BUSINESS SUCCESSION and ASSET PROTECTION / PRESERVATION STRATEGIES 6

There are currently good products available such as annuities that offer the advantage of compounding your interest earnings, on a tax-deferred basis, while at the same time providing you a guaranteed rate of return tied to future market gains (all the upside advantage with a guarantee of your principal as if a bank CD); and, also immediate annuities if a current income stream is desired. 

V.        Other Asset Protection Strategies:

A.        General Comments:

As our Good Lord has blessed you materially, you unfortunately may become the “target” of some litigation attorney in the future.  From the 10+ years of managing our own family’s timber business, I can testify from personal experience that a business, and you personally for that matter, are subject to being sued regardless of the fact that you have not done anything wrong!  Moreover, absent further and permanent, “pro-family” tax relief from Washington, your children, as well as their own children (your grandchildren), may be in a relatively high estate tax bracket and at risk of having substantial assets with which your family has been blessed, going to Washington following the death of the last survivor of yourself and your spouse, rather than providing for your family. 

Also, as to old adage goes, “We should be careful for what we ask!”  Under current proposals, the permanent repeal of the death tax might simple put American families “out of the pan, and into the fire!”  Currently, as noted above, there are a number of rules and techniques that allow us to greatly reduce, if not entirely avoid, federal estate taxes for your family, while at the same time affording the family to a large degree, what is called the “step up” in tax basis. 

This after-death, step up in the tax basis of your various assets gives your surviving spouse or other family members the ability to sell certain assets if necessary for their support and benefit, at no tax-costs.  However, the permanent repeal of the death tax will most likely result in the loss of such basis step-up.  Accordingly, American families could find themselves facing significant capital gains taxes for which there are no generally no “rules and techniques” for avoiding such taxes following the death of a loved one.

Asset protection planning is not based on hiding assets or an attempt to defraud existing creditors or those with pending or threatened claims against you.  Simply stated, we are attempting to protect you and your family against possible future contingencies.  Therefore, we must be cautious and avoid the negative implications that may follow from planning to protect assets other than in advance, that is, when there are known pending claims (lawsuits) by  plaintiffs and their litigation attorneys (the guys in the black hats!!!!).

The first line of defense in your overall Asset Protection Plan should consist of several alternative ownership arrangements for particular assets currently held in your name alone or jointly with your spouse.  First, we recommend that the ownership of your home be held as “tenancy in common for life with cross-contingent remainder to the survivor in fee.”  Although some attorneys advise their clients to transfer their home into the spouse’s name alone, we generally would recommend the cross-contingency remainder designation for the added security it provides from both your, and your spouse's, potential future creditors and their litigation attorneys. 

B.        Your Home:   

As noted above, placing the home in your spouse's name alone would provide creditor protection with respect to only your future creditors, but such an ownership arrangement would nevertheless subject your home to attachment by your spouse's creditors.  In contrast, the cross-contingent arrangement will provide that title to your home will be held in both of your names as a couple for your joint lives, with the surviving spouse becoming the sole owner after the death of the first to die. 

This arrangement provides the same survivorship rights to your home that are commonly obtained by husbands and wives owning property as "joint tenants";  however, the cross-contingent remainder provision provides the advantage of additional creditor/lawsuit protection.

Under this alternative arrangement, your home is protected and out of reach of your creditors during your spouse's lifetime, and also out of the reach of your spouse’s creditors during your lifetime. Therefore, the family is afforded dual protection from each of your individual creditors.  However, any “joint” creditor will still have the ability to attach your home for any obligation on which you and your spouse are both liable. The most common example of a joint creditor would be a bank holding the home mortgage.

  C.      Life Insurance:   

As noted above, an irrevocable trust may be created to hold any life insurance policy out of reach of your creditors as well as out of the reach of the government for estate tax purposes.  But remember, policies currently held by you and transferred into the trust are still subject to estate taxes if you happen to die within three (3) years of such transfer.

D.        Land and Other Properties: