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Asset Protection FAQ (Frequently Asked Questions)

Posted on: May 26, 2017 at 5:54 am, in

Asset Protection: Questions on Protecting Your Assets

Estate Planning and Protecting Your Assets

Protect your assets from lawsuits, divorce, Medicaid.
Asset protection is one of the most important things you can do. The planning is a method of preparing for any possible lawsuits in the future. It entails rearranging the ownership of your current assets so that they cannot be touched by creditors during a lawsuit. Asset protection can also act as a form of supplementary insurance. It can protect you from the various risks that can be associated with professions and businesses. Generally speaking, asset protection is used to safe-guard your assets that would be at risk. There are different degrees of asset protection. Typically, the more complex the planning is, the more effective it will be in the future. However, even though complex planning can offer you the best protection, it is also very expensive and there are more restrictions involved.

Do You Need an Expert on Asset Protection Planning?

If you have assets that require you to plan your estate if you die, then you probably have enough assets to strongly consider an asset protection plan. It is important to protect these assets from lawsuits that could occur before your death. The decision is entirely personal and is based on risk aversion, your asset level and the level of protection you need. There are very few levels of protection that as you may imagine, have a correlated cost to set up, but it is a very personalized product and a professional needs to assess all of these factors when making a recommendation.

What Assets Can Be Protected?

Asset protection involves exempt property that is considered unreachable by creditors. Each state has its own unique laws that define what exempt property is. Some properties can be entirely exempt, while others may be limited. Some common examples of exempt property include clothing and jewelry, tools of a trade or a business and household furnishings. In some cases, life insurance and social security may be classified as exempt property. But there is no reason to risk laws changing in your particular state; an asset protection plan should take these potential risks into consideration.
If your property is not exempt, you should consider an asset protection plan attorney. This simple plan would transfer the property from you to an irrevocable trust. By transferring ownership of valuable assets to a trust, you will protect those assets from creditors. This transfer will protect your assets while you are living and will also protect them from a tax collector when you die. There are some disadvantages associated with these transfers which include the new owner’s exposure to creditors, your personal loss of control over the particular asset that was transferred and any gif tax consequences that result from the transfer.

Are My Retirement Assets Protected from Creditors?

If your assets are held in a retirement plan, the federal law will not allow creditors to reach those assets. Some examples of assets that are protected by a retirement plan include profit sharing, pensions and 401(k) plans. IRA’s may not be protected. You will need to check the laws in your state to see if your IRA is legally protected from creditors.

How You Can Protect Your Assets When Starting a Business

If your new business is not incorporated or held within an LLC with the shareholders being an irrevocable trust, you will place your personal and business assets at risk. Any claims that are made against the business could result in the loss of assets; personal or business-related. There are different tools that can help protect your assets when starting a business.

Partnerships and Trusts

Family limited partnerships have been deemed one of the available asset protection devices. While this is effective, it is not foolproof unless an irrevocable trust is the general partner. Many states allow limited liability companies to be formed, and they are also viewed as a great ownership form when considering asset protection. It is very difficult for any creditor to reach any assets that have been transferred using these devices if the membership shares are in the name of a trust.

Fraudulent Transfers

Asset protection is ethical and legal as long as the plan is put in place before a lawsuit is filed. It may be too late if there is already a claim or a lawsuit pending. Asset transfers during this time could be considered fraud. More specifically, fraudulent conveyance is where someone divests themselves of assets without fair consideration because they see a problem arising and would like to avoid paying a claim. However, a few highly sophisticated firms have ways of legally transferring assets in distressed times with a financial instrument to avoid problems with fraudulent conveyance.Please contact Estate Street Partners if you are seeking counseling to legally transfer your assets in distressed times and still avoid fraudulent conveyance. Each will be taken on a case by case basis. Estate Street Partners will never condone illegal practices and advocates transparent accounting and legal practices.

Top 10 Things to Do When Being Sued

Posted on: April 6, 2017 at 4:43 am, in

The threat of a lawsuit, or the prospect of litigation, sends most people into an emotional state somewhere between panic and outrage, especially if that person hasn’t protected their assets ahead of time. Running a business or getting through the daily routines of personal life can be overwhelming without the added stress of a process server, marshal or sheriff coming to your home or office with a summons and complaint.
Most people have never been involved in a lawsuit, so seeing your name or the name of your business in the caption followed by the word “DEFENDANT” can be unsettling. There are ten things you should know about lawsuits that will help you make the right decisions once the process server leaves.

1. It will not go away on its own. Lawsuits must be taken seriously.

Regardless of how frivolous or inconsequential the lawsuit might seem to be, ignoring it can have serious consequences. Failing to file a formal, written answer to the allegations contained in the lawsuit can result in a default judgment against you in favor of the opposing party. A default judgment means potentially your plaintiff can go to your bank and freeze your account or go to the registry and put a lien on your home or rental property. You won’t find out about it until checks start to bounce and you “swear there was at least $10,000 in that account.”

2. That ticking sound is a clock.

The defendant in a lawsuit must file a formal answer or make a motion within a limited period of time that is set by the laws in each jurisdiction. Getting angry and tossing the lawsuit papers into a corner in your home or office to be dealt with later is a mistake. Some states limit the time to submit an answer to just 20 days or less from the date the defendant is served.

3. I can do this without a lawyer.

Without getting into all of the reasons why representing yourself in a lawsuit is a mistake, and there are many, be aware that the laws in some states, such as New York, require that an attorney appear on behalf of a corporation that is a defendant in a lawsuit. Yes, lawyers cost money that most people or small businesses cannot readily afford, but lawyers know the defenses allowed under the law and the procedures that to follow to avoid a costly errors.

4. Choose a lawyer you can depend upon.

If you are using an attorney for the first time, make certain your lawyer is familiar with the issues raised in the lawsuit. Attorney’s today are as specialized as doctors; one does not go to a brain surgeon to fix a broken leg. Ask the lawyer how many lawsuits like yours he has taken to verdict. Lawyers who settle most of the cases they handle might be good negotiators, but you also want to know that the attorney you choose can handle a trial if one is necessary.

5. Be honest with your lawyer.

The second worst mistake you can make is to attempt to defend a lawsuit without having legal representation. The worst mistake is having an attorney but failing to disclose all the facts in an honest and forthright manner. The lawyer you hire is on your side regardless of how good or how bad the facts and the evidence make you look. Lying to your lawyer, or withholding information because it portrays you in a bad light, will make it difficult for your lawyer to represent you and often times you are doing yourself a disservice because when that information you are hiding comes out in court, your lawyer will be caught off guard with no strong, well-thought out response.

6. Don’t ignore insurance options.

Some types of insurance policies provide coverage in the event of a lawsuit. Automobile insurance or homeowners insurance are two policies with which most people are familiar, but there are other types of insurance, such as malpractice or errors and omissions policies that provide coverage in the event of a lawsuit. In most instances, the insurance company will take the lead, pay for your defense, and often times negotiate a settlement.

