At the end of every year clients of all types (especially MD's) and advisors rush to find last minute ways to minimize the tax liability for the year. We see many plans of questionable value and legality pushed through in the last couple of weeks when due diligence is slowed by Holiday schedules and your trusted advisors' massive workloads. Here are some potential landmines to look out for. If you are being pressured into funding a plan over the holidays, make sure you know exactly what you are stepping into and have experienced counsel.
Where did this list come from? THE I.R.S.
In contrast to their many legitimate roles, foreign entities are increasingly being promoted as a means to divert income and conceal assets for taxpayers who have no real operations in a foreign country.
In addition to preferential tax regimes and protection against creditors (which is how and why I use them to protecet people every day - with full tax reporting), most tax havens also offer strict laws against disclosure of banking and business records. Generally, these nations do not have income tax treaties with the United States, and tax evasion is not considered a criminal act subject to Mutual Legal Assistance Treaties. Promoters of many abusive offshore schemes rely on the difficulty of access to records of tax haven banks, attorneys, and trustees. Furthermore, in the absence of government scrutiny, some offshore banks, attorneys, trustees, and other service providers have been known to falsify or fabricate records.
Despite being hidden or disguised, the income and assets of U.S. persons are still subject to U.S. tax. Taxpayers should be aware that abusive offshore arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of arrangements. Furthermore, taxpayers and/or the promoters of these offshore arrangements may be subject to civil and/or criminal penalties.
Following are summaries of some identified schemes that make the IRS mad:
(Offshore) Limited Liability Companies (LLCs) - In response to efforts by the Organization for Economic Cooperation and Development (OECD) to eliminate harmful tax competition, some nations labeled as tax havens have accused OECD members of carrying on the very practices the members seek to stop. One example put forth is the ease with which nonresident aliens may do business through limited liability companies (LLCs) domiciled in the United States, in comparative anonymity. An October 2000 report by the General Accounting Office gives insight into the use of corporations as conduits for illicit funds. Abuse of anonymous corporations in the U.S. by foreigners mirrors the abuse of tax haven entities by U.S. persons.
Offshore Deferred Compensation Arrangements - Many highly compensated professional persons and business owners in the U.S. have been solicited to participate in "offshore deferred compensation plans". The U.S. taxpayer is encouraged to sever an existing employment relationship and substitute an arrangement in which the nominal employer is a foreign "employee leasing" company. The supposed result of this abusive arrangement is that the taxation of a large portion of the professional's or business owner's salary is deferred while he/she gains immediate access to the funds through loans or offshore-based credit cards. An improper deduction for employee leasing expenses is also created on the corporate tax return.
Fictitious or Overstated Invoicing - Some U.S. taxpayers have entered into schemes in which the taxpayer's U.S. business is billed by a purportedly unrelated offshore entity for goods or services (e.g., "consulting services") that are either nonexistent or overvalued.
Factoring of Accounts Receivable - A U.S. taxpayer's business may discount or "factor" its receivables to a purportedly unrelated foreign business entity. The discount or factoring fee significantly reduces U.S. tax liability, and is moved to an offshore entity where it can either be invested free of U.S. tax or repatriated for the taxpayer's use and enjoyment.
Abusive Insurance Arrangements - Some promoters have devised arrangements that are characterized as insurance arrangements, giving rise to a deduction for the U.S. taxpayer for "premiums" paid to a purportedly unrelated offshore insurance company. Often these arrangements are merely self-insurance, lacking in real transfer of risk.
Shifting of Income Using Offshore Private Annuities - Some promoters suggest that U.S. taxpayers may avoid or substantially defer tax on income streams or capital gains by exchanging property for an unsecured private annuity. In another abusive scheme an offshore private annuity is used in conjunction with an offshore variable life insurance policy as a devise to "decontrol" a foreign corporation or other entity used in an abusive sequence of transactions. As a result the promoter claims that the foreign corporation or entity is owned by the insurance policy and is not a, controlled foreign corporation, passive foreign investment company, or any entity controlled by a U.S. person whose income could be taxed in the United States to its owner.
Offshore Internet Business - For businesses conducted primarily through the internet, promoters offer "kits" which give the appearance that the business is foreign owned and operated. Transactions may be routed through offshore servers, and business receipts may be collected through offshore bank accounts or credit card merchant accounts. These schemes particularly target businesses that offer delivery of computer software and other digital products such as music, pictures, or video. They may also provide a means of operating offshore gaming activities.
Offshore Wagering - Over the last few years, gambling websites have proliferated on the Internet. Many of these virtual casinos are organized and operated from offshore locations, where the operators feel free from State and Federal interference. The operators of these activities may suggest that players in the U.S. are not subject to tax on their winnings, and may handle collections and disbursements in ways designed to facilitate avoidance of U.S. taxes.
Repatriation of Offshore Funds Using Credit Cards (such as MasterCard and VISA) issued by tax haven domiciled banks are a preferred method used by U.S. taxpayers to anonymously and covertly repatriate offshore funds that may or may not have been previously taxed. American Express cards are used in the same way but differ in that these cards are issued directly by American Express rather than by member banks.
Original link to I.R.S. - http://www.irs.gov/businesses/small/article/0,,id=106559,00.html
Monday, December 21, 2009
Thursday, December 17, 2009
Estate Tax to Temporarily Expire Until Next Year - Now the Really Bad News
Given the depressed value of many real estate and investment portfolios, there has never been a more tax efficient and advantageous time to implement the right kind of estate planning, start transferring assets at their current value and improve and tune up the life insurance components of your planning, here's why:
The 45 percent tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55 percent rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15 to 28 percent when heirs sell off more than $1.3 million in inherited assets.
Call us for help in making sure that 55% of your life's work is not lost to a system that is VOLUNTARY - that's right, I said ESTATE TAX IS VOLUNTARY. Why? Because the law allows you to structure, transfer and insure you way to ZERO estate tax liability if you are willing to put a small amount of time, money and effort into it.
See the whole story here: http://www.webcpa.com/news/Estate-Tax-Temporarily-Expire-Until-Next-Year-52743-1.html?ET=webcpa:e623:134343a:&st=email
Yours, Ike
The 45 percent tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55 percent rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15 to 28 percent when heirs sell off more than $1.3 million in inherited assets.
Call us for help in making sure that 55% of your life's work is not lost to a system that is VOLUNTARY - that's right, I said ESTATE TAX IS VOLUNTARY. Why? Because the law allows you to structure, transfer and insure you way to ZERO estate tax liability if you are willing to put a small amount of time, money and effort into it.
See the whole story here: http://www.webcpa.com/news/Estate-Tax-Temporarily-Expire-Until-Next-Year-52743-1.html?ET=webcpa:e623:134343a:&st=email
Yours, Ike
Tuesday, December 8, 2009
Do You Really Need A Buy/Sell Agreement?
The post below is excerpted from the news letter of a colleague, financial advisor Steve Beatty who works with successful business owners all over the U.S. from his offices in the Las Vegas area. This edition of Steve's newsletter really deserved to be shared because it efficiently summarizes we exposures of not having a buy sell in place that can easily wipe out a business or family.
Yours, Ike
Part I
In our last issue of this Newsletter, we discussed the problems that can arise if a business continuity (buy/sell) agreement designed for one event (usually the death of a shareholder) is called upon to manage the more likely event of a shareholder’s departure during his or her lifetime. Lifetime departures may occur due to the retirement, termination, divorce or bankruptcy of an owner.
While it is true that poor design or failure to update the agreement—especially in tough economic times—can create significant problems, does that mean you and your co-owners shouldn’t have one in place? In a word, NO! The business continuity agreement may be one of the most important documents that you, as a co-owner of a closely held business, will ever sign.
For an idea of why, consider the case of Acme, a fictional company.
George Acme’s son-in-law, Tom Gardner, had worked for George for over 20 years. Tom had gradually assumed operational management and was the acting CEO. In recognition of Tom’s contribution, George had sold Tom—mostly at a low value—25 percent of the company.
Everyone expected that Tom would one day own Acme, Inc. But before that day arrived, George died and Tom's sister-in-law became the executor of George’s estate. She decided to sell George’s share of the company—at its full fair market value and for cash—either to Tom or to the highest bidder. At the time, she did not understand that no third party would acquire a majority position in a company co-owned and run by a disgruntled CEO.
Had Tom and George created a business continuity agreement that reflected their wishes about value, control and successor ownership, the business would have transferred at a fair price to the benefit of all concerned. Because they had not done so, Acme was unlikely to continue at all.
As mentioned earlier, a business continuity agreement can control the transfer of ownership in a business when a variety of events occur including: an owner’s death, permanent and total disability, termination of employment, retirement, bankruptcy, divorce, and a business dispute among the owners.
The buy/sell agreement can further require that the business or the remaining owners to purchase the departing owner's stock; or it may give an option to the business or the remaining owners to buy that ownership interest.
Lastly, it may give the departing owner the option to require the company to buy his or her ownership interest.
The agreement should establish the value of the stock, set the terms and conditions of the buyout, and give additional protection to all owners. In short, the business continuity agreement tells owners to whom they can sell, at what price and terms, and under what restrictions they can sell stock.
Advantages of a Buy/Sell Agreement.
The disadvantages of a buy/sell agreement are few if the document is well drafted and is kept updated for changes in ownership, value and other circumstances. (See Issue175.) With that in mind, the major advantages of a buy/sell agreement are:
1. Ownership in the business can be transferred only in accordance with the agreement. This benefits both the owner wishing to transfer stock and the other owner(s) wanting to acquire stock. In the first instance, the buy/sell agreement can provide a selling shareholder, or his/her estate, with a purchaser for fair value and upon terms and conditions that are mutually acceptable. For remaining owners (such as Tom), the agreement provides that any transfers of ownership must be made, or at least offered, to them. This eliminates the threat that an outside party or a co-owner's spouse or children will become owners of the business, thereby diminishing management, control and value.
2. Valuation is set not only for purposes of a sale, but also for estate tax valuation purposes. Privately owned businesses are notoriously difficult to value. Your idea of your business's value at your death may be much lower than the IRS's. If you haven't created a binding process for valuing the business, the IRS is free to impose its own determination of value. Take the initiative by designing a valuation appraisal process in your buy/sell agreement.
3. The terms and conditions of any transfer of stock, including interest rate, length of buyout period, and security can be fixed. In addition, where possible, the transfer can be funded. The agreement provides a clear estimate to a departing shareholder of how much money he or she will receive and how often. Likewise, the remaining shareholders know in advance the extent and duration of their buyout obligations. This allows both parties to plan their respective futures.
Had Tom and George created a buy/sell agreement with terms like these, a valuable business could have been transferred successfully. That transaction would have benefited Tom, George’s estate (family), Acme’s employees, customers, vendors and community.
Subsequent issues of The Exit Planning Review™ discuss all aspects of Exit Planning. The provider of this Newsletter (Steven Beatty) offers you unbiased information about what you may need to know — How To Run Your Business So You Can Leave It In Style™.
To get more info on these topics and Steve's great newsletters please contact him directly 702.804-6474 sbeatty@invest4business.com
Yours, Ike
Part I
In our last issue of this Newsletter, we discussed the problems that can arise if a business continuity (buy/sell) agreement designed for one event (usually the death of a shareholder) is called upon to manage the more likely event of a shareholder’s departure during his or her lifetime. Lifetime departures may occur due to the retirement, termination, divorce or bankruptcy of an owner.
While it is true that poor design or failure to update the agreement—especially in tough economic times—can create significant problems, does that mean you and your co-owners shouldn’t have one in place? In a word, NO! The business continuity agreement may be one of the most important documents that you, as a co-owner of a closely held business, will ever sign.
