Asset Protection Law Journal

Trusts Require Flexibility

Ken Laino — Tue, 21 May 2013 08:37:07 -0500

Asset protection planning (and estate planning) frequently involves the use of one or more trusts. Possibilities include an offshore trust, Domestic Asset Protection Trust, irrevocable life insurance trust and various other kinds of trusts.

Most of these trusts are designed to last for many years. It is therefore important to give the trustee the flexibility to adjust to changing circumstances. Many things can change during the life of a trust. Among the many changes that a trustee may be faced with are:

· Beneficiary’s creditor problems

· Changes in family circumstances (including divorce)

· Cost of living

· Legal changes

A person setting up a trust is often inclined to impose very specific requirements on the trustee (for example, making specific distributions to beneficiaries each year). But one or more of the changes mentioned above could make a particular distribution problematic. Giving your trustee flexibility and discretion often makes the most sense. This is why I frequently remind my clients that who you choose as trustee of a trust can be just as important as the trust documentation.

In any event, it is important to keep in mind that no matter what kind of trust you establish, you are going to have to give your trustee a certain amount of flexibility to react to future changes.

Medical Malpractice Claim Can Take Both an Emotional and Financial Toll

Ken Laino — Thu, 16 May 2013 13:39:00 -0500

In a post on February 8, 2012 I referred to an excellent article by Pauline W. Chen, M.D. She described how involvement in a medical malpractice action can negatively impact a physican’s way of practicing medicine.

Dr. Chen recently published another article in the New York Times that is also noteworthy. She explains how a medical malpractice lawsuit can be terribly stressful for a physician - - and how it can negatively impact a doctor’s ability to care for patients. These articles remind me that our system of compensation for medical errors remains desperately in need of further reform.

Dr. Chen points out that some specialists, such as neurosurgeons, can average as much as one quarter of their professional lives embroiled in lawsuits. Even if there is no ultimate payment in many of these actions, the stress on the physician can take a heavy toll.

Developing a meaningful asset protection plan will not relieve all the stress of a medical malpractice claim. But it can certainly help. As I have mentioned before, a meaningful asset protection plan can provide some emotional peace of mind as well as potential financial benefits.

You Can Lose A Fortune If You Ignore Your Estate Planning

Ken Laino — Mon, 06 May 2013 11:10:08 -0500

A fascinating article by Julie Satow in the April 28, Sunday New York Times describes a New Yorker whose entire $40 million estate will likely go to the government because he died without a will. This case is somewhat unique because Roman Blum, age 97, apparently died with absolutely no living relatives. But Mr. Blum could have directed his $40 million estate to go to friends, charities or anyone else he wanted. But with no will, his entire estate will likely go to the government!

Mr. Blum was a Holocaust survivor and he made a fortune during his lifetime. It is amazing that he seems to have done no estate planning. This is another example of how important it is to take the necessary time - - and get the necessary professional help - - for both estate and asset protection planning. Doing nothing can literally result in losing everything.

Private Practice Physicians Should Make Asset Protection a High Priority

Ken Laino — Thu, 18 Apr 2013 09:19:16 -0500

The possibility of a malpractice lawsuit is a constant concern for most physicians. A malpractice lawsuit can have serious personal and financial consequences. And physicians in private practice face another financial worry. They are running a business; and that business (like any other business) can face a sudden, serious downturn or even go bankrupt.

A recent on-line article by Parija Kavilanz at CNN Money highlighted the fact that private practice physicians face ever increasing business risks. Some have even been driven to bankruptcy.

Given the risks faced by physicians in private practice, those physicians should all be taking steps to protect both their personal and business assets - - to the greatest extent allowed by applicable law.

Who Needs an Ohio Legacy Trust?

Ken Laino — Thu, 11 Apr 2013 09:06:03 -0500

Here are some of the people who should at least consider setting up an Ohio Legacy Trust:

Business owners
CEOs and Directors
Physicians
Accountants
Attorneys
People considering marriage
Others who are willing to part with total control of a portion of their assets

The following chart (prepared by my partner, Paul Fidler) provides some general guidelines about whether you might benefit from an Ohio legacy trust. The chart would also be applicable to domestic asset protection trusts in other states as well.

