The document outlines asset protection strategies, emphasizing that it involves making assets difficult for creditors to access without being fraudulent or tax evasive. It discusses effective methods such as family limited partnerships, life insurance trusts, and domestic asset protection trusts, highlighting the legal frameworks that support these strategies. Additionally, it mentions offshore asset protection trusts, which require careful planning and may involve complexities and costs.

1. Asset Protection Presented By: Richard J. Shapiro, J.D. and Mindy Menke, J.D. Blustein, Shapiro, Rich & Barone, LLP 90 Crystal Run Road, Suite 409 Middletown, NY 10941 www.mid-hudsonlaw.com

2. Introduction What Asset Protection Is and Isn’t Basic Asset Protection Techniques What Won’t Work What Might Work What Should Work

3. What Asset Protection Is Asset protection is a structure which makes assets difficult or impossible to reach Asset Protection is putting a portion of your net worth behind some obstacles. The more obstacles, the greater the protection. Asset Protection is planning for future liabilities

4. What Asset Protection Isn’t Asset Protection is not fraud Asset Protection is not tax avoidance Asset Protection is not transferring all assets out of your control Asset Protection does not rely on stealth alone

5. Easy Asset Protection Strategies Divide and Conquer Maintain Adequate Insurance Look Before You Leap Avoid General Partnerships

6. What Won’t Work Revocable Living Trusts Nevada Corporations Leaving No Equity Anywhere “ Giving It Away” (But Not Really) Lying Business Trusts, Pure Trusts, Constitutional Trusts, whatever

7. What Might Work Family Limited Partnerships (FLPs) Family Limited Liability Companies (FLLCs) Life Insurance Domestic Asset Protection Trusts Offshore Irrevocable Trusts

8. Family Limited Partnerships

9. Family Limited Partnerships

10. Family Limited Liability Companies

11. How It Can Work Limited Partners Have No Liability for Entity Debts General Partner Has Liability, But only Subject to Corporate Assets Creditors of Limited Partner Can Get “Charging Order” Charging Order Not Attractive to Creditors

12. Other Advantages Can Begin to Transfer Ownership Without Control Can Transfer Assets Likely to Appreciate and Minimize Estate Tax Can Get Discounts to Minimize Gift Tax

13. Disadvantages Abuse Has Invited Scrutiny (from courts and IRS), including foreclosure of LP interests in lieu of Charging Order Cost (Atty’s. Fees, Appraisals, Upkeep) Complexity Ownership Transfer is Irrevocable

14. Life Insurance New York Insurance Law § 3212 Beneficiary’s interest in policy protected against policy owner’s creditors If owner of policy insures life of another, owner is protected from creditors of insured If owner of policy insures life of spouse for owner’s own benefit, owner is protected from own creditors

15. Life Insurance (cont.) Policy owner’s interest in cash surrender value is protected from claims of owner’s own creditors

16. Life Insurance Trusts Greatest protection afforded by owning life insurance in Irrevocable Life Insurance Trust (ILIT) ILIT protects value from creditors of insured and trust beneficiaries ILIT also excludes death proceeds from taxation in insured’s estate

17. Access to ILIT Cash Value ILIT may be drafted to provide that discretionary distributions of trust assets to spouse and/or descendants Allows ready access to cash surrender value If no spouse, trust may be established in jurisdiction (i.e., Alaska) which allows discretionary distributions to trustmaker

18. Domestic Asset Protection Trusts Alaska Legislature passed landmark statute in 1997 For the first time, the law of an individual state enabled creation of an irrevocable trust providing discretionary benefits to the trustmaker without the transferred assets being included in the trustmaker’s estate at death. Delaware, Rhode Island, South Dakota and Nevada subsequently adopted similar legislation

19. Key Features Repeals rule against perpetuities – allows for “dynasty” planning Allows for discretionary distributions to trustmaker without assets being included in taxable estate Alaska law provides clear roadmap for creditor protection features

20. Will Alaska Law Apply? In general, law of jurisdiction where administration takes place controls Trust should include specific intent that trust be subject to Alaska law Some assets must be deposited in Alaska (often $10,000 is used) At least one trustee must be based in Alaska

21. Requirements for Creditor Protection Transfer into trust cannot be a fraudulent conveyance Transfer cannot render trustmaker insolvent Transfer cannot be intended to remove assets from the reach of a specifically known, or anticipated, creditor Alaska Statute of Limitations to commence suit claiming fraudulent conveyance is four years

22. Requirements for Creditor Protection Trustmaker cannot retain power to revoke the trust Trustmaker cannot retain entitlement to income or principal from the trust; rather, trustmaker may be eligible for discretionary distributions in the discretion of a trustee other than the trustmaker

23. Potential Limitations Full faith and credit attacks May be shielded by limiting trustees only to persons or entities residing in state where trust created and who do not have “minimum contacts” in trustmaker’s state of domicile Supremacy clause arguments May apply in bankruptcy context; however, bankruptcy laws use state laws to determine interests of trustmakers and beneficiaries

24. Potential Limitations Conflicts of Laws Claim that laws of trustmaker’s state of domicile govern the rights of trustmaker’s creditors However, trust may (and should) specify which state’s law governs instrument Restatement of Trusts sanctions choice of law clause in trust No existing case law

25. What Should Work Offshore Asset Protection Trust

26. Important Concepts Trust Protector Don’t Transfer To Foreign Trustee Without Protection

27. When Creditor Attack Likely Flight (Remove U.S. Assets) Fight (Resign as U.S. Trustee) Get Serious (Need Experienced Foreign Trustee, Protector, Counsel)

28. HOW DOES IT WORK? International Case Study: The Bahamas

29. 1. Considered an “arm’s length” transaction Usually Irrevocable Trustees with total discretion Guided by “Letter of Wishes” Supervised by Trust Protector Can only recover by proving a “fraudulent conveyance”

30. 2. Action limited to actual creditors with claims existing at the time of transfer who are known to the Trustmaker. 3. Creditor has burden of proof.

31. 4. Action barred 2 years after transfer. 5. Foreign law and judgments not recognized by Bahamian courts, so legal proceedings must be re- initiated in the Bahamas.

32. 6. Hard to establish jurisdiction because Trustmaker is not physically within jurisdiction, nor are his assets (except those owned inside the trust).

33. 7. Creditor suing in Bahamas is considered foreign plaintiff. As such, must make substantial cash deposit with court to cover costs which might be awarded to the successful defendant.

34. 8. No registration, filing, or disclosure for trusts. Stringent confidentiality laws with civil and criminal penalties. Makes gaining enough information to formulate a claim difficult.

35. 9. Usually leads to reasonable out of court settlement, such as for the amount of insurance coverage.

36. 10. If emotional creditor with deep pockets overcomes all of the barriers, will still be barred by the 2 year rule. Or trustees may be fired and replaced, assets migrated, or trust itself migrated to new jurisdiction.

37. 11. If after overcoming all hurdles a creditor is successful in setting aside the transfer, can only satisfy his own claim, leaving the balance of assets intact within trust.

38. Disadvantages Complexity Cost (Atty’s. Fees, Appraisals, Upkeep) IRS Reporting Obligations (Increase without any U.S. Trustee) Ownership Transfer is Irrevocable, Control as/over Trustee need not be

39. Points To Remember Asset Protection is only one part of the Estate Planning puzzle Some simple asset planning techniques can protect a high percentage of your assets

40. Next Steps Assess Your Assets and Vulnerability Get Competent Advice

41. Questions? Please complete workshop evaluation form