10,000Business or professional supplies up to $10,000

Property of business partnership where held in Property of business partnership where held in name of partnershipname of partnership

Burial plotBurial plot Health AidsHealth Aids Business or professional supplies up to $10,000Business or professional supplies up to $10,000

Third Line of DefenseThird Line of DefenseThird Line of DefenseThird Line of Defense

Property Property AgreementsAgreements

Property Property AgreementsAgreements

Partitioning PropertyPartitioning PropertyPartitioning PropertyPartitioning Property

Works for Families Where One Spouse has Works for Families Where One Spouse has Significant Liability ExposureSignificant Liability Exposure

Use With Additional TechniquesUse With Additional Techniques

CAUTION: MARITAL DISSOLUTIONCAUTION: MARITAL DISSOLUTION

Works for Families Where One Spouse has Works for Families Where One Spouse has Significant Liability ExposureSignificant Liability Exposure

Use With Additional TechniquesUse With Additional Techniques

CAUTION: MARITAL DISSOLUTIONCAUTION: MARITAL DISSOLUTION

ExampleExampleExampleExample

““At-Risk” Spouse Owns:At-Risk” Spouse Owns:

Exempt AssetsExempt Assets

Risky AssetRisky Asset

““At-Risk” Spouse Owns:At-Risk” Spouse Owns:

Exempt AssetsExempt Assets

Risky AssetRisky Asset

““Safe” SpouseSafe” Spouse

Owns:Owns:

Non-Exempt AssetsNon-Exempt Assets

Family HomeFamily Home

““Safe” SpouseSafe” Spouse

Owns:Owns:

Non-Exempt AssetsNon-Exempt Assets

Family HomeFamily Home

First FortificationFirst FortificationFirst FortificationFirst Fortification

Revocable Revocable Living Trust Living Trust (RLT)(RLT)

Revocable Revocable Living Trust Living Trust (RLT)(RLT)

RLT Asset Protection FeaturesRLT Asset Protection FeaturesRLT Asset Protection FeaturesRLT Asset Protection Features

No Court Involvement on DeathNo Court Involvement on Death• PrivatePrivate• No Forum Provided for CreditorNo Forum Provided for Creditor• Can “Cut Off” CreditorsCan “Cut Off” Creditors

If Property is Partitioned:If Property is Partitioned:• Two Separate Property Trusts; Each Spouse Shares Two Separate Property Trusts; Each Spouse Shares

ManagementManagement

No Court Involvement on DeathNo Court Involvement on Death• PrivatePrivate• No Forum Provided for CreditorNo Forum Provided for Creditor• Can “Cut Off” CreditorsCan “Cut Off” Creditors

If Property is Partitioned:If Property is Partitioned:• Two Separate Property Trusts; Each Spouse Shares Two Separate Property Trusts; Each Spouse Shares

ManagementManagement

Asset Protection Features (Cont.)Asset Protection Features (Cont.)Asset Protection Features (Cont.)Asset Protection Features (Cont.)

Can Provide Can Provide “Spendthrift” “Spendthrift” ProtectionProtection• Grantor not ProtectedGrantor not Protected• Creditors of Other Beneficiaries Cannot Look to Creditors of Other Beneficiaries Cannot Look to

Trust for PaymentTrust for Payment• Beneficiary Cannot be Forced to Pledge or Assign Beneficiary Cannot be Forced to Pledge or Assign

Trust AssetsTrust Assets• Keep Assets in Trust to Protect Adult Children Keep Assets in Trust to Protect Adult Children

from Divorce, Lawsuitsfrom Divorce, Lawsuits

Can Provide Can Provide “Spendthrift” “Spendthrift” ProtectionProtection• Grantor not ProtectedGrantor not Protected• Creditors of Other Beneficiaries Cannot Look to Creditors of Other Beneficiaries Cannot Look to

Trust for PaymentTrust for Payment• Beneficiary Cannot be Forced to Pledge or Assign Beneficiary Cannot be Forced to Pledge or Assign

Trust AssetsTrust Assets• Keep Assets in Trust to Protect Adult Children Keep Assets in Trust to Protect Adult Children

from Divorce, Lawsuitsfrom Divorce, Lawsuits

Second FortificationSecond FortificationSecond FortificationSecond Fortification

Irrevocable Irrevocable TrustsTrusts

Irrevocable Irrevocable TrustsTrusts

Irrevocable Trust FeaturesIrrevocable Trust FeaturesIrrevocable Trust FeaturesIrrevocable Trust Features