Information About Ohio Legacy Trusts

Ken Laino — Wed, 10 Apr 2013 13:39:44 -0500

The link below provides some general information about Ohio legacy trusts. The material is from a presentation given by my firm on March 26, 2013 (the day before the Ohio Legacy Trust Statute took effect).

www.ssrl.com/attachments/download/106/Ohio%20Asset%20Management%20Modernization%20Act.pdf

This new kind of trust is not for everyone. But for some Ohio residents, it could be a valuable way to protect a portion of your assets.

New Laws In Ohio Offer Much Better Asset Protection Alternatives

Ken Laino — Mon, 25 Mar 2013 10:13:57 -0500

The Ohio Legacy Trust Act (part of Ohio House Bill 479) becomes effective on March 27, 2013. Ohio will become one of approximately 15 states with what is commonly called a Domestic Asset Protection Trust Statute.

Ohio House Bill 479 also increases the Ohio homestead exemption and makes other changes that offer better asset protection alternatives in Ohio. This new law - - coupled with changes to Ohio’s LLC statute that were made last year - - make Ohio a much better asset protection jurisdiction than it was a year ago.

Tax Season Reminder: Reporting Requirements for Offshore Accounts

Ken Laino — Wed, 13 Mar 2013 08:50:24 -0500

Offshore accounts - - whether in trusts, LLCs or just in your own name - - can have a variety of financial, business and asset protection advantages. But they will generally be subject to U.S. tax. And they have special reporting requirements. See for example my post from last year about IRS Form 8938. So make sure your tax preparer knows about the applicable filing requirements.

The IRS and the United States Justice Department are relentlessly pursuing wealthy Americans with secret offshore assets. U.S. authorities seemed to initially target accounts at banks in Switzerland. But the Wall Street Journal recently reported that there are also actions by U.S. officials involving accounts in numerous other offshore locations - - including India, Israel, Hong Kong and Singapore.

So make sure your tax preparer is aware of your offshore accounts - - and comply with the U.S. reporting requirements applicable to those accounts.

Another Reminder That Asset Protection ≠ Hiding Your Assets

Ken Laino — Mon, 25 Feb 2013 10:42:10 -0500

Avoiding U.S. taxes by hiding your assets is illegal. Last month, Switzerland’s oldest bank pled guilty to a criminal conspiracy charge for helping wealthy Americans avoid taxes by hiding their assets in secret accounts.

Wegelin & Co., founded in 1741, is the first Swiss bank to plead guilty to a criminal charge in the on-going U.S. investigation of secret offshore accounts. The bank plans to close once this criminal case wraps up.

Asset protection essentially involves protecting your assets while keeping them in plain sight. There may be privacy considerations; but asset protection should never be designed to unlawfully avoid taxes. Offshore accounts can be appropriate and very beneficial for many Americans - - if they are opened, operated and titled properly.

Do Not Rely on an LLC to Protect Your Home

Ken Laino — Fri, 22 Feb 2013 10:32:17 -0500

I am frequently asked whether placing your home in a limited liability company will protect it from your creditors. The answer is generally no.

An LLC will likely be ignored by a court if there is no business purpose for it. If you own rental property, that can be held in an LLC. In that situation your clearly have a business purpose.

Contributing your personal assets (like your home, jewelry, furniture, etc.) to an LLC will not likely protect those assets from your creditors. If you could avoid all of your personal debts by simply contributing your assets to an LLC, everyone would do it!

Other strategies may be available to protect your home from creditors. States like Florida and Texas have a virtually unlimited homestead exemption. So called “equity stripping” arrangements (borrowing funds with your home as collateral and then using those funds for other purposes) may be reasonable in some circumstances.

But simply contributing your personal residence to a limited liability company in and of itself will likely offer little protection from your personal creditors.