7. Listen to the expert you hired.

You are paying your lawyer to give you expert legal guidance, but the money is wasted unless you listen and heed the advice that is given to you. Telling your lawyer how you think your lawsuit should be handled ignores the fact that your handling of the situation is probably what got you into a lawsuit in the first place.

8. Fighting over principle can get expensive and distracting.

Whether you are the defendant being sued or the plaintiff who started the lawsuit, at some point you have to consider exactly what it is that you are fighting about. Does defending or prosecuting the lawsuit make sense economically? If you find yourself spending large sums of money on legal fees, court costs and related expenses that will exceed the amount you will recover if you win, it is probably time to reevaluate your position. Perhaps it is time to stop fighting and consider a negotiated settlement to put an end to the litigation. A lawsuit that goes to trial can easily cost $100,000-200,000. Imagine trying to run your business with a lawsuit hanging over your head for 3 years. The stress distracts you from positive things like growing your business.

9. Don’t assume your legal expenses will be paid by your opponent.

Absent an agreement, such as a contract or a law requiring the losing party in a lawsuit to pay the other party’s legal fees, the parties are responsible for their own costs of defending or prosecuting a lawsuit in the United States. Even if you have a contract that states the loser in a dispute will pay legal fees, it is rare that courts award full legal fees.

10. Expect to be in it for the long haul.

People want lawsuits to end quickly so they can go about their normal lives and business, but answers, counterclaims, motions and discovery can take months or, sometimes, years to complete. Lawsuits begin with a flurry of activity that dies down as the case progresses beyond the initial pleadings establishing each party’s position. The pace picks up again months later as each side engages in depositions and other discovery procedures. Patience and trusting in your legal representation are keys to lawsuit success.

Bonus Tip: When You are Being Sued

Evaluate your options. Most lawyers will tell you that you cannot take action to protect assets once you know there might be a lawsuit coming. Most lawyers tell you this because they don’t fully understand fraudulent conveyance and how to manage the resulting 4-5 years statute of limitations on asset transfers. If there is an opportunity to make it difficult for someone to sue you – even late in the game – it could put you in a position to negotiate with your attacker and thus minimize the pain, stress, costs, and distraction that a lawsuit can bring.

Buying Notes with your Self-Directed IRA

Posted on: April 6, 2017 at 4:26 am, in

Buying Notes with your Self-Directed IRA

Now that you know the basics of a Self-Directed IRA, let’s dive into some of the leading trends in Self-Directed Investing. With all of the stock market uncertainty, investing in notes has become increasingly attractive using tax-deferred funds in your IRA or retirement plan. Notes can be a great option because the payment streams come into your IRA and in the final analysis, on a first trust deed, the worst case is that you own the property. Best of all, discounted notes can be purchased for pennies on the dollar.
Investing in real estate and notes is just like any other transaction that uses a third-party entity as the owner. Here are some rules to keep in mind when considering note-buying with your Self-Directed IRA:
  • The IRA owner cannot receive any benefit from the IRA or its assets. Specifically:
    • No living on the property.
    • No direct receipt of income related to the property. Income is only permissible when it is proportionate to the investment.
    • The IRA cannot deal with you or any disqualified persons. This includes parents, spouses, children, and some business associates.
  • Qualified plans assets, such as an office building invested in or by a plan, can have a certain part allocated to having you rent space for the purposes of the plan (we suggest consulting an attorney for more information).

How to get started buying notes with your self-directed IRA:

Once you’re ready to start investing, a direction of investment form must be completed when purchasing a real estate note. By utilizing an IRA administrator, you can guarantee your directions will be executed in a detailed and timely manner, assuring efficient transactions.
When a title or escrow company is involved, make sure that all instructions are provided for all documents in your account. Title or escrow companies may have additional requirements for your transactions than ours, so please be aware.
Your administrator must receive all loan documentation before funding can take place. Funding may not be initiated without a full loan package; this includes a trust deed and note, title insurance (if applicable), and appropriate vesting.
As your record keeper, your IRA administrator may receive payments directly from your payer as well as process loan payments. They also keep all original documentation for your convenience.
By investing in notes, you are investing in a tangible asset. By investing with your Self-Directed IRA, you are guaranteeing tax-free returns on those investments, making it a great alternative to the stock market. For more information on buying notes in your Self-Directed IRA, or any of the options available to you by Self-Directed investing, call us toll-free at 888-938-5872.
Take back control of your retirement and stop losing money to the fund managers. Contact us today!
888-938-5872

What is Self-Directed IRA Investing?

Posted on: April 6, 2017 at 4:25 am, in

Self-Directed Investing 101

The Self-Directed IRA industry is growing at a staggering pace and is expected to see over $2 trillion enter the market over the next few years. With over 45 million retirement account holders and less than 4% of those being held in nontraditional assets, the time to consider Self-Directed investing is now. The Investment Company Institute- the national association of U.S. investment companies, estimates that nearly $4.7 trillion in IRAs were held in the U.S. last year. Of this, an estimated $94 billion or a mere 2 percent are Self-Directed IRAs.

So, what is Self-Directed IRA Investing?

A Self-Directed IRA allows you to decide how to invest your retirement funds. Many people assume “Self-Directed” is a unique type of IRA. However, “Self-Directed” is not a type. Any IRA, whether it’s a Traditional, ROTH, SEP, or SIMPLE IRA can be self-directed.
Using your IRA to invest in non-traditional assets like real estate has been available to investors since 1974. You may be learning about this for the first time because large banks and brokerage firms don’t typically offer these investment options. You may ask – “Is this really legal?” The answer is yes. With the exception of life insurance contracts, collectibles, and stock in an S corporation, IRS rules allow all other investment types as long as they comply with the rules governing retirement plans.

Why Self-Direct?

Stock market volatility and the economy have many investors considering alternative assets for their retirement accounts. A Self-Directed IRA gives you control over your retirement funds by making tax-free investments in assets that you’re familiar with.

What Can I Invest in?

Below are some examples of investment opportunities available to you through your Self-Directed IRA:

Types of Self-Directed IRA Investments Allowable by IRS:
Residential real estate Tax Lien Certificates Precious Metals
Commercial real estate Equipment leasing Factoring
Undeveloped or raw land Livestock Accounts Receivable
Real estate notes Foreign currency Oil and Gas
Promissory notes Stocks ,bonds, mutual funds Structured Settlements
Limited partnerships Private placements
LLC and C-Corp Structured Settlements LLCs, LPs and C-Corporations

What are the Rules?

