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Distinguishing Non-probate and Probate Assets

September 23, 2014

Filed under: Asset Protection — Tags: , , — Neel Shah @ 2:08 pm

Ensuring that your will is properly written and structured is critical for the will’s terms to be carried out in the manner you wish. Failing to properly distinguish probate from non-probate assets is a big mistake that could lead to your dispositive provisions being named ineffective.

Distinguishing Non-probate and Probate Assets

(Photo Credit: wills.about.com)

Probate property can be defined as items that are directly owned by you without a legally recognized designated beneficiary. Jewelry, family heirlooms, artwork, or bank accounts without a designated beneficiary to be paid on death are examples of probate property.

On the other hand, non-probate property is those assets which include a legally recognized beneficiary to be paid on your death. Property held in joint tenancy or bank accounts with a designated beneficiary are examples.

Why does this matter? Non-probate assets will not pass through the terms of the will. This means that if you outline wishes in your will for one person to receive all the assets, but your non-probate assets state another beneficiary, the terms of your will “surrender” to those beneficiary designations. This could have the unintended consequence of your planning falling through.

To learn more about the differences with assets, and how you can properly outline your wishes or create trusts to detail how these items are passed on, contact our offices today for a consultation. Call us at 732-521-9455 or through email at info@lawesq.net to begin.

What is a Self-Settled Trust? Asset Protection & Tax Savings.

August 4, 2014

Filed under: Asset Protection Planning,DING,Income Tax Planning,NING — Tags: , , , — Neel Shah @ 3:22 am

Right now, gift and generation skipping transfer tax exemptions, set at $5.34 million each, have caused a resurgence in interest regarding self-settled trust. As of now, only fifteen states allow for these types of trusts: Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia and Wyoming. Several of these states, including Delaware and Nevada, tend to be popular locations for DING/NING trust establishment when the trust creator lives in a high state income-tax and capital gains tax environment.

What is a Self-Settled Trust?  Asset Protection & Tax Savings.

Photo Credit: hostingkartinok.com

Under a self-settled trust, grantors may even be a beneficiary of an irrevocable trust that is established for their own family. As long as no assets are transferred fraudulently, no exception creditors, and no pre-existing arrangement between the trustee and grantor, a trust grantor can establish himself or herself as a beneficiary.

These trusts are most often used for domestic asset protection in four separate ways: a self-settled trust, spendthrift protection, modern discretionary trust protection, and the establishment of a limited liability company to shield and own trust property. In their most common form, self-settled trusts are used as an alternative to off-shore trusts. To learn more about trust creation and management that maximizes protection, email us at info@lawesq.net or contact us via phone at 732-521-9455.

Indian HSBC Client Found Guilty of Hiding Offshore Accounts

August 1, 2014

Filed under: Asset Protection Planning,Income Tax Planning — Tags: , , — Neel Shah @ 3:08 am

Offshore account taxpayer Ashvin Desai was recently sentenced to six months in prison in addition to six months of home confinement for not reporting foreign bank accounts on tax returns and FBAR filings. The medical device manufacturer had previously been convicted of hiding more than $8 million in foreign bank accounts.

Indian HSBC Client Found Guilty of Hiding Offshore Accounts

Photo Credit: bankruptcy.lawyers.com

In addition to being charged with tax evasion and tax perjury, he also pleaded guilty to failing to file an FBAR. The money from his offshore accounts were used to invest in CODs, where he earned interest rates up to nine percent. In addition to all the other charges and penalties for the efforts he took to hide the assets, he was also assessed a $14,229, 744.00 FBAR penalty. While these penalties may seem severe, he was actually very lucky in the sentencing, as he could have been facing 552 months in prison.

The government was forced to prove their case in court, but what sealed the deal was email proof that Desai was making efforts to conceal the money and how it was being transferred. While there are obvious lessons here about using email to share any kind of sensitive information, it’s also an opportunity to highlight the importance of proper FBAR filing. To ensure the proper compliance with FBAR, contact us today at info@lawesq.net or via phone at 732-521-9455.