Grantor is Usually not TrusteeGrantor is Usually not Trustee Not Part of Grantor’s Taxable EstateNot Part of Grantor’s Taxable Estate May Own Life InsuranceMay Own Life Insurance

• Income and Federal Estate Tax-Free Income and Federal Estate Tax-Free When ReceivedWhen Received

Spendthrift ProtectionSpendthrift Protection Controlled Distribution to BeneficiariesControlled Distribution to Beneficiaries

Grantor is Usually not TrusteeGrantor is Usually not Trustee Not Part of Grantor’s Taxable EstateNot Part of Grantor’s Taxable Estate May Own Life InsuranceMay Own Life Insurance

• Income and Federal Estate Tax-Free Income and Federal Estate Tax-Free When ReceivedWhen Received

Spendthrift ProtectionSpendthrift Protection Controlled Distribution to BeneficiariesControlled Distribution to Beneficiaries

Special Irrevocable TrustsSpecial Irrevocable TrustsSpecial Irrevocable TrustsSpecial Irrevocable Trusts

BERT TrustsBERT Trusts• Each spouse is trustee and beneficiary of separate Each spouse is trustee and beneficiary of separate

trusttrust• Grantor is other spouseGrantor is other spouse• Assets of trust are separate property providing asset Assets of trust are separate property providing asset

protection from claims against other spouseprotection from claims against other spouse• Assets of trust are outside estate of either spouseAssets of trust are outside estate of either spouse

BERT TrustsBERT Trusts• Each spouse is trustee and beneficiary of separate Each spouse is trustee and beneficiary of separate

trusttrust• Grantor is other spouseGrantor is other spouse• Assets of trust are separate property providing asset Assets of trust are separate property providing asset

protection from claims against other spouseprotection from claims against other spouse• Assets of trust are outside estate of either spouseAssets of trust are outside estate of either spouse

Third FortificationThird FortificationThird FortificationThird Fortification

CorporationsCorporations CorporationsCorporations

Corporate FeaturesCorporate FeaturesCorporate FeaturesCorporate Features

Limited LiabilityLimited Liability Liable for Personal Liable for Personal

GuaranteesGuarantees May have Income Tax May have Income Tax

BenefitsBenefits• Pension, Profit Sharing Pension, Profit Sharing

PlansPlans

• Fringe Benefits, Etc.Fringe Benefits, Etc.

Limited LiabilityLimited Liability Liable for Personal Liable for Personal

GuaranteesGuarantees May have Income Tax May have Income Tax

BenefitsBenefits• Pension, Profit Sharing Pension, Profit Sharing

PlansPlans

• Fringe Benefits, Etc.Fringe Benefits, Etc.

Must Keep Status Must Keep Status Current with StateCurrent with State

Must Observe Must Observe FormalitiesFormalities• Adopt BylawsAdopt Bylaws

• Keep Minutes of MeetingsKeep Minutes of Meetings

• Issue StockIssue Stock

Must Keep Status Must Keep Status Current with StateCurrent with State

Must Observe Must Observe FormalitiesFormalities• Adopt BylawsAdopt Bylaws

• Keep Minutes of MeetingsKeep Minutes of Meetings

• Issue StockIssue Stock

Fourth FortificationFourth FortificationFourth FortificationFourth Fortification

Family Limited Family Limited PartnershipsPartnerships(FLP)(FLP)

Family Limited Family Limited PartnershipsPartnerships(FLP)(FLP)

FLP FeaturesFLP FeaturesFLP FeaturesFLP Features

File Certificate with StateFile Certificate with State Partners: General and LimitedPartners: General and Limited General Partner has 100% ControlGeneral Partner has 100% Control Income Tax NeutralIncome Tax Neutral Easy to Gift SharesEasy to Gift Shares May Substantially Lower Federal Estate TaxMay Substantially Lower Federal Estate Tax

File Certificate with StateFile Certificate with State Partners: General and LimitedPartners: General and Limited General Partner has 100% ControlGeneral Partner has 100% Control Income Tax NeutralIncome Tax Neutral Easy to Gift SharesEasy to Gift Shares May Substantially Lower Federal Estate TaxMay Substantially Lower Federal Estate Tax

FLP Features (Cont.)FLP Features (Cont.)FLP Features (Cont.)FLP Features (Cont.)

