Wealth Management
Many of us concentrate on acquiring wealth without planning to retain the wealth for future enjoyment and eventual pass-through to heirs.
Taxes, litigation, creditors, business failure, or some other financial issue can pose a threat to your financial condition. Our experience allows you to confidently look to the future by protecting your assets from a creditor or tax exposure. Our asset protection strategies legally protect your assets from creditors and, in some cases, protect your estate from estate and income tax liability.
Services We Offer to Protect Assets and Mitigate Exposure to the Estate and Federal Income Tax
Estate Tax Planning
The estate tax, levied on the valuation of an individual's assets upon death, is a significant concern for a growing number of people. An estate is compromised of all assets owned by deceased. The estate tax returned 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 mitigate, or even avoid, the estate tax.
Below-Market Loans
Borrowing entails obtaining a loan from a known business entity or person, including a family member. Regardless of where the loan originates, tax laws create obstacles that lead to penalties and higher tax liabilities. To overcome these obstacles, we advise our clients on how to comply with the complex rules of Internal Revenue Code Section 7872, and how to mitigate income tax liabilities associated with certain loans.
Qualified Terminable Interest Property Trusts
Married people can use a Qualified Terminable Interest Trust ("QTIP") to defer and mitigate the impact of the estate tax by placing property in a trust and naming the surviving spouse as the life beneficiary. Upon the death of the second spouse, the property in the trust passes to the final beneficiaries (designated by the first spouse). For estate tax purposes, the property remains in the second spouse's trust. QTIPs help to avoid paying estate tax upon the death of the first spouse. Each spouse can create a separate QTIP.
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. Care must be taken since a number of rules must be strictly followed. Failure to follow these rules will void any asset protection a QTIP could offer. We advise our clients how to utilize a QTIP for asset protection purposes and properly draft QTIP trust arrangements to mitigate estate tax consequences.
Qualified Personal Residence Trust
A Qualified Personal Residence Trust allows a person to transfer one or more personal residences to a trust at a fraction of the ordinary gift or estate transfer tax cost. 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 retain the property in the trust. They can sell it. After a term expires, the property passes to the transferor's beneficiaries. If the transferor dies within the term, the property reverts to his or her estate.
Properly structured, a Qualified Personal Residence Trust is a very effective tool for asset protection purposes because a creditor cannot attach, or lay claim to, the property in the trust. A creditor's only remedy would be to attach value to the interest in the property over a term of years. This is very difficult since a creditor’s attempt to foreclose upon this interest could lead to litigation from the beneficiaries of the Qualified Residence Trust. Creditors tend to avoid pursuing residence interest held in Qualified Residence Trusts, and are 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 on 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 is not an Individual Retirement Account (IRA). Like an Employee Retirement Income Security Act (“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, and our attorneys provide comprehensive advice on how to utilize them for asset protection purposes.
Limited Liability Companies and Family Limited Partnerships
Limited Liability Companies (LLC) and Family Limited Partnerships (FLP) are effective vehicles to mitigate the estate tax, and are frequently used to remove assets from a taxable estate. In addition, a FLP can discount the value of a taxable estate, which in turn can reduce an estate tax.
An LLC and FLP are also frequently used for a charging order, a unique feature of both LLCs and FLPs. In most states, a judgment creditor may only receive a charging order against an individual who owns an interest in either an LLC or FLP. A charging order directs an LLC or FLP to forward all distributions, which would have gone to the holder of the LLC or FLP, to the judgment creditor. 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 comprehensive advice regarding the establishment of LLCs and FLPs for asset protection purposes, and recommend strategies to mitigate estate tax liability.
Captive Insurance Companies
A business owner forms a captive insurance company to insure the risks of a business, lower the cost of insurance, transfer wealth out of a business, and accumulate and preserve wealth for future generations. 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 removing the wealth from the claim of a lurking creditor. The federal, state and international laws governing captive insurance companies are incredibly complex. Our attorneys help clients make sense of these complex laws, and advise them on how to form and operate their own captive insurance company to lower their business costs, reduce income tax liability and protect assets.