Supreme Court Decision: Inherited IRA NOT Protected

July 31, 2014

Filed under: Asset Protection,Beneficiaries,IRA,Retirement Planning — Tags: , , , — Neel Shah @ 3:32 pm

A recent decision from the Supreme Court means there’s no better time than now to review your estate plans and ensure that you have identified the best possible solution for passing down assets to another generation. This new ruling states that inherited IRA funds DO NOT QUALIFY under the category of “retirement funds” under bankruptcy exemption guidelines. Previously, these kinds of funds might have been considered “bulletproof” from creditors, but this new ruling means it could be time to re-evaluate how you’re transferring your assets down to children and other beneficiaries. Is a Standalone Retirement Trust or IRA Trust right for me?

Supreme Court Decision Inherited IRA NOT Protected
(Photo Credit: baltimoretimes-online.com)

According to the Supreme Court, the members of which conducted reviews of the Bankruptcy Code to get more specifics on the situation, inherited IRAs should not count as retirement funds because the individual inheriting the assets cannot contribute to the funds or invest more money into them. Since the IRA also requires that the accountholder draw money from the account, the Supreme Court argued that this would “undermine the purpose of the Bankruptcy Code”.

Each client wishing to establish plans for the future transfer of assets to beneficiaries has their own concerns and situations, which is why it’s so critical that you work with a team of experienced planning attorneys to meet your goals and increase the chances that those assets will be protected and meaningful for the beneficiary. To review trusts and other options for asset transfer, email info@lawesq.net or contact us via phone at 732-521-9455

How Did Shelly Sterling Control the Clippers Sale Decision?

July 23, 2014

Filed under: Asset Protection,Asset Protection Planning,Trusts — Tags: , , — Neel Shah @ 5:09 pm

The Los Angeles Clippers sale recently seemed to go ahead just the way that most players, fans, and the NBA commission wanted it, leading to an agreement that sold the team to former Microsoft CEO Steve Ballmer for $2 billion. The control behind the sale, however, went to Donald Sterling’s wife, Shelly, causing many to wonder just how she managed it.

How Did Shelly Sterling Control the Clippers Sale Decision
(Photo Credit: wallerz.net)

Shelly made her move with a boilerplate provision included in the Sterling family trust, which maintained ownership over the Sterling’s interest in the Clippers. Since both Shelly and Donald were co-trustees holding equal authority over that trust, she was eligible to make the decision based on another standard trust provision regarding mental competency.

Shelly had already had Donald evaluated for mental competency. Under the trust’s guidelines, if either Shelly or Donald were found by two qualified physicians to have “an inability to conduct business affairs in a reasonable and normal manner”, that individual could be removed as co-trustee. As a result, Shelly would have become the sole trustee with the decision making power and authority to sell or manage the business how she saw fit and that is her strategy.

Whether planning for your family’s assets or for those of an NBA team owner, when in generating trusts’ planning attorneys may recommend that provisions like the one above are put into the language for the protection of both individuals. If not included, the co-trustee (or business partner, as it may be) could be exposed to serious risk in the event of some form of incapacity. If not planned at all, it could all be left up to a court to decide. Get more details about trust planning today by contacting us at info@lawesq.net or at 732-521-9455.

Overseas Bank Accounts: What Do Small Business Owners Need To Know About FBAR?

May 26, 2014

In the even that a foreign partnership owns foreign bank accounts with aggregate balances over $10,000 (US) on any particular date, the business owner should be aware of FBAR filing requirements. A financial interest in a mutual fund, trust, brokerage account, or any other foreign financial account may require an annual filing known as the Report of Foreign Bank and Financial Accounts through the Internal Revenue Service.

Overseas Bank Accounts What Do Small Business Owners You Need To Know About FBAR
(Photo Credit: downtowncanandaigua.com)

Some of the stipulations of who meets this requirement include that if the owner of record or the holder of a legal title is a partnership in which a US person owns (either directly or indirectly)

  • An interest in more than 50 percent of the partnership’s profits
  • An interest in more than 50 percent of the partnership capital.

There are a few exceptions as far as the reporting goes. Those who may be able to avoid filing an FBAR include:

  • Correspondent/nostro accounts
  • Some foreign financial accounts jointly owned by a spouse
  • Foreign financial accounts owned by government entities or international financial institutions
  • IRA owners and beneficiaries
  • Certain individuals with signature authority but no financial interest in a foreign financial account
  • Participants in and beneficiaries of tax-qualified retirement plans
  • Trust beneficiaries (so long as a US person reports the account on an FBAR on the trust’s behalf)
  • Foreign financial accounts maintained on a United States military banking facility

As you might expect, IRS rules in this category can be highly complex and subject to specific terms. That’s why it’s helpful to meet with your tax law and accounting professional to determine your filing requirements. To learn more, email us at info@lawesq.net or contact us via phone at 732-521-9455

 

Preventing End of Life Costs from Destroying Your Estate

May 19, 2014

Filed under: Asset Protection Planning,Elder Law,Long Term Care,Medicaid,Nursing Homes — Tags: , , , , , — Neel Shah @ 9:58 pm

It’s very rare that anybody has covered all possible risks in terms of their wealth management when it comes to income and cash flow, guaranteed income, cash, investments, and the connection between long term care and your estate. If you skip planning for long term care expenses, you may find that your other wealth management tools and strategies don’t hold up to the rising cost of healthcare.

Preventing End of Life Costs from Destroying Your Estate
(Photo Credit: colourbox.com)

The average cost per month for a long-term care facility is over $7,000. That’s why long term care planning is so essential. When a long-term care insurance policy is too expensive or not an option because you do not qualify.

There are alternatives, however. Structuring your estate in a particular manner can help you guard against the cost of long term care. Two common strategies are eliminating assets through trusts and transfers. This means that down the road, if you need to reduce your assets for Medicaid eligibility, you’ve already done most of the work. If you are confronted with a long-term care event before you have done this, you could find yourself having to “spend down” your assets anyways before government assistance kicks in, depleting your savings and forcing you to do it rapidly, which is rarely in your best interest. However, if you do it incorrectly, it has the potential to have a severely negative impact on eligibility and penalty periods. To learn more about trust planning, gifting, and other strategies to mitigate risk in estate planning, email info@lawesq.net or contact us via phone at 732-521-9455.

Will your good deed go unpunished?: Limiting nonprofit individual liability

May 13, 2014

Filed under: Asset Protection — Tags: , , , , — Neel Shah @ 9:32 pm

A common question from trustees, officers, directors and volunteers at nonprofit organizations is to what extent these individuals face liability as representatives of the organization. Failure to adhere to tax formalities or mismanagement can, in some situations, make an individual person liable. In this instance, asset protection for the officer and direct is vital in addition to insurance.

Will your good deed go unpunished Limiting nonprofit individual liability
(Photo Credit: greekweddingtraditions.com)

Typically, lawsuits of this kind happen in one of a handful of ways:

  • An error or omission resulting from a trustee, officer, or manager’s decision (or lack thereof)
  • An allegation regarding corporation activities I which the director, officer, or trustee was not involved
  • An allegation of corporation activities in which the trustee, director, or officer was involved

There is a lot at stake in a lawsuit of this type, especially when the other party is alleging serious professional negligence that leaves an individual officer or director exposed to a high level of personal risk. Errors and omissions claims, which happen most often when a nonprofit organization has very little resources compared with what the claimant hopes to receive in damages, can devastate a nonprofit. These claims result from situations in which a nonprofit officer or director is held responsible for a decision or lack of decision in a particular situation. For example, a nonprofit event where an individual person is injured could lead to a lawsuit about the nonprofit’s decision to hold the event in the first place.