For an idea of why, consider the case of Acme, a fictional company.
George Acme’s son-in-law, Tom Gardner, had worked for George for over 20 years. Tom had gradually assumed operational management and was the acting CEO. In recognition of Tom’s contribution, George had sold Tom—mostly at a low value—25 percent of the company.
Everyone expected that Tom would one day own Acme, Inc. But before that day arrived, George died and Tom's sister-in-law became the executor of George’s estate. She decided to sell George’s share of the company—at its full fair market value and for cash—either to Tom or to the highest bidder. At the time, she did not understand that no third party would acquire a majority position in a company co-owned and run by a disgruntled CEO.
Had Tom and George created a business continuity agreement that reflected their wishes about value, control and successor ownership, the business would have transferred at a fair price to the benefit of all concerned. Because they had not done so, Acme was unlikely to continue at all.
As mentioned earlier, a business continuity agreement can control the transfer of ownership in a business when a variety of events occur including: an owner’s death, permanent and total disability, termination of employment, retirement, bankruptcy, divorce, and a business dispute among the owners.
The buy/sell agreement can further require that the business or the remaining owners to purchase the departing owner's stock; or it may give an option to the business or the remaining owners to buy that ownership interest.
Lastly, it may give the departing owner the option to require the company to buy his or her ownership interest.
The agreement should establish the value of the stock, set the terms and conditions of the buyout, and give additional protection to all owners. In short, the business continuity agreement tells owners to whom they can sell, at what price and terms, and under what restrictions they can sell stock.
Advantages of a Buy/Sell Agreement.
The disadvantages of a buy/sell agreement are few if the document is well drafted and is kept updated for changes in ownership, value and other circumstances. (See Issue175.) With that in mind, the major advantages of a buy/sell agreement are:
1. Ownership in the business can be transferred only in accordance with the agreement. This benefits both the owner wishing to transfer stock and the other owner(s) wanting to acquire stock. In the first instance, the buy/sell agreement can provide a selling shareholder, or his/her estate, with a purchaser for fair value and upon terms and conditions that are mutually acceptable. For remaining owners (such as Tom), the agreement provides that any transfers of ownership must be made, or at least offered, to them. This eliminates the threat that an outside party or a co-owner's spouse or children will become owners of the business, thereby diminishing management, control and value.
2. Valuation is set not only for purposes of a sale, but also for estate tax valuation purposes. Privately owned businesses are notoriously difficult to value. Your idea of your business's value at your death may be much lower than the IRS's. If you haven't created a binding process for valuing the business, the IRS is free to impose its own determination of value. Take the initiative by designing a valuation appraisal process in your buy/sell agreement.
3. The terms and conditions of any transfer of stock, including interest rate, length of buyout period, and security can be fixed. In addition, where possible, the transfer can be funded. The agreement provides a clear estimate to a departing shareholder of how much money he or she will receive and how often. Likewise, the remaining shareholders know in advance the extent and duration of their buyout obligations. This allows both parties to plan their respective futures.
Had Tom and George created a buy/sell agreement with terms like these, a valuable business could have been transferred successfully. That transaction would have benefited Tom, George’s estate (family), Acme’s employees, customers, vendors and community.
Subsequent issues of The Exit Planning Review™ discuss all aspects of Exit Planning. The provider of this Newsletter (Steven Beatty) offers you unbiased information about what you may need to know — How To Run Your Business So You Can Leave It In Style™.
To get more info on these topics and Steve's great newsletters please contact him directly 702.804-6474 sbeatty@invest4business.com
Tuesday, November 24, 2009
OWN A BUSINESS? SEE THIS GREAT END OF YEAR TAX STRATEGY
YEAR END DEDUCTION OR TAX ON RETAINED EARNINGS?
GUEST COLUMN By Ira L. Barnett, LUTCF
OK. We’re coming to the end of the year and my C-corporation made more money than projected (surprise, surprise in this economy) and has a decision to make: take a tax hit to Retained Earnings or find a deduction to offset some of the profits.
The Federal government, anticipating the Baby Boomer’s need for extended healthcare services, as they age, and wanting to deflect high utilization of Medicaid, created HIPAA (OK, this isn’t the only reason).
HIPAA (The Health Insurance Portability and Accountability Act of 1996) affects how Long Term Care insurance (LTCi) premiums and benefits are taxed, but, in this context, the primary concern is deductibility of the premiums.
Hey, wait a minute, we’re Baby Boomers. Spouse and I are getting older and we can expect, as that happens, that one (or both) of us will develop a condition that doesn’t allow us to do the things we used to do as easily as we used to do them. In fact, we may need, on occasion, someone to give us a hand.
Since we’re a C-corporation, we have kind of a ‘Trifecta’:
1. I can deduct, as a business deduction, 100% of the cost of LTC insurance for myself
AND for Spouse.
2. The premiums paid are not includible as income on my/our personal tax return.
3. Benefits paid aren’t taxable, at time of claim.
Oh, by the way, I do NOT have to cover any other employee. I can pick and choose, and if I only want to cover myself and Spouse - it’s OK.
But, if we do cover another employee, we can give them a very reduced benefit plan (compared to ours), and maybe, get some accommodations on the premiums charged and/or the underwriting rules applied to all of us. Wow, this is getting better and better.
In fact, I need to call my brother-in-law. His firm is an LLC taxed as a corporation and he’s eligible also. Oh yeah, Cousin Lou has that not-for-profit, and he’s can do this too.
Guess the next step is to sit down (and quickly) with my accountant and attorney, and that LTC insurance specialist that was calling, and have a conversation (wonder why my financial planner didn’t bring this up?).
Ira L. Barnett, LUTCF has been in the financial services industry since 1980. He is consulting with CFP®’s, CPA’s, attorneys and stock brokers to help them integrate Long Term Care insurance into
their practices, not as an insurance product, but, as a risk management strategy,.
Ira’s practice is centered in Orange County, California and he can be contacted via e-mail at iraleeb@aol.com or by telephone at either (847) 361-0030 or (714) 983-7901.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this e-mail, including attachments to this e-mail, is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code
GUEST COLUMN By Ira L. Barnett, LUTCF
OK. We’re coming to the end of the year and my C-corporation made more money than projected (surprise, surprise in this economy) and has a decision to make: take a tax hit to Retained Earnings or find a deduction to offset some of the profits.
The Federal government, anticipating the Baby Boomer’s need for extended healthcare services, as they age, and wanting to deflect high utilization of Medicaid, created HIPAA (OK, this isn’t the only reason).
HIPAA (The Health Insurance Portability and Accountability Act of 1996) affects how Long Term Care insurance (LTCi) premiums and benefits are taxed, but, in this context, the primary concern is deductibility of the premiums.
Hey, wait a minute, we’re Baby Boomers. Spouse and I are getting older and we can expect, as that happens, that one (or both) of us will develop a condition that doesn’t allow us to do the things we used to do as easily as we used to do them. In fact, we may need, on occasion, someone to give us a hand.
Since we’re a C-corporation, we have kind of a ‘Trifecta’:
1. I can deduct, as a business deduction, 100% of the cost of LTC insurance for myself
AND for Spouse.
2. The premiums paid are not includible as income on my/our personal tax return.
3. Benefits paid aren’t taxable, at time of claim.
Oh, by the way, I do NOT have to cover any other employee. I can pick and choose, and if I only want to cover myself and Spouse - it’s OK.
But, if we do cover another employee, we can give them a very reduced benefit plan (compared to ours), and maybe, get some accommodations on the premiums charged and/or the underwriting rules applied to all of us. Wow, this is getting better and better.
In fact, I need to call my brother-in-law. His firm is an LLC taxed as a corporation and he’s eligible also. Oh yeah, Cousin Lou has that not-for-profit, and he’s can do this too.
Guess the next step is to sit down (and quickly) with my accountant and attorney, and that LTC insurance specialist that was calling, and have a conversation (wonder why my financial planner didn’t bring this up?).
Ira L. Barnett, LUTCF has been in the financial services industry since 1980. He is consulting with CFP®’s, CPA’s, attorneys and stock brokers to help them integrate Long Term Care insurance into
their practices, not as an insurance product, but, as a risk management strategy,.
Ira’s practice is centered in Orange County, California and he can be contacted via e-mail at iraleeb@aol.com or by telephone at either (847) 361-0030 or (714) 983-7901.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this e-mail, including attachments to this e-mail, is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code
Thursday, November 12, 2009
ESSENTIAL LEGAL AND FINANCIAL PLANNING CHECKLIST FOR BUSINESSES AND MEDICAL PRACTICES
The following is a basic “must have” checklist (in no order) that most of our business owner and physician clients find to be indispensable. Many sources of loss or exposure can be easily planned for and addressed in a proactive manner.
The days of opening your doors and simply running a cash register are long gone; things are now much more complex. KEEPING your wealth requires an experienced and sophisticated team and in some cases almost as much effort as MAKING it in the first place.
Who's on your team? Do they have the skills and professional partners required to do the job or have you and your business outgrown them?
We see recurring patterns and common needs across many successful businesses. We help clients all over the U.S. coordinate all or any of these issues with the team of professionals we have assembled to help maintain their hard earned success. Please review this list to see which areas you need to update or explore. As always, call us with questions.
1. Asset Protection Planning – Think of it as Net Worth Insurance. Distancing you from your assets and protecting them from your personal and professional liability. This requires simple, cost effective and pro-active planning today while you still have well defined legal options. There is little or nothing to be done, except paying defense attorneys, if you get caught in a suit before you do something.
2. Coordinated Financial Planning – Making sure the money you make is working as hard for you as you worked for it and that the planning you have in place includes both growth and loss prevention strategies.
3. Disability Insurance – Protecting your cash flow against injury and illness, the times you need it the most. Large amounts of coverage with lots of sophisticated bells and whistles are available. Also, make sure that your cross-purchase or buy-sell agreements are properly funded. If your partner has a stroke or some other debilitating illness, how long will you (or he) be willing and able to make large monthly payments to a non-productive partner?
4. Liability Insurance – Let’s make sure it’s enough, and then let’s have a back-up plan (See item #1 above). This refers to both professional and personal liability coverage. These days we see multi-million dollar exposures from routine events like auto accidents routinely.
5. Life insurance – Making sure you have appropriate amounts to cover estate taxes, generate income for survivors and pay off debts you want settled. We also make sure that you are not paying too much and have the most flexible policy with the greatest number of benefits. Again, cross-purchase and buy-sell agreements must be carefully funded. We routinely see these agreements between our business owner clients that are either unfunded or under-funded. If your partner dies with no coverage or inadequate coverage in place you could easily find yourself across from their family in a courtroom explaining why the business should be liquidated to pay them the deceased’s share.
6. Worker’s Comp Coverage – Making sure that you and your employees are protected against injuries and their rising costs.
7. Employee Benefits Planning – From basic benefits like 401K to Executive Compensation planning. There are a number of ways to provide these benefits, some are more advantageous to you, the business owner than others.
8. Employee Handbook – Governs their rights and your responsibilities, controls actions in the workplace and your employer policy. If you don’t define certain polices the courts (or worse your employee’s attorneys) will define them for you. This is one of the highest ROI investments you can make in your business in my opinion.
9. Employee Dispute Resolution Package – Prevents employee lawsuits and makes you a hard target – reduces your exposure. Right now they win 75% of the time and the average sexual harassment verdict, as just one example, is at $530K. Your business is 5 times more likely to be sued by an employee than for any other reason. Have a plan.
10. Proper Corporate Formation – Is your formation or lack of it exposing you to liability and taxes? Will it hinder you in the case of sale? Do you have too many eggs in one basket? For example if your practice owns the building it operates from you are needlessly exposing the real estate asset to professional liability. Simple fixes can save you millions if something bad happens.