Prohibited Transactions. IRS rules forbid certain types of transactions in IRA accounts. Some examples are listed below:
  • Collecting management fees for your properties is also prohibited as it is a direct benefit for you, the account owner.
  • Collecting commissions on properties purchased through your IRA.
  • You may not buy, sell, or lease your real estate from disqualified persons.
  • All profits generated from an IRA owned asset must be paid back into the IRA and all expenses incurred by the asset must be paid by the IRA (they may not be paid with personal funds and reimbursed by the IRA).
  • Any debt used to acquire an asset in an IRA must be non-recourse. In other words, the IRA owner is prohibited from guaranteeing the note personally.
Disqualified Persons. IRS rules define certain individuals that are unable to participate in any transaction with your IRA:
  • Yourself
  • Your Spouse
  • Your Children
  • Your Children’s Spouses
  • Your Parents
  • Certain Business Partners
Additional Regulations. Here are a few examples of prohibited transactions using your IRA that you should become familiar with:
  • The property must remain in the IRA until distributed or sold to a third party.
  • Property owned within an IRA will not be able to take advantage of write-offs, such as depreciation or other expenses relating to the property.
  • All rental profits must be returned to the IRA.
  • When purchased, the property becomes an asset of the IRA.
  • If you are an owner, you may not lease to a disqualified person, or in any way have a disqualified person occupy the property while it’s owned by your IRA.
  • While an IRA owner cannot manage the property, they can hire a property manager or real estate broker to collect rent and maintain the property.
  • Neither the IRA owner nor his/her family members (siblings excluded) may have access to or utilize the property while it’s in the IRA.
  • Borrowing money from an IRA. IRA’s are prohibited from making loans to IRA owners as well as any other disqualified persons.
  • IRA owners are prohibited from using their IRA as collateral for any loan, as the amount they pledge as security will be deemed a distribution by the IRS.
  • Selling assets you already own to your IRA or to a disqualified person’s IRA.
  • Purchasing a property for personal use, either by the IRA owner and/or a family member.
  • Purchasing a property owned by a family member who is a disqualified person.
  • Lending money to a disqualified person.

So should I open a Self-Directed IRA account?

Self-Directed investing isn’t for everyone. For some, the idea of having total control of their investments is a daunting one. We recommend reviewing your investment strategies with your tax advisor prior to investing. For more information about what a Self-Directed IRA can do for you call us toll-free at (888) 938-5872.

Should You Consider Moving to Avoid State Estate Taxes?

Posted on: April 5, 2017 at 4:46 am, in

Wealthy individuals or couples who have reached maturity do not need to worry about raising their children or paying bills. Money gives them the financial freedom, economic stability and peace of mind to do what they want. As estate (death) taxes rise, wealthy individuals wonder if it is financially beneficial to move to a more asset-friendly state to protect their assets.
Many “snowbirds” have vacationed in the warm weather states of Florida or Texas, so it is not a dramatic “leap of faith” for them to consider moving to these low-tax states permanently to protect their assets. But are the financial benefits in a more tax-friendly state attractive enough to justify the costs, expenses and hassles of moving? Here is an answer to this very important question.

Disadvantages of Moving to Low-Tax State

When you have lived your entire life in one state, you build up emotional, spiritual and social ties. Your core family may be concentrated in one area, but most Americans are very mobile. You might have good friends in your home state or you might have grown comfortable with the convenience of your home area. You also wonder about the costs of moving.
Many low-tax states have vibrant communities of people who have moved from high-tax states. So if people are socially-friendly and charismatic, they can make new friends. The Internet has made it easier to communicate over long distances, so your family will be electronically close. If you compare the money that can be saved by avoiding a high estate tax to moving costs, it might make sense to move financially.

Governments with High Debts Must Increase Taxes

With government debts rising, the primary way they can balance their budgets is to increase tax rates. The estate (death) and inheritance taxes are popular ways to generate revenue by transferring a portion of the wealth from private families to the public coffers. The government has been modifying the level at which the tax is “triggered” and experimenting with different rate levels.
According to W. Rod Stern, attorney-at-law, Entrepreneur Magazine’s Legal Guide Estate Planning, Wills and Trusts affect an estimated 1 to 2% of American household estates are large enough to incur the estate tax. Most states have what is called an “exemption” for the primary family home. The first step is to compare the value of your estate to that minimum threshold.
Some states realize that if they raise the estate tax exemption, they can attract wealthy individuals. These figures are always changing, but here is a sample of state estate tax exemption levels for 2012:

2013 State Estate Tax and Inheritance Tax Chart

State Type of Death Tax 2013 Exemption 2013 Top Tax Rate
Connecticut Estate Tax $2,000,000 12%
Delaware Estate Tax $5,250,000 16%
District of Columbia Estate Tax $1,000,000 16%
Hawaii Estate Tax $5,250,000 16%
Illinois Estate Tax $4,000,000 16%
Iowa Inheritance Tax $25,000 15%
Kentucky Inheritance Tax Up to $1,000 16%
Maine Estate Tax $2,000,000 12%
Maryland Estate Tax, Inheritance Tax $1,000,000, $0 16%, 10%
Massachusetts Estate Tax $1,000,000 16%
Minnesota Estate Tax $1,000,000 16%
Nebraska Inheritance Tax Up to $40,000 18%
New Jersey Estate Tax, Inheritance Tax $675,000, Up to $25,000 16%, 16%
New York Estate Tax $1,000,000 16%
Oregan Estate Tax $1,000,000 16%
Pennsylvania Inheritance Tax $3,500 15%
Rhode Island Estate Tax $910,725 16%
Tennessee Estate Tax $1,250,000 9.5%
Vermont Estate Tax $2,750,000 16%
Washington Estate Tax $2,000,000 19%
If your estate is valued above one of these limits, it makes sense to move to a state that puts you below their estate tax exemption rate. If you time the housing market properly, the sale of your old home could pay for the moving costs to the low-tax state. States know the value of wealthy residents and are offering plenty of financial incentives to encourage you to move.

How do Estate Taxes Vary by State?

Once the estate is valued above the exemption limit, then each state has a different rate that they charge for the death tax. Also in the chart above are figures for estate tax rates in 2013 (these changing very frequently). You should also take into account the rates because they can make a huge difference.
For example, if you calculate the difference between 9.5% and 19% estate tax rates, the amounts are quite dramatic. When you consider probate, estate (death) and inheritance taxes, it makes sense to move to a more asset-friendly state. If you explain to your children (future heirs) that they will inherit more money in a low-tax state, then they may support the move, especially with the ability to communicate.
While the primary reason for moving to a state with lower estate taxes is financial, there is also a philosophical difference in low-tax states. While colder high-tax states try to siphon off the wealth built up by hard-working citizens, the warmer low-tax states emphasize increasing the “productivity” of the state. This can create a better environment in the long run. You should consider moving to avoid state estate taxes if it is financially advantageous to do so.

Another Option:

Another option exists to avoid estate taxes in your own state. UltraTrust.com has many articles on the advantages of the irrevocable trust and how it can save you and your children from having to pay any estate taxes or even having to go through probate.

5 Estate Planning Horrors to Avoid In Your Divorce

Posted on: April 5, 2017 at 4:46 am, in

Albert Einstein stamp

“A person who never made a mistake
never tried anything new”
– Albert Einstein
.
You do not want to make these mistakes.

