The following is the first in a series of short animated films on Asset Protection, wealth and business concepts. It’s light hearted, but addresses many serious issues and misconceptions in a way we hope is easily digestible and fun to watch.
Monday, November 22, 2010
Friday, November 19, 2010
PROFIT RETENTION STRATEGIES FOR MEDICAL PRACTICES
IT’S NOT JUST WHAT YOU MAKE; IT’S ALSO WHAT YOU KEEP.
With the economic impact of the new healthcare laws and the President’s final 2011 budget uncertain, practice owners and managers would be well served to focus their attention at this time on profit retention strategies. The thousands of doctors we serve are facing challenges including:
■Current Depressed Economic Conditions
■Decreasing Compensation and Insurance Reimbursement Rates
■Increasingly Hostile Litigation System that Targets YOUR wealth
■Stalled or Negative Investment Momentum
■Increasing Overhead and Liability Insurance Costs
■Increasing burdens of Income and Estate Taxes; the estimated “death tax” will be 55% of everything over $1MM in 2011 as of the time of publication
A properly constructed profit retention plan is generally easy to implement and is one of the only ways owners can take more dollars home without earning extra dollars.
Some ideas to help you keep a larger portion of every dollar you make:
Increasing Business Tax Structure efficiency. You walk around turning off lights to save money but is your business tax structure maximized to pay as little as legally possible? One of my Associates, attorney Trisha Lotzer, of Lotzer Law Group in Scottsdale, Arizona examines this issue below. Trisha’s practice, like mine, includes a heavy emphasis on working with medical practices and their owners and she has successfully negotiated over $200 million dollars in transactions including successful medical and dental practice formations, affiliations, purchases and sales.
With the economic impact of the new healthcare laws and the President’s final 2011 budget uncertain, practice owners and managers would be well served to focus their attention at this time on profit retention strategies. The thousands of doctors we serve are facing challenges including:
■Current Depressed Economic Conditions
■Decreasing Compensation and Insurance Reimbursement Rates
■Increasingly Hostile Litigation System that Targets YOUR wealth
■Stalled or Negative Investment Momentum
■Increasing Overhead and Liability Insurance Costs
■Increasing burdens of Income and Estate Taxes; the estimated “death tax” will be 55% of everything over $1MM in 2011 as of the time of publication
A properly constructed profit retention plan is generally easy to implement and is one of the only ways owners can take more dollars home without earning extra dollars.
Some ideas to help you keep a larger portion of every dollar you make:
Increasing Business Tax Structure efficiency. You walk around turning off lights to save money but is your business tax structure maximized to pay as little as legally possible? One of my Associates, attorney Trisha Lotzer, of Lotzer Law Group in Scottsdale, Arizona examines this issue below. Trisha’s practice, like mine, includes a heavy emphasis on working with medical practices and their owners and she has successfully negotiated over $200 million dollars in transactions including successful medical and dental practice formations, affiliations, purchases and sales.
Guest Author, Attorney Trisha LotzerThe purpose of profit preservation is to preserve or even increase a practice’s profitability regardless of changes in healthcare policy or expiring tax cuts. Profit preservation plans should be tailored in the context of governmental policies, business operations and customized to maximize the profit preservation potential consistent with personal and professional goals, such as estate and transition or succession planning. Important strategies that owners should consider at this time include changing from an S-corporation or C-corporation status, energy studies, cost segregation studies, insurance and investment audits.
Currently, your practice’s tax status is either working for or against you in terms of profit preservation. With this fact in mind, how do you know which is the right election for your practice and how do you make sure that you are not passing up any dollars that you rightfully earn?
Most healthcare practices and small businesses are organized as S-corporations, or as LLCs with an S-election. This election is generally advantageous for tax purposes because it allows practice owners to avoid the “double taxation” that necessarily accompanies C-corp status and allows owners to benefit from earnings that “pass through” to their individual returns. Whether you are a C-Corp or an S-Corp, it is especially important to consider the negative consequences of a C-Corp, such as double taxation, and reassess your corporate tax status.
Following are two (simplified) examples and clarify what is meant by “double taxation” and “pass through” income. Let’s compare an S-Corp and a C-Corp that each earn $1,000,000 of taxable income after qualifying deductions and expenses:
The C-corporation that earns $1,000,000 is taxed at the highest corporate tax rate of 35%. That leaves $650,000 after taxes are paid. If you, the practice owner, take that $650,000 as a dividend that dividend will be taxed at 20% (the anticipated dividend tax rate). The result of the tax on the dividend results in another $130,000 in taxes, for a grand total of $480,000 in taxes and you, the practice owner, nets $520,000.
With the S-Corp. that earns $1,000,000 the practice owner would net $600,000 and pay just $400,000 in taxes. This is because the $1,000,000 