A few weeks ago, we lost two great people. John McCain, the consummate gentleman and statesman and a man who was respected by his constituents and peers, and Aretha Franklin, the amazing talent with a special voice that had passion, range, and register. She also made the song “Respect” an iconic hit.
I was stunned when I read that she left this world without a will. I have no idea what the value of her estate nor is it any of my business. But I sense Aretha Franklin worked hard her entire life and accumulated much wealth. And no one ever truly wants to face or think about the end of his or her life, but without a good plan, much of the wealth a person spends a life time amassing goes to the government instead of the charities, entities, children, or other significant people in one’s life.
Franklin’s situation also caused me to revisit a presentation at Service World Expo last September by Hillel L. Presser. He has authored a book titled, Asset Protection Secrets - How America’s Affluent Lawsuit Proof their Wealth, and How You Can Too!
This is a great topic because in today’s lawsuit-crazy world, insurance and a will are just not enough!
It also reminded me of the situation we found ourselves when my mother-in-law passed. Vicki and I had done a good job getting most of the finances in order. Our name was on all bank accounts, we were using protected entities, and we were re-titling some assets. But, and there is always a but, one small brokerage account slipped by us. Now, there was not much in the account, a few thousand dollars, but it was extremely difficult for us to get access to that particular account. All the state filings and associated fees approximately cost what the value of the account happened to be and it took two years for resolution.
You see, when someone passes without necessary precautions and protection maneuvers, assets are frozen until the estate goes through probate.
Some might say that bank accounts are insured to $250,000 by the FDIC. True, if the banking institution fails but that has little to do with passing that wealth on to survivors or next generations and shielding it from lawsuits and potential taxes.
Now we get to Mr. Presser’s primary theme: Own Nothing, Control Everything; even from the grave if you should make that choice in your asset protection strategy.
Mr. Presser’s safety net model revolves around what he calls “layers of defense” or “firewalls.” These are barriers that are so difficult and challenging to cross, that an opposing attorney looking for a lawsuit finds the pursuit of the assets so costly in time and money he or she will look for targets not as well protected. Or at most take an extremely small settlement.
As often is the case, a good defense is better than a good offense. Assemble a defensive team: a qualified attorney, a tax accountant, a financial planner, an insurance agent, a portfolio professional - you make the call! Keep your plan simple enough for understanding and defensible enough to meet your goals.
The Asset Protection team needs to be knowledgeable about all federal and state laws governing income tax, estate tax, inheritance tax, and gift tax. Then, using a coordinated combination of COPE’s -Charge Ordered Protected Entities - which are domestic and foreign legal asset protection vehicles, a plan should take shape. Careful asset titling and defensible layers of trusts, limited partnerships (LP), holding companies, family limited partnerships FLP), limited liability companies (LLC), the new Series LLC, and others create a protective, generational sequence. These COPEs basically make you judgement proof.
The list of planning trusts is long, but here are a few to investigate:
- The Living Trust or a Spendthrift Trust;
- Elder care planning trusts like the Medicaid Trust;
- Estate tax planning trusts like the Intentionally Defective Grantor Trust, the Generation
- Skipping Trust or the Grantor Retained Annuity Trust.
These are just a few examples of the many, many trusts that can give you and your family peace of mind going forward. The wise use of titling assets and incorporating entity protection will serve to protect family wealth.
Also, consider setting up a new service or a branch as a separate LLC. A separate LLC can protect the assets of the Mothership Company so that any future liability from the new LLC cannot be imposed on or encumber the assets of the Mothership Company.
I am on a mission to get Mr. Presser’s word out. Vicki and I look at many financial statements through out the year. It kills me when we see hundreds of thousands or as much as a million dollars on a company balance sheet. That company could lose everything in just one collision with their service truck with a lawsuit that’s too likely to happen.
The quote often repeated is: “The only things none of us can escape are death and taxes.” But a good attorney and a thoughtful asset protection plan can go a long way in at least minimizing the inevitable taxes.
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