Wealth Management

Throughout our working lives, many of us concentrate on acquiring assets, without giving enough thought to how the acquired wealth can be best kept for our enjoyment later in life and how it can be passed to the next generation.

The threat to your assets may come from taxation, litigation, creditors, failure of a business, or some other problem. Whichever the case, our experience and technical expertise in this area will help you defend your assets from a creditor or mitigate your exposure to taxes and allow you to look to the future confidently. In order to preserve your wealth, we offer comprehensive asset protection services and strategies. Our asset protection strategies are designed not put into place to illegally elude creditors. Rather, our asset protection strategies are designed to legally protect your assets from creditors and in some cases may protect your estate from the estate and income tax liability. We also offer sophisticated planning which allow our clients to mitigate their exposure to estate and income tax on certain transactions.

Services We Offer to Protect Your Assets and Mitigate Your Exposure to the Estate and Federal Income Tax

Estate Tax Planning

The estate tax is a significant worry for a growing number of people, and a subject for frequent passionate debate. The estate tax is a tax that is levied not on your earnings, as is the case for income tax, but on the valuation of an individual's assets upon their death. The estate tax is levied on what is known as the estate of the deceased; the estate is compromised of all of the assets under the ownership of the deceased. The estate tax is scheduled to return on January 1, 2011, imposing a levy of up to 55 percent on estates valued at more than $1 million. We offer comprehensive plans to our clients to mitigate or even avoid the estate tax.

Below-Market Loans

For many businesses or individuals, borrowing often means getting a loan from a related party or family member. Either way, our tax laws create a number of obstacles that must be overcome in order to avoid penalties and higher tax liabilities. We advise our clients how to comply with the complex rules of Internal Revenue Code Section 7872. We also advise our clients how to mitigate income tax liabilities that is often associated with such loans.

Qualified Terminable Interest Property Trusts

A Qualified Terminable Interest Trust ("QTIP") is often utilized to defer and mitigate the impact of the estate tax. A QTIP allows a married person to name his or her surviving spouse as the life beneficiary for property placed in trust. Upon the death of the second spouse, the property placed in trust passes to the final beneficiaries designated by the first spouse. The property remaining in the trust is included in the second spouse's estate for estate tax purposes. The primary reason for utilizing a QTIP is to avoid paying estate tax upon the death of the first spouse. Each spouse can create a separate QTIP.

A QTIP may also be utilized for asset protection purposes. For asset protection purposes, a QTIP established by one spouse for the benefit of the other will probably protect the assets held in trust from creditors of the beneficiaries. However, care must be taken to establish a QTIP for asset protection purposes. A number of formalities must be strictly followed. Failure to follow these formalities will void any asset protection a QTIP could offer. We advise our clients how to properly draft QTIP trust arrangements to mitigate their estate tax consequences. We also advise our clients how a QTIP can be utilized for asset protection purposes.

Qualified Personal Residence Trust

The qualified personal residence trust is technique that allows a person to transfer one or more personal residences at a fraction of the transfer tax cost that would be incurred on an ordinary gift or estate transfer. A qualified personal residence trust involves the transfer of property to a trust. The transferor retains the right to live on the property for a fixed number of years. A Qualified Residence Trust does not place harsh restrictions on the use of the property placed into the trust. Furthermore, an individual is not required to hold on the same property placed into the trust. He or she is free to sell the property placed into the Qualified Residence Trust. After the term of years has expired, the property passes to the transferor's beneficiaries. If the transferor dies within the term of years designed in the trust, the property reverts to his or her estate.

Qualified Personal Residence Trusts is also a very effective tool for asset protection purposes. This is because if a Qualified Personal Residence Trust is properly legally structured, a creditor of an individual transferring real property to a Qualified Residence Trust cannot attach the property. Instead, such a creditor's only remedy would be the term of years interest retained by the individual. A creditor will have a very difficult time selling or even valuing a term of years interest in the property. Furthermore, if the creditor were to foreclose upon the term of years interest held by an individual, the creditor faces the very real possibility of litigation hazards from the beneficiaries of the Qualified Residence Trust. Consequently, creditors either do not tend to pursue residence interest held in Qualified Residence Trusts, and are more willing to negotiate on favorable terms with a debtor who properly established a Qualified Residence Trust. We advise our clients how to properly draft a Qualified Personal Residence Trust to mitigate the gift or estate tax. We also advise our clients how establish a Qualified Personal Residence Trust for asset protection purposes.

California Private Retirement Plans

One of the best domestic asset protection opportunities available to California residents is a private retirement plan. A California private retirement plan should not be confused with an Individual Retirement Account (IRA). Like an ERISA plan, and unlike an IRA, the funds or assets placed into a private retirement account are absolutely exempt from creditors. The private retirement account must hold assets that are suitable for retirement purposes. Thus, one cannot transfer one's home into the plan. However, it may be possible to transfer rental property into a private retirement account to shield the property from creditors.

However, unlike an ERISA plan, a California private retirement plan could be exempt from creditors even if there is only one participant. In order to qualify for an exemption from creditors, the private retirement plan must arise in an employment setting, and the plan must be "designated and used principally" for retirement purposes. This means that an individual who establishes a private retirement account may have a motive besides retirement in establishing such an account. An individual may also establish a private retirement account to shield assets from creditors. However, a retirement motive must predominate over an asset protection motive. One of the best features of a private retirement account is that the fraudulent conveyance rules do not seem to apply to transfers to the plan. The rules governing California private retirement Accounts are complicated. However, our attorneys provide our clients with comprehensive advice how to utilize private retirement plans for asset protection purposes.

Limited Liability Companies and Family Limited Partnerships

Limited Liability Companies (LLC) and Family Limited Partnerships (FLP) are frequently used for estate tax purposes. Both the LLC and FLP are effective vehicles mitigate the estate tax. This is because both of these entities can be utilized to remove assets from a taxable estate. In addition, a FLP can be utilized to discount the value of a taxable estate, which in turn can reduce an estate tax.

An LLC and FLP are also frequently used for their asset protection benefits associated with a concept known as a charging order. A charging order is a unique feature of both LLCs and FLPs. In most states, a judgment creditor of an individual who owns an interest in either an LLC or FLP may only receive a charging order against an LLC or FLP. A charging order directs an LLC or FLP to forward all distributions that would have gone to the holder of the LLC or FLP. If a LLC or FLP agreement is properly drafted, a creditor will not receive any cash distributions from the LLC or FLP and the debtor will continue to hold his or her shares in the entity. Furthermore, a creditor may even be forced to recognize a tax liability for a "distribution" from an LLC or FLP that was never received. Our attorneys provide detailed on comprehensive advice regarding the establishment of LLCs and FLPs. We also provide our clients we recommendations how these entities can be utilized to mitigate a potential harsh consequence of the estate tax and how the vehicles can be effectively utilized for asset protection purposes.

Captive Insurance Companies

A captive insurance company is an insurance company that is formed by a business owner to insure the risks of that business. A captive insurance company can also be used to lower the cost of insurance. A captive insurance company can also be used to transfer wealth out of a business. By paying insurance premiums to a captive insurance company, wealth generated by the business is transferred from the entity to the insurance company. Thus, reducing the business's marginal tax liability and removes the wealth from the claim of a lurking creditor. A captive insurance company may also be utilized to accumulate and preserve wealth for future generations. The federal, state and international laws governing captive insurance companies are incredibly complex. Our attorneys assist our clients make sense of these complex laws. We also advise our clients how to form and operate their own captive insurance company in order to lower their business costs, reduce their income tax liability, and to protect their assets.

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