Thankfully, there are approaches you can take to mitigate this risk. This includes carrying errors and omissions insurance, carrying liability insurance, managing the affairs of the nonprofit as a corporation, and providing for partial or complete indemnification of officers and directors through specific agreements and don’t forget your asset protection planning. Some careful planning in advance can go a long way towards limiting lawsuit exposure. Contact us today through email at info@lawesq.net or via phone at 732-521-9455 to begin your asset protection plan.

Side Business? Silent Partner? What’s the Risk? Duties of non-manager members of LLCs

May 9, 2014

Filed under: Asset Protection,Asset Protection Planning,Estate Planning,LLCs — Tags: , , , , — Neel Shah @ 6:30 pm

If you are interested in creating a managed multi-member LLC, one of the most popular questions for individuals in this position is whether non-manager members are held to the same standards (or have the same liability) with regards to fiduciary duties like care and loyalty. The answer is “it depends”.

Side Business Silent Partner Whats the Risk Duties of nonmanager members of LLCs
(Photo Credit: serpent.com)

In the non-manager members are involved in some significant aspect of the business, the operating agreement should generally include an expression of such duties for these individuals. Looking at the landscape of typical non-manager member involvement in the business of these LLCs, significant duties are typically rare with smaller businesses that are closely held.

There are some cases where the operating agreement might not address this question specifically. In this scenario, the LLC act governs and can provide some important insight. A lot of these acts, however, are quiet when it comes to this particular question. Some agreements, however, do have specific information about these duties included. An example is the Delaware Limited Liability Company Act, which actually negatives any duties for the non-manager members unless an express clause in the LLC agreement states anything to the contrary.

LLC formation and agreement construction can be aided significantly with the watchful eye of an attorney. Call us at 732-521-9455 or send us an email to info@lawesq.net to discuss your needs.

For Student Loans – Read the Fine Print: Risks for Student Loan Borrowers and Co-Signers

May 7, 2014

Filed under: Asset Protection,Estate Planning — Tags: , — Neel Shah @ 4:32 am

The details matter when it comes to getting a signature on your student loan agreement: it turns out that some private student loans have a caveat for what happens if the co-signer passes away. In some private loans, the student or recent graduate has to pay up if their relative passes away- immediately and in full. If the borrower can’t make that payment, he or she faces a big hit on their credit rating.

For Student Loans Read the Fine Print Risks for Student Loan Borrowers and Co-Signers
(Photo Credit: dailyfinance.com)

Many students who have to use private loans to finance their education might not even notice the provision, but it’s legal. Receiving a notice for demanded payment in full often terrifies a recent graduate, who may ignore the notice and suddenly feel buried financially. Borrowers can have their loans released after a few years of earnings and positive credit history, but they also have an option to transfer to another co-signer. Unfortunately, not many students are aware of these options right away.

When it comes to student loans, it’s important to read all of the stipulations in the loan agreement, especially when it’s a private lender. Make sure you walk through all of your options if a parent does pass away, too. No one plans for the situation where a parent or relative passes away in this manner, but it’s worth factoring into your general estate plan if you are a co-signer on someone else’s loan. Ensure that the borrower knows and has a plan for how they would handle such a situation. To learn more about a comprehensive estate plan, contact us through email at info@lawesq.net or contact us via phone at 732-521-9455 to get started.

Risky Business? Manage that Risk: Captive Insurance Companies

April 23, 2014

Filed under: Business Law,Business Planning,Business Succession Planning,Captive Insurance Companies — Tags: , , , , , , , , , , , , , , , , , , , — Neel Shah @ 12:43 pm

A captive insurance company is a company created by a business owner to help insure risks of affiliated businesses. When set up appropriately, a captive allows a business to manage risks while allowing the affiliated company to reap benefits, too.

Risky Business Manage that Risk Captive Insurance Companies
(Photo Credit: business2community.com)

A Captive will receive premiums that are then invested as opposed to premiums sent to a traditional unrelated insurer, which are essentially “lost”. Over time, those premiums accumulate. In the event of a risk loss, the premiums are available to be paid for those self-insured losses, thus protecting the business’s bottom line. This crucial benefit is the biggest advantage for business owners.