Converts Real Property to Personal PropertyConverts Real Property to Personal Property Can Set Up Multiple FLPs to Protect Different Can Set Up Multiple FLPs to Protect Different

AssetsAssets• Divide and ConquerDivide and Conquer

Charging Order is the Exclusive Remedy for Charging Order is the Exclusive Remedy for Claims Against a PartnerClaims Against a Partner

Converts Real Property to Personal PropertyConverts Real Property to Personal Property Can Set Up Multiple FLPs to Protect Different Can Set Up Multiple FLPs to Protect Different

AssetsAssets• Divide and ConquerDivide and Conquer

Charging Order is the Exclusive Remedy for Charging Order is the Exclusive Remedy for Claims Against a PartnerClaims Against a Partner

Claims vs. PartnershipClaims vs. PartnershipClaims vs. PartnershipClaims vs. Partnership

Take InsuranceTake Insurance Take Partnership AssetsTake Partnership Assets Collect Against General PartnerCollect Against General Partner

Use Entity General PartnerUse Entity General Partner Use Multiple PartnershipsUse Multiple Partnerships

• Divide and ConquerDivide and Conquer

Take InsuranceTake Insurance Take Partnership AssetsTake Partnership Assets Collect Against General PartnerCollect Against General Partner

Use Entity General PartnerUse Entity General Partner Use Multiple PartnershipsUse Multiple Partnerships

• Divide and ConquerDivide and Conquer

Claims vs. Individual PartnerClaims vs. Individual PartnerClaims vs. Individual PartnerClaims vs. Individual Partner

Does Not Become PartnerDoes Not Become Partner No Right to Partnership AssetsNo Right to Partnership Assets Charging Order Sole RemedyCharging Order Sole Remedy

• If GP Distributes, Can GetIf GP Distributes, Can Get Creditor MUST PAY INCOME TAX Even if Creditor MUST PAY INCOME TAX Even if

No Income Received!No Income Received!• Phantom IncomePhantom Income

Does Not Become PartnerDoes Not Become Partner No Right to Partnership AssetsNo Right to Partnership Assets Charging Order Sole RemedyCharging Order Sole Remedy

• If GP Distributes, Can GetIf GP Distributes, Can Get Creditor MUST PAY INCOME TAX Even if Creditor MUST PAY INCOME TAX Even if

No Income Received!No Income Received!• Phantom IncomePhantom Income

Creditor NightmareCreditor NightmareCreditor NightmareCreditor Nightmare

Does not Become a Does not Become a Limited PartnerLimited Partner

No Right to Demand No Right to Demand AssetsAssets

No Transfer of Assets No Transfer of Assets Without Partner Without Partner ApprovalApproval

Does not Become a Does not Become a Limited PartnerLimited Partner

No Right to Demand No Right to Demand AssetsAssets

No Transfer of Assets No Transfer of Assets Without Partner Without Partner ApprovalApproval

No Fraudulent Transfer No Fraudulent Transfer When FLP EstablishedWhen FLP Established

Can’t Force Termination Can’t Force Termination of FLPof FLP

General Partner General Partner Maintains Income Maintains Income ControlControl

No Fraudulent Transfer No Fraudulent Transfer When FLP EstablishedWhen FLP Established

Can’t Force Termination Can’t Force Termination of FLPof FLP

General Partner General Partner Maintains Income Maintains Income ControlControl

FLPs Leverage GiftsFLPs Leverage GiftsFLPs Leverage GiftsFLPs Leverage Gifts

Each Person May Gift Up to $10,000 per Each Person May Gift Up to $10,000 per Person in SharesPerson in Shares

Value of Gifts is the Fair Market Value of GiftValue of Gifts is the Fair Market Value of Gift Partnership Rules Can Allow Value of Shares Partnership Rules Can Allow Value of Shares

to be Deeply Discounted!to be Deeply Discounted!

