C.A.L.M. Level 2
While Level 1 is the foundation for C.A.L.M. (nearly every client needs to have a comprehensive review of their asset protection plan and possible planning deficiencies), Level 2 is needed by 90% or more of the people who need asset protection help (the other 10% need Level 4 to protect their assets adequately).
It is our belief that 99% of the high income and/or net worth clients reading this summary are NOT properly asset protected. If you do not currently have a Family Limited Partnership, you probably will need at a minimum a Family Limited Partnership (FLP) created in a secure jurisdiction to protect your assets. Note: in some jurisdictions the term FLP and the Limited Liability Company (LLC), may be used interchangeably.
The typical cost for a properly setup FLP is $3,000 ($3,500-$5,000 if you purchase one from a so-called asset protection “guru”). A C.A.L.M. Plan member can purchase an FLP from a pre-qualified/certified attorney for $2,500 (a savings of $500 to more than $2,500).
Do you need a Family Limited Partnership (FLP) for asset protection?
Absolutely 100% if you are a licensed professional who owns assets. This includes physicians, attorneys, CPAs/accountants, insurance agents, financial planners, stock brokers, mortgage brokers, real estate brokers/ agents, architects and engineers, etc.
If you are not a licensed professional, you need an FLP if you or your spouse own any the following assets in your own name (or in a revocable living trust), in a C- or S-Corporation, or Partnership:
- A brokerage account
- bank account
- Rental property
- Vacation condo
- Personal Residence
- IRA (depending on the state)
- A boat, plane, waverunner, snow mobile
- Anything else of value
Why an FLP in the correct Jurisdiction?
Without getting too complicated, the reason revolves around the remedy of a creditor. The best way to explain why an FLP is used is through an example.
Assume Dr. Smith has a net worth of $3,000,000. His assets are listed as follows:
Personal residence $600,000 Joint with Spouse
Brokerage account $250,000 Dr. Smith
$300,000 Real Estate Holding Inc. (C-Corp)
$250,000 Joint with Spouse
Assume that Dr. Smith has $1,000,000 of medical malpractice insurance and just had a verdict returned against him from a lawsuit by one of his patients for $2,000,000.
How can the patient collect from Dr. Smith’s personal assets?
The patient would go to court and ask the court to force Dr. Smith to liquidate his brokerage account or liquidate his C-Corp stock and turn over the money to satisfy the judgment.
Depending on the state, the creditor might also ask the court to have Dr. Smith liquidate his interest in the vacation condo and potentially the marital home.
What if Dr. Smith had his assets owned by an FLP?
Could the court give those assets to the creditor? NO.
If Dr. Smith had his assets held by an FLP setup in the property jurisdiction, the judge could only give the creditor/patient a “charging order.”
What does a charging order get a creditor? Not much.
-A charging order does not transfer the interest in the FLP to the creditor or force the debtor to sell his/her interest and turn over the sale proceeds to the creditor.
-A creditor cannot force the FLP to sell assets.
-A creditor cannot force an FLP to distribute income
What does a creditor get with a charging order?
The right to pay income taxes on income generated in the LLC but NOT distributed (See revenue ruling 77-173).
Getting back to our example, if Dr. Smith’s brokerage account created income, that income would normally flow through to Dr. Smith at the end of the year. With an FLP, if that income is retained by the FLP, the creditor will get a K-1 for that income.
Put yourself in the place of a creditor who has a charging order on an FLP and who gets a tax bill for the income every year even though that income stayed in the FLP and was not distributed. In other words, you had to pay the taxes on the FLP, but had no right to receive money from the FLP. How long would you keep the charging order on the FLP? Not very long.
The above example illustrates the power of using an FLP for “domestic” asset protection.
We keep saying “proper” jurisdiction when discussion where the FLP needs to be setup. The reason for this careful drafting is because FLP statutes in most of the 50 states are not very strong. There are approximately six (6) states with powerful charging order statutes that we believe will hold up if challenged by a creditor. If you do not live in one of those six (6) jurisdictions, then you should not setup an FLP in your state when trying to implement an asset protection plan. In addition, we will provide lawyers to set up the FLP in a state that is geographically distant from your home and office. For example, a California C.A.L.M. Plan member will want to consider setting up a Nevada FLP, since Nevada has strong FLP charging order language in their FLP and LLC statutes. Will a California attorney representing a California creditor want to incur the time, expense and risk to hire a Nevada attorney to ask a Nevada judge to issue a charging order? Not likely. And, through the CALM Plan, the California Plan member will have access to attorneys who not only specialize in drafting FLPs but also who can represent you in Court, should you need a Nevada attorney to help you protect your Nevada FLP assets.