Estate planning frequently takes a backseat to emotion in a divorce. Even when both parties agree that ending their relationship is the best solution for their marital woes, divorce can be an emotionally and financially excruciating experience. Regardless of how much you might think you have prepared for the roller coaster ride that your life becomes during, and immediately after a divorce, nothing can fully prepare you for it. Avoid the 5 estate planning mistakes:

1. Making it difficult to identify separate property.

Some states have established two classifications of property in a divorce: separate and marital. Marital property is real or personal property acquired during the marriage or property acquired together by the parties prior to the marriage. Marital property is subject to distribution by the court in a divorce action.

Separate property is usually defined as property acquired prior to the marriage by one of the parties that retains its identity as belonging to one of the parties. Separate property is not subject to distribution by a court as part of a divorce. Problems occur when courts cannot identify property as being separate. For example, a home purchased and owned by a person prior to a marriage could lose its status as separate property if marital funds are used to pay the mortgage or do renovations on the home.//insurance.ultratrust.com/life-insurance-retirement-planning.html
Placing separate property in an irrevocable trust established prior to a marriage can eliminate or minimize questions concerning the legitimacy of a claim that property is separate rather than marital. Homes and businesses are properties that can be transferred to an irrevocable trust to retain their separate status because ownership is in the name of the trust and not the individual.
Irrevocable trusts that were created before the marriage or even jointly during the marriage most likely will NOT count as marital assets. Often a wealthy person, prior to marriage, may place a bulk of their assets in an irrevocable trust to avoid having the awkward prenuptial conversation and still protect the assets in the event of divorce.

2. Failing to change your life insurance beneficiary.

A life insurance policy is a contract between you and the insurance company. You agree to pay your premiums in return for which the insurance company agrees to pay a specified sum of money on your death to the beneficiary you name in the policy. The insurance company is obligated to pay the person whose name you list as the beneficiary even if that person is your ex-spouse.
A recent case Maretta v. Hillman, 722 S.E.2d 32 (Va. 2012), proves just how big this problem can be. A federal employee designated his wife as a beneficiary, divorced and remarried. He then died leaving everything to his current wife. His ex-wife however claimed the over $100,000 in life insurance and his current wife took him to court. Virginia has a law stating that, upon divorce, the ex-wife is no longer considered a beneficiary on life insurance policies. This was a federal policy, however the Supreme Court ruled in favor of the ex-wife.
This could also be a good time to evaluate your life insurance needs. If you do not have children, you might not need as much insurance as when you were married.

3. Forgetting to revoke a power of attorney.

Remember those forms you filled out at the attorneys office when you created your will? Most likely, one of them was a power of attorney. This form gave your now ex-wife power to take care of your finances probably at any time, but at the very least when you become incapacitated.
The laws in a handful of states (but not most) terminate a power of attorney upon divorce, which names a spouse as the attorney in fact. This is not, however, the case in all states. The best course of action is to review your power of attorney with your legal advisor to determine the effect your divorce will have on it.

4. Thinking a divorce cancels provisions in your “Will” pertaining to your spouse.

Many married couples name each other in their last will and testament as the executor and leave all or the bulk of their estates to each other. A divorce does not cancel or invalidate portions of your will pertaining to your spouse. It is up to you to change your will with a codicil that amends an existing will but does not terminate it, or you can prepare a new will and destroy the old one.
Some people become confused when they hear that the law in their state automatically terminates a person’s rights to inherit property from a divorced spouse. Such laws pertain to situations in which a person dies intestate without leaving a valid last will and testament. If you have a last will and testament, you must change it on your own to avoid having your former spouse share in your estate.
If you have an irrevocable trust, however, that does not name your ex-wife as beneficiary, you don’t have to do anything. A revocable trust, however, was most likely divided during the divorce already!

5. Not contacting financial institutions.

Most people remember to close joint checking and savings accounts or at least arrange to remove their former spouse from the accounts. It is surprising how many divorced individuals forget to notify financial institutions about making changes to the places that hold typically the big money such as their IRA, 401(k) or other retirement plans.
Retirement accounts or annuities usually have a beneficiary named to receive the money in the event the holder of the account dies. Contacting the financial institution or the human resources department at your place of employment will get you the information needed to update the information on your accounts including designating a new beneficiary.

Top 8 Things People Overlook with Estate Planning

Posted on: April 5, 2017 at 4:45 am, in

1. The Entire Estate Plan

What do Jimi Hendrix, Steve McNair, Michael Jackson, and Bob Marley all have in common? They all died without a proper estate plan or even a will and their heirs paid the price in legal fees, court costs, and endless delays. Many people die “intestate,” (without a will). Even though the states have continued to improve their intestate laws, your assets and your family’s lives could be stuck in probate court for 12 months or more if things aren’t completed correctly. That’s if your relatives don’t start fighting over your belongings. Or, how about this scenario? You die the day after your son turns 18. He inherits assets worth $800,000 and your life insurance pays him $1,000,000. An 18 year old with $1.8 million is a scary thought.

2. Failure to Review Beneficiary Designations and Directing of Assets

As you age or as you have aged, you acquire many different asset growing instruments. You have several different retirement accounts, life insurance accounts, investment accounts, and real property. All of these accounts may list beneficiaries. A lot of people forget about these accounts and they list people who you may no longer wish the assets to go to. Also, there may be specific ways to leave these assets in order to maximize the avoidance of taxes, avoid probate, and protect them from the nursing home spend-down.

3. Failure to Take Advantage of the Estate Tax Exemption in 2013

If you have a lot of assets, chances are you are going to be subject to federal estate tax. This year’s exemption is $5.25M, but nobody knows what it will be 5-10 years from now, so it is prudent to take advantage of the exemptions while you can. With the United States debt growing to $17 Trillion, the likelihood of these exemptions lasting forever is slim. There are exemptions amounts and there are gifting exemptions. If you don’t take advantage of these exemptions while living, your estate will pay them when you are gone. A will doesn’t do it and all versions of revocable trusts don’t either.

4. Leaving assets outright to adult children

How about this scenario? We already discussed the $1.8 million teenager, but how about this one: You pass away, and all of your estate goes straight to your son… no wait, your son’s debtors. That’s right, your child could be in debt and all of your hard earned savings goes to pay off the dumb decisions your child made. Even worse, your son gets a divorce 6 months after he inherits your 50 years of assets; blood, sweat, and tears. His ex-wife now snatches $900,000 just because they were married for 4 years.

5. Leaving assets outright to minor children

Whether because you died intestate or whether your will specified that the assets go to the children, assets to minor children will normally be managed by whomever you decided should be guardian of your children. Your sister Meg may be great at teaching and fostering great children, but not so good at investing or banking. By the time your children are 18 there could be nothing left for them.

6. Don’t overlook states’ inheritance taxes

You may not think that you have enough assets to trigger inheritance taxes because the federal exemption is $5.25M in 2013, but it has changed 30 times in the last 40 years and with the current federal deficit nearing $20 Trillion, do you really think that it will be at $5.25M in 5-10 years? Plus, did you forget about state inheritance taxes? Usually state taxes are at a smaller rate, but they also usually have a much smaller exemption. That means that your assets plus your $500,000 will put your heirs into a taxable situation. For example, Minnesota’s exemption is only $1M and the tax is 16%. Check out your state estate taxes.