A Captive can issue casualty or property insurance to protect against a broad array of risks. Where the business owner has the most potential to capitalize on this opportunity is through risk protection for those risks that are typically too expensive to coverage or uninsurable, period. With possible major tax increases coming in the future, the Captive Insurance company remains situated as one of the most effective solutions for business owners. Captive Insurance benefits go beyond tax advantages by providing business owners with opportunities in wealth transfer, estate planning, and asset protection, too.

At Shah and Associates, we work with you individually to determine how a Captive can best suit your business needs. With vast experience in the field, we have helped our clients use Captives to minimize taxes, protect assets, manage risks, and improve cash flow. We understand the peace of mind and confidence that comes from a comprehensive approach to risk management, and that’s why we remain committed to the business community.

Hoteliers Beware: Lessons to learn from the Neiman Marcus and Target Breaches

April 14, 2014

Filed under: Hotel Owners — Tags: , , , , , , — Neel Shah @ 7:17 pm

Security breaches seem to be on the rise. Target’s customer data breach impacted 110 million Americans and the Neiman Marcus breach affected 40 million, and it seems like we are hearing about new breaches every few weeks. Staying ahead of the curve is critical for those in the hospitality industry, and hoteliers have an excellent opportunity to consider their own risk reduction and planning tools in the wake of security breaches across other industries.

Hoteliers Beware: Lessons to learn from the Neiman Marcus and Target Breaches
(Photo Credit: http://en.wikipedia.org/wiki/Target_Corporation)

Hotels are major targets for financial and identity theft. Since all hotels work through credit and debit cards on file, this already exposes a lot of risk for private customer information. Those credit cards can be accessed and digitally “swiped” any number of times during a guest’s hotel stay- whether it’s at the bar, ordering room service, or for a spa charge. Every swipe opens the door for identity theft without the hotel’s knowledge.

One common gaping hole for hoteliers is unsecured wireless internet. While a hotel owner may think he or she is doing the right thing by providing free and easy access, an unsecured network really poses a big threat. Hackers can more easily access your network and programs in order to steal information and records from your service.

There are a few steps hoteliers can take to beef up security. Restricting access to data and collection of data is one way to protect customer privacy. Critical identifying information should be stored securely and a database should be created about under which computers and servers various information is kept. Encryption is one easy way that hotels can store information safely, reducing the risk of guest identity or financial theft. This is a great opportunity to review your existing procedures and policies to determine the risks.

If you’d like to talk more about how planning can help you prevent problems & how asset protection planning can help you to shield your assets from such liabilities, contact us at 732-521-9455 or info@lawesq.net today.

Loop Hole or Opportunity? High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax.

April 11, 2014

Filed under: Taxes — Tags: , , , , , , , , , , — Neel Shah @ 4:07 pm

Today’s high net worth individuals are deeply sensitive to the risks they face with state income taxes. Since state income taxes can be such a burden for a wealthy person, more individuals are transferring billions of dollars’ worth of assets to trusts in states without tax, like Alaska, Nevada, and Delaware.

While these moves are currently quite legal, they are getting attention from officials in places like New York. New York officials have recognized a $150 million a year loss from avoiding taxes using out of state trusts. Wise wealth planners are clued in to these kinds of strategies, recognizing that many clients are concerned about the negative hit their assets will take when subject to such taxes. Wealth planners report that more clients are asking for assistance in protecting their money wherever possible, and out of state trusts are proving to be a vibrant market with many opportunities.

Loop Hole or Opportunity High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax
(Photo Credit: localsmile.com)

Although these transfers are happening at the individual level, they seem to mirror corporation behavior, too. Companies like Google have moved across national borders in order to cut down on the high taxes they are forced to pay if they stay in the U.S. Likewise, some people who want to sell their companies move shares out of home states and into out-of-state trusts to protect gains from state income taxes.

