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Asset Protection and Estate Planning--Done Right, and Both are Part of the Same Plan

By: Irv Blackman

Friday, August 01, 2014
 

Even a perfect estate plan, at best, is in reality a death plan, because nothing happens until you die. Then, and only then, will your assets go to your heirs (or into a trust, partnership or other entity for their benefit.)

But wait, you ain’t dead yet. In the meantime are your assets protected?

What’s my point? Well, it’s common knowledge that your death plan should protect your assets from the IRS when you go to heaven. But what about a plan to protect your assets from today (the day you sign your estate-planning documents) until you die?

How and when should your asset-protection plan be done? The when is easy: When you prepare your estate plan, also prepare a lifetime plan, which must include an asset-protection plan.

Your lifetime plan should include:

• How to maintain your lifestyle (and your spouse’s, if married) for the rest of your life;

• How to deal with inflation;

• Succession plan for your business;

• A plan should one of your kids get divorced; and

• A host of other issues unique to every family and business owner.

Next, the how of asset protection: For most law-abiding Americans, asset protection is a three category subject: protect you and your spouse; protect your kids and grandkids; and protect your business.

Understand the goal of asset protection is to protect assets from possible lawsuits (even if you lose and are held liable), creditors, divorce claims and frivolous claims. Following is a list of the basic dos, don’ts and strategies to ensure your assets (wealth) are protected.

Protecting You and Your Spouse

1) Your residence(s): Transfer to a “qualified personal residences trust” or hold title 50 percent in your revocable (estate planning) trust and 50 percent in your spouse’s trust.

2) Other real estate you own (vacant or improved): Each property should be in a separate LLC. Exception: properties that are not too valuable can be grouped in one LLC.

3) Investments (cash, stocks, bonds, CDs and the like, as well as your interests in the LLCs noted above): Transfer to a family limited partnership (FLIP).

4) Do not co-sign or guarantee loans for friends or family. Your kids or grandkids could be an exception.

5) Cars can be an expensive asset destroyer.

• Don’t own the car of an adult child.

• Don’t own vehicles jointly with your spouse.

• Don’t let other people drive your car unless your insurance has proper coverage.

6) You and your spouse must execute property powers of attorney.

Protecting Your Kids and Grandkids

1) Never leave property directly to a minor, including life-insurance proceeds or retirement plan funds. Als leave property to a trust, FLIP or some other protection device.

2) Beware of the divorce devil.

• Never have your adult kids own life-insurance policies on your life (or second-to-die).

• If your kids or other family members own stock in your closely held business, ensure you have a proper buy/sell agreement to be certain the business stays in the family.

• Investments (see 3 in the first category): Give the kids limited (nonvoting) units in the FLIP, a perfect asset-protection device, locking out an ex-spouse.

3) Sometimes kids must be protected from themselves. If a minor (or even an adult) is a spendthrift or has special needs, set up an appropriate trust.

Protecting Your Business

1) Don’t operate your business as a sole proprietorship or as a general partnership; incorporate the business.

2) Keep your corporation thin—only have the corporation own assets that are absolutely necessary to operate, such as cash (distribute excess cash if an S corporation), inventory and accounts receivable. Here’s the drumbeat:

• The following should be owned by separate LLCs and leased to the business:

a) Land that the business uses to operate. It’s okay to leave the building in the company as a leasehold improvement.

b) Expensive equipment, furnishings and signage.

c) Vehicles (most lawsuits against businesses are the result of vehicle accidents).

d) Other investments—The company should not use its cash to make investments, own artwork or own any other non-business asset.

• If you are a C corporation, become an S corporation so you can make distributions (dividends) without being double taxed.

3) Your corporation should never own life insurance on any of the stockholders—you don’t want proceeds open to creditor claims. MF

 


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