7. Use no-contest clauses properly

Lawyers love to talk about the no-contest clause when you are in their office. The no-contest clause basically states that anyone who contests the will, collects nothing. Sounds bulletproof, right? I mean who would challenge that will? Well, if the will is not legal, then neither is the no-contest clause. Additionally, even if the will is effective, what stops a person who is collecting nothing from contesting the will. Nothing does, because they have nothing to lose. So, maybe you want to leave that person some money so if they challenge the will they lose it. Even better, you don’t want to use a will at all.

8. Picking the right trust for the right purpose

There are basically two types of trusts: revocable and irrevocable. If you want to avoid probate, but not protect your assets and/or plan for Medicaid, the revocable trust is for you. With this type of trust, you can take your assets out whenever you want, but Medicaid and your creditors can also. An irrevocable trust can hold your assets with all the benefits of an irrevocable trust, but if written correctly, it can protect assets from creditors. The difference here is that once the trust is set up and you put asset into it, you no longer own them, but you can still get the benefit from them – similar to leasing a car; it is in your driveway to drive whenever you like, but you don’t own it.

Five Estate Planning Things You Need to Know After Getting Married

Posted on: April 5, 2017 at 4:45 am, in

1. You both own everything.

You and your spouse are now the joint owners of all of the marital assets with a few exceptions and a few state specific variables. This means that if one spouse’s income has a lot more than the other, it doesn’t matter. Those savings accounts and even retirement accounts may be split evenly upon divorce.

2. Children of prior marriages are forgotten.

Of course the children aren’t forgotten, but they are forgotten in the estate planning world. Most state intestate (without a will) laws state that your assets go to your spouse in the event of an untimely death. That leaves your children from a prior marriage directly out of the line of descendants that will receive your assets. Unless your spouse gives them assets in their will, as a beneficiary of a trust, or outright, your children of a prior marriage will never see any of it without proper estate planning.

3. Children of the current marriage may be forgotten.

If you die and your spouse takes all of the estate, your spouse can do whatever they please with all of that money. They can take trips around the world, spend it on their new love interest or even give it to their family. In most states, there is no law saying it has to go to your children. That’s right, your children with your current spouse may never get any of your estate without the right planning.

4. There is twice the chance of long term care eating up your assets.

People don’t generally think of long term care when they are under retirement age, but the sooner one acts, the sooner the time clock starts running on Medicaid’s 5 year look-back clock. To qualify for Medicaid to pay for you or your spouse’s nursing home care, you have to own very little; like less than $2000. Now you have two people to worry about. To get to the point where Medicaid thinks you own very little, the nursing home will bill you either to death or until you own very little and ultimately qualify for medicaid. If you give your money away and not enough time has passed, you won’t qualify for Medicaid and have to pay out of pocket. This can really be a problem if the person who you gave it to won’t give it back or cannot because they already spent it!

5. Your spouse could end up with half of your business, with the right to make decisions.

What could be worse than a spouse to whom you are divorced from telling you what to do with your business? Well, how about a spouse who decides you are not being cooperative, so they get a court to order you to sell the business.

What can you do to protect your assets after you get married:

In addition to the run-of-the-mill estate planning documents, a will, power of attorney, health care proxy and living will, one document can help with all of these estate planning items: An Irrevocable Trust. When you are married, you and your spouse can choose to put money into an irrevocable trust. The assets will be safe in the trust from you or your spouse and the trustee who is in charge of the assets will have to distribute them in the manner prescribed by you – not the manner the State tells you. Thus, those particular assets are divided when, presumably, the couple is still in love and thinking rationally, rather than when you are at each others’ throats. With less to fight over at divorce, the process could be simpler, but the Irrevocable Trust can also help with the other matters listed above.
The instructions in the Irrevocable Trust can say whatever you and your spouse want them to say. When forming the trust, you can include your kids from a past marriage. You can also tell the trustee to hold the funds and only give them out for certain expenditures or landmarks, like college funding or on their wedding day. All the of kids can be provided for, but not just by giving them a bucket of money and letting them run free. The assets are protected by the trust and thoughtfully given out by the trustee.
Putting assets in an Irrevocable Trust may also help you qualify for Medicaid. When you put assets in an Irrevocable trust, you are effectively getting them out of your name and into the name of the trust. You don’t own them anymore, although you can benefit from them – think about it like leasing a car. When you apply for Medicaid, if the lookback period has gone by, those assets will not be counted towards your net worth. For example, if you were to put $1.3M in an Irrevocable Trust, 10 years ago and applied for Medicaid with $20 in your personal bank account, Medicaid would pick up the tab for long term care. If you kept the $1.3M in your name, then you, or your spouse would not qualify for Medicaid and the long term care facility would upwards of $12,000 or more a month for your care until nearly all the assets are gone.
If you have your own business or are starting one you should learn about LLCs and Irrevocable Trusts. You can put your new or existing LLC in a trust and specify how you want the profits distributed. In the event of a divorce, the business would continue to run exactly how it has run, the profits are distributed exactly how they have been and that pesky ex-spouse is written out of a controlling interest. After all, while a marriage is doing well, the spouse will say, “Oh honey, that’s your business. I never want to interfere,” but if the marriage goes sour, “I want to own your business, and if I can’t own it, I want it sold and half the profits, or if I can’t own it or sell it, I want to run it.” Better to decide when things are good with a well written Irrevocable Trust such as The UltraTrust.