Ohio House Bill 479 Protects 529 Plans

Ken Laino — Tue, 08 Jan 2013 13:44:21 -0500

Ohio House Bill 479, signed by the Governor on December 20, 2012 and effective in March of 2013, has a provision that specifically protects contributions to 529 plans.

A new provision was added to Section 2329.66 of the Ohio Revised Code to protect contributions to a so-called 529 plan. Funds held in such a plan by any person who is domiciled in Ohio will be exempt from execution, garnishment, attachment or sale to satisfy a judgment.

Alimony and Child Support Excluded from Protection of Ohio Legacy Trust Act

Ken Laino — Mon, 07 Jan 2013 11:53:19 -0500

The Ohio Legacy Trust Act, which will become effective in March of 2013, cannot be used to avoid child support or alimony payments. The new statute (part of Ohio House Bill 479) provides creditor protection under certain circumstances for assets contributed to a legacy trust (also commonly known as a domestic asset protection trust). But new Ohio Revised Code Section 5816.03 excludes child support and alimony payments from the protection of the statute. This is consistent with DAPT statutes in many other states.

Certain payments and obligations to a former spouse can be limited by an antenuptial agreement that is entered into prior to the marriage. The new Ohio Legacy Trust Act should not be considered a substitute for a pre-nuptial agreement.

Annual Federal Gift Tax Exclusion is Now $14,000 per Donee

Ken Laino — Fri, 04 Jan 2013 11:11:33 -0500

As of January 1, 2013, the annual federal gift tax exclusion has changed to $14,000 per donee. This means that during 2013 you can give up to $14,000 per donee without filing a federal gift tax return. So, for example, if you have three children - - you can give each of them $14,000 without any reporting requirement.

The annual gift tax exclusion amount is important to estate planners. It is also important to asset protection planners because gifting is frequently an integral part of many asset protection plans.

Estate and Gift Tax Exemption Amount Will Remain at $5 million

Ken Laino — Fri, 04 Jan 2013 11:02:07 -0500

The so called “fiscal cliff” bill passed by the House of Representatives on January 1 sets the federal estate and gift tax exemption amount at $5 million for 2013 and thereafter. If Congress had not taken any action, the exemption amount would have fallen to about $1 million. The exemption will be adjusted for inflation going forward.

While the federal estate tax rate will increase to 40% from last year’s 35% it appears that “portability” (a surviving spouse’s ability to take advantage of the unused exemption of the deceased spouse) will become permanent.

The federal gift tax can be an important consideration in connection with an asset protection plan, since asset protection planning frequently involves making gifts to family members.

Ohio Raises Homestead Exemption to $125,000

Ken Laino — Thu, 03 Jan 2013 15:05:43 -0500

Ohio House Bill 479, signed by Governor John Kasich on December 20, 2012, will raise Ohio’s homestead exemption from its current $21,625 to $125,000. The new law amends Section 2329.66 (A)(1)(b) of the Ohio Revised Code to provide for the higher amount.

The original version of the legislation had provided for an unlimited homestead exemption. But this provision did not survive as the bill worked its way through the legislative process. An initial amendment dropped the exemption to $500,000 and the final version contained the $125,000 exemption.

The new exemption amount will become effective in March of 2013.

Ohio Enacts Domestic Asset Protection Trust Statute

Ken Laino — Thu, 03 Jan 2013 14:39:25 -0500

Ohio now has a Domestic Asset Protection Trust statute. A new section 5816 of the Ohio Revised Code (the Ohio Legacy Trust Act) creates what is commonly known as a Domestic Asset Protection Trust. The new statute was signed into law by Governor Kasich on December 20, 2012 and will become effective in March of 2013. The Ohio Legacy Trust Act is modeled after statutes in Delaware and Nevada and several other states that have similar statutes.

The Ohio Legacy Trust Act is part of Ohio House Bill 479 – commonly known as the Ohio Asset Management Modernization Act. This new law not only creates legacy trusts in Ohio, but has other provisions relating to asset protection.

