How and Why to Protect Your Assets

Are you prepared for the possibility that your assets – – your home, your savings, your business – – could be taken from you by litigants, creditors, the government, potentially even your spouse?  That could happen if you are a business owner, property owner, guarantor or a perceived “deep pocket”.  If you are a potential target of a lawsuit or other legal threat, you owe it to yourself and your family to consider asset protection.

Asset protection is the safeguarding of wealth and assets from attack by future, unsecured creditors.  The assets and wealth that we can protect is a broad class:  your home, bank and investment  accounts, business interests, professional practices, real estate including your home and investment properties, commercial properties, jewelry, cars, boats, art and other personal property, intellectual property and virtually anything else of value that you may wish to preserve for yourself and your family.

We protect assets using domestic laws and entities such as limited partnerships, trusts and corporations, as well as the laws of foreign countries.  We have been pioneers in this field and have developed domestic and international asset protection strategies that enjoy an impeccable record of success.

People sometimes have the misconception that in order to engage an asset protection attorney, they need to have significant wealth.  In fact, we protects the assets of many different people, of diverse backgrounds and all levels of affluence.  Our asset protection clients have ranged from young entrepreneurs seeking to protect their assets from the risks of their next business ventures, to retirees seeking to preserve their assets for their children and grandchildren, people seeking to protect their home from mounting medical bills, celebrities and mega-wealthy individuals with real estate holdings around the world.  All types of people, with all types of assets, need asset protection.

You need asset protection if:

  • you are facing a current or expected lawsuit;
  • you are in a profession with a high degree of liability (real estate investor, real estate developer, landlord, doctor, lawyer, financial advisor);
  • new laws may impact your business or create new liabilities (e.g., the Fair Labor Standards Act (FLSA) and the proposed “sweat” law in New York state);
  • you are a debtor and/or a guarantor;
  • you face a potential tax or other government liability;
  • you have accumulated, or are about to receive, significant wealth (e.g., inheritance, investment or business success, vesting event, business buy-out, etc.);
  • you (or your children) are going to get married or divorced;
  • you are concerned about the financial viability of your business.

There are two options to asset protection: domestic and offshore.

Domestic asset protection can be totally effective if implemented by individuals with no current claims against them.  Domestic asset protection is also usually used to protect real estate.  As an added bonus, some structures that we use for asset protection, like the family limited partnership, also offer excellent tax minimization and estate planning benefits.

Offshore asset protection involves the transfer of your assets to a trust or corporation established in a confidential, secure and stable foreign country.  If an offshore asset protection strategy is established by an attorney experienced in this area, it can be absolutely effective.  However, this must be done carefully in order to comply with I.R.S. rules and regulations governing control of foreign assets.

Contact us to discuss your asset protection needs and options.


Year-End 2016 Tax Planning, Year-End Gifting & 2017 Tax Changes

Year-end gifting may be changing soon. Each year, we begin our end-of-year suggestions with a reminder to clients who own FLPs, LLCs and family business ventures, that they should take advantage of year-end gifting to lower estate taxes.  This year the message is even more crucial, because discounted gifting of family enterprises is about to go away entirely.  The recent election results will not alter (at least for now) this change in tax law.

Take Advantage of Year-End Gifting to Lower Estate Tax – Before the Law Changes: New IRS Regulations Eliminate the Ability to Discount the Value of FLP and LLC Gifts to Family Members

In August 2016, the IRS finally issued proposed regulations that will eliminate (or severely limit) the ability to discount the value of transfers of interests in closely held entities (FLPs, LLCs, family corporations) to family members.  Such “leveraged gifting” has been an extremely important and common method used by estate planners to eliminate estate taxes.

The proposed regulations will undergo a ninety day comment period and a public hearing on December 1, 2016.  Shortly after that, the IRS will publish final regulations which will take effect within thirty days after publication[1].  These proposed regulations were expected and we have previously written about them here.

Readers are strongly urged to contact us to implement gifts of FLP and LLC interests to their heirs before the changes take effect.  Clients with FLPs should consider gifting limited partnership interests in order to decrease the value of their estate.  As long as clients retain their General Partner (GP) interests, clients will continue to control all assets within their partnership.  Yes, you can escape the estate tax and still control the assets.

In summary:

– You can lower the value of your taxable estate, and pass up to $5,450,000 ($10,900,000[2] for a married couple) to your heirs, tax free.

