Irv Blackman Irv Blackman
Independent Financialservices Professsional

Asset Protection and Estate Planning—Essential, Compatible and Wealth-Saving Bedfellows

January 1, 2011

The typical reader of this column hates paying taxes. Beating up the IRS legally often is their favorite indoor sport. What tax do they fear the most? Hands down, it’s the estate-tax monster. To calm your fear, let’s start with a bit of good news: Your author, with the help of other experts, has learned how to win the estate-tax game. What does this mean? We have developed a system—used hundreds of times over the years—that can, does and will beat the estate-tax monster, every time, no matter how large your estate.

But face it, 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).

All very good. But wait, you ain’t dead yet. In the meantime are your assets protected for the rest of your life? Let’s take a closer look at your situation: Write your age here ____________ (and if married, your spouse’s age here ____________). If you are a guy and you wrote 41, your life expectancy is 77; at 52 it’s 78; at 63 it’s 81; at 74 it’s 84. Even at age 86 you have five more years to enjoy life. If you’re a gal, add three to four years.

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

Sorry, but here comes the bad news: To be brutally honest, the reason almost all estate-planning advisors don’t offer asset protection is because they don’t know how. What about those advisors that rely on a software package? They are helpless; asset protection is not part of the package.

Just imagine going to the bank with a large amount of cash. Only a fool would not take the necessary precautions. In a like manner, it only makes good sense to protect your assets, starting today and until you go to the big business in the sky.

How and when should your asset-protection plan be done? The when is easy: When you do your estate plan, do a lifetime plan at the same time. Your lifetime plan must include your asset-protection plan.

Your lifetime plan includes such considerations as:

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

• How to deal with inflation;

• Succession planning for your business;

• What if one of your kids gets 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:

1) Protect you and your spouse.

2) Protect your kids and grandkids.

3) Protect your business.

Before detailing the categories it is important to understand the goal of asset protection: to protect assets from possible lawsuits (even if you lose and are held liable), creditors, divorce claims and frivolous claims.

Here’s a list of the basic dos, don’ts and strategies to ensure your assets (wealth) are protected.

Protect 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 (whether 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 in no. 2 above); transfer to a family-limited partnership (FLIP).

4) Als carry umbrella liability insurance.

5) Never serve on the board of directors (profit or not-for-profit) without adequate error and omissions insurance.

6) Do not cosign or guarantee loans for friends or family. (Your kids or grandkids could be an exception.)

7) Cars can be an expensive asset destroyer:

a) Don’t own the car of an adult child.

b) Don’t own vehicles jointly with your spouse.

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

8) Getting married? A prenuptial agreement is a must.

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

Protect Your Kids and Grandkids

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

2) Beware of the divorce devil.

• Never have your 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, make sure you have a unit buy/sell agreement to be certain the business stays in the family.

• Give the kids limited (nonvoting) units in the FLIP, which is a perfect asset-protection device, locking out an ex-spouse.

• If you live in a community-property state (like Texas, California or Louisiana), remember that gifts and inherited property are not in the community (spouse has no ownership). In all other states, gifts and inherited property (and property owned prior to marriage) are nonmarital property and the spouse has no claim. Never comingle noncommunity property with community property.

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

Protect Your Business

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

2) Keep your corporation thin—only have the corporation own those assets that are necessary to operate, such as cash, inventory and accounts receivable. Here’s the drumbeat:

a) The following should be owned by separate LLCs and leased to the corporation:

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

• Expensive equipment, furnishings and signage.

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

• The company should not use its cash to make investments, own artwork or own any other nonbusiness asset.

Note: A thin corporation is not a good target for a lawyer going after big bucks.

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

3) Your corporation should never own life insurance on any of the stockholders—proceeds open to creditor claims.

4) Opening a new location or diversifying with a new product or service? Start a new corporation.

The above list does not cover all of the situations that require asset protection. Nor does the list include every do, don’t or strategy that a competent advisor might use.

Your death plan should be designed to protect your wealth from the IRS. Your estate plan is not done unless it includes a lifetime plan. Asset protection is an essential part of your lifetime plan, designed to protect your wealth from any third party or court that tries to take a any part of it.

When you work with an experienced advisor, asset protection (as a part of your estate plan) is easy, quick and best of all, inexpensive. MF

Industry-Related Terms: Point, Transfer, Die, DOS, Entity
View Glossary of Metalforming Terms

Technologies: Management


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