Ohio House Bill 479 Improves Asset Protection in Ohio

Ken Laino — Wed, 02 Jan 2013 09:45:14 -0500

Ohio House Bill 479 - - commonly known as the Ohio Asset Management Modernization Act (OAMMA) will affect a variety of asset protection strategies in Ohio. The new law was signed by Ohio’s Governor on December 20, 2012 and will become effective in March of 2013.

House Bill 479 authorizes legacy trusts in Ohio. Ohio is now one of approximately 15 states that allows this kind of trust, commonly known as a domestic asset protection trust.

The new statute also increases Ohio’s homestead exemption to $125,000; regulates the use and enforceability of certain loan covenants in non-recourse commercial loan transactions; and makes other changes that will affect asset protection planning.

What Are The Best Asset Protection Jurisdictions?

Ken Laino — Tue, 18 Dec 2012 14:46:28 -0500

There are many factors to consider in deciding whether a particular jurisdiction is or is not favorable from an asset protection standpoint. Certain states and foreign countries are clearly better than others. There is a constant tension between the legal rights of creditors and debtors; and each jurisdiction is to some extent more or less favorable to one or the other.

States like Florida and Texas have virtually unlimited homestead exemptions for principal residences. Other states have surprisingly low exemptions.

States like Nevada, South Dakota, Delaware and Alaska have had favorable domestic asset protection trust (DAPT) statutes for some time now. Only about 15 states allow DAPTs. While these statutes have still not been tested in the courts, they are worth considering as part of an overall asset protection plan.

For non-U.S. jurisdictions, the Cook Islands has been increasingly recognized as a favorable jurisdiction for an offshore trust. Despite some recent negative publicity, the Swiss banking system provides many advantages for offshore accounts. Various other foreign jurisdictions have laws that can be utilized for asset protection planning.

You always need to consider your own state’s law no matter what other jurisdictions you utilize for asset protection planning purposes. But asset protection planning clearly requires a multi-jurisdictional analysis. There may be significant advantages to setting up a trust, LLC or other entity in a state other than your own.

The key point is that each state and foreign jurisdiction has many laws that affect asset protection planning. One size does not fit all; and each situation should be looked at individually.

"Fiscal Cliff" Concerns, Hurricane Sandy Provide Asset Protection Reminders

Ken Laino — Tue, 11 Dec 2012 13:42:11 -0500

Financial disaster can stem from personal setbacks like divorce, business disputes, litigation, and numerous other causes. But the last few months of 2012 remind us that sudden, unexpected financial catastrophes can also come from other sources - - like natural disasters and general economic conditions.

Hurricane Sandy is a grim reminder that certain losses are simply not covered by insurance. The potential “fiscal cliff” we are currently facing is a grim reminder that political deadlock can trigger severe economic woes. Our current environment is increasingly one of uncertainty. It is more prudent than ever to structure assets in a way that they are as protected as applicable law permits.

Simply re-titling assets between spouses (and possibly other family members); family LLCs; and various trust arrangements are just a few of the possible strategies that could better protect your assets. There is no “magic bullet.” Each situation has to be analyzed on its own. But one thing is clear: asset protection planning (just like estate planning) is best done before disaster strikes.

Another Reminder about Year-End Gifts

Ken Laino — Thu, 29 Nov 2012 15:54:35 -0500

As I noted in a post about a month ago we are facing potentially dramatic year-end changes to the federal estate and gift tax. The “exemption amount” could drop from $5 million to $1 million. In any event, it seems like the exemption will ultimately be less than it is now.

This means that for many high net worth individuals, 2012 is a good year to make gifts. It also means that you may have a very valid, independent reason to transfer certain assets (other than for asset protection). That is, a challenge to any transfer you make could be at least partially defended by the fact that there are very important tax reasons to make the transfer this year.

In any event, 2012 could be a good year for high net worth individuals to consider making gifts. This would certainly be worth discussing with your estate planning attorney.