Do you need Level Level 2 Protection?
Level two of the C.A.L.M. program revolves around providing to the Plan member who does not have an adequate asset protection plan the basic asset protection tool(s) in the form of a Family Limited Partnership(s).
While an FLP is not a magic pill to be used as a cure all, it is the foundation for any domestic asset protection plan. It is an inexpensive tool that can start all C.A.L.M. plan members on their way to protecting themselves from business creditors and personal creditors.
Let’s say you are not a licensed professional. Do you think you need asset protection? Take a look at the following examples:
Homeowner – As a homeowner, you typically will throw a few parties each year for your friends. If you serve alcohol at those parties and one of your guests leaves the party after drinking too much and gets into a car accident and kills three passengers in the other car (or worse turns them into quadriplegics), guess who is going to get sued for negligence? The homeowner. Most people think that an umbrella liability policy of 1 million dollars will protect them; but, if you can be linked to a death or serious injury through your negligence, your 1-million-dollar umbrella is not going to go very far. After your insurance pays 1 million of the 3–million-dollar verdict, the attorney for the plaintiff is going to go after all of your personal assets.
Although FLPs were discussed in the previous material as “the” domestic asset protection tool, they should not be used be used for to protect the personal residence. There are three significant problems with owning a personal residence with an FLP which are outside the scope of this material. Please contact your local “CALM-certified” CWPP™ advisor for further information.
Teenage Children – If you have teenage children, chances are, at some point, you will go out of town and your children, whom you left home (the 16-19 year olds), will have a party or have friends over. Since the statistics say that over 50% of teenagers drink on a regular basis (many times binge drinking), the chances are high that there will be alcohol at the party at your house. If your children are the ones who procured the alcohol (and maybe even if they did not) and the attendees at the party get drunk and then drive around and get hurt or hurt others, guess who is going to be sued? The parents. Again, the 1-million-dollar umbrella policy from your homeowner’s policy is not going to go very far to protect you.
Boat or automobile – If you own a boat (or wave runner) or an automobile, then you have the normal liability problems that go along with negligent driving of the boat or automobile. If you or a dependent family member are driving in a negligent manner and cause harm to another person, the owner and the driver of the boat or automobile will be sued with the same damage potential and shortfall of insurance problems illustrated in the previous examples.
Vacation rental – If you own a condo or house as a vacation home and rent it out, you have other liabilities to worry about which are more problematic than just owning your own home. As an owner of a rental property, you have a duty to keep that property in good enough physical condition to prevent injuries to tenants and their guests. Going into the detail of that liability is outside the scope of this book; but as a landlord, you need to worry about lighting of the stairwell, shoveling snow, handrails, and a whole host of other issues that can cause liability claims for negligence if someone is injured.
If you have money or wealth, you need asset protection. We believe the C.A.L.M. Plan is absolutely unique as a way to provide the best advice possible in multiple states and jurisdictions for clients who want to protect their wealth.
Through Level 1 you will receive a review and recommendations to help you protect yourself and your assets for $495. Through Level 2, you will receive the core domestic asset protection tool, a Family Limited Partnership (FLP), at a special price for C.A.L.M. Plan members. You will recoup your cost of Level 1 immediately when you purchase Level 2 for $2,500, which is discounted to save you from $500 to more than $3,000.
By purchasing C.A.L.M. Plan - Level 1 for $495 and Level 2 for $2,500 (total: $2,995), you will not only receive significant discounts but you will also have your asset protection plan designed and implemented by a team of professionals that includes at least one Certified Wealth Preservation Planner (CWPP™) who is certified by The Wealth Preservation Institute, C.A.L.M. Plan members will receive the best advice possible from a collaborative team of certified professionals. C.A.L.M. Plan members have every reason to be “CALM,” since they will not have to worry about losing their assets to creditors.
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