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Reasons for Protection

Estate Taxes - In 2007 and 2008, the first $2 million of an Estate’s value may transfer upon death without incurring any Estate Tax Liability. (Assuming that the Exclusion has not been partially used by the Unified Credit). In 2009, the number jumps to $3.5 million, and in 2010 there will be no Estate Tax at all. In 2011 the Excludable Amount is to return to $1 million, though most analysts believe that the amount will be raised to somewhere between $2 and $5 million.

Although the Unified Credit was increased at the same time as the Estate Tax Exclusion, it may only be used for up to $1 million in inter vivos transfers. For planning purposes, the unified credit is very important, as many of the techniques used to devalue assets for transfer purposes can be used only during the grantor’s life.

Creditor Protection - Some Estate and Financial Planning is done for purposes of creditor protection. Generally speaking, the less control and benefit that the grantor has after a transfer, the harder the assets are for creditors to get to.

Medicaid - One of the most common concerns that clients have about their estates during their lifetime is Medicaid, (Missouri Health Net). Medicare insurance provides for many of the health care needs of the elderly, including hospice. However, it does not pay for skilled-nursing care. Individuals often turn to Medicaid, a needs-based program run in conjunction between the individual states and the federal government, which will pay for nursing facilities. Medicaid qualifications are difficult to predict, as each new Congress seems to have some plan for improving services or cutting costs.

Types of Asset Protection

Family Limited Partnerships - While Family Limited Partnerships are often thought of as estate planning tools, they can also be invaluable as asset protection vehicles.  Limited Partnerships have General and Limited Partners.  A General Partner is one who participates in management and retains liability for the liabilities of the partnership.  A Limited Partner is one who has no specific final control in management decisions, and who is not personally liable for the liabilities of the partnership.  These partnership interests may be owned by individuals, or by trusts or business entities, including Off-Shore Trusts or Corporations, and Delaware or Nevada Asset Protection Trusts.  Entity-Stacking within the FLP, (the practice of creating entities within entities and trusts within trusts), allows the family to keep individual assets separate, limiting the liability of a specific asset to that asset.

Off-Shore Corporations and Trusts - While the idea of going "off-shore" can seem sleazy to some, the reason is that these business and asset planning tools have been misused by unethical individuals, businesses and lawyers, and often for the purposes of tax avoidance.  The Mathews Group, LC is a U.S. Business and we pay U.S. taxes.  We expect our clients to do the same, and will not assist anyone in an attempt to defraud the IRS.  Our desire to minimize and mitigate tax liabilities should not be confused with a willingness to evade taxes.

The Mathews Group, LC can assist you in using off-shore businesses and trusts as asset protection tools.

Annuity - Annuity payments, like most insurance payments, are protected from creditors, (unless there was a fraudulent transfer to the annuity company).

Homestead Protection - Most states have some homestead protection, preventing a creditor from taking away your home, (within certain limits), unless they have the mortgage or deed of trust on the property.

Retirement Benefits - Generally speaking, most retirement plans are not subject to liens from creditors.  This includes a 401(k), IRA, Social Security, and ERISA qualified pension plans.  This kind of protection is so rock-solid that it can be abused.  (Corporate malfeasors and OJ Simpson are examples of individuals who, despite multi-million dollar liens against their personal assets, continue to live lives of relative luxury because of pension and retirement benefits). 

Life Insurance - Life Insurance proceeds cannot be attached by creditors, and are not taxable as income to the beneficiary.  HOWEVER, they are generally counted as part of the decedent's taxable estate for estate tax purposes, unless special care is taken to remove them from the estate during the insured's life.

These are just a few of the Asset Protection tools available.  Business owners, property owners and professionals are often at the highest risk of lawsuits, and should take action to protect their family's assets and interests.