– If you own an FLP, you can gift Limited Partnership (LP) interests to your heirs, and take advantage of discounting, to get even more out of your estate, tax-free (up to $21,800,000 in 2016).

– You can keep your General Partner (GP) interests and still control the FLP and its assets, even if you gift all of the Limited Partnership (LP) interests.

Also, don’t forget about the annual gift exclusion, which allows you to gift up to $14,000 ($28,000 for a married couple) in 2016 to as many people as you choose.

We realize that gifting and discounting are not simple concepts, and we welcome your questions.  We can advise you as to appropriate FLP discounts, prepare memoranda of gift for you[3], as well as the partnership valuation and gift valuation calculation letters (necessary for the IRS).  Please contact us with any questions regarding your year-end tax planning.

[1]This fall, two bills were introduced in the U.S. House of Representatives and Senate to derail the proposed IRS regulations, further illustrating the uncertain nature of our tax law.

[2] Under current law, in 2017, the exclusions go up: $5,490,000 for individuals and $10,980,000 for married couples.

[3]  A recent tax court case has made it imperative that the documents transferring the LP interests be worded very carefully.  These documents be prepared by qualified tax counsel.

New IRS Regulations Eliminate the Ability to Discount the Value of FLP and LLC Gifts to Family Members

This month, the IRS finally issued proposed regulations that will eliminate (or severely limit) the ability to discount the value of transfers of interests in closely held entities (FLPs, LLCs, family corporations) to family members.

Such “leveraged gifting” has been an extremely important and common method used by estate planners to eliminate estate taxes.

The proposed regulations will undergo a ninety day comment period and a public hearing on December 1, 2016. Shortly after that the IRS will publish final regulations which will take effect within thirty days after publication.

These proposed regulations were expected.  We have previously written about them here and here.

While we do not venture into political discussion, we point out that Hillary Clinton has stated that she will reduce the estate tax exclusion from $5,450,000 per person ($10,900,000 for a married couple) currently in effect, to $3,500,000 per person ($7,000,000 for a married couple) and reduce the gift tax exemption from $5,450,000 per person to $1,000,000 per person.  She will also increase the gift/estate tax to 45%.  (Donald Trump has proposed to eliminate the gift/estate tax entirely.)

Readers who have not yet completed their estate planning are strongly urged to contact us to implement gifts of FLP and LLC interests to their heirs before the changes take effect.

Please see our related articles:

Family Limited Partnerships & Discounting

Historic Opportunity to Avoid Tax on Over $10 Million+ of Assets

Year-End 2015 Tax Planning: Take Advantage of Gifting to Lower Estate Tax – Before the Law Changes

LLC/FLP Discounting and Leveraged Gifting to Lower Estate Tax May Soon Be Limited

Please contact us with any questions.

How to Lower Your Estate Tax Liability on the Federal and State Levels

In early 2013, Congress clarified the estate tax landscape and made permanent certain provisions of estate tax law, such as the exemption from estate tax for the first $5.45 million of one’s estate, indexed annually for inflation. There has been no such clarity on the state levels, which remain a patchwork of different estate tax laws.

On the federal level, in addition to the exemption of $5.45 million each year indexed for inflation, the 40% estate tax rate is, for now, standard.  In addition, portability between spouses of an unused exemption is also now allowed.  Congress can change these laws in the future, as it has in the past.  In addition, in this election year, estate tax rates and exemptions are campaign topics and are subject to revision by a new administration.  However, at least for now, the federal estate tax regime is clear and as a result, we as tax practitioners have a better ability to plan for clients when the law is clear.

However, estate taxes on the state level are much more variable.  In New Jersey, the threshold for estate tax is only $675,000, the lowest in the U.S., and at a huge variance from the $5.45 million federal exemption.  The threshold in Connecticut is $2 million, cut from $3.5 million in 2011.  The threshold in New York is currently $3.125 million, will rise to $4.18 million on April 1, 2016 and to $5.25 million in 2017.  Ultimately, the NYS exemption will be at parity with the federal exemption amount in 2019.  In a significant quirk, a New York tax law anomaly known as “the cliff” sets the estate threshold to zero (i.e., no exemption from estate tax at all) if one’s estate is valued at $3,281,250 or more.  In other words, in New York, there is no estate tax for estates lower than $3.125 million and complete estate tax on the entirety of the estate, with no threshold and no exemption, for any New York estate valued in excess of $3,281,120.