Each Person May Gift Up to $10,000 per Each Person May Gift Up to $10,000 per Person in SharesPerson in Shares

Value of Gifts is the Fair Market Value of GiftValue of Gifts is the Fair Market Value of Gift Partnership Rules Can Allow Value of Shares Partnership Rules Can Allow Value of Shares

to be Deeply Discounted!to be Deeply Discounted!

FLP DiscountsFLP DiscountsFLP DiscountsFLP Discounts

What is a FLP Share Worth?What is a FLP Share Worth?• Can’t be Easily Sold or TransferredCan’t be Easily Sold or Transferred• Can’t be PledgedCan’t be Pledged• Can’t Demand DistributionsCan’t Demand Distributions• Income Allocated to LP for Income Tax Even if not Income Allocated to LP for Income Tax Even if not

PaidPaid FMV of LP Share May Be Substantially Less FMV of LP Share May Be Substantially Less

than the Value of the Assets! than the Value of the Assets!

What is a FLP Share Worth?What is a FLP Share Worth?• Can’t be Easily Sold or TransferredCan’t be Easily Sold or Transferred• Can’t be PledgedCan’t be Pledged• Can’t Demand DistributionsCan’t Demand Distributions• Income Allocated to LP for Income Tax Even if not Income Allocated to LP for Income Tax Even if not

PaidPaid FMV of LP Share May Be Substantially Less FMV of LP Share May Be Substantially Less

than the Value of the Assets! than the Value of the Assets!

FLP SummaryFLP SummaryFLP SummaryFLP Summary

Juicy Red Apple is a Sour Lemon for CreditorsJuicy Red Apple is a Sour Lemon for Creditors Family Involved, Parents Control the AssetsFamily Involved, Parents Control the Assets Estate Tax ReductionEstate Tax Reduction Can Distribute Income to Children or Others at Can Distribute Income to Children or Others at

Lower Tax RatesLower Tax Rates

Juicy Red Apple is a Sour Lemon for CreditorsJuicy Red Apple is a Sour Lemon for Creditors Family Involved, Parents Control the AssetsFamily Involved, Parents Control the Assets Estate Tax ReductionEstate Tax Reduction Can Distribute Income to Children or Others at Can Distribute Income to Children or Others at

Lower Tax RatesLower Tax Rates

Typical FLP StructureTypical FLP Structure

FLPFLP*EntityEntity*Corp, LLC, Corp, LLC,

TrustTrust

Husband RLTHusband RLT

Child TrustChild Trust

CharityCharity

Wife RLTWife RLT

General PartnerGeneral Partner

Limited PartnersLimited Partners

Fifth FortificationFifth FortificationFifth FortificationFifth Fortification

Limited Limited Liability Liability CompaniesCompanies(LLC)(LLC)

Limited Limited Liability Liability CompaniesCompanies(LLC)(LLC)

LLC FeaturesLLC FeaturesLLC FeaturesLLC Features

Limited Liability Like a CorporationLimited Liability Like a Corporation Control is Flexible; Few FormalitiesControl is Flexible; Few Formalities Taxable Like a PartnershipTaxable Like a Partnership All States Have ThemAll States Have Them Professionals May Require InsuranceProfessionals May Require Insurance Entity of Choice for Most Small BusinessEntity of Choice for Most Small Business

Limited Liability Like a CorporationLimited Liability Like a Corporation Control is Flexible; Few FormalitiesControl is Flexible; Few Formalities Taxable Like a PartnershipTaxable Like a Partnership All States Have ThemAll States Have Them Professionals May Require InsuranceProfessionals May Require Insurance Entity of Choice for Most Small BusinessEntity of Choice for Most Small Business

LLC vs. FLPLLC vs. FLPLLC vs. FLPLLC vs. FLP

May be comparable. Some states, like May be comparable. Some states, like Wyoming, allow for “Close Limited Liability Wyoming, allow for “Close Limited Liability Companies”, which specify the only remedy for Companies”, which specify the only remedy for creditors of a member is a charging ordercreditors of a member is a charging order

May be comparable. Some states, like May be comparable. Some states, like Wyoming, allow for “Close Limited Liability Wyoming, allow for “Close Limited Liability Companies”, which specify the only remedy for Companies”, which specify the only remedy for creditors of a member is a charging ordercreditors of a member is a charging order

