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• Homestead (principal residence)
• Personal property
• Motor vehicle
• IRAs, pension plans, and Keogh plans
• Prepaid college tuition plans
• Life insurance benefit and cash value
• Proceeds of life insurance
• Proceeds of annuities
• Wages
Tip: In those jurisdictions that recognize own- ership by tenancy by the entirety (TBE), creditors of the husband or creditors of the wife cannot reach TBE assets.
3) asset placement
Asset placement refers to transferring legal ownership of assets to other persons or entities, such as corporations, limited partnerships, and trusts. The basis for this technique is simple— creditors can’t reach property that you do not own or control.
• Shifting assets to the spouse who is less exposed to claims
If you have high exposure to potential liabil-
ity because of your occupation or business, it may be advisable for you to shift assets to your spouse. Your spouse would then retain those assets as his/ her separate property and you might retain in your personal name assets that provide statutory protection such as the homestead, life insurance, and annuities as separate property. Furthermore, the shifting of assets to a spouse or children may help accomplish other estate planning goals.
Caution: I have seen this strategy backfire for those who find themselves in a divorce. Shifting assets can be a good way to accomplish liability protection but it can lead to unintended conse- quences in a marriage separation or divorce. Be sure to have the division of assets in writing and signed by both spouses at the time the assets are re-titled and long before and hint of divorce is in the air. Don’t simply shift 100% of your assets to your spouse. Agree to shift exempt assets back into your own separate property and move non- exempt assets into the spouse’s name.
• C corporations
This form of entity is viewed as separate from your personal assets. C-corps own the business assets and are responsible for all busi- ness debts, thus creditors can only go after the business assets and not your personal assets
Caution: The limited liability feature may be lost if, for example the corporation acts in bad faith, fails to observe corporate formalities (e.g. organizational meetings), has its assets drained (e.g. unreasonably high salaries paid to share- holder-employees) or has its funds commingled with shareholder’s funds. Consult an attorney or tax professional before selecting a business entity. • Limited liability companies (LLCs) and
partnerships (LLPs and FLPs)
Here, income and tax liabilities pass through to members and the LLC is not dou- ble-taxed as a separate entity. Professionals (e.g. doctors, lawyers, and accountants) face serious liabilities that result from the performance of their professional duties. Personal liabilities are a hazard of many occupations, but one we can typically avoid is professional mistakes by your partners. That is, if one of your partners is sued and your entity is an LLP, your personal assets would not be at stake if your partner commit- ted malpractice, although your investment in the business may be still at risk.
And FLP is set up by family members. A creditor can’t obtain a judgment against the FLP-only a charging order. The charging order allows the creditor to receive income distrib- uted by the general partner. It does not allow the creditor assess to the assets of the FLP
• Protective trusts
A protective trust can protect both business and personal assets from most creditors’ claims. A trust works because it splits ownership of trust assets; the trustee has equity ownership and the beneficiaries have beneficial ownership.
Example: Harry would like to leave property to Wendy. However, Harry is afraid that his creditors might claim the property before he dies and that Wendy will receive none of it. Harry establishes a trust with both himself and Wendy
as beneficiaries. The trustee is instructed to allow Harry to receive income from the trust until Harry dies and then to distribute the remaining assets to Wendy. The trust assets are then safe from being claimed by Harry’s creditors, so long as the debt was entered into after the trust’s creation.
Don’t wait until it’s too late to implement your asset protection strategies. Tomorrow may be just a day too late.
*Some content for this article was provided by Broadridge Investor Communications Solutions, Inc.
**Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or com- plete. Any opinions are those of Billy Peterson and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.
DISCLAIMER: The above information and content are general in nature for informational pur- poses only and do not constitute financial advice or investment recommendations. Speedhorse Magazine makes no endorsements and bears no liability for your use of the information provided in this column. Always consult a suitably qualified financial professional and/or tax professional on any specific problem, issue or investment opportunity.
SPEEDHORSE, July 6, 2012 19
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