11. Professional Accounting Service – Do you have a good CPA? Taxes & payroll are just the beginning – have a pro. who proactively offers solutions and shows you legal tax avoidance options in addition to administrative and reporting functions we rely upon them for.
12. Real Estate Depreciation / Property Tax Reduction Study – Get tax deductions for depreciation NOW when you need them. You can get large current deductions on your investment real estate in a safe and legal way.
14. Income and Receivables Protection Planning – Make sure the cash flow you use to fund all these other things is safe. Your income can be “equity-stripped” just like a piece of real estate and the value put within protected structures that grow them in a protected and tax advantaged way.
15. Tax Reduction and Retirement Income Planning Including Pensions – Remember – it has to last at least 30 years and account for inflation! Instant lesson, compare the cost of an automobile or a loaf of bread 20 years ago to their costs today and see if inflation made a difference. Imagine dealing with that kind of cost increase on a fixed income 20 years from today.
16. Estate Planning – Who gets what, when and at what cost in estate taxes? You can make the Estate Tax exposure number zero in many cases. We do not consider dying in 2010 (when Estate tax will be zero for a very short time) to be a good estate plan. Do you really think our current national debt will allow doing away with this exposure? We and the tax and estate planners we work with don’t.
17. Exit Plan Strategy – Ok you’ve been successful – now what? Make sure that business is an asset when you want to leave and that the planning you have done minimizes your tax exposures on the sale or transfer. A little proactive work here can save you as much as 50% in taxes.
18. Long Term Care Insurance - The costs of this kind of care are soaring - can you risk your retirement savings and family's legacy by not having it? Medicare has a 5 year look back and requires that you are nearly destitute before they cover essential daily care.
As always – call or email for help or more info on any of these issues. Neither I nor any other planner can an expert at everything, but we have a tremendous list of national partner resources that we use to serve our clients and will be happy to point you to good help.
Yours, Ike Devji, J.D.
The days of opening your doors and simply running a cash register are long gone; things are now much more complex. KEEPING your wealth requires an experienced and sophisticated team and in some cases almost as much effort as MAKING it in the first place.
Who's on your team? Do they have the skills and professional partners required to do the job or have you and your business outgrown them?
We see recurring patterns and common needs across many successful businesses. We help clients all over the U.S. coordinate all or any of these issues with the team of professionals we have assembled to help maintain their hard earned success. Please review this list to see which areas you need to update or explore. As always, call us with questions.
1. Asset Protection Planning – Think of it as Net Worth Insurance. Distancing you from your assets and protecting them from your personal and professional liability. This requires simple, cost effective and pro-active planning today while you still have well defined legal options. There is little or nothing to be done, except paying defense attorneys, if you get caught in a suit before you do something.
2. Coordinated Financial Planning – Making sure the money you make is working as hard for you as you worked for it and that the planning you have in place includes both growth and loss prevention strategies.
3. Disability Insurance – Protecting your cash flow against injury and illness, the times you need it the most. Large amounts of coverage with lots of sophisticated bells and whistles are available. Also, make sure that your cross-purchase or buy-sell agreements are properly funded. If your partner has a stroke or some other debilitating illness, how long will you (or he) be willing and able to make large monthly payments to a non-productive partner?
4. Liability Insurance – Let’s make sure it’s enough, and then let’s have a back-up plan (See item #1 above). This refers to both professional and personal liability coverage. These days we see multi-million dollar exposures from routine events like auto accidents routinely.
5. Life insurance – Making sure you have appropriate amounts to cover estate taxes, generate income for survivors and pay off debts you want settled. We also make sure that you are not paying too much and have the most flexible policy with the greatest number of benefits. Again, cross-purchase and buy-sell agreements must be carefully funded. We routinely see these agreements between our business owner clients that are either unfunded or under-funded. If your partner dies with no coverage or inadequate coverage in place you could easily find yourself across from their family in a courtroom explaining why the business should be liquidated to pay them the deceased’s share.
6. Worker’s Comp Coverage – Making sure that you and your employees are protected against injuries and their rising costs.
7. Employee Benefits Planning – From basic benefits like 401K to Executive Compensation planning. There are a number of ways to provide these benefits, some are more advantageous to you, the business owner than others.
8. Employee Handbook – Governs their rights and your responsibilities, controls actions in the workplace and your employer policy. If you don’t define certain polices the courts (or worse your employee’s attorneys) will define them for you. This is one of the highest ROI investments you can make in your business in my opinion.
9. Employee Dispute Resolution Package – Prevents employee lawsuits and makes you a hard target – reduces your exposure. Right now they win 75% of the time and the average sexual harassment verdict, as just one example, is at $530K. Your business is 5 times more likely to be sued by an employee than for any other reason. Have a plan.
10. Proper Corporate Formation – Is your formation or lack of it exposing you to liability and taxes? Will it hinder you in the case of sale? Do you have too many eggs in one basket? For example if your practice owns the building it operates from you are needlessly exposing the real estate asset to professional liability. Simple fixes can save you millions if something bad happens.
11. Professional Accounting Service – Do you have a good CPA? Taxes & payroll are just the beginning – have a pro. who proactively offers solutions and shows you legal tax avoidance options in addition to administrative and reporting functions we rely upon them for.
12. Real Estate Depreciation / Property Tax Reduction Study – Get tax deductions for depreciation NOW when you need them. You can get large current deductions on your investment real estate in a safe and legal way.
14. Income and Receivables Protection Planning – Make sure the cash flow you use to fund all these other things is safe. Your income can be “equity-stripped” just like a piece of real estate and the value put within protected structures that grow them in a protected and tax advantaged way.
15. Tax Reduction and Retirement Income Planning Including Pensions – Remember – it has to last at least 30 years and account for inflation! Instant lesson, compare the cost of an automobile or a loaf of bread 20 years ago to their costs today and see if inflation made a difference. Imagine dealing with that kind of cost increase on a fixed income 20 years from today.
16. Estate Planning – Who gets what, when and at what cost in estate taxes? You can make the Estate Tax exposure number zero in many cases. We do not consider dying in 2010 (when Estate tax will be zero for a very short time) to be a good estate plan. Do you really think our current national debt will allow doing away with this exposure? We and the tax and estate planners we work with don’t.
17. Exit Plan Strategy – Ok you’ve been successful – now what? Make sure that business is an asset when you want to leave and that the planning you have done minimizes your tax exposures on the sale or transfer. A little proactive work here can save you as much as 50% in taxes.
18. Long Term Care Insurance - The costs of this kind of care are soaring - can you risk your retirement savings and family's legacy by not having it? Medicare has a 5 year look back and requires that you are nearly destitute before they cover essential daily care.
As always – call or email for help or more info on any of these issues. Neither I nor any other planner can an expert at everything, but we have a tremendous list of national partner resources that we use to serve our clients and will be happy to point you to good help.
Yours, Ike Devji, J.D.
Friday, November 6, 2009
Business Owners and Executives - Are You Running Your Company's 401k? BEWARE OF LIABILITY!
Guest Author Roger Wohlner
Below is a great article by financial advisor Roger Wohlner. It once again points out the difference between what we can and should be doing.
There is tremendous liability in managing investments, and most of you would never dream of taking on that liability for everyone in your company - or have you already done so?
Ike
Smart Money recently ran an article depicting several small companies where either the owner or a group of senior managers were in charge of the firm’s 401(k) plan and who were largely making decisions regarding the plan on their own.
The article pointed out that many of these folks do not have a background in either investments or qualified plans.The focus of the article was to point out to plan participants that in many cases their plan was being run by folks who may or may not be qualified to make decisions as to investments offered, the custodial platform, or the plan record keeper.
My take on this article is to wonder why these small/mid-sized company owners and managers would want to take on this responsibility.
First of all, these individuals would be considered plan fiduciaries,which means that they can be held personally liable under certain circumstances for doing a poor job. Effectively managing a 401(k) plan involves taking the time to select and monitor the investments, overall plan expenses, as well as the fees and performance of all plan vendors.
Today it seems that business owners and their senior managers have more on their plates than ever. Running a 401(k) plan is about more than the investments. Total plan cost has always been a key issue and is coming more into the limelight as the spotlight shines on the issue of Fiduciary roles and obligations.
Selection and monitoring of Target Date funds is receiving much attention in the press and in Congress in light of the losses suffered in 2008 by some of the shorter maturity date funds. Defaulting to the funds offered by a bundled provider is not always the right answer, this option will likely come under more and more scrutiny over the next few years.
Even if the business owner is a knowledgeable investor in his/her own right, does this knowledge translate into the ability or the time to select and monitor all aspects of a solid retirement plan that is a great option for the majority of the company’s employees?
I’ve seen instances of plans that will take the suggestions of their bundled provider (a fund company such as Vanguard, Fidelity, or T. Rowe, or an insurance company such as Prudential) and implement those suggestions as the plan’s investment lineup. The representatives of these companies are not plan fiduciaries, but company managers running the plan are. I doubt that these folks are trying to do the plan any harm, but at the end of the day their loyalty is to their employer not the plan participants.
If your company’s plan is via an insurance company, your agent or registered rep may be providing investment advice to the plan. Again, this person is likely not a fiduciary, they receive commissions paid by the provider and their loyalties are at best divided.
In the interest of full disclosure I am a fee-only consultant to 401(k) plans providing advice to small/mid-sized plans. If this post seems self-serving I apologize, but this is a key issue for both owners/managers of these companies and their employees.
In my opinion, running the company’s 401(k) plan requires a level of diligence and expertise that the “do it your selfer” business owner often does not have. Pulling out a Morningstar report on the funds once or twice per year does not, in my opinion, constitute proper diligence and monitoring of the plan.
For further reading in this area, please see Roger's prior posts:
The Process of Monitoring Investment Holdings http://bit.ly/Wnaj8
Here is a link the Smart Money article that inspired this post Who's Running Your 401(k): An Overview http://ow.ly/yT1I
Roger Wohlner,CFP® is a Fee-only financial advisor with Asset Strategy Consultants in Arlington Heights, IL. 847-506-9827; rwohlner@comcast.
Wednesday, November 4, 2009
People Don’t Live In Delaware. But They Keep Their Money There.
We see lots of discussion about the "best" legal & financial jurisdictions. If you are familiar with my writing or the work we do in protecting billions of dollars for our clients you know what I think of most domestic jurisdictions and that we think that they have little or no value for Asset Protection despite any nominee corporation b.s. and promises of secrecy that the snake-oil salesmen in various states pedal.
The link below is to an interesting piece about Delaware, which is also now promising Asset Protection through domestic asset protection trusts that we never use because they fly in the face of full faith and credit laws and we don't want our clients to be test cases.
http://tinyurl.com/DELAWAREWTF
The link below is to an interesting piece about Delaware, which is also now promising Asset Protection through domestic asset protection trusts that we never use because they fly in the face of full faith and credit laws and we don't want our clients to be test cases.
Yours, Ike
See the story here on DEALBREAKER:
Its beaches don’t compare with those of Bermuda or the Cayman Islands. You can’t ski there. But the most boring state in the union is best damned tax shelter on earth.
The First State is finally first at something else, according to the Tax Justice Network. It’s the best place for non-Americans to hide from their taxmen, earning the august moniker, “most secretive financial jurisdiction.”
http://tinyurl.com/DELAWAREWTF
Monday, November 2, 2009
SOCIAL MEDIA FOR EMPLOYERS AND BUSINESS OWNERS
Massive increase in the use of social media for both business and personal use has created many new issues for employers. As our clients include thousands of business owners affected by these new tools and the liability they create, we turned to Employment Law expert, Attorney Rachel Weiss for a quick outline of current issues.
