The current litigation explosion in our society is forcing professionals, small business owners as well as the common homeowner to focus on ways to protect their savings, investments and other accumulated assets that have become attractive targets for hungry and unscrupulous attorneys.
The U.S. legal system stacks the deck against the defendant and is in favor of the plaintiff. This is especially true if the plaintiff has deep pockets to pursue you. U.S. judges are also not always competent to handle the cases that come to them. Many times judges issue judgments that are not just and fair.
The average person will be sued five times in his lifetime and faces the very real prospect of being on the receiving end of a ruinous judgment. Failure to plan for that contingency can result in the instant loss of a lifetime's accumulated wealth. Once a suit has been filed or one is anticipated, the law frowns upon moving assets. (referred to as a “fraudulent transfer) Although, assets may be moved under certain conditions, it is always better to move assets before a problem arises. Prior planning and action are highly recommended.
How Do They Find Your Assets?
How does a lawyer find something you have of value? Very easily. He hires one of
many firms that specialize in locating assets for attorneys. They can locate
bank accounts, real estate, brokerage accounts, auto, businesses etc. all in
your name. In fact, many times a contingency fee attorney will do an asset
search on you before he even bothers to sue you. He wants to make sure you have
something of value before he spends his time and money. There is little about
your personal and financial well being that cannot be found. However, if the
assets are not in your name and are instead listed in the name of a corporation,
trust or partnership finding them becomes much more difficult (if not
impossible) and expensive for the plaintiff's lawyer. This is one of the very
important principles of asset protection: it depends in large part on privacy.
The more information available about you, the more likely your “life’s story” is
to find.
How to Minimize Your Assets ?
How do you minimize the chances of losing assets? By becoming a smaller target.
How do you become a smaller target? By shrinking the size of your estate so that
you do as John D. Rockefeller said, "Own nothing and control everything". That
is the key. You of course, do not want to give up control but you can give up
ownership in such a way that a plaintiff will give up and look for greener
pastures. This is done through a combination of domestic and foreign structures.
Be careful not to do the "poor man's asset protection: transferring assets to
your brother, sister, mother, or friend is not a good idea. It is extremely
transparent to a plaintiff attorney and it will could result in serious IRS tax
problems.
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Are These Techniques
Legal? Absolutely! Asset protection has been practiced by the wealthy for decades. They use these very tools and strategies that we are discussing. They are legal, effective and can give you the peace of mind you have earned. Why Won't My
Attorney Help Me? |
In many cases a Wyoming , or, in many instances a Delaware, corporation is our first line of defense. Why is this? Well, there are a multitude of reasons why a Corporation can be useful. Following is a list of some of the reasons.
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A. Wyoming is basically a tax-free state. |
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Just no tax!
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Wyoming has no personal or corporate income tax as well as no inheritance tax. It collects information on no one!! Now, having said that we must remember, we are talking asset protection, not income tax avoidance or evasion, the latter of which is illegal. Many proper asset protection techniques are not associated with income taxes; they serve only to protect and/or preserve that which you have.
The names of owners or stockholders of Wyoming corporations are not a matter of public record. Only the officers names are made public. Creative planning can remove your name as an officer or director.
Now, having said that, unless there is a very compelling reason why not to, you should incorporate in the state where you reside.
Uses for a Corporation
Use your Corporation as a supplier, advertising agency management company,
lending institution, equipment lessor, premises lessor, employee leasing
company, or some other use that is necessary for your business. Your Corporation
now bills you for the services provided. It will generally add some amount to
the bill for its service costs and overhead. Thus you are able to transfer some
of your profits to a tax-free state!
EXAMPLE: Have your supplier invoice your corporation for products that you normally purchase. Let's say that the invoice is for $50,000. Your corporation will pay the bill and bill your local company $75,000. Bingo! $25,000 of profits have been shifted to a tax free state. Major US corporations have used these tactics for years. Not only within the United States but worldwide. Have you ever noticed that many credit card companies bill out of South Dakota? That is because South Dakota is a tax- free state.
EXAMPLE: Have the Corporation put a lien on your major assets such as your home, rental property, or business property. Now, there will be no equity. If someone should come snooping around looking for a deep pocket, they won't find it. The Corporation can hold trust deeds, or UCC-1 filings.
What if you could sign a document, write a check for a few hundred to a thousand dollars and begin to:
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Sound interesting? Well what is a family limited partnership? It is one of the most effective asset protection tools around. It helps reduce estate and income taxes, gives you the ability to manage your assets while denying creditors access to them, and has a built in tax penalty for any creditor who receives a court order against you. General partners are in complete control while limited partners have no control. The law denies the creditor the right to take any interest in the partnership, and if structured properly they can provide great anonymity. It may sound like a mouthful and it is. They are among the most widely used and effective domestic asset protection tools around.