Asset Protection & the LLC: 8 Case Studies

Posted on: April 5, 2017 at 3:18 am, in

Many business owners believe that they can simply incorporate their businesses into an Limited Liability Company (aka LLC) and protect their personal assets. However, that is an extreme oversimplification of the law and at the core of misleading consumers by the “LLC farms” out there. Lawyers should know that if a corporation or LLC owes a client money, they are allowed to sue the owners, asking the judge to pierce the corporate veil. Studies have shown that American courts disregard the corporate entity to hold shareholders liable for corporate debts in nearly 50% of cases. As one Illinois Court noted, piercing the corporate veil is both the number one issue that arises in business litigation lawsuits and one frequently misunderstood. If business owners are not meticulous in following corporate formalities, they could find himself forfeiting corporate protection.
Piercing the corporate veil means that a judge may reach beyond the protection provided by the corporate form to hold a business owner personally liable for the company’s debts. There are two common reasons that this happens: undercapitalization and commingling of corporate assets.
If a person starts a business that is likely to incur a significant debts, such as a real estate company, but does not secure adequate insurance or provide funding to pay possible claims against the company, a judge may find that the corporate shareholders are personally liable on the debt. Undercapitalization will most likely lead to veil piercing when it is combined with the failure to observe corporate formalities. To receive protection, a company must hold shareholder meetings and keep minutes. It must have business bank accounts used for business purposes only. Shareholders must not use personal accounts to make business purchases or vice versa.
One of the reasons that piercing the corporate veil is so dangerous for owners is that it does not attach percentages of liability based on a person’s individual wrongdoing. If corporate formalities are not observed and the veil is pierced, the law treats the corporation or LLC like a partnership. That means all shareholders will be jointly and severally liable on the total debt, even a person who owns merely a single share. The plaintiff can choose to sue whichever shareholder has assets.
A cause of action to pierce the corporate veil is not a new lawsuit. The defendants do not have the ability to attack the underlying allegations in the case against the business, even if the business would have had a viable defense. Piercing the corporate veil is a way of imposing liability for an existing judgment against the business on the owners. Thus, an owner who chooses not to defend a case brought against the company because it is incorporated may come to regret that decision later.
The best way for an individual to ensure that his or her assets are protected is to maintain control rather than ownership. Assets that are owned may be seized by creditors, even a person believes they are protected through the formation of an LLC or corporation. Even funds in a revocable trust do not have protection: If the trust may be revoked by the individual who created it, the assets within may be taken by creditors. Only a properly drafted, executed, and funded irrevocable trust provides 100% asset protection.
When a Grantor establishes an irrevocable trust, he transfers ownership of the assets into the trust. A trustee will invest and distribute the assets in accordance with instructions provided by the trust documents. Income generated by irrevocable trusts may provide income to the Grantor, but the Grantor doesn’t own the assets. Subject to Medicare’s five year “look back” period, property held in an irrevocable trust may not be used to satisfy a judgment against the grantor or against the trust beneficiaries.
Below are actual court cases from all over the country highlighting these facts:

1) Peetoom v. Swanson, 630 N.E.2d 1054 (Ill. Ct. App. 2000):

The Illinois Court of Appeals applied the concept of piercing the corporate veil to a personal injury case where the plaintiff, Peetom, fell and injured himself while walking on The Swanson Group’s parking lot. She filed a lawsuit for her hospital bills and pain and suffering, and her husband filed a loss of consortium claim arising out of the accident. The trial court judge entered a default judgment against The Swanson Group in 1997. Approximately one year later, the company was dissolved by the Secretary of State for failure to comply with taxation and annual report requirements. The plaintiffs later filed an action against The Swanson Group’s owners as individuals.
The defendants argued that the two year statute of limitations for bringing a personal injury action had expired and therefore, they could not be liable. The original injury occurred on January 20, 1993. The lawsuit against The Swanson Group was filed on January 11, 1995, shortly before the statute of limitations expired. However, the suit against the owners was not filed until September 2000. The trial court granted the defendants’ motion to dismiss, but the plaintiffs appealed.
The Court of Appeals explained that piercing the corporate veil is not a cause of action like negligence, and therefore is not subject to the same statute of limitations. Piercing the corporate veil is an equitable remedy, a way of imposing liability on corporate shareholders for fraud or injustice that the corporation allowed or caused. As such, the action could be brought within five years after the corporation was dissolved, as provided by Illinois law on shareholder liability for defunct corporations. Neither the corporate form nor the fact that the defendants were not named in the original lawsuit protected them.

2) Las Palmas Assocs. v. Las Palmas Ctr. Assocs.

Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 1 Cal. Rptr. 2d 301(1991): A California Court of Appeals extended the concept of piercing the corporate veil to sister corporations owned by the same parent company. The case arose out of the sale of a large commercial shopping complex.
The contract stated that 84 percent of the complex would belong to Villa Pacific Business Company and the remaining 16 percent belonged to Gribble, president of Hahn Devcorp. Devcorp was a wholly owned subsidiary of Earnest W. Hahn, Inc. Several years later, both companies merged into subsidiaries of the same parent company. The same two individuals sat on the board of directors of both Hahn and Devcorp. By 1983, Hahn’s staff conducted business for Devcorp, leaving Devcorp a shell of a corporation. All of Devcorp’s assets had been liquidated, and all employees and directors fired. At trial, Hahn’s value was more than one hundred times that of Devcorp. The jury found that Devcorp was an alterego of Hahn and, as a result, Hahn should be liable for Devcorp’s debts.
The public policy behind allowing courts to pierce the corporate veil is that, in a situation where there is so much unity in ownership and interest between the company and the owner that the two are not really separate legal entities, it is not fair for the owner to avoid liability. These same principles apply when the owner of a corporation is another corporation. The court noted that there are many situations where a corporate entity is disregarded, and a corporation is treated as merely part of the parent corporation. In these cases, it is only equitable that veil piercing be allowed. The same line of thinking applies to two subsidiaries controlled by the same parent, if that parent company does not observe corporate formalities.

3) Agai v Diontech Consulting

Agai v Diontech Consulting, Inc., 2013 NY Slip Op 51345(U): In this NY Supreme Court case, the defendants were not shareholders of the company in question, Diontech Consulting, Inc. However, they ran the company for their own gain, so it would not be fair to allow them to benefit from hiding behind the corporate form. The judge pierced the corporate veil and imposed liability.
The undisputed evidence showed that the defendants did not observe any corporate formalities in running Diontech. Two of the three, the Antoniou brothers, admitted being unaware of any records or books showing corporate operations. They could not produce any board meeting minutes, pay stubs, bank account statements, or other documentation showing the company’s existence as a separate entity. The brothers commingled business assets with personal funds and used the corporate bank accounts for personal expenses. Both brothers were paid for assisting in settling corporate affairs when Diontech was dissolved, yet both claimed no knowledge of what happened to the corporate assets, including vehicles, furniture, and computers. An accountant for the firm testified that all three defendants routinely took money from the corporate bank account and did not pay it back. No tax return was filed for Diontech because the defendants never provided the required documentation. The evidence suggested that Diontech was a sham corporation, created for the sole purpose of avoiding legal liability.
The standard in New York for piercing the corporate veil whether an individual hid behind a corporation to perpetuate an unjust or wrongful act against the plaintiff. The judge found that the defendants used Diontech to avoid paying creditors. The principals here used the plaintiff’s payments to Diontech and materials purchased for the plaintiff’s job to work on other projects. As a result, it would be unjust not to hold them liable.