Sixth FortificationSixth FortificationSixth FortificationSixth Fortification

PersonalPersonalAssetAssetProtectionProtectionTrustsTrusts

PersonalPersonalAssetAssetProtectionProtectionTrustsTrusts

ConceptConceptConceptConcept

Set Up a Trust that Limits or Eliminates Set Up a Trust that Limits or Eliminates Creditor Rights to Seize AssetsCreditor Rights to Seize Assets

Integrated With Your Estate PlanIntegrated With Your Estate Plan• You can be a BeneficiaryYou can be a Beneficiary• You can Remove Assets from Your EstateYou can Remove Assets from Your Estate• You can Sleep SoundlyYou can Sleep Soundly

Set Up a Trust that Limits or Eliminates Set Up a Trust that Limits or Eliminates Creditor Rights to Seize AssetsCreditor Rights to Seize Assets

Integrated With Your Estate PlanIntegrated With Your Estate Plan• You can be a BeneficiaryYou can be a Beneficiary• You can Remove Assets from Your EstateYou can Remove Assets from Your Estate• You can Sleep SoundlyYou can Sleep Soundly

APT PlanningAPT PlanningAPT PlanningAPT Planning

Choose Your Jurisdiction (e.g. Alaska or Offshore)Choose Your Jurisdiction (e.g. Alaska or Offshore)• Generally Unfriendly to CreditorsGenerally Unfriendly to Creditors• Offshore has Similar Legal ConceptsOffshore has Similar Legal Concepts• English LanguageEnglish Language

Tax Neutral for U.S. Tax PurposesTax Neutral for U.S. Tax Purposes Alaska is Convenient and FamiliarAlaska is Convenient and Familiar Offshore is Disclosable, but not Answerable to Offshore is Disclosable, but not Answerable to

U.S. Courts U.S. Courts

Choose Your Jurisdiction (e.g. Alaska or Offshore)Choose Your Jurisdiction (e.g. Alaska or Offshore)• Generally Unfriendly to CreditorsGenerally Unfriendly to Creditors• Offshore has Similar Legal ConceptsOffshore has Similar Legal Concepts• English LanguageEnglish Language

Tax Neutral for U.S. Tax PurposesTax Neutral for U.S. Tax Purposes Alaska is Convenient and FamiliarAlaska is Convenient and Familiar Offshore is Disclosable, but not Answerable to Offshore is Disclosable, but not Answerable to

U.S. Courts U.S. Courts

APT Planning (cont.)APT Planning (cont.)APT Planning (cont.)APT Planning (cont.)

Eliminates or Reduces Coercion in LawsuitsEliminates or Reduces Coercion in Lawsuits Is Done For Estate Planning and Business Is Done For Estate Planning and Business

ReasonsReasons Is not a Suitcase of Money on a Midnight FlightIs not a Suitcase of Money on a Midnight Flight Is not a Violation of U.S. LawIs not a Violation of U.S. Law Is not Tax EvasionIs not Tax Evasion

Eliminates or Reduces Coercion in LawsuitsEliminates or Reduces Coercion in Lawsuits Is Done For Estate Planning and Business Is Done For Estate Planning and Business

ReasonsReasons Is not a Suitcase of Money on a Midnight FlightIs not a Suitcase of Money on a Midnight Flight Is not a Violation of U.S. LawIs not a Violation of U.S. Law Is not Tax EvasionIs not Tax Evasion

Domestic JurisdictionDomestic JurisdictionDomestic JurisdictionDomestic Jurisdiction

A Castle MoatA Castle Moat• Judgments May not Be Judgments May not Be

Enforceable Against TrustEnforceable Against Trust

• U.S. JurisdictionU.S. Jurisdiction

• Perpetual TrustsPerpetual Trusts

• Use With Domestic FLPs and Use With Domestic FLPs and LLCsLLCs

• Power to RelocatePower to Relocate

• States with APT laws include States with APT laws include Alaska, Delaware, NevadaAlaska, Delaware, Nevada

A Castle MoatA Castle Moat• Judgments May not Be Judgments May not Be

Enforceable Against TrustEnforceable Against Trust

• U.S. JurisdictionU.S. Jurisdiction

• Perpetual TrustsPerpetual Trusts

• Use With Domestic FLPs and Use With Domestic FLPs and LLCsLLCs

• Power to RelocatePower to Relocate

• States with APT laws include States with APT laws include Alaska, Delaware, NevadaAlaska, Delaware, Nevada