Family Limited Partnerships are used to protect real estate, stocks & bonds, cash, jewelry, furniture and fixtures and many other personal and business assets. The FLP is unique in that it is a tax neutral entity. Thus, unlike a corporation you can freely transfer assets in and out of the FLP without worrying about an adverse tax effect.
So, How do They Work?
The first step we take is to legally and properly form an FLP that is structured
to your specific needs. This takes some important planning. Second, the
partnership agreement has to be drawn up and the ownership carefully decided.
Third, the assets have to be properly transferred into the FLP.
Once all of this has been done, it becomes very difficult for a creditor to attack your FLP. If he obtains a judgment against you, that still does not give him the right to take your assets in the FLP. He has to go back to court and get another judgment called a charging order. That allows him to get your share of the distributions from the FLP. If you do not distribute anything, then the creditor gets nothing. He cannot take your position and run the FLP. He cannot force you to distribute assets. If the FLP has undistributed profits, the creditor gets a K-1 and must pay tax to the IRS on money he never received and probably never will receive. As a result of this, few creditors ever go for a charging order. Thus your assets are safe!
The law prohibiting a creditor from reaching the assets of the partnership have been well established for many years. In fact, these particular provisions of partnership law were first adopted as part of the English Partnership Act of 1890 and were subsequently adopted as part of the Uniform Partnership Act, which has been the basis of the law in the United States since the 1940’s. The rationale for these provisions is that they are necessary to accomplish a particular public policy objective. This policy is that the business activities of a partnership should not be disrupted because of non-partnership related debts of one of the partners. Why should a non-debtor partner be forced to suffer for doing nothing wrong?
The proper role of the Family Limited Partnership is to hold the interests in business activities but not to conduct business activities through the partnership.
Your partnership agreement is confidential and is not filed with any government agency. Only you know what it says and only you know who the limited partners are and what assets are owned by the partnership.
An FLP does not have double taxation like a corporation so you do not have to worry about that. It is truly an excellent domestic protection tool when it is properly structured and implemented.
A limited liability ("LLC") is a non-corporate business entity, in which all members have limited liability protection, in which all members can participate in management and control, and which, if appropriately structured, is taxed as a partnership rather than a corporation for federal income tax purposes. By combining limited personal liability with partnership tax classification, the LLC can provide advantages that are unavailable to corporations, partnerships or limited partnerships thereby affording investors the latitude to participate in business ventures.
Additionally, the LLC may be an appropriate vehicle for real estate investment, because it combines liability protection with favorable partnership tax treatment. Although real estate ownership crates potential liability under mortgages, leases and other contracts, environmental laws and other laws real estate investors traditionally have avoided using corporations because they have considered taxation on in-kind contributions of real estate to be disadvantageous and because they have desired flow-through treatment of losses, enhanced by the increased basis provided through debt financing.
Accordingly, a LLC, if appropriately structured to be classified as a partnership for federal income tax purposes, is permitted to allocate tax items of income, gains, losses, deductions, and credits among its members in accordance with its "partnership agreement" (i.e., operating agreement or regulations).
There are no major differences in the federal income tax treatment of LLC'S and limited partnerships. The principal advantage of the LLC the limited partnership is the limited liability protection afforded all LLC members and managers. Limited partnerships are required to have one or more general partners, who are personally liable for partnership debts and obligations. The LLC affords limited liability protection to its members regardless of the extent to which they participate in management and control of the LLC business affairs. A similar result might be obtained by use of a limited partnership with a corporate general partner controlled by the limited partners.
A very affective and useful Asset Protection vehicle would entail the use of a LLC. The specific arrangement would depend on your particular circumstances, business activity, and the type of assets owned. If you are engaged in any business or if you own property, we recommend that you take necessary steps to arrange your affairs in order to maximize the income tax, estate planning and law suit protection techniques currently available.
If I place my real
estate into a family limited partnership, won't my taxes go up?
Not necessicarily, not if it is properly done. There may be no adverse tax
effects.
My advisers say asset
protection does not work. Is this true?
This is absolutely not true. We have many success stories to prove the
opposite. We recommend that you have your advisers call us and we will be happy
to speak with them!
If I place my real
estate in family limited partnership, won't my lender call the loan?
No, lenders understand that this is not a sale. A transfer to a family
limited partnership is similar to a transfer to a living trust. It is done for
estate planning purposes.
Do you provide corporate services such as address, mail forwarding, a physical office and bank account services?
We can arrange them for you. We believe that in order for your corporation to pass the test of a legitimate out of state entity, it should have all corporate records properly done and an address in the state.
ASSET LIABILITY PROTECTION