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Protecting The Family Jewels

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Business and Personal Asset Protection Tips for Closely-Held Business Owners

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Protecting The Family Jewels

  1. 1. Protecting the Family Jewels in a Struggling Economy Independent Jewelers Organization Charlotte, North Carolina July 18, 2009 Brian T. Whitlock CPA, JD, LLM
  2. 2. Overview • Identify your Risks – Business – Personal • Protect Yourself and Your Loved Ones • How and When to Transfer Financial Assets • Minimize Taxes and Administration Expenses
  3. 3. Identify your Business Risks • Employee Theft • Customer Theft • Fire or Business interruption • Economic
  4. 4. Protection from Business Risk •Employee Theft – Opportunity – Incentive (Alcohol, Drugs, Infidelity, Gambling, Medical) – Rationalization
  5. 5. Protection from Business Risk • Business Insurance – Theft – Flood & Fire - Business Interruption – Key Person Life/Disability Insurance – Workman’s Compensation Insurance
  6. 6. Protection from Business Risk • Shield from Business Liability (Creditors) – Sole Proprietorship and General Partners – Corporation vs. Limited Liability Company – Limited Partnership
  7. 7. Protection from Business Risk •Priority of Creditors – Secured (Mortgage against Real Estate) (UCC against assets) – IRS and State Department of Revenue (Trust fund liability for payroll taxes and sales taxes) – Unsecured Creditors – Personal Guarantee
  8. 8. Identify your Personal Risks • Property – Auto – Fire – Slander/Libel • Personal – Medical Health – Death – Disability • Divorce
  9. 9. Personal Asset Protection • Insurance – Personal (Health, Disability, Life, Long Term Care) – Property (Auto, Home, Umbrella) • Statutorily Protected Assets – Homestead Property (e.g., Florida, Texas) – Tenants by the Entirety – Qualified Plans (pension, IRA, ROTH IRA, etc.) – Annuities and Life Insurance
  10. 10. Personal Asset Protection • “They can’t take what you don’t have” – When is it too late to transfer? • Preferential payments in Bankruptcy can be unwound • State Law – Generally transfers within 180 days • Clawback provisions (“Madoff”) • Courts can unwind transfers made to “Defraud Creditors” – Before there is a problem • Estate Planning Reasons
  11. 11. Personal Asset Protection Self-Settled Irrevocable Trusts (created by you for you) • US Based Trusts – Alaska – Delaware – South Dakota • Foreign Trusts – Cook Islands – Nevus
  12. 12. Protecting Your Family - Death Your Free Will - You Get What You Pay for! • The “Family” Plan • Guardianship for Minors • Distribute at 18 Years of Age • Second Marriage? • Ignore Tax Saving Opportunities
  13. 13. What is Probate? ANSWER: The Court Process for Collecting and Administering Assets • Persons Covered – Deceased – Subject to a Legal Disability • Jurisdiction – Assets in that State • Role of Court – Identify and Collect Assets – Identify and pay claims against the estate
  14. 14. Avoiding Probate • Joint Tenancy with Rights of Survivorship (JTWOS) • Tenants by the Entirety • Payable on Death (POD) • Transfer on Death (TOD) • Beneficiary Designation • Trust
  15. 15. Federal Transfer Taxes Estate Tax Gift Tax • Applicable Exclusion • Annual Exclusion – $3.5 million (2009) – $13,000 per person per – Unlimited (2010) year – $1 million (2011) – Spouse can double • Marital Deduction • Applicable Exclusion • Flat Tax Rate – $1 million (not currently changing) – 45%
  16. 16. What are your Objectives? Remember “You Ain’t Dead Yet!” Irving L. Blackman CPA, JD
  17. 17. Health Care Directives • Living Will • Durable Power of Attorney Directive to Doctor for Health Care regarding termination – Organ Donation of life support – Access to Medical Records (HIPPA) – Right to Make Medical Decisions – Life Support or Termination Choices – Ability to name Successors
  18. 18. The Family Safety Net • Revocable Living Trusts – Minimize the Exposure to Probate – Maximize use of Credit Shelter • Pour-Over Wills – Probate May be Necessary or Advisable • Durable Power of Attorneys for Health Care • Irrevocable Life Insurance Trust
  19. 19. Transfer Tax Minimization Formula Credit Shelter Trust Marital Deduction Trust • Receives Applicable • Receives excess over Exclusion amount Applicable Exclusion Amt • Holds for benefit of • Holds for Benefit of Spouse and children Spouse • Not Subject to • Subject to Transfer Tax at Transfer Tax at Spouse’s Death Spouse’s Death
  20. 20. Irrevocable Life Insurance Trust • Ironies of Insurance – Large Dollar Value at Death – Small Value During Life • Death Benefit is Income Tax Free • Death Benefit is Estate Tax Free – Without “incidents of ownership”
  21. 21. Beyond the Basics • Maximize Exclusions – Lifetime Gifts – Annual Exclusions • Minimize Taxable Transfers – Leverage Cash Flow – Minimize Valuation • Asset Protection – Trusts for others – Control Access – Protect Family Members – Keep Potential Creditors Away – “They can’t take what you never had”
  22. 22. Advanced Transfer Strategies • Dynasty Trusts • Intentionally Defective Income Only Trusts (IDIOTs) • Family Limited Partnerships • Charitable Transfers – Charitable Lead – Charitable Remainder – Private Foundation – Donor Advised Funds

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