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Asset Protection School.

By John Dietz - Email Editor

Date : December 9, 2008

Dear Valued Reader,

Lately, hosts of people want to “learn” about asset protection. I think what the Chinese really meant was that the term master refers to a “readiness” and openness to obtain knowledge. Having fielded many of the questions of our subscribers at Trustmakers, it seems to me that there is a global impetus to learn about asset protection (and I don’t think that we have to explain to anyone “why”).

Of course, asset protection means to safeguard one’s wealth against those who may take claim to it. That definition is correct, but it leaves behind the nuances to the “living” side of asset protection and estate planning and still another side, which is transfer upon death by a testament (transfer by will) or by some other means of transfer. Within these “other means” category are a multitude of options, many of which offer tax mitigation. Many others offer asset protection. Some offer both tax mitigation and asset protection.

However, not all estate planning is asset protection. Your estate plan protects your assets in illness and upon your passing. Asset protection defends your assets from the threats you face now and in the future, known and unknown. For this reason, you can’t just buy an LLC, dump your assets into it and believe that you are protected from creditors or that your taxes will be reduced.

If it sounds complicated, that’s because it is. Trying to figure out why the IRS Code has to be so complicated or why the laws are constantly changing won’t do anything for you or your estate. Months ago I wrote a newsletter about the global economy and stated that (like it or not) you are a part of it. This certainly has been the case as we have seen the turmoil on Wall Street, plunging hedge and pension funds and international banking trouble. They are all interconnected.

Due to the vast number of things out of your control, you should do what you can within your control. Even if the task feels too complicated, start by sorting out a few facts and definitions and taking it one-step at a time; get education first to create a foundation. Next week’s newsletter and special attachment will build on these definitions. Trustmakers offers our subscribers a fantastic way to start your estate planning with foundational material from a guest author with an advisor who stands as an authority on the subject.

Here are some of the basics that you will need to understand to benefit from the upcoming newsletter on estate planning.

Lesson One

Asset protection cannot prevent lawsuits. It does not hide assets and it is not a way to avoid paying taxes. Asset protection must be within legal means. Asset protection protects assets from creditors: taking into consideration title of assets, ownership and benefits, future revenue and taxation. It concentrates on the “life” side of your finances.

Estate Plans are not “per se” protection from lawsuits or creditor attacks. Traditional estate plans arrange for the end of a person’s life, including alternative solutions in the event that a person may become disabled before they die. It concentrates on the “passing” of assets upon death and sometimes during life with techniques such as gifting.

Lesson Two

Asset protection plans need to be reviewed frequently; family situations change, laws change, IRS Code changes and economic conditions change. All of this is a consideration of asset protection. Often asset protection plans change. They must be prepared for changing situations.

Estate plans have similar considerations. Changing laws, tax codes, and ownership conveyance may affect circumstances surrounding estate plans regarding transfer of possessions or assets.

Estate plans and trusts can be revocable or irrevocable.

Irrevocable – Unalterable, committed beyond recall. - Black’s Law

Revocable – Capable of being withdrawn or cancelled. - Black’s Law

Lesson Three

Asset protection is not accomplished by starting a company. There are many ways for creditors to seize company assets. Many assets are seized due to faulty titling or the use of the wrong entity for protection. Asset protection plans are made to hold up when challenged by any outside entities.

Estate planning is not accomplished by having a will. A will can be challenged. If you do not have a will, your estate will be placed in probate where the courts decide the outcome, expenses and taxation of the estate. With a pourover will, the assets left outside the estate plan are placed into the trust upon the death of the owner. (There is also a pourover trust where assets outside a trust are placed into a trust upon death.)

The term used for describing the circumstances of conveyance during life (as opposed to death) is:

Inter vivos – (Latin for “between the living”) Of or related to property conveyed not by will or in contemplation of imminent death, but during the conveyor’s lifetime. – Black’s Law

Lesson Four

Asset protection does not prepare for your medical care during disability. Asset protection keeps your assets out of harm’s way while you are still alive.

Estate plans have documents with preparation for disability and incapacitation, such as long-term medical care and Medicaid protection. Estate plans do this by using Power of Attorney, sometimes referred to as “advanced directives.”

Advanced Directives, Medical Power of Attorney, Health Care Power of Attorney - an empowerment of an attorney-in-fact or proxy, to make health-care decisions for the grantor, including sustaining and terminating care. – Black’s Law

Lesson Five

In almost every trust, a person gives up “legal ownership” of the asset or property to a “trustee,” but retains “beneficial ownership” as beneficiary.

Ownership - The right to posses, use and convey.

Trustee – One who, having legal title to property or assets, holds it in benefit for the right of another and owes fiduciary responsibility to that beneficiary.

Beneficial Owner (Beneficiary) – One recognized with the right to equity and enjoyment because the title or deed maintains this right. – Black’s Law

This month we have decided to emphasize what is within your strength and power. Many of our questions lately have focused on what can be accomplished during recession and turbulent financial times. The answer? Many of the same things that can be accomplished in great economic times.

Estate planning and asset protection concentrate on you and your assets! You won’t want to miss next week. Our goal is to help you start the New Year with the right perspective.

You will get the answers to these questions to lead you into 2009.

• Is my money safe, my pension, my insurance etc.? Is the safety of your assets merely an illusion?
• What type of company will protect my assets and offer favorable taxation?
• What type of trust do I need? What types of trusts are there?
  Is the stock market safe?
• Is my home safe?
• Do I have adequate insurance?
• Are my assets deliverable in the manner I desire upon my death and to the people I intend to take possession?
• Can I reduce my taxes?
• Is going offshore for me?
• Am I covered in the event of disability?
• Should I review existing plans I have in place so I can update with the current changing laws?

In addition, to end simply with one question, ask yourself, “Am I prepared?” Your thought, “for what?”…and that second thought is our job at Trustmakers, to prepare you!

I look forward to next week!

Until next time,
 
John

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