4) Ted Harrison Oil Company v. Dokka

Ted Harrison Oil Company v. Dokka, 617 N.E.2d 898 (1993): An Illinois Court of Appeals found that incorporation did not protect the assets of a company owner who followed no corporate formalities and treated the company as an extension of himself. Ted Harrison Oil Company (“Harrison”) filed a lawsuit asking the judge to hold Dokka personally liable for a debt owed to him by Dokka’s company, Hess Tire. Dokka purchased all shares of Hess Tire in 1972. He later sold shares to two investors, but never created or printed stock certificates. The company was initially profitable but lost a significant amount of money between 1972 and 1981.
A review of the corporate books showed no shareholder meeting minutes, although Dokka claimed the shareholders met and were involved in the business. Hess Tire operated in a building personally owned by Dokka and paid no rent. A corporate account paid property taxes for the building. Dokka even admitted that he did not follow corporate formalities. The company’s bookkeeper testified that another shareholder, Walden, had her write checks to herself on the business accounts, which Walden cashed, keeping the money. Dokka testified that there was no business purpose for these checks or other loans and bonuses paid to Walden. Walden moved tires from Hess Tire’s inventory into storage to avoid paying creditors. Although Dokka claimed no knowledge of Walden’s activities, the Appeals Court pointed out that the deception would have been uncovered sooner if corporate formalities had been followed. Since Dokka did not treat Hess Tire as a separate business entity, he was not entitled to the protection of incorporation laws. The court held Dokka responsible for Hess Tire’s debt to the plaintiff.

5) Buckley v. Abuzir

Buckley v. Abuzir, 2014 IL App (1st) 130469: Plaintiffs John Buckley and Mama Gramm’s Bakery, Inc. won a case against Silver Fox Pastries, Inc. for violation of The Illinois Trade Secrets Act. After they realized that they were not able to collect the judgment from Silver Fox, which had no assets, the plaintiffs asked a judge to pierce the corporate veil and enter a judgment against the owner, Haitham Abuzir. Although the trial court dismissed the Complaint, on appeal, the Illinois Court of Appeals reversed, finding that the plaintiffs had alleged sufficient facts to allow the trial court to pierce the corporate veil.
After incorporated, Silver Fox never filed an annual report with the Secretary of State. It had no directors, no officers, no corporate records, and no corporate books. The company never held a shareholder or director meeting. No stock was issued, and no dividends paid. Silver Fox never made any payments on loans granted to it, and at no time had assets exceeding its debts. No corporate formalities were ever observed. On the other hand, Abuzir ran Silver Fox, maintaining 100% control over the company. Abuzir did not dispute the plaintiffs’ allegation that he and Silver Fox were, in effect, the same entity. Instead, he claimed that the corporate veil could not be pierced because he was not an officer, director, employee, or shareholder of the corporation.
After reviewing the law in other states, the Court concluded that stock ownership was not required to pierce the corporate veil. A person who exercises considerable authority over a company may be legally considered the equitable owner and, therefore, a judge can pierce the corporate veil to hold that person liable for corporate debts. Abuzir could not avoid liability by refusing to appoint himself as director or officer and failing to issue himself stock.

6) Associated Vendors, Inc. v. Oakland Meat Co.

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal.App.2d 825 (1962): A California appellate court found that a person could be held personally liable for corporate debts when the corporation was merely the “alter ego” of the individual. The case arose out of a commercial lease between Associated Vendors, Inc. (“Associated”) and Oakland Meat Company (“Meat”). and Oakland Packing Company (“Packing”). After Meat leased the premises in question from Associated, the company turned around and leased it to Packing for only a portion of the rent they had agreed to pay Associated. Associated asked the judge to hold the owner of the companies responsible for the debt owed, based on the fact that the corporations were alter egos of the owner and not treated as separate legal entities.
The company’s owner, Zaharis, loaned personal funds to Packing without a first holding a corporate meeting or requesting a shareholder vote. When it was time for the loan to be repaid, Meat issued a loan to Packing, and the funds were transferred to Zaharis. Meat applied for and received business permits used by Packing. Zaharis and Meat’s two other officers worked for Packing without receiving compensation; however, Meat continued to pay their salaries. The lawyer who negotiated the commercial lease testified that he was unaware that Meat and Packing were separate companies. A butcher who delivered products to Packing was told to bill Meat instead. Invoices sent to Meat were paid by Packing and vice versa. Several other vendors that did business with both corporations testified they were unaware that Meat and Packing were two separate legal entities. Because the directors commingled assets, did not observe corporate formalities such as holding meetings and keeping minutes, and they treated the companies as one, the court held that the owners were personally liable for the corporations’ debts.

7) Kinney Shoe Corp. v. Polan

Kinney Shoe Corp. v. Polan, 939 F.2d 209 (4th Cir. 1991): The United States Fourth Circuit Court of Appeals found that the business owner, Polan, was responsible for paying a corporate lease entered into on behalf of his company.
In November 1984, Polan filed paperwork with the Secretary of State to create Polan Industries, Inc. He incorporated Industrial one month later. Neither corporation elected any officers, held organizational meetings, or issued a single share of stock. Both corporations were created for the same purpose.
Shortly after the first business was established, Polan began negotiations with Kinney Shoe Corp. to sublease a building owned by a third party. Although the parties signed the sublease in April 1985, their actual agreement started in December 1984. Ten days after the sublease with Kinney was signed, Industrial subleased half of the property to Polan Industries. Polan signed the sublease on behalf of both corporations.
Industrial owned no assets other than the sublease, not even a bank account. The corporation had no income, other than the payments Polan Industries owed under the sublease. When the first lease payment to Kinney became due, Polan issued a check on his personal bank account. This first payment was the only one Kinney received from either company. In 1987, after receiving no further payments, Kinney sued Industrial and obtained a judgment of more than $166,000. Kinney then sued Polan personally to collect its judgment. Despite the long-established rule that the stockholders are not responsible for corporate debts, the Court held that it was appropriate to reach beyond the corporate veil and hold Polan personally liable for the judgment against Industrial because Polan did not follow corporate formalities. Thus, the corporate veil did not protect Polan’s personal assets and the Court upheld the judgment against Polan.

8) Minnesota Mining & Manufacturing Co. v. Superior Court

Minnesota Mining & Manufacturing Co. v. Superior Court, 206 Cal. App. 3d 1027 (1988): The California Court of Appeals held a shareholder responsible for paying a corporate debt after they pierced the corporate veil, even though the company had other shareholders. The case also clarified that, when the corporate veil is pierced, a shareholder may be held liable for one hundred percent of the debt, not a percentage equal to his proportionate share in the company, even if he owns only one share of stock.
Maximum Technology (“MaxiTech”) sued several defendants, including Minnesota Mining and Robert Schwartz for more than $2 million. Schwartz and MaxiTech settled their claims for only $20,000, and Minnesota Mining filed a suit after the judge appealed the settlement. The settlement was based on the erroneous conclusion that Schwartz, as a 40 percent owner of one of the companies being sued, was only responsible for paying 40 percent of that company’s liability if the corporate veil was pierced. However, that is not how the law works. If a company forfeits the protection of the corporate veil by not observing corporate formalities, all owners become jointly and severally liable for corporate debts, as if the business had never incorporated. It is not relevant whether a shareholder owns one share of a company in that scenario or all but one. In this particular scenario where only two of the company’s three shareholders were sued, the two of them would have to bear the burden of the entire corporate debt. As a result, the settlement agreement was based on a faulty assumption of law and could not have been found to have been negotiated in good faith, and Schwartz not only lost the benefit of the corporate veil, but also the advantageous settlement he negotiated.
Protect your assets for yourself and your children and beneficiaries and avoid tax dollars. Assets can be protected from frivolous lawsuits while eliminating your estate taxes and probate, and also ensuring superior Medicaid asset protection for both parents and children with our Premium UltraTrust Irrevocable Trust. Call today at (888) 938-5872 for a no-cost, no obligation consultation and to learn more.
Rocco Beatrice, CPA, MST, MBA, CWPP, CAPP, MMB – Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an “AA” asset protection, Trust, and estate planning expert.