MySpace and Facebook and Twitter, Oh My!
Time to Start that Workplace Policy
Employers, it’s time to wake up. According to a 2009 survey conducted by Deloitte LLP*, 55% of employees visit social networking sites during work hours. More than a third of the employees surveyed don’t consider what their boss, co-workers, or clients would think about their online postings. Here’s the big red flag – almost 75% say it’s easy to damage a company’s reputation using social media.
While there’s no way to completely eliminate the legal and business-related risks posed by employee online networking activities, developing and enforcing a social media policy is crucial to avoiding legal pitfalls.
The exact wording will depend somewhat on the nature of the business and workforce, but at a minimum, a good social media policy should include these provisions:
1. Don’t expect privacy. Employees do not have a reasonable expectation of privacy if they use social media for personal purposes on a company computer or network.
2. Use good judgment. Employees may not post comments that are disrespectful, offensive or damaging to another employee or the employer’s business interests. The use of social media must not violate any other company policy (such as a computer usage or anti-harassment policy).
3. Only on your own time. Employees are prohibited from participating in social media during work time.
4. Post as yourself. Employees may not post anything that could in any way be attributed to the employer. Employees must notify readers that the views, opinions, ideas, and information are their own and are not sanctioned by the employer, and company trademarks or logos should never be used.
5. Keep secrets. Employees are prohibited from disclosing proprietary information, data, trade secrets or other confidential non-public information.
6. Don’t mess up. Violation of this policy may result in disciplinary action up to and including termination.
Distribute the policy in writing to every employee. Add it to any existing employee handbook.
Finally, enforce the policy. Better to have no policy at all than to have one and ignore it.
Rachel Weiss is an employment law attorney with the Phoenix firm of Gammage & Burnham, PLC. For additional information regarding this or any other employment-related legal issue, Rachel can be reached at (602) 256-4448 or rweiss@gblaw.com.
* Social Networking and Reputational Risk in the Workplace, Ethics & Workplace Survey, Deloitte LLP 2009
Friday, October 30, 2009
2010 BUSINESS SURVIVAL PLAN
ASSET PROTECTION UPDATE
RECESSION BUSINESS SURVIVAL PLAN
© Ike Z. Devji, J.D.
Another version of this went to my clients in December of 2007. I hope your advisors shared similar insights with you.
As we move into the second quarter of 2010 we look back at the lessons learned and forward to new opportunities. Below are some critical points we have seen illustrated many times by those we work with, some of the most successful and intelligent people in their various professions and businesses. Despite the phenomenal track record many of them have in terms of making money safely, predictably and responsibly for many years, no one was left untouched by the recent crisis. Here are some of the 2008 and 2009 “lessons” we feel it is most important to reflect on and examine for yourself as we tackle 2010.
As always, contact me for more specific information on any of these issues.
The right financial advice matters now more than ever. We have seen that at the worst, some clients lost as much as 60% of their investment portfolios due to the market and their investment allocations while others were down only a fraction of what the market lost and are relatively free of anxiety. Why the huge disparity in results between advisors? What we see is that it is relatively easy to make money in good times by using a simple allocation table that at first glance seems well diversified between different types of investments such as technology, energy and etc. What those plans, such as the ones we see from big commercial brokerage firms or “wire-houses” are typically lacking in is a good down-market strategy that values principal protection as highly as it does growth. There are ways to get all or most of the market growth available with guaranteed rates of return or principal guarantees. These types of strategies, when properly allocated are the backbone of what saved the second, more fortunate group of investors described above. These clients are not only whole or close to it, but are now poised and financially equipped to take advantage of emerging opportunities.
Again, as the economy and income and profit slow, never taking a step back, or at least taking as few as possible, becomes more important than ever before. Remember, a portfolio that is down 50% will need to DOUBLE to get back to where it was. How long did it take you to double your money the last time? Do you have that kind of time left? If you don’t like the way you answered those questions for yourself, perhaps it’s time to take a good look at how you are structured and what kind of stop-loss measures you have in place. In many cases it is not too late to make some positive changes and “buy and wait” is not the right answer for every investor or every investment.
NOW is always the best time to act on preventative legal planning.
This year we saw many successful people who always meant to complete essential planning like Asset Protection and advanced Estate Planning precluded from doing so either wholly or completely. In some cases their unexpected legal exposures made the planning ineffective or illegal, in others their financial positions in terms of debt, credit and cash flow changed so rapidly they were locked out.
We understand that doing this kind of planning takes time, energy, and resources that are already scarce for the dynamic individuals we work with, and that it seems to lack the kind of time sensitivity that other matters, like responding to a lawsuit, would justify. The real truth however is that every day that passes without these issues being properly addressed jeopardizes your net worth and your family’s security, the thing that many of you are working so hard to create.
We have countless stories from the last 6 months alone of fortunes lost because of the way easily protectable assets were held and exposed to creditors, families thrown into crisis when the bread winner passes away in an accident without adequate estate planning and life insurance or is disabled without disability coverage in place, and unexpected liabilities taking away dreams.
We equate this lack of attention to these issues to driving to work every day on a busy freeway without auto insurance or operating without a malpractice policy in place. These are odds that most cannot afford to bet on. Take the time and make the investment in YOURSELF and the years you have put into your current level of success and address these issues now. Preserving what you already have when money is harder to make is a good first step.
No program lasts forever, when the door is open seize the opportunity. Many of the most productive and sophisticated wealth preservation techniques such as Accounts Receivable Financing to leverage and protect future income and Premium Financing for large estate planning cases have disappeared or slowed to a crawl as the banking and insurance industries continue to be devastated. Even clients with nine-figure net worth levels are having trouble obtaining the kind of low cost financing that was available for them to help leverage their wealth and avoid estate taxes even 6 months ago. Add to that increasingly stringent underwriting by insurance companies and you have the worst possible storm for the affluent. We are now in the unfortunate position of having to tell many of those we counseled on these issues a year ago and who skeptically heard us say that there was a time pressure involved that the programs are not available or that they are no longer qualified under more stringent underwriting guidelines. Of course, they can still pay for the planning, but at the full cost and by paying the premiums directly in cash at a time when cash flow is king as opposed to 6 months ago when they could have had it for as little as interest only at less than 6% fixed rate loans. What does this mean? In one case it meant a client with an eight figure estate tax exposure looking at a premium of over $250K per year as opposed to less than $50K. It’s just math.
We like leveraging wealth and using credit, but you must have a disaster plan. Those in the real-estate business are the most obvious example of what a lack of credit and financing can do, but all types of industries have been crippled by current economic conditions. We have many of the most successful real estate professionals in the country as clients and have felt and shared their pain. What has been less obvious is the impact on other businesses like shipping, dining, small businesses that rely on services and discretionary income, banking, appraisal services, elective medical procedures, health and beauty businesses, the list is infinite.
No business is recession proof. Diversify and properly insulate your income streams if possible and be ready to be flexible and spot ways to identify new opportunities for your business and your skill set.
Realize that your niche, as you have defined it, may come to an end and know when to direct your assets and energy to those new opportunities. As examples, some of our clients who were major players in single family housing are now in the “economy” apartment market segment and are doing well. Doctors are expanding their practices and adding high value cash services like medically supervised weight loss to practices that were focused solely in other areas. Others have created booming new businesses like debt and credit repair that directly reflect the current economy.
Don’t take your market position for granted. In a down economy discount solution, product and service providers emerge in every market. These competitors will be selling price first and many consumers won’t see the differences until they have been poorly served and you have lost the business. Some steps to fight this:
- Make sure that your network and professional relationships are as strong and developed now as they were before you reached your current level of success;
- Look for ways to distinguish yourself and your business and maintain the highest standards of professionalism and service;
- Look for every way to add value and collaborate with other top services providers you work with so that you are a natural and logical part of every project or client they are involved with. Become part of a best of class team of teams that delivers the highest value to the consumer. This is true of everything from medical services to commercial contracting;
- Continue to be the best, or at least great at what you do. “Good enough” should not be part of your vocabulary.
Guard your credit like gold. Good credit has always been important on both personal and business fronts, but it is now more important that ever. As credit markets have tightened even the wealthy are having trouble obtaining credit for every day issues like home and auto purchase or leasing. Banks are scared and have pulled in the reigns on lending to all but those who have sterling credit, “good” is no longer good enough. They are also using late payments of any kind to move to the default interest rates permissible under various types on loan and consumer credit agreements as a way to generate fees and increase revenue internally. On a personal level this could mean that your VISA ay 8.9% jumps to 29.99% APR if your spouse sends in the check late.
On a business level it is much worse. If your course of business has been to pay certain credit lines down late to a friendly creditor, it could now put you into default or cause an acceleration. We are also hearing that clients who have used revolving credit lines for years as part of their business model either for capitalization or to pay recurring expenses are suddenly finding that their credit lines have been terminated or drastically reduced as is permissible in the fine print of most such agreements. This is despite the fact that the client has had no change in income or credit. Banks are simply deciding that they have too much exposure and are proactively limiting your ability to draw that money out.
Solution? If you have a credit line that you know you are going to need or cannot risk losing – draw the money out now and look at the interest cost like an insurance premium; you may not want to pay it but if you need the “insurance” of having that money available it will not be available at any cost, certainly not in any short term scenario.
There are services out there that we have referred friends and clients to with great results. For an investment of a few hundred dollars many negative or inaccurate items can be removed in a short period of time increasing your credit score by dozens of points.
Check your business and personal credit reports and see if they are accurate.
We are also seeing that banks that are in financial trouble and which need to reduce their outstanding debt balances are playing dirty tricks like re-appraising property they financed over 18 months ago to “current market value” at ridiculously low valuations then going back to the borrower and saying they need more collateral or they will call they note as the “fine print” entitled them to do. How bad can this be? In one case the bank re-appraised my client’s multi-million dollar commercial property at about 50% of current fair market value and wanted an additional seven figures in collateral. Fortunately, this client had sterling credit and good professional relationships that allowed him to re-finance at a lower rate with a more solvent and ethical bank.
Keep more of every dollar you earn. There are many things each of us could do to maximize our retained earnings. Again, now that money is harder to make, another way to increase revenue is to devote a small amount of resources to increasing efficiency.
These are just a few of the most obvious ways we see clients successfully achieving this goal: - Cost segregation Studies. These studies allow huge tax deductions now when you need them most as opposed to spread over 30 years at about 3% per year the way they are typically taken. Most commercial property, even leased, qualifies for the study and the deductions and we can even arrange for a free feasibility study for commercial property with an aggregate value of at least $1MM, an easily attainable entry level. As a bonus, you can ever re-capture lost depreciation for as much as the last 20 years!
Energy Studies. Again, owners of commercial properties are seeing energy tax credits of up to $1.80 per square foot when the study is completed and simple low cost changes are made. Would that kind of recurring savings be valuable enough to you to change the kinds of light bulbs you use and add a skylight? In most cases it is.
Increasing Business Tax Structure efficiency. You walk around turning off lights, but is your business tax structure maximized? One of my Associates, Mr. Tom Maguire of Hebets and Maguire, as just one example, routinely saves both public and private corporation clients a significant amount of money on a re-occurring basis by refining and perfecting the choice of corporate formation, stock ownership options and identifying the most efficient business succession and executive compensation models. This goes far beyond the CPA taking the right deductions.
Increasing personal tax efficiency. We deal with high net worth clients every day and are continually surprised by the amount of money that they leave on the table for the government by not maximizing their legal options. For most, a 401K is not adequate tax planning. Even if the money you save is “long term” or retirement money that cannot be used now, you still get to keep it. Many of the most sophisticated programs provide multiple benefits and may also serve or support goals like estate planning and asset protection.