Offshore JurisdictionsOffshore JurisdictionsOffshore JurisdictionsOffshore Jurisdictions

The UltimateThe Ultimate

Castle MoatCastle Moat• U.S. Judgments not U.S. Judgments not

EnforceableEnforceable

• Actions Must be Actions Must be RelitigatedRelitigated

• Short Statutes of Short Statutes of LimitationLimitation

• Power to RelocatePower to Relocate

The UltimateThe Ultimate

Castle MoatCastle Moat• U.S. Judgments not U.S. Judgments not

EnforceableEnforceable

• Actions Must be Actions Must be RelitigatedRelitigated

• Short Statutes of Short Statutes of LimitationLimitation

• Power to RelocatePower to Relocate

New 2005 Act RestrictionsNew 2005 Act RestrictionsNew 2005 Act RestrictionsNew 2005 Act Restrictions

Can avoid transfers made 10 years before the date of the filing Can avoid transfers made 10 years before the date of the filing of the petition, if--of the petition, if--

(A) such transfer was made to a self-settled trust or similar (A) such transfer was made to a self-settled trust or similar device;device;

(B) such transfer was by the debtor;(B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; (C) the debtor is a beneficiary of such trust or similar device;

andand (D) the debtor made such transfer with actual intent to hinder, (D) the debtor made such transfer with actual intent to hinder,

delay, or defraud any entity to which the debtor was or became, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.on or after the date that such transfer was made, indebted.

Can avoid transfers made 10 years before the date of the filing Can avoid transfers made 10 years before the date of the filing of the petition, if--of the petition, if--

(A) such transfer was made to a self-settled trust or similar (A) such transfer was made to a self-settled trust or similar device;device;

(B) such transfer was by the debtor;(B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; (C) the debtor is a beneficiary of such trust or similar device;

andand (D) the debtor made such transfer with actual intent to hinder, (D) the debtor made such transfer with actual intent to hinder,

delay, or defraud any entity to which the debtor was or became, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.on or after the date that such transfer was made, indebted.

Some debts not dischargeable in Some debts not dischargeable in bankruptcybankruptcySome debts not dischargeable in Some debts not dischargeable in bankruptcybankruptcy

Examples include domestic support (alimony Examples include domestic support (alimony and child support) and liability from operating and child support) and liability from operating motor vehicle while under influence alcohol or motor vehicle while under influence alcohol or drugsdrugs

Examples include domestic support (alimony Examples include domestic support (alimony and child support) and liability from operating and child support) and liability from operating motor vehicle while under influence alcohol or motor vehicle while under influence alcohol or drugsdrugs

Case StudyCase StudyCase StudyCase Study

The SurgeonThe SurgeonThe SurgeonThe Surgeon

Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.Leon Cutter, M.D., F.A.C.S.

Orthopedic SurgeonOrthopedic Surgeon• Six Suits in Ten Years; Six Suits in Ten Years;

All SettledAll Settled

• Large Insurance Large Insurance PremiumsPremiums

Professional Corp.Professional Corp.• Leases BuildingLeases Building

• Owns EquipmentOwns Equipment

Orthopedic SurgeonOrthopedic Surgeon• Six Suits in Ten Years; Six Suits in Ten Years;

All SettledAll Settled

• Large Insurance Large Insurance PremiumsPremiums

Professional Corp.Professional Corp.• Leases BuildingLeases Building

• Owns EquipmentOwns Equipment

Married to JanetMarried to Janet• Former TeacherFormer Teacher

• Expert InvestorExpert Investor Two ChildrenTwo Children

• Mary, TimMary, Tim Family Owns Home, Family Owns Home,

Investments, Retirement Investments, Retirement PlanPlan

Married to JanetMarried to Janet• Former TeacherFormer Teacher

• Expert InvestorExpert Investor Two ChildrenTwo Children

• Mary, TimMary, Tim Family Owns Home, Family Owns Home,

Investments, Retirement Investments, Retirement PlanPlan

Cutter Family GoalsCutter Family GoalsCutter Family GoalsCutter Family Goals

Protect Nonexempt AssetsProtect Nonexempt Assets• Keep Home Absolutely SafeKeep Home Absolutely Safe