Pros and Cons of an Offshore Asset Protection Trust: Is it the Best?

Posted on: April 5, 2017 at 3:18 am, in

Offshore Caribbean palm trees and beach.

Pros & Cons Offshore Asset Protection Trust: When to use an Offshore Trust

Today many estate planning firms tout the benefits of Offshore Asset Protection Trusts as instant asset protection solution for every individual looking for the end-all, be-all. It feels to them like finding a the last raft on a ship that has a pin-sized hole in it. Their first instinct is to throw out the raft and jump off the boat immediately. Unfortunately, things since 9/11 and the global financial crisis of 2008 have changed in this country. Prior to 9/11 we recommended Offshore trusts for a much larger percentage of clients, but that is no longer the case.
The problem is that 99% of the time, jumping off the boat is not the best solution because the nearest land is thousands of miles away and the hole is not that large. What they actually need is for the captain to help them analyze all of their options, the safest and easiest of which is to simply plug the hole. Of course if someone is selling rafts, then it’s even more difficult to expect them to recommend a thoughtful and unbiased solution.

And this is the real challenge if you are considering an Offshore Asset Protection Trust. I am a big advocate of the Offshore Asset Protection Trust (just like I am an advocate of rafts) – but in both cases only when they are absolutely necessary and appropriate. In fact, offshore asset protection trusts are only recommended to a very small percentage of clients these days; those with at least $7-10M liquid assets.

Why an Offshore Asset Protection Trust is a Bad Idea for Most People

Because of the new regulations from the Patriot Act and subsequent banking acts, offshore asset protection trusts are very expensive to maintain.
Going offshore to establish asset protection trusts means going out-of-pocket for between $5,000 to $10,000 per year in maintenance fees. Because of these expenses, many of these offshore trusts will only last about three to four years for the average individual, particularly if they were created in a rush to thwart a perceived upcoming risk; for this reason, grantors often question whether their hasty decision was indeed the right one at the time.

Offshore Trust Maintenance Fees Explained

There are quite a few mandatory and compliance forms to file when going offshore. At a minimum, there’s Treasury Department form 90-22.1, Report of Foreign Bank and Financial Accounts to consider. There may also be a requirement to file a Foreign Bank Account Report (FBAR), which falls under the authority of the Financial Crimes Enforcement Network (FinCEN) form 114.
Aside from filing TD and FinCEN forms, offshore trust grantors may also have to respond to the Internal Revenue Service (IRS) by filing forms 3250 and 3250A. These forms, which require disclosure of trust assets, are handled by a foreign trustee and a CPA based in the United States. As of December 31st, 2012, the U.S. Foreign Account Tax Compliance Act (FATCA) is creating an additional burden on offshore trust grantors and trustees by requiring financial institutions abroad to report on the financial holdings and income of their clients.
With the new filing and compliance requirements also comes uncertainty as to how offshore trusts are managed. It calls for retaining the services of an attorney to work in conjunction with the foreign trustee. If you take into consideration all of the aforementioned factors, it is easy to see the $10,000 annual maintenance cost of an offshore trust.

Why $10,000 Offshore Trusts Are Not Always Sustainable

The mid and long-term costs of maintaining offshore trusts for asset protection simply do not add up for most individuals. With regard to offshore trusts being sustainable solutions, consider the following scenario:
An offshore trust with a $10,000 set-up fee and $5,000-$10,000 in annual maintenance costs will end up adding up to:
  • Between $25,000 and $50,000 after five years and five IRS Form 3250 filings.
  • Between $50,000 and $100,000 after 10 years and 10 IRS Form 3250 filings.
  • Between $100,000 and $200,000 after 20 years and 20 IRS Form 3250 filings, assuming no inflation.
It’s not just the sizable amount of money required to keep offshore trusts active year after year that prompts most individuals to dissolve them after just three to four years; there’s also the experience and expertise of the firm to think about. Many financial planners rushing their clients through a $10,000 Offshore Trust lack the real-world experience of a firm that actually files and executes documents, disclosures and compliance forms.
As an alternative, some of our competitors propose a better plan that avoids much of the heavy compliance of the foreign trust because they use a foreign trust in combination with a domestic limited partnership structure for a $25,000 inception cost and “only” $1,500 per year maintenance cost (who knows how much these costs will rise each year once you are locked in). They justify the fee because they insert themselves into your trust as a trust protector. Essentially giving themselves the ultimate control over your assets. Their costs will work out to:
  • $25,000 in the first year
  • $32,500 by the 5th year
  • $40,000 by the 10th year
  • $55,000 by the 20th year
Prospective grantors looking for asset protection strategies should not throw caution into the wind. If anything, shielding assets in advance of a knowingly potential adverse situation should be approached with circumspection. Offshore trust structures are actually very good for grantors who fund their nest eggs with about $7M to $10M, and they can offer a enormous amount of asset protection if executed correctly; however, some plaintiffs have found cracks in the armor and some judges are beginning to formulate a dim view of these instruments.

A Better and More Affordable Long-Term Asset Protection Strategy

A much more optimal alternative to offshore asset protection is the Ultra Trustâ„¢. It is designed to last 21 years beyond the death of the youngest heir and is easy and inexpensive to maintain. This domestic trust is supported by a firm that has 30 years of experience and a spotless record of asset protection in civil cases. A properly drafted, implemented, and funded domestic irrevocable trust has 150 years of success including challenges from the IRS and other sophisticated creditors. Click here for laws and actual cases.
Comparing the cost savings of the Ultra Trustâ„¢ versus offshore trusts is easy. The inception cost is $14,500 and there are no annual fees; also, there are no IRS Form 3520 filing requirements since this is a domestic instrument. To this effect, the long-term costs of an Ultra Trustâ„¢ are as follows:
  • First year: $14,500 set up cost.
  • After 5 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.
  • After 10 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.
  • After 20 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.
Ultra Trust® clients can reach the firm by telephone and in person without having to worry about billing hours. All client services are included in the setup cost. The Ultra Trustâ„¢ is supported by one of the top 3 experienced and respected asset protection firms in North America that takes pride in shielding the holdings of clients; this is the most important factor for prospective clients to consider since there they do not have to worry about what may happen to their assets in an offshore jurisdiction they are not familiar with.
The Ultra Trust® asset protection plan is perpetually effective and does not need to be created in a rush. As a matter of fact, the best time to create this domestic trust is when things are tranquil and before problems arise. With the Ultra Trustâ„¢, clients can rest easy in knowing that their assets enjoy true legal protection all the time.
It is your money. Spend it wisely.