One glaring example is the use of special life insurance policies with high cash values that grow tax free, allow withdrawals tax free, and which offer statutory protection against creditors in many states. As an example, in Arizona that creditor protected amount is “unlimited” after 24 months in a plan. Other examples of planning to consider includes section 79, post retirement medical reimbursement, 412i defined benefit programs. Don’t know where to start? Don’t worry, we can help show you which plans apply to your unique situation and which are guarantee of principle, no market risk, tax deductible and Asset Protected programs.
RECESSION BUSINESS SURVIVAL PLAN
© Ike Z. Devji, J.D.
Another version of this went to my clients in December of 2007. I hope your advisors shared similar insights with you.
As we move into the second quarter of 2010 we look back at the lessons learned and forward to new opportunities. Below are some critical points we have seen illustrated many times by those we work with, some of the most successful and intelligent people in their various professions and businesses. Despite the phenomenal track record many of them have in terms of making money safely, predictably and responsibly for many years, no one was left untouched by the recent crisis. Here are some of the 2008 and 2009 “lessons” we feel it is most important to reflect on and examine for yourself as we tackle 2010.
As always, contact me for more specific information on any of these issues.
We have seen that those who have weathered this storm most effectively and with a minimum amount of trauma shared several characteristics:
- They and their advisors were aware of potential exposures and were proactive in addressing them;
- They are able to make their personal, family overhead commitments from existing resources for an extended period of time, even without additional cash flow;
- They were willing and able to adjust their lifestyles and expenditures to current economic conditions;
- They lived very well, but well within their means, as opposed to at the limits of their means; - They had assets that allowed them to meet existing business financing burdens and other fixed costs in a form that they were able to liquidate at minimal delay and expense;
- They had top counsel in place on tax, business and estate issues, and that counsel used a variety of strategies that not only served the primary goals but also protected those assets for the family. Some examples are the use of Insurance and Annuity Products and ILITS and Split Dollar agreements that preserve certain assets for the family by statute;
- They had great credit and relationships with banks that allowed them to agree on terms that were best for all parties involved, and had these relationships with several institutions;
- They had long term assets that were able to be made liquid with minimal penalty and delay, despite that liquidation not being part of the original plan, i.e. long term investments with an escape or liquidity plan built in;
- They and their advisors were aware of potential exposures and were proactive in addressing them;
- They are able to make their personal, family overhead commitments from existing resources for an extended period of time, even without additional cash flow;
- They were willing and able to adjust their lifestyles and expenditures to current economic conditions;
- They lived very well, but well within their means, as opposed to at the limits of their means; - They had assets that allowed them to meet existing business financing burdens and other fixed costs in a form that they were able to liquidate at minimal delay and expense;
- They had top counsel in place on tax, business and estate issues, and that counsel used a variety of strategies that not only served the primary goals but also protected those assets for the family. Some examples are the use of Insurance and Annuity Products and ILITS and Split Dollar agreements that preserve certain assets for the family by statute;
- They had great credit and relationships with banks that allowed them to agree on terms that were best for all parties involved, and had these relationships with several institutions;
- They had long term assets that were able to be made liquid with minimal penalty and delay, despite that liquidation not being part of the original plan, i.e. long term investments with an escape or liquidity plan built in;
The right financial advice matters now more than ever. We have seen that at the worst, some clients lost as much as 60% of their investment portfolios due to the market and their investment allocations while others were down only a fraction of what the market lost and are relatively free of anxiety. Why the huge disparity in results between advisors? What we see is that it is relatively easy to make money in good times by using a simple allocation table that at first glance seems well diversified between different types of investments such as technology, energy and etc. What those plans, such as the ones we see from big commercial brokerage firms or “wire-houses” are typically lacking in is a good down-market strategy that values principal protection as highly as it does growth. There are ways to get all or most of the market growth available with guaranteed rates of return or principal guarantees. These types of strategies, when properly allocated are the backbone of what saved the second, more fortunate group of investors described above. These clients are not only whole or close to it, but are now poised and financially equipped to take advantage of emerging opportunities.
Again, as the economy and income and profit slow, never taking a step back, or at least taking as few as possible, becomes more important than ever before. Remember, a portfolio that is down 50% will need to DOUBLE to get back to where it was. How long did it take you to double your money the last time? Do you have that kind of time left? If you don’t like the way you answered those questions for yourself, perhaps it’s time to take a good look at how you are structured and what kind of stop-loss measures you have in place. In many cases it is not too late to make some positive changes and “buy and wait” is not the right answer for every investor or every investment.
NOW is always the best time to act on preventative legal planning.
This year we saw many successful people who always meant to complete essential planning like Asset Protection and advanced Estate Planning precluded from doing so either wholly or completely. In some cases their unexpected legal exposures made the planning ineffective or illegal, in others their financial positions in terms of debt, credit and cash flow changed so rapidly they were locked out.
We understand that doing this kind of planning takes time, energy, and resources that are already scarce for the dynamic individuals we work with, and that it seems to lack the kind of time sensitivity that other matters, like responding to a lawsuit, would justify. The real truth however is that every day that passes without these issues being properly addressed jeopardizes your net worth and your family’s security, the thing that many of you are working so hard to create.
We have countless stories from the last 6 months alone of fortunes lost because of the way easily protectable assets were held and exposed to creditors, families thrown into crisis when the bread winner passes away in an accident without adequate estate planning and life insurance or is disabled without disability coverage in place, and unexpected liabilities taking away dreams.
We equate this lack of attention to these issues to driving to work every day on a busy freeway without auto insurance or operating without a malpractice policy in place. These are odds that most cannot afford to bet on. Take the time and make the investment in YOURSELF and the years you have put into your current level of success and address these issues now. Preserving what you already have when money is harder to make is a good first step.
No program lasts forever, when the door is open seize the opportunity. Many of the most productive and sophisticated wealth preservation techniques such as Accounts Receivable Financing to leverage and protect future income and Premium Financing for large estate planning cases have disappeared or slowed to a crawl as the banking and insurance industries continue to be devastated. Even clients with nine-figure net worth levels are having trouble obtaining the kind of low cost financing that was available for them to help leverage their wealth and avoid estate taxes even 6 months ago. Add to that increasingly stringent underwriting by insurance companies and you have the worst possible storm for the affluent. We are now in the unfortunate position of having to tell many of those we counseled on these issues a year ago and who skeptically heard us say that there was a time pressure involved that the programs are not available or that they are no longer qualified under more stringent underwriting guidelines. Of course, they can still pay for the planning, but at the full cost and by paying the premiums directly in cash at a time when cash flow is king as opposed to 6 months ago when they could have had it for as little as interest only at less than 6% fixed rate loans. What does this mean? In one case it meant a client with an eight figure estate tax exposure looking at a premium of over $250K per year as opposed to less than $50K. It’s just math.
We like leveraging wealth and using credit, but you must have a disaster plan. Those in the real-estate business are the most obvious example of what a lack of credit and financing can do, but all types of industries have been crippled by current economic conditions. We have many of the most successful real estate professionals in the country as clients and have felt and shared their pain. What has been less obvious is the impact on other businesses like shipping, dining, small businesses that rely on services and discretionary income, banking, appraisal services, elective medical procedures, health and beauty businesses, the list is infinite.
No business is recession proof. Diversify and properly insulate your income streams if possible and be ready to be flexible and spot ways to identify new opportunities for your business and your skill set.
Realize that your niche, as you have defined it, may come to an end and know when to direct your assets and energy to those new opportunities. As examples, some of our clients who were major players in single family housing are now in the “economy” apartment market segment and are doing well. Doctors are expanding their practices and adding high value cash services like medically supervised weight loss to practices that were focused solely in other areas. Others have created booming new businesses like debt and credit repair that directly reflect the current economy.
Don’t take your market position for granted. In a down economy discount solution, product and service providers emerge in every market. These competitors will be selling price first and many consumers won’t see the differences until they have been poorly served and you have lost the business. Some steps to fight this:
- Make sure that your network and professional relationships are as strong and developed now as they were before you reached your current level of success;
- Look for ways to distinguish yourself and your business and maintain the highest standards of professionalism and service;
- Look for every way to add value and collaborate with other top services providers you work with so that you are a natural and logical part of every project or client they are involved with. Become part of a best of class team of teams that delivers the highest value to the consumer. This is true of everything from medical services to commercial contracting;
- Continue to be the best, or at least great at what you do. “Good enough” should not be part of your vocabulary.
Guard your credit like gold. Good credit has always been important on both personal and business fronts, but it is now more important that ever. As credit markets have tightened even the wealthy are having trouble obtaining credit for every day issues like home and auto purchase or leasing. Banks are scared and have pulled in the reigns on lending to all but those who have sterling credit, “good” is no longer good enough. They are also using late payments of any kind to move to the default interest rates permissible under various types on loan and consumer credit agreements as a way to generate fees and increase revenue internally. On a personal level this could mean that your VISA ay 8.9% jumps to 29.99% APR if your spouse sends in the check late.
On a business level it is much worse. If your course of business has been to pay certain credit lines down late to a friendly creditor, it could now put you into default or cause an acceleration. We are also hearing that clients who have used revolving credit lines for years as part of their business model either for capitalization or to pay recurring expenses are suddenly finding that their credit lines have been terminated or drastically reduced as is permissible in the fine print of most such agreements. This is despite the fact that the client has had no change in income or credit. Banks are simply deciding that they have too much exposure and are proactively limiting your ability to draw that money out.
Solution? If you have a credit line that you know you are going to need or cannot risk losing – draw the money out now and look at the interest cost like an insurance premium; you may not want to pay it but if you need the “insurance” of having that money available it will not be available at any cost, certainly not in any short term scenario.
There are services out there that we have referred friends and clients to with great results. For an investment of a few hundred dollars many negative or inaccurate items can be removed in a short period of time increasing your credit score by dozens of points.
Check your business and personal credit reports and see if they are accurate.
We are also seeing that banks that are in financial trouble and which need to reduce their outstanding debt balances are playing dirty tricks like re-appraising property they financed over 18 months ago to “current market value” at ridiculously low valuations then going back to the borrower and saying they need more collateral or they will call they note as the “fine print” entitled them to do. How bad can this be? In one case the bank re-appraised my client’s multi-million dollar commercial property at about 50% of current fair market value and wanted an additional seven figures in collateral. Fortunately, this client had sterling credit and good professional relationships that allowed him to re-finance at a lower rate with a more solvent and ethical bank.
Keep more of every dollar you earn. There are many things each of us could do to maximize our retained earnings. Again, now that money is harder to make, another way to increase revenue is to devote a small amount of resources to increasing efficiency.
These are just a few of the most obvious ways we see clients successfully achieving this goal: - Cost segregation Studies. These studies allow huge tax deductions now when you need them most as opposed to spread over 30 years at about 3% per year the way they are typically taken. Most commercial property, even leased, qualifies for the study and the deductions and we can even arrange for a free feasibility study for commercial property with an aggregate value of at least $1MM, an easily attainable entry level. As a bonus, you can ever re-capture lost depreciation for as much as the last 20 years!
Energy Studies. Again, owners of commercial properties are seeing energy tax credits of up to $1.80 per square foot when the study is completed and simple low cost changes are made. Would that kind of recurring savings be valuable enough to you to change the kinds of light bulbs you use and add a skylight? In most cases it is.
Increasing Business Tax Structure efficiency. You walk around turning off lights, but is your business tax structure maximized? One of my Associates, Mr. Tom Maguire of Hebets and Maguire, as just one example, routinely saves both public and private corporation clients a significant amount of money on a re-occurring basis by refining and perfecting the choice of corporate formation, stock ownership options and identifying the most efficient business succession and executive compensation models. This goes far beyond the CPA taking the right deductions.
