asset protection advance planning is key · asset protection planning – strategies for the...
Post on 09-Jul-2020
4 Views
Preview:
TRANSCRIPT
Asset ProtectionAdvance Planning is Key
Barbara Freedman Wand, Esq.Estate Planning Group
Bingham McCutchen LLPBoston
Partners Office forWomen’s Careers at MGH
Presents
Asset Protection Planning is the Process of…
Structuring your assets
In advance of creditor problems
Before insolvency
For purpose of reducing your vulnerability to judgments
Estate Planning is the First Step inAsset Protection Planning
Estate planning helps you to:
Understand the nature and extent of your wealth
Structure the ownership of your wealth to accomplish your goals
Minimize exposure to one omnipresent creditor—the IRS
Establish a baseline to measure changes in your financial status
Facilitate financial planning, including asset protection planning
Asset Protection Planning Cannot TakePlace in a Vacuum
Part of your larger financial plan
Can have an impact on income taxes, estate taxes and gift taxes
Can have an impact on spousal rights on divorce, retirement
Asset Protection Planning - Timing
Must occur in advance of specific creditor problems to be effective
“Fraudulent Transfers” prohibited – Actual or Constructive Fraud Transfers with intent to hinder, delay, or defraud creditors
Transfers for less than “reasonably equivalent value”
• while insolvent or
• having the effect of making you insolvent or
• leaving your business with unreasonably small capital
Transfers to pay debts owed to “insiders” while you are insolvent
Asset Protection Planning Strategies
Identify risks to be planned against…
Malpractice
Business reverses
Environmental hazards
Personal injury
Divorce
Taxes
Different strategies are appropriate for different risks
Asset Protection Planning Strategies
Not all debts are equal:
Taxes
Alimony
Child support
Necessaries
Asset Protection Strategies –Business Reverses
Corporate structure / limited liability
Professional Corporation
Doesn’t protect you from own acts
May provide protection from acts of others
May provide protection from debts of business
Important to follow corporate/LLC formalities!
Asset Protection Strategies –Environmental Hazards
Limited liability entities to hold title
Separate entities for each asset
Asset Protection Strategies –Malpractice / Personal Injury
Malpractice insurance
Umbrella coverage
Asset Protection Strategies - Divorce
Prenuptial Agreements
Segregation of assets during marriage
Asset Protection Planning –Titling of Assets
Consider titling of assets in name of spouse less likely to be sued
If either spouse is not a U.S. citizen, there may be gift tax issues to transfers
Transfers between spouses may interfere with other income or estate planning goals
Transfers may have implications on divorce
Fraudulent transfers may be avoided
Asset Protection Planning –Strategies for the Personal Residence
Tenancy by the Entirety – special form of joint tenancy of residential real estate for husbands and wives
Asset Protection Planning –Strategies for the Personal Residence
Protection of Tenancy by the Entirety:
Creditor can attach debtor’s interest, but can generally not force sale while non-debtor spouse resides there
Asset Protection Planning –Strategies for the Personal Residence
Tenancy by the Entirety
▪ Pre-1980 – not as beneficial
▪ Post-1980 – more beneficial
Can convert pre-1980 tenancy by deed to post 1980 tenancy
Asset Protection Planning –Strategies for the Personal Residence
Limitations on Tenancy by the Entirety
▪ Does not protect against joint debts
▪ Cloud on title if debtor attempts to sell property
▪ Under certain circumstances, may not protect against sale upon bankruptcy of co-owner
Asset Protection Planning –Strategies for the Personal Residence
Homestead Exemption – For Primary Residence
▪ $300,000 of equity is protected; $300,000 for those aged 62 and older and disabled
Probably no “stacking” of homestead exemptions
▪ Can be filed after purchase
▪ Doesn’t protect against purchase money mortgage or voluntary liens
▪ Outside of bankruptcy proceeding – protects only against debts which arise after declaration of homestead
Essential to claim prior to filing a bankruptcy proceeding
Asset Protection Planning –Retirement Benefits
▪ “Qualified” plans under federal law are exempt
▪ In Massachusetts, IRA’s and non-qualified retirement plans are generally exempt (some exposure to recent excess contributions)
▪ Consider maximizing all retirement plan/IRA contributions
Asset Protection Planning –Protecting Your Inheritance
▪ Have wealth left to you in trust with “spendthrift” clause and discretionary terms
▪ Rights of withdrawal – may not affect creditor protection in Massachusetts
▪ This strategy applies to structuring estate plan between spouses as well
▪ Joint tenancy of property should be avoided
At Mary’s Death in 2003
Mary’s Revocable
Trust
Mary’s Revocable
TrustDiscretionary incomeand principal
CHILDREN
$2,300,000
all income
discretionary principal
MaritalTrust
MaritalTrust
$700,000
By will and beneficiary designation
Tangibles and joint property
FRED
Mary’s assets$3 Million
FamilyTrust
FamilyTrust
Asset Protection Planning –Self-Settled Trusts for Your Own Benefit
Certain self-settled trusts provide no creditor protection:
▪ Revocable trusts
▪ Nominee trusts
Asset Protection Planning –Self-Settled Trusts for Your Own Benefit
▪ In most states, no creditor protection for irrevocable self-settled trusts where donor is beneficiary
▪ Assets of trusts are reachable by creditors to extent they can be used for donor’s benefit
Asset Protection Planning –Self-Settled Trusts
Domestic self-settled trusts may provide protection
Alaska Nevada
Delaware Rhode Island
“Off-shore” self-settled trusts may provide protection
Asset Protection Planning –Self-Settled Trusts
How they work:
▪ Often assets and trustees must be in state or country offering protection
▪ Donor cannot have ultimate control, but may be a beneficiary
▪ Laws or jurisdiction favor debtors
Asset Protection Planning –Self-Settled Trusts
Do they work?
▪ Virtually untested in courts
▪ May increase debtor’s bargaining power in settlement negotiations
▪ May subject debtor to contempt
Asset Protection Planning –The Big Picture
▪ Array of strategies from simple to complicated
▪ Must be integrated with your total financial plan
▪ Should be supervised by knowledgeable counsel –don’t try this at home!
▪ Advance planning is key
top related