Thus, depending on the value of one’s estate, and one’s residence, one’s estate may owe considerable state estate tax even if it is exempt from federal estate tax.

Some states have no estate tax and no income tax.  For this and other reasons (sunshine?) such states, which include Florida and Nevada, attract migration from high-tax states such as New York, New Jersey and Connecticut.

There are various strategies that one may utilize to lower one’s taxable estate on both federal and state levels.  Some of the strategies proven to reduce estate taxes are:

GRAT – If you contribute assets into a Grantor Retained Annuity Trust, you could receive a regular payment akin to an annuity over many years, and then when the trust term ends, the appreciated assets pass to your heirs, are not considered part of your estate and will not be subject to estate taxes.

QPRT – If you contribute your personal residence into a Qualified Personal Residence Trust, you may still live in the residence for a term of years, and when the trust term ends, the home is removed from your estate while passing to your heirs and will not be subject to estate taxes.

FLP – After contributing your assets into a Family Limited Partnership in return for general and limited partnership interests, you may then, over time, gift your limited partnership interests to your heirs while retaining the general partnership interest (thereby continuing to control the FLP), and thus remove the value of the limited partnership interests from your estate.  FLPs also provide the additional bonus of excellent asset protection.

CRUT – By contributing appreciated assets to a Charitable Remainder Unitrust, you are entitled to a charitable deduction, regular payments from the trust back to you during the trust term, and at the end of the term the assets pass to the charity, are not subject to income tax and are removed from your estate.

ILIT – If you own or control life insurance policies, the IRS deems their death benefit to be in your estate and subject to estate tax, even though you will never receive the death benefit during your life.  If you contribute these life insurance policies to an Irrevocable Life Insurance Trust, you may remove the insurance policies from your estate.  Your family members may receive the death benefit from the trust, free of any estate tax.

Dynasty Trust – Such a trust allows the preservation of assets for one’s immediate and remote descendants, along with offering asset protection from creditors, as well as delay of the estate tax bite for many generations.  The trust can distribute income to beneficiaries, but principal is preserved, asset-protected and grows tax-free.

These strategies are not only for the mega-wealthy.  We have successfully utilized these strategies for clients of means at various levels who are concerned with leaving as much of their hard-earned assets for their heirs with as little as possible going to the IRS and state tax authorities.  These are equally attainable goals with a $5 million estate as they are at $50 million.

Moreover, these strategies are affordable, especially considering the amount of tax savings they offer.

Of course, if you want to move to Florida or Nevada, go for it.  But if you’re considering a move for estate tax reasons, first consider these various strategies to lower your estate tax liability without having to relocate.

Year-End 2015 Tax Planning: Proposed Income Tax Revisions Mandate Timely Tax Planning

There have been many recent proposed changes to tax laws and regulations.  Planning ahead of these changes is crucial.  President Obama’s proposed 2016 budget includes changes that would eliminate many strategies that could save significant taxes.  These changes include:

  • Elimination of favorable tax treatment for Grantor Retained Annuity Trusts (GRATs) which are used to transfer family assets with minimized tax consequences;
  • Elimination of discounted gifting of interests in family corporations, family limited partnerships (FLPs) and limited liability companies (LLCs);
  • Limitation on annual gifts excluded from the gift tax;
  • Reverting to a prior smaller exemption from estate tax (specifically, to 2009 when the estate tax exception was only $3.5 million per person and lifetime gift exemptions were $1 million per person) and a return to the top estate tax rate of 45%;
  • Eliminating the “step up” in basis for appreciated assets at death;
  • Capital gains tax rate increase from 23.8% to 28%;
  • Eliminating the home mortgage interest deduction.

While certain of the above proposals are unlikely to be approved by Congress, note that Congress frequently changes the rules.  Recall, for example, the rush to estate planning at the end of 2012, when the exemption from estate tax was set to expire.  In addition, Congress in recent years approved increases in capital gains tax rates, dividend tax rates and also implemented the 3.8% investment tax.

There are strategies that can be implemented before these proposed changes are promulgated by the government.  We can assist you in best anticipating the proposed changes and developing strategies to overcome the tax increases.

For additional information on tax planning, please see our various articles here.

Contact us for a confidential consultation regarding tax planning.




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