Protect Practice AssetsProtect Practice Assets• Building and EquipmentBuilding and Equipment

Lower Malpractice PremiumsLower Malpractice Premiums Maintain Control and PrivacyMaintain Control and Privacy Plan for Federal Estate TaxesPlan for Federal Estate Taxes

Protect Nonexempt AssetsProtect Nonexempt Assets• Keep Home Absolutely SafeKeep Home Absolutely Safe

Protect Practice AssetsProtect Practice Assets• Building and EquipmentBuilding and Equipment

Lower Malpractice PremiumsLower Malpractice Premiums Maintain Control and PrivacyMaintain Control and Privacy Plan for Federal Estate TaxesPlan for Federal Estate Taxes

FLPFLPNon-Exempt Non-Exempt

AssetsAssets

Cutter Family PlanCutter Family Plan

1% Husband RLT1% Husband RLT

2% Wife RLT2% Wife RLTWith Voting Agmt.With Voting Agmt.

Husband RLTHusband RLT

Child TrustsChild Trusts

CharityCharity

Wife RLTWife RLT

General PartnerGeneral Partner

Limited PartnersLimited Partners

FLPFLPPractice Practice AssetsAssets

Insurance TrustInsurance Trust

Estate ExampleEstate ExampleEstate ExampleEstate Example

1% LP Shares Gifted to Each Child’s Trust 1% LP Shares Gifted to Each Child’s Trust and a Charity in 1994 and 1995and a Charity in 1994 and 1995

Parents are General PartnersParents are General Partners At Death, Parents Own 93% LP SharesAt Death, Parents Own 93% LP Shares

1% LP Shares Gifted to Each Child’s Trust 1% LP Shares Gifted to Each Child’s Trust and a Charity in 1994 and 1995and a Charity in 1994 and 1995

Parents are General PartnersParents are General Partners At Death, Parents Own 93% LP SharesAt Death, Parents Own 93% LP Shares

Plan HighlightsPlan HighlightsPlan HighlightsPlan Highlights

Cuts Malpractice Coverage to a More Cuts Malpractice Coverage to a More Reasonable Level ($1,000,000)Reasonable Level ($1,000,000)

No ProbateNo Probate Privacy MaintainedPrivacy Maintained Creditor Protection for Entire FamilyCreditor Protection for Entire Family

• Spendthrift Trusts for ChildrenSpendthrift Trusts for Children Spreads Income at Lower BracketsSpreads Income at Lower Brackets

Cuts Malpractice Coverage to a More Cuts Malpractice Coverage to a More Reasonable Level ($1,000,000)Reasonable Level ($1,000,000)

No ProbateNo Probate Privacy MaintainedPrivacy Maintained Creditor Protection for Entire FamilyCreditor Protection for Entire Family

• Spendthrift Trusts for ChildrenSpendthrift Trusts for Children Spreads Income at Lower BracketsSpreads Income at Lower Brackets

Plan HighlightsPlan HighlightsPlan HighlightsPlan Highlights

Federal Estate Tax is Substantially Reduced!Federal Estate Tax is Substantially Reduced! Pay Estate Tax With Discounted DollarsPay Estate Tax With Discounted Dollars CREATES PEACE OF MIND!CREATES PEACE OF MIND!

Federal Estate Tax is Substantially Reduced!Federal Estate Tax is Substantially Reduced! Pay Estate Tax With Discounted DollarsPay Estate Tax With Discounted Dollars CREATES PEACE OF MIND!CREATES PEACE OF MIND!

Before PlanningBefore PlanningBefore PlanningBefore Planning

Your Entire Estate is at Risk!Your Entire Estate is at Risk!Your Entire Estate is at Risk!Your Entire Estate is at Risk!

After PlanningAfter PlanningAfter PlanningAfter Planning

Your Estate has Defenses!Your Estate has Defenses!Your Estate has Defenses!Your Estate has Defenses!

Keys to a Successful PlanKeys to a Successful Plan

Team ApproachTeam Approach

Custom DesignCustom Design

Cutting Edge SolutionsCutting Edge Solutions

Team ApproachTeam Approach

Custom DesignCustom Design

Cutting Edge SolutionsCutting Edge Solutions

Thank You for AttendingThank You for Attending

Questions?Questions?Questions?Questions?