Increasing personal tax efficiency. We deal with high net worth clients every day and are continually surprised by the amount of money that they leave on the table for the government by not maximizing their legal options. For most, a 401K is not adequate tax planning. Even if the money you save is “long term” or retirement money that cannot be used now, you still get to keep it. Many of the most sophisticated programs provide multiple benefits and may also serve or support goals like estate planning and asset protection.
One glaring example is the use of special life insurance policies with high cash values that grow tax free, allow withdrawals tax free, and which offer statutory protection against creditors in many states. As an example, in Arizona that creditor protected amount is “unlimited” after 24 months in a plan. Other examples of planning to consider includes section 79, post retirement medical reimbursement, 412i defined benefit programs. Don’t know where to start? Don’t worry, we can help show you which plans apply to your unique situation and which are guarantee of principle, no market risk, tax deductible and Asset Protected programs.
Wednesday, October 21, 2009
OWN VACANT PROPERTY? HERE'S A RISK YOU MAY NOT BE AWARE OF - YOUR INSURANCE HAS BEEN CANCELLED
The news is filled with stories about the unfortunate reality of vacant properties. As just one example, office property in Phoenix Arizona now stands at a 26% vacancy rate and the news regularly features stories on homes and commercial properties that have been stripped and damaged by squatters, theives and vandals.
We have also seen the devastating results of this kind of damage first hand as clients with vacant luxury homes and Class A offices have had their property stripped right down to the copper wires in the walls, pool equipment and even garage door opening systems!
Homes and businesses alike are standing empty. Many owners may who purchased homeowners/dwelling or business insurance policies while the homes or businesses were occupied have incorrectly assumed they are still secure with that coverage in place now that the property is vacant.
WHY ISN'T IT COVERED?
Vacant or unoccupied property presents special challenges. The premium charged for occupied property does not take into consideration the increased exposure of vacant and/or unoccupied property. The insurance provided by most policies is limited, and may not respond at all if the property has been vacant for more than 60 consecutive days (prior to a loss)!
Many if not most insurance companies will cancel coverage immediately if they become aware of the vacancy. Even if the policy is not canceled there may be major problems in the event of a loss. The occupancy status is considered essential (material) to the insurance company. When the use and/or occupancy of a property changes many insurance companies no longer want to insure the property.
WHAT THIS MEANS
If you have vacant commercial property and your coverage is cancelled you would be personally labile for the following:
- Accidents and Injuries on the property;
-Catastrophic loss from flood or fire;
-Vandalism and Theft including broken glass;
-There is no coverage for freezing of a plumbing, heating, air conditioning, or automatic fire protection sprinkler system or of a household appliance caused by freezing if a structure has insufficient heat, and/or the water system has not been shut off and drained;
- On a commercial building if there is 31% or less occupancy in addition to the above, ALL claims are reduced by 15%;
-Depending on the policy and insurance company involved the entire policy may be void in the event of a vacancy.
There are, however, solutions. We pride ourselves on helping to find solutions to these issues for our clients and partners. One of these solutions is our friend Geri Custer, at Geri Custer Insurance who provided us with this important information. We must, however, be first made aware of the vacancy or occupancy. Please contact Geri if your property undergoes an occupancy change and she will help guide you through the necessary steps to obtain proper coverage. See more about her at her great informational website here: www.insureUS.biz or call them at 602.942.2669.
We have also seen the devastating results of this kind of damage first hand as clients with vacant luxury homes and Class A offices have had their property stripped right down to the copper wires in the walls, pool equipment and even garage door opening systems!
Homes and businesses alike are standing empty. Many owners may who purchased homeowners/dwelling or business insurance policies while the homes or businesses were occupied have incorrectly assumed they are still secure with that coverage in place now that the property is vacant.
WHY ISN'T IT COVERED?
Vacant or unoccupied property presents special challenges. The premium charged for occupied property does not take into consideration the increased exposure of vacant and/or unoccupied property. The insurance provided by most policies is limited, and may not respond at all if the property has been vacant for more than 60 consecutive days (prior to a loss)!
Many if not most insurance companies will cancel coverage immediately if they become aware of the vacancy. Even if the policy is not canceled there may be major problems in the event of a loss. The occupancy status is considered essential (material) to the insurance company. When the use and/or occupancy of a property changes many insurance companies no longer want to insure the property.
WHAT THIS MEANS
If you have vacant commercial property and your coverage is cancelled you would be personally labile for the following:
- Accidents and Injuries on the property;
-Catastrophic loss from flood or fire;
-Vandalism and Theft including broken glass;
-There is no coverage for freezing of a plumbing, heating, air conditioning, or automatic fire protection sprinkler system or of a household appliance caused by freezing if a structure has insufficient heat, and/or the water system has not been shut off and drained;
- On a commercial building if there is 31% or less occupancy in addition to the above, ALL claims are reduced by 15%;
-Depending on the policy and insurance company involved the entire policy may be void in the event of a vacancy.
There are, however, solutions. We pride ourselves on helping to find solutions to these issues for our clients and partners. One of these solutions is our friend Geri Custer, at Geri Custer Insurance who provided us with this important information. We must, however, be first made aware of the vacancy or occupancy. Please contact Geri if your property undergoes an occupancy change and she will help guide you through the necessary steps to obtain proper coverage. See more about her at her great informational website here: www.insureUS.biz or call them at 602.942.2669.
Monday, October 19, 2009
Ike Devji's Article Featured Nationally on Financial Advisor Match
The Article: Creditor Protected Cash Alternative and Wealth Multiplier?
Was picked and published on FinancialAdvisorMatch.Com as of this AM.
Click here to see the article in full :http://www.financialadvisormatch.com/community/articles/1253_creditor_protected_cash_alternative_and_wealth_multiplier_.html
Was picked and published on FinancialAdvisorMatch.Com as of this AM.
Click here to see the article in full :http://www.financialadvisormatch.com/community/articles/1253_creditor_protected_cash_alternative_and_wealth_multiplier_.html
Monday, October 12, 2009
ARE YOU AN ACCIDENTAL TAX CHEAT? THE IRS IS LOOKING FOR YOU.
The IRS is currently running a "Voluntary Disclosure Opportunity" that expires October 15, 2009.
You have likely heard reference to this amnesty event in the context of allowing those with "secret" offshore accounts (see my other posts on this amateur practice) to report them and get square with the tax man - but there are many other situations that require reporting and which are often intentionally or accidentally overlooked - be sure you and your clients are fully aware.
If any of the following situations apply in your case, make sure that you file proper forms to report these transactions and if required declare income prior to the extended deadline of October 15, 2009 in order to avoid severe and harsh penalties including criminal penalties:
1. Do you have a foreign bank account including a security account, credit
card account etc outside the United States that you did not report as
required by law?
2. Do you have unreported income from a foreign country?
3. Do you own any unreported foreign entities such as corporations, trusts,
partnerships or disregarded entities?
4. Do you own Mexican real estate through Mexican Bank Trusts?
5. Do you have rental income from property outside the United
States?
6. Did you receive unreported inheritance from outside United States?
7. Are you a beneficiary in any trust formed in foreign jurisdiction? Did
you receive any unreported distribution from the trust?
8. Have you sent money outside United States by way of loan, equity etc in
last few years and not reported it to the IRS?
If any of the above situations apply to you, please contact professional accounting help as soon as possible so that they can help you - Penalties will be exceptionally harsh after October 15, 2009.
My thanks to Pallav Acharya, CPA, FCA, CIM of CPA global Tax & Accounting
for this list. Phone: (480) 889-8949 - Pallav is in Scottsdale, AZ and works with clients all over on international taxation issues.
Monday, September 28, 2009
TAX IMPLICATIONS OF REAL ESTATE DEBT REDUCTION PLANNING
The excerpt below shows the serious tax implications of Debt Negotiation and Reduction on Real Estate that are often overlooked it the process.
To add insult to injury, owners of distressed property may realize gross income and incur tax liability from a real estate debt workout with a lender. Fortunately, certain provisions under the Internal Revenue Code, including new legislation, exempt certain debt relief income from taxation or permit deferral of such income.
See the whole article here:
http://www.globest.com/news/1504_1504/florida/181256-1.html
To add insult to injury, owners of distressed property may realize gross income and incur tax liability from a real estate debt workout with a lender. Fortunately, certain provisions under the Internal Revenue Code, including new legislation, exempt certain debt relief income from taxation or permit deferral of such income.
See the whole article here:
http://www.globest.com/news/1504_1504/florida/181256-1.html
Friday, September 18, 2009
CREDITOR PROTECTED CASH ALTERNATIVE AND WEALTH MULTIPLIER?
“What is an alternative to my current cash position that will protect my money from litigation?”
By Ike Devji, J.D.
In our current economic environment, all clients want their money both safe and liquid.
When most people consider “safe” and “liquid,” they immediately think of their bank. However, what most people do not know is that their checking or savings account is unprotected from a very real threat: the exposure to an increasingly hostile and predatory litigation system. Consider this:
There are tens of thousands of lawsuits filed each day in this country. The average legal cost of defending a frivolous lawsuit is $91,000, plus the settlement amount itself. The number of lawsuits increases in tough economic times as people look to your wealth as an additional source of income.
Our team often takes commonly used tools and redesigns them to provide protection of client assets, while allowing clients to retain control and liquidity. This where the sciences of Financial Planing and Asset Protection meet. The situations below demonstrate the benefits of a strategy we are using in which we take a universal life insurance policy and design it to provide 98 to 102 percent cash surrender value in the first year.
Current Situation—Cash in the Bank: A healthy 45-year-old male client has a bank checking account with $1 million. He rarely uses this account, but he keeps his money there because he likes to have a certain amount of funds liquid in case he needs to access it quickly.
Here is how a regular, personally held bank account works:
· The account earns about 1 percent interest per year, with income taxable as ordinary income.
· If the client is sued for any reason and loses, the judge can require the transfer of the assets from the client’s checking account and into the plaintiff’s pockets.
· If the client dies, the named beneficiaries will receive the $1 million minus the taxes due.
· If the client needs to use the money, he is able to take the amount needed.
BETTER: Creditor-Protected Cash Alternative:
The strategy our team has designed allows the same client to place the $1 million into a specially designed universal life insurance policy by paying a premium amount of $500,000 in each of the first two years.
The policy will provide the following benefits:
· The account will earn a net interest of about 1 percent annually invested in the policy’s fixed account, and the gains are allowed to grow tax-deferred. If the client is sued for any reason and loses, the money in this account is 100 percent creditor-protected from day one.
· If the client dies, the named beneficiaries will receive a death benefit of $10,624,682, the face amount associated with this specific example, free of any estate taxes.
· If the client needs to withdraw all or part of the money in the account, he is able to do so at anytime with no fees or surrender charges, and he will have access to the money within a week.
By Ike Devji, J.D.
In our current economic environment, all clients want their money both safe and liquid.
When most people consider “safe” and “liquid,” they immediately think of their bank. However, what most people do not know is that their checking or savings account is unprotected from a very real threat: the exposure to an increasingly hostile and predatory litigation system. Consider this:
There are tens of thousands of lawsuits filed each day in this country. The average legal cost of defending a frivolous lawsuit is $91,000, plus the settlement amount itself. The number of lawsuits increases in tough economic times as people look to your wealth as an additional source of income.
Our team often takes commonly used tools and redesigns them to provide protection of client assets, while allowing clients to retain control and liquidity. This where the sciences of Financial Planing and Asset Protection meet. The situations below demonstrate the benefits of a strategy we are using in which we take a universal life insurance policy and design it to provide 98 to 102 percent cash surrender value in the first year.
Current Situation—Cash in the Bank: A healthy 45-year-old male client has a bank checking account with $1 million. He rarely uses this account, but he keeps his money there because he likes to have a certain amount of funds liquid in case he needs to access it quickly.
Here is how a regular, personally held bank account works:
· The account earns about 1 percent interest per year, with income taxable as ordinary income.
· If the client is sued for any reason and loses, the judge can require the transfer of the assets from the client’s checking account and into the plaintiff’s pockets.
· If the client dies, the named beneficiaries will receive the $1 million minus the taxes due.
· If the client needs to use the money, he is able to take the amount needed.
BETTER: Creditor-Protected Cash Alternative:
The strategy our team has designed allows the same client to place the $1 million into a specially designed universal life insurance policy by paying a premium amount of $500,000 in each of the first two years.
The policy will provide the following benefits:
· The account will earn a net interest of about 1 percent annually invested in the policy’s fixed account, and the gains are allowed to grow tax-deferred. If the client is sued for any reason and loses, the money in this account is 100 percent creditor-protected from day one.
· If the client dies, the named beneficiaries will receive a death benefit of $10,624,682, the face amount associated with this specific example, free of any estate taxes.
· If the client needs to withdraw all or part of the money in the account, he is able to do so at anytime with no fees or surrender charges, and he will have access to the money within a week.
To Summarize the benefits again:
- Creditor Protection
- Wealth Multiplier Effect of 10X (in this illustration)
- Liquidity and borrowing options with no penalty
- Death benefit of $10MM plus that passes outside the estate and free of estate tax
My thanks to Insurance and Investing Expert Jeff Christenson for his help on the technical details of the insurance policy. Together we implement this strategy for clients and advisors nationwide.
UNREPORTED FOREGIN BANK ACCOUNTS - DEADLINES AND PENALTIES LOOMING
People who haven't reported ownership of foreign accounts by September 23 may face jail time and fines.
By Seth J. Entin
Mr. and Mrs. Doe, who are U.S. citizens, have an account with a foreign financial institution. The Does have never reported their ownership of or the income from this account on Schedule B of their U.S. federal income tax returns, and they have never filed Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR), which they are required to do to disclose this account.
SEE THE WHOLE STORY HERE: http://www.fa-mag.com/online-extras/4478-wednesday-deadline-approaching-for-foreign-accounts.html
By Seth J. Entin
Mr. and Mrs. Doe, who are U.S. citizens, have an account with a foreign financial institution. The Does have never reported their ownership of or the income from this account on Schedule B of their U.S. federal income tax returns, and they have never filed Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR), which they are required to do to disclose this account.
SEE THE WHOLE STORY HERE: http://www.fa-mag.com/online-extras/4478-wednesday-deadline-approaching-for-foreign-accounts.html
Saturday, September 12, 2009
MOST COMMON ABUSIVE TAX SCHEMES - WHAT THE IRS SAYS
I continually warn clients and advisors that there are good and bad methods, tools and practitioners in every business including Asset Protection. The worst plans I see combine abusive tax plans with supposed Asset Protection benefits. These plans typically involve IBCs, Nevada Trusts, and Domestic Asset Protection Trusts in some combination. Generally speaking these are the WORST tools to use for a variety of reasons. We use offshore tools effectively and legally everyday for Asset Protection and other issues. The tools we use are explicitly TAX NEUTRAL because we don't want our clients relying on these tools for protection and estate preservation and fighting the IRS at the same time, a common fatal flaw that is spawned by greed and promises of tax savings that top professionals will never make. Below is what the IRS has to say in their own words.
Yours, Ike
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account. Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes: The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer's business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business's equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041). Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two. Since all of foreign trust-two's income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets. The reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC): The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country. The foreign bank then uses its correspondent account in to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer's IBC account is credited for the check payments. Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes: A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC. On the bank's records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer's business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer. The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
Original Link:http://www.irs.gov/compliance/enforcement/article/0,,id=105822,00.html
Yours, Ike
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account. Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes: The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer's business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business's equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041). Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two. Since all of foreign trust-two's income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets. The reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC): The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country. The foreign bank then uses its correspondent account in to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer's IBC account is credited for the check payments. Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes: A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC. On the bank's records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer's business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer. The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
Original Link:http://www.irs.gov/compliance/enforcement/article/0,,id=105822,00.html
Wednesday, September 2, 2009
How Many Lawsuits are There in the U.S. & What are They For?
The article below has a great summary of lawsuit facts that helps shed light on what all this "lawsuit and Asset Protection fuss) is about. Your wealth is the product being sold by attorneys nationwide, choose not to let them have it and take action. - Ike Devji
(Reprinted with Permission from the SixWise.com Security & Wellness e-Newsletter www.sixwise.com)
The U.S. legal system ensures that every American who feels they have been injured or victimized is able to seek justice through the court system -- clearly a noble and necessary protection. However, in recent decades the United States has earned the nickname as the most "litigious society" out there, in part due to major increases in lawsuits involving everything from hot spilled coffee to neighbors' disputes.
The United States has more lawyers per capita than any other country.
In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal, and twice as much on litigation as on new automobiles.
Why the disparity? Part of the reason, according to the Economic Journal study, has to do with incentives to sue, of which Americans have plenty. While in most European legal systems the loser in a suit must pay a large portion of the winner's legal fees, in America each party pays their own. So, simply speaking, in America there's nothing to lose.
More Lawyers Per Capita Than Any Other Country
As of 2006, there are over 1 million lawyers in the United States, according to the American Bar Association -- more per capita than any other country.
As the number of lawyers has increased, so has the number of civil claims, up 12 percent from 1993 to 2002.
In all, over 16 million civil cases were filed in state courts in 2002, according to the State Court Guide to Statistical Reporting,2003, from the National Center for State Courts. Trial lawyers earned an estimated $40 billion in lawsuit awards that same year.
What Are All These Lawsuits For?
Demand for legal services is increasing across the board, but particularly in such areas as health care, intellectual property, venture capital, energy, elder, antitrust, and environmental law.
The largest jump in lawsuits has been seen in the health care industry, where doctors have been paying significantly higher liability premiums to defend against potential litigation. While some say the increase in health care lawsuits may provide a safer environment for patients, opponents believe they are keeping patients from receiving the best care.
Some interesting facts:
- Over 16 million civil cases were filed in state courts in 2002.
- 79 percent of doctors report that they've ordered more tests than they would based only on professional judgment due to litigation fears, according to a Harris Interactive Poll.
- The American Medical Association lists 21 states as being in a "medical liability crisis."
- 71,000 drug lawsuits have been filed in federal courts since 2001 -- and have outnumbered asbestos, tobacco and auto safety lawsuits since 2002.
- 45 percent of U.S. hospitals reported that the liability crisis has caused a loss of physicians and/or reduced coverage in emergency departments.
How do Americans Feel About the Legal System?
News about frivolous and controversial lawsuits makes headlines just about everyday. But when a 14-year-old sues her friend for losing her iPod, the music industry sues a 12-year-old for downloading music from the Internet, and lawyers are eyeing fast food companies and snack food makers as targets in potential class-action lawsuits of the future, litigation, it seems, gets taken to a new level.
Frivolous lawsuits alone are said to cost the United States $200 billion a year, according to Congressman Terry Everett, and all of these potentially unwarranted claims are having an affect on how Americans view the legal system.
According to a survey conducted by Harris Interactive, 76 percent of those surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
Further:
- Only 16 percent trust the legal system to defend them against frivolous lawsuits.
- 54 percent do not trust the legal system.
- 67 percent strongly agree (and 27 percent somewhat agree) that there is an increasing tendency for people to threaten legal action when something goes wrong.
- 83 percent feel that the legal system makes it too easy to make invalid claims.
- 56 percent think that there are fundamental changes needed to make the civil justice system work better.
Perhaps most telling of all, most Americans surveyed (55 percent) strongly agreed (and another 32 percent somewhat agreed) that the justice system is used by many as a lottery, to start a lawsuit and see just how much they can win.
(Reprinted with Permission from the SixWise.com Security & Wellness e-Newsletter www.sixwise.com)
The U.S. legal system ensures that every American who feels they have been injured or victimized is able to seek justice through the court system -- clearly a noble and necessary protection. However, in recent decades the United States has earned the nickname as the most "litigious society" out there, in part due to major increases in lawsuits involving everything from hot spilled coffee to neighbors' disputes.
The United States has more lawyers per capita than any other country.
In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal, and twice as much on litigation as on new automobiles.
Why the disparity? Part of the reason, according to the Economic Journal study, has to do with incentives to sue, of which Americans have plenty. While in most European legal systems the loser in a suit must pay a large portion of the winner's legal fees, in America each party pays their own. So, simply speaking, in America there's nothing to lose.
More Lawyers Per Capita Than Any Other Country
As of 2006, there are over 1 million lawyers in the United States, according to the American Bar Association -- more per capita than any other country.
As the number of lawyers has increased, so has the number of civil claims, up 12 percent from 1993 to 2002.
In all, over 16 million civil cases were filed in state courts in 2002, according to the State Court Guide to Statistical Reporting,2003, from the National Center for State Courts. Trial lawyers earned an estimated $40 billion in lawsuit awards that same year.
What Are All These Lawsuits For?
Demand for legal services is increasing across the board, but particularly in such areas as health care, intellectual property, venture capital, energy, elder, antitrust, and environmental law.
The largest jump in lawsuits has been seen in the health care industry, where doctors have been paying significantly higher liability premiums to defend against potential litigation. While some say the increase in health care lawsuits may provide a safer environment for patients, opponents believe they are keeping patients from receiving the best care.
Some interesting facts:
- Over 16 million civil cases were filed in state courts in 2002.
- 79 percent of doctors report that they've ordered more tests than they would based only on professional judgment due to litigation fears, according to a Harris Interactive Poll.
- The American Medical Association lists 21 states as being in a "medical liability crisis."
- 71,000 drug lawsuits have been filed in federal courts since 2001 -- and have outnumbered asbestos, tobacco and auto safety lawsuits since 2002.
- 45 percent of U.S. hospitals reported that the liability crisis has caused a loss of physicians and/or reduced coverage in emergency departments.
How do Americans Feel About the Legal System?
News about frivolous and controversial lawsuits makes headlines just about everyday. But when a 14-year-old sues her friend for losing her iPod, the music industry sues a 12-year-old for downloading music from the Internet, and lawyers are eyeing fast food companies and snack food makers as targets in potential class-action lawsuits of the future, litigation, it seems, gets taken to a new level.
Frivolous lawsuits alone are said to cost the United States $200 billion a year, according to Congressman Terry Everett, and all of these potentially unwarranted claims are having an affect on how Americans view the legal system.
According to a survey conducted by Harris Interactive, 76 percent of those surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
Further:
- Only 16 percent trust the legal system to defend them against frivolous lawsuits.
- 54 percent do not trust the legal system.
- 67 percent strongly agree (and 27 percent somewhat agree) that there is an increasing tendency for people to threaten legal action when something goes wrong.
- 83 percent feel that the legal system makes it too easy to make invalid claims.
- 56 percent think that there are fundamental changes needed to make the civil justice system work better.
Perhaps most telling of all, most Americans surveyed (55 percent) strongly agreed (and another 32 percent somewhat agreed) that the justice system is used by many as a lottery, to start a lawsuit and see just how much they can win.
Thursday, August 27, 2009
STATES RELEASE LISTS OF TOP INVESTMENT SCAMS
I am seeing a massive increase in investment fraud, theft, and embezzlement among our affluent business owner clients right now. This exposure is coming from both outside sources AND partners, executives and employees of all types.
I continually post issues and warnings here, in my private email update newsletters to clients and advisors and on Twitter to try to help, but the scams evolve so fast and multiply so quickly that it's impossible to keep up with this human "virus", even with the help and tips supplied by other top pros like my friend Greg George at
GTI-ADVISORS.COM, a leading professional due diligence firm.
The list below is currently being circulated by state and local govt. nationwide and includes many of the issues that I have commented on previously including here in my previous post on Affinity Fraud taking advantage of personal, religious and cultural connections: http://tinyurl.com/kjdwxm
Please take a moment to protect yourself or your clients by taking a look at this report, it applies to EVERY city and state in the country.
LIST OF TOP TEN INVESTOR FRAUD SCHEMES:
http://www.cc.state.az.us/Divisions/Administration/news/090821Top%20Ten%20Investment%20Schemes.pdf
I continually post issues and warnings here, in my private email update newsletters to clients and advisors and on Twitter to try to help, but the scams evolve so fast and multiply so quickly that it's impossible to keep up with this human "virus", even with the help and tips supplied by other top pros like my friend Greg George at
GTI-ADVISORS.COM, a leading professional due diligence firm.
The list below is currently being circulated by state and local govt. nationwide and includes many of the issues that I have commented on previously including here in my previous post on Affinity Fraud taking advantage of personal, religious and cultural connections: http://tinyurl.com/kjdwxm
Please take a moment to protect yourself or your clients by taking a look at this report, it applies to EVERY city and state in the country.
LIST OF TOP TEN INVESTOR FRAUD SCHEMES:
http://www.cc.state.az.us/Divisions/Administration/news/090821Top%20Ten%20Investment%20Schemes.pdf
Monday, August 17, 2009
LONG TERM CARE INSURANCE - CAN YOU AFFORD NOT HAVE IT?
10 Vital Points to consider about your LONG TERM CARE INSURANCE
As an Asset Protection attorney ANY avoidable source of loss, risk or exposure to my clients is unacceptable. One often overlooked area is the possibility that you or a loved one may need long term care as a result of age, illness or accidents. In cases where such care is required, the financial effects can be devastating even to the most affluent clients and are a needless expense that can be avoided.
For help in this area I turned to an expert, Dr. Jonathan Smith, M.D. a medical specialist who knows what this care costs and who now provides education and coverage to clients and advisors all over the U.S. on this easily addressed but potentially serious exposure. He shares important thoughts on this issues with us below. The insurance part is good enough, but some options are also both creditor protected AND have a return of premium guarantee if you never need it. Interestingly, even DOCTORS (who know better) often neglect this area of their own planning.
Here are Dr. Smith's points, they are tough to argue with...
1. The successes of medical science and the Medical Profession have helped people to live longer, but not necessarily healthier.
2. Women live longer than men.
3. The Federal Government says "at least 70% of the people over age 65 will require some form of Long Term Care services at some point in their lives". (1)
4. The Term Long Term Care services is applied to any 1 of 3 levels of services a person receives when that person fails to perform at least two of the six Activities of Daily Living (ADL), or is mentally incompetent.The ADLs are:
A - ambulating, walking around
B - bathing oneself
C - continence; continent of urine and/or stool
D - dressing
E – eating; feeding oneself
T - transferring; moving between bed and chair, etc
5. The inability to perform the ADLs may occur at any age.Example: as a result of a severe automobile accident, a person is left unable to walk (Ambulating). Toileting and Bathing are accompanying failures. As a result, who is going to move that person to a toilet each time there is a need to urinate?Or shall that person be left to soil him/herself?
6. The cost of care can be CATASTROPHICALLY EXPENSIVE.
Example: When the minimum wage in California is $8.00 per hour for UNSKILLED help, the cost for labor for home-help is $192.00 per day, and, if paid from a tax-deferred account, is nearly $120,000.00 per year! (assuming an overall tax rate of 40%)
7. Medicare and private health insurance programs do NOT pay for the majority of long term care services. (1)
8. Successful business owners have a special tax advantage when it comes to protecting earned assets from the aforementioned real and crippling financial losses.
9. Successful business owners can own PEACE OF MIND for themselves and their dependents, thus sparing each other the effects of the potentially devastating financial losses.
10. The successful business owner can experience the DIGNITY of receiving care at home, instead of 'spending down assets' to be eligible to be admitted to a Medicaid facility. He still has the ability to leave a LEGACY with the premium payment money returned upon his death.
It comes as a surprise to many that there is an insurance policy that has been around since HIPAA (1997) which specified Long Term Care Insurance as "A Health Benefit" in the tax code. (HIPAA LEGISLATION PUBLIC LAW 104-191 AUGUST 21, 1996 IRC Sec. 7702B)
Such a product is QUALIFIED LONG TERM CARE INSURANCE with CONTRACTUALLY-GUARANTEED FULL REFUND OF ALL PREMIUMS PAID with no reduction in the refund for benefits paid.
HOW DOES IT WORK? Money is paid to the the Insurance Company; the amount is enough to buy the Peace of Mind, the Dignity of the Insured and/or his family, and the size of intended Legacy.
The premium payment may be partially tax deductible, or completely tax deductible, if paid as a benefit to employees in a C corp,{IRC Sec. 162(a) and Regulations.162-10; IRC Sec. 162(a) and ISP Coordination Paper UIL 162.35-02; IRC Sec. 7702B(a)(3) IRC Sec. 7702B(a)(1)}: and is ERISA independent (ERISA: 29 USC 1191b IRC Sec. 1167; Not subject to ERISA) (please consult your tax attorney/ accountant we never provide specific tax advice in a setting like this).
Long term care Insurance is 'purchased' for a level of benefits, and upon death of the insured, the insurance company contractually guarantees to refund all premiums paid (and this is a nontaxable event!{IRC Sec. 7702B(b)2(C)(1)(E)}
As of January 1,2010, PPA (2006) suggests a 1035 exchange from a qualified plan to Qualified Long Term Care Insurance (PENSION PROTECTION ACT PUBLIC LAW 109-280 AUGUST 17, 2006, SECTION 844)
(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero).
Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury. (http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR00004:)
I recommend anyone interested consult a specialist; use these references for guidance:
(1). http://www.longtermcare.gov
(2) www.aarp.org/families/caregiving/state_ltc_costs.html
(3) www.dhcs.ca.gov/services/ltc/Pages/ConsAWordfromtheDirector.aspx.
About guest author Jonathan Smith, M.D.
More than a quarter century in Anesthesia practice (monitoring of people’s health, managing their risks and protecting them from death), made me aware of the financial burden on people living longer, but not necessarily healthier. I saw the need for Guaranteed Full Refund of Premium Long Term Care Insurance as a way to protect Earned Assets from the often debilitating losses to long term care, while preserving Dignity by affording home care; and capital for a Legacy. I own such a policy and advocate the concept. Clients and advisors can reach me directly at jonathan.smithmd@gmail.com for help.
As an Asset Protection attorney ANY avoidable source of loss, risk or exposure to my clients is unacceptable. One often overlooked area is the possibility that you or a loved one may need long term care as a result of age, illness or accidents. In cases where such care is required, the financial effects can be devastating even to the most affluent clients and are a needless expense that can be avoided.
For help in this area I turned to an expert, Dr. Jonathan Smith, M.D. a medical specialist who knows what this care costs and who now provides education and coverage to clients and advisors all over the U.S. on this easily addressed but potentially serious exposure. He shares important thoughts on this issues with us below. The insurance part is good enough, but some options are also both creditor protected AND have a return of premium guarantee if you never need it. Interestingly, even DOCTORS (who know better) often neglect this area of their own planning.
Here are Dr. Smith's points, they are tough to argue with...
1. The successes of medical science and the Medical Profession have helped people to live longer, but not necessarily healthier.
2. Women live longer than men.
3. The Federal Government says "at least 70% of the people over age 65 will require some form of Long Term Care services at some point in their lives". (1)
4. The Term Long Term Care services is applied to any 1 of 3 levels of services a person receives when that person fails to perform at least two of the six Activities of Daily Living (ADL), or is mentally incompetent.The ADLs are:
A - ambulating, walking around
B - bathing oneself
C - continence; continent of urine and/or stool
D - dressing
E – eating; feeding oneself
T - transferring; moving between bed and chair, etc
5. The inability to perform the ADLs may occur at any age.Example: as a result of a severe automobile accident, a person is left unable to walk (Ambulating). Toileting and Bathing are accompanying failures. As a result, who is going to move that person to a toilet each time there is a need to urinate?Or shall that person be left to soil him/herself?
6. The cost of care can be CATASTROPHICALLY EXPENSIVE.
Example: When the minimum wage in California is $8.00 per hour for UNSKILLED help, the cost for labor for home-help is $192.00 per day, and, if paid from a tax-deferred account, is nearly $120,000.00 per year! (assuming an overall tax rate of 40%)
7. Medicare and private health insurance programs do NOT pay for the majority of long term care services. (1)
8. Successful business owners have a special tax advantage when it comes to protecting earned assets from the aforementioned real and crippling financial losses.
9. Successful business owners can own PEACE OF MIND for themselves and their dependents, thus sparing each other the effects of the potentially devastating financial losses.
10. The successful business owner can experience the DIGNITY of receiving care at home, instead of 'spending down assets' to be eligible to be admitted to a Medicaid facility. He still has the ability to leave a LEGACY with the premium payment money returned upon his death.
It comes as a surprise to many that there is an insurance policy that has been around since HIPAA (1997) which specified Long Term Care Insurance as "A Health Benefit" in the tax code. (HIPAA LEGISLATION PUBLIC LAW 104-191 AUGUST 21, 1996 IRC Sec. 7702B)
Such a product is QUALIFIED LONG TERM CARE INSURANCE with CONTRACTUALLY-GUARANTEED FULL REFUND OF ALL PREMIUMS PAID with no reduction in the refund for benefits paid.
HOW DOES IT WORK? Money is paid to the the Insurance Company; the amount is enough to buy the Peace of Mind, the Dignity of the Insured and/or his family, and the size of intended Legacy.
The premium payment may be partially tax deductible, or completely tax deductible, if paid as a benefit to employees in a C corp,{IRC Sec. 162(a) and Regulations.162-10; IRC Sec. 162(a) and ISP Coordination Paper UIL 162.35-02; IRC Sec. 7702B(a)(3) IRC Sec. 7702B(a)(1)}: and is ERISA independent (ERISA: 29 USC 1191b IRC Sec. 1167; Not subject to ERISA) (please consult your tax attorney/ accountant we never provide specific tax advice in a setting like this).
Long term care Insurance is 'purchased' for a level of benefits, and upon death of the insured, the insurance company contractually guarantees to refund all premiums paid (and this is a nontaxable event!{IRC Sec. 7702B(b)2(C)(1)(E)}
As of January 1,2010, PPA (2006) suggests a 1035 exchange from a qualified plan to Qualified Long Term Care Insurance (PENSION PROTECTION ACT PUBLIC LAW 109-280 AUGUST 17, 2006, SECTION 844)
(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero).
Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury. (http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR00004:)
I recommend anyone interested consult a specialist; use these references for guidance:
(1). http://www.longtermcare.gov
(2) www.aarp.org/families/caregiving/state_ltc_costs.html
(3) www.dhcs.ca.gov/services/ltc/Pages/ConsAWordfromtheDirector.aspx.
About guest author Jonathan Smith, M.D.
More than a quarter century in Anesthesia practice (monitoring of people’s health, managing their risks and protecting them from death), made me aware of the financial burden on people living longer, but not necessarily healthier. I saw the need for Guaranteed Full Refund of Premium Long Term Care Insurance as a way to protect Earned Assets from the often debilitating losses to long term care, while preserving Dignity by affording home care; and capital for a Legacy. I own such a policy and advocate the concept. Clients and advisors can reach me directly at jonathan.smithmd@gmail.com for help.
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