Gretta C. Spendlove
Matthew F. Hafen(435)[email protected]
Southern Utah Estate Planning CouncilOctober 6, 2016Asset
Protection StrategiesAdding Value by Weaving Asset Protection into
Estate Plans
Protect the good guys from the bad guys
Uglify assets that would otherwise be attractive to
creditorsWhat is the Goal of Asset Protection?
Judge Learned Hand on Taxes: "Anyone may arrange his affairs so
that his taxes shall be as low as possible; he is not bound to
choose that pattern which best pays the treasury. There is not even
a patriotic duty to increase one's taxes. Over and over again the
Courts have said that there is nothing sinister in so arranging
affairs as to keep taxes as low as possible. Everyone does it, rich
and poor alike and all do right, for nobody owes any public duty to
pay more than the law demands. Helvering v. Gregory, 69 F.2d 809,
810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935).
Is Asset Protection Ethical?
or more eloquently stated
Rule #1: Know when to say no to clients
Rule #2: Timing is everything
Rule #3: Asset protection planning should be incorporated into
estate planning.Essential Rules for Asset Protection Planning
Anyone With assetsWho Needs Asset Protection Planning?
Client: Neurosurgeon, 55 years old, married, 4 children25 years
of experience$3 million estate$2 million malpractice insurance One
difficult case goes wrongJury award for $10 million
Example
General liability insurance, casualty insurance, auto insurance,
malpractice insurance, umbrella policy, etc.Advantage: Provides a
layer of protection to assetsDisadvantages:Claim may not be covered
by insuranceClaim may exceed policy limitsMay attract litigation
rather than deflect itStrategy #1Insurance
Utah, Nevada, and several other states have asset protection
trust legislation (See Utah Code 25-6-14 and N.R.S. 166)How does it
work?You can be the Grantor, Trustee, and Beneficiary of the
trustYou can maintain 100% control of the investment of the assets
in the trustYou can benefit from the use of assets in the trust,
such as a residenceCreditors dont have access to your assets after
assets have been in the trust for a specified period of time
Strategy #2Asset Protection Trust
Requirements / Restrictions:You must be solvent after
contributing the assets to the trustYou must have someone other
than yourself with authority to approve or deny any distributions
from the trustMust have at least one Utah Trustee for a Utah Trust
or Nevada Trustee for a Nevada TrustMust be irrevocableThe assets
become protected when they have been in the trust for specified
period of time
Strategy #2Asset Protection Trust(continued)
Remember: Pigs get fat. Hogs get slaughtered!Strategy #2Asset
Protection Trust(continued)
Types of activities or assets to put in LLCs:A businessRental
real estateThings that can generate liabilityStrategy #3Limited
Liability Companies
BenefitsEasy to create and useProvide excellent inside-out asset
protectionProvide outside-in asset protectionCreditors of owners
have remedy of a charging order against the LLC interest (and in
some states, foreclosure)Requirements:Observe formalities Treat as
independent entity
Strategy #3Limited Liability Companies(continued)
Family LLCs and Family LPsServe as holding company for family
assets including real estate, stocks, cash, etc.Uglifies assets,
making them much less accessible and desirable for
creditorsProvides a vehicle for family gifting while parents still
retain control of asset management (Note: 2704 Proposed Regs may
impact availability of gifting discounts from family LLCs / LPs)If
client is worried about childrens creditors, gift interests to
irrevocable trusts for childrens benefit
Strategy #3Limited Liability Companies(continued)
IRAs, 401(k)s, pensions, and profit sharing plans
Generally exempted from creditor claims by state law, at least
to some extent. Utah Code 78B-5-505(1)(a)(xiv)
Strategy #4Retirement Accounts
Upon the death of the first spouse to die, create a Marital
Trust or Credit Shelter Trust (depending on estate tax needs)The
Marital or Credit Shelter Trust will shelter assets from the
surviving spouses creditors (at least until the assets are
distributed to the surviving spouse)Help protect the surviving
spouse from opportunistic friends, housekeepers, or family
members
Strategy #5Marital Trust and Credit Shelter Trust Planning
For wealthy clients, irrevocable trusts can serve two purposes:
Asset Protection and Estate ReductionQualified Personal Residence
Trust (QPRT)Intentionally Defective Grantor Trust (IDGT) for
benefit of children (protects assets from Grantors creditors and
childrens creditors)Grantor Retained Annuity Trust (GRAT)Charitable
Remainder Trusts
Strategy #6Gifts to Irrevocable Trusts
Outright gifts to family membersGifts to charitiesSale of an
asset to children with a long-term noteLife Insurance cash
value
Other Options to Protect or Uglify Assets
Debtor #1 Debtor #2If you are a Creditor, which scenario do you
prefer?ResidenceValue: $500,000
Investment AccountsValue: $1,000,000Real Estate
InvestmentsValue: $2,000,000Cash and Liquid Assets$500,000Asset
Protection TrustResidence valued at $500,000Cash and liquid assets
of $400,00098% ownership of Family LLC with Real Estate Investments
valued at $1,960,000 (other 2% gifted to kids)Retirement Accounts
Value: $1,000,000Cash and Liquid AssetsValue: $100,000
QUESTIONS?
Matthew F. Hafen(435)[email protected]
Southern Utah Estate Planning CouncilOctober 6, 2016Asset
Protection StrategiesAdding Value by Weaving Asset Protection into
Estate Plans