Estate attorneys that are in the know look at every aspect of a client’s portfolio to find the best ways to promote growth and protect from risk. Any client with a substantial portfolio might want to consider this strategy to cut down on the high state taxes that would otherwise be paid. Clients have been successful and satisfied with moving assets across the spectrum from several hundred thousand all the way up to hundreds of millions.

Nevada and Delaware have been engaged in a decades-long battle to get business from wealthy Americans through trusts. Part of the strategy for getting this business is by writing laws that make it simpler to transfer property across several generations and reduce the risk that assets will be attacked by creditors. As a result, Nevada has no state income tax and Delaware doesn’t place a tax on any out-of-state beneficiaries.

One of the most popular strategies is to use a Non-Grantor Trust, known as NING (Nevada Non-Grantor Trust) and DING (Delaware Non-Grantor Trust). Wealthy individuals who live in high-tax states can make the best of friendly policies in other states without the fear of violating any state or federal laws. In fact, a growing number of individuals are moving the assets just far enough outside their control so that they aren’t responsible for state income tax while also protecting them from being hit with a 40 percent gift tax. Most of these trusts are private, so there’s no clear data yet about just how many people are taking advantage of these incredible trust opportunities, but planners and attorneys are both reporting higher numbers of clients getting on board.

Guarding Against Risk, While Saving on Taxes: Biggest Advantages of Captive Insurance Companies

April 8, 2014

Filed under: Captive Insurance Companies — Tags: , , , , , , , , , , , , , — Neel Shah @ 2:15 pm

Captive insurance companies are private insurers that are owned by a parent company. Although a captive insurance company has some of the same benefits of a regular insurance company, captives collect the premiums that a company would have paid over to a regular insurer while taking the responsibility for any claims against the parent company. Captive insurance companies are uniquely situated for certain situations.

saveourpostoffice
(Photo Credit: saveourpostoffice.com)

Manage Risk and Protect Assets

Many businesses have particular needs for risk management because the risk it outside the typical market. In that case, insurance either can’t be purchased or the price is so high that the company is forced to self-insure. In still other cases, the business might have insurance for some risks, but that comes at a cost of premiums and deductibles. This is just the type of risk that sits well with a captive insurance company. Typical general liability insurance seems like a “coverall”, but in reality there are so many exclusions that a business still stands exposed to high risk. That’s where insurance from a captive company can help by filling in the gaps from those exclusions.

Every dollar spent by the company and sent to the captive serves as a $1 reduction in operating business assets. In the event that the business collapses, the company is not at risk of losing those dollars that have been transferred out of company property and over to the captive insurance company. Captive insurance companies are known for accumulating high amounts of assets through reserves and surplus. In certain disaster situations, some of those funds may be available for a business owner. Although a business owner might face some tax consequences of doing so, you can think of those funds as an emergency fund that could be there if you need it. It’s an extra layer of protection that can give a business owner peace of mind.

Exert More Control

Captive insurance companies typically create customized policies for the needs of each specific business. Unlike many commercial policies, policies through captives have the added benefit of drafting the policy in a manner that makes it virtually impossible for third-party claims against the business from being approved. The individualized nature of policies means that protection is aligned directly with business needs rather than generally accepted amounts and terms.

Going through a commercial carrier has another downside: you give up the option to select your own attorney. Defense counsel connected with insurance companies often handle large volumes of cases, taking away that personalized attention for your case. The fact that these counsel handle upwards of 200 cases each year from referrals also calls into question whether that attorney is looking out for your best interests- or the hand that feeds them. Since insurance companies that hire counsel are budget-minded, you also don’t know the quality of attorney you’ll be receiving through the appointment process. With captive insurance carriers, business owners control the captive and therefore maintain control over selection of an attorney.

From a business owner perspective, these few advantages represent big benefits. Guard yourself against risks, protect existing and growing assets, and exercise more control over how things are handle by working with a captive.