Presenting a live 90-minute webinar with interactive Q&A Protecting Business Assets From Creditors in Litigation: Strategic Choice of Entities, Avoiding Fraudulent Transfers TUESDAY, JULY 21, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Jacob Stein, Partner, Klueger & Stein , Los Angeles The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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ASSET PROTECTION PLANNING
Threshold Questions Outline pp. 1-7 Identity of Debtor • • married or single; entity protection and exceptions Nature of Claim • • timing; prejudgment attachment; dischargeable in bankruptcy Identity of Creditor • • creditor characteristics – aggressive, lazy, intelligent, etc. Nature of Assets • • liquid, real estate, residence, exemptions Jacob Stein, Esq, 2015 6
Debt Collection Outline pp. 8-13 Who will be sued? • • both spouses; entity owners Where will the creditor sue? • Prejudgment attachment • Collecting on judgments • • lien duration; writ of execution; writ of attachment; title to property Debtor exam • Wage garnishment • Jacob Stein, Esq, 2015 7
Fraudulent Transfers Outline pp. 14-26 Transfers by debtor that reduce the amount of • assets reachable by a creditor Transfers involving actual intent to hinder, delay • or defraud any creditors • badges of fraud • business purpose / estate planning • present and future creditors Transfers involving constructive fraud – less than • full consideration and debtor is insolvent Remedy / Good-faith exception • Jacob Stein, Esq, 2015 8
Planning in Context of Marriage Outline pp. 28-47 Common law states – separate property not liable • for debts of other spouse; concept of marital property on divorce Community property states – liable for debts of • either spouse • Nevada – only debtor’s share of CP liable for pre - marital debt Community property - acquired during marriage, • other than by gift or inheritance, analyze for titling and commingling Determining nature of property • Jacob Stein, Esq, 2015 9
Entity Planning Outline pp. 81-87 Sole Proprietorship/General Partnership • • simple, inexpensive, no protection Corporation • • centralized management, limited liability Limited Partnership • • limited liability for LPs LLC • • limited liability for all members LLP • • limited liability for all partners, except for malpractice Jacob Stein, Esq, 2015 10
Choice of Entity Outline pp. 81-115 Non-tax factors • • Economic flexibility – favors partnership type entities like LPs and LLCs • state statutes, structure, close corporations, Series LLCs and LPs • Liability protection – favors partnership type entities • entity provides liability shield; exceptions • charging order protection; • buy-out rights; poison pills • single-member LLCs; reverse piercing the veil Alter Ego Theory • Choice of Jurisdiction • Jacob Stein, Esq, 2015 11
Choice of Entity Outline pp. 117 Lawsuit Corporation Lawsuit reaches all corporate assets Asset • Corporation owns valuable Asset, but also manufactures and sells • Exposes Assets to risks of product liability Jacob Stein, Esq, 2015 12
Choice of Entity Outline pp. 117 Corporation LLC Asset Lawsuit • Corporation continues to manufacture and sell • LLC owns Asset and licenses to corporation • Asset separated from liabilities Jacob Stein, Esq, 2015 13
Choice of Entity Outline pp. 117 Individual Owner • Using LLC Charging LLC Order Protection for Corporate Assets • Corporate exit tax too high to terminate corporation • Issues: Number of Corporation members to maximize protection, working with S corporations and using foreign LLCs Asset Asset Jacob Stein, Esq, 2015 14
Planning with Trusts Outline p. 48 Trust – requires a settlor, a beneficiary, a • trustee and trust property Ownership of property is split – trustee has • legal title, beneficiaries have equitable title Creditors can attach any asset that a person • owns or can exercise control over for his own benefit Jacob Stein, Esq, 2015 15
Planning with Trusts Outline pp. 49-55 Trust should be irrevocable – if revocable, • settlor deemed owner of trust assets Spendthrift provision – beneficiary • prevented from anticipating distributions Discretionary trust – trustee has discretion in • making distributions, can exclude beneficiaries Jacob Stein, Esq, 2015 16
Planning with Trusts Outline pp. 51-52 Self-settled trust – settlor settles a trust for • his own benefit • If more than one beneficiary, self-settled to the extent of settlor’s benefit No asset protection benefits to a self-settled • trust In all other respects, self-settled trusts are • valid Jacob Stein, Esq, 2015 17
Planning with Trusts Outline pp. 57-58 DAPTs – referring to the 1997 and later trust • legislation in Alaska, Delaware, Nevada, etc. • Legislation allows self-settled trusts as a creditor shield • Trusts need to comply with certain requirements Choice of law; Full Faith and Credit clause • Jacob Stein, Esq, 2015 18
Foreign Trusts Outline pp. 60-67 Foreign trust – any trust governed by the • laws of a foreign country Looking for jurisdictions with trust laws • favorable to settlors and beneficiaries Jurisdiction features – self-settled trusts are • effective, favorable fraudulent transfer laws, does not recognize foreign judgments Favored jurisdictions • Jacob Stein, Esq, 2015 19
Foreign Trusts Outline pp. 60-67, 78-80 Issues to consider: • • Choice of jurisdiction • Location of assets • Time of funding • Choice of trustee • Contempt • defense • Anderson case Using LLCs to regain control • Jacob Stein, Esq, 2015 20
Foreign Trusts Outline pp. 67-74 Tax treatment of foreign trusts • • Every trust is a “foreign trust” for tax purposes, unless meets the court test and the control test • Court test and control test • Grantor status Reporting requirements • • Forms 3520 and 3520-A • Penalties Jacob Stein, Esq, 2015 21
Retirement Plans Outline pp. 124-126 ERISA qualified plans – Code Section 401 and • Department of Labor requirements • Anti-alienation requirement defeats claims of all creditors, other than the federal government and former spouses • Ability to rollover from IRA • To qualify under ERISA, need a non-owner employee other than spouse of owner Nonqualified plans – limited protection under • California private retirement plan statute; up to $500,000 in Nevada; varies in other states Jacob Stein, Esq, 2015 22
Comprehensive Example Brown Family Balance Sheet Value Debt Residence $ 1 million $ 500,000 Medical Practice $ 4 million $ 500,000 Apartment Building $ 10 million $ 8 million Brokerage Account Cash $ 1 million Securities $ 0.5 million Retirement Plan $ 500,000 Jacob Stein, Esq, 2015 23
Comprehensive Example Transmutation Agreement Split Dr. Brown Equity Medical Practice $ 3.5 million Retirement Plan $ 500,000 $ 4 million Mrs. Brown Equity Residence $ 500,000 Apartment Building $ 2 million Brokerage Account $ 1.5 million $ 4 million Jacob Stein, Esq, 2015 24
Comprehensive Example Medical practice – limited value to a creditor • Retirement plan – if not an IRA - sheltered • from creditors Residence – consider a sale, an equity strip or a • QPRT Apartment building – contribute to an LLC, • single-member LLC issues Cash and securities – LLC or foreign trust • Jacob Stein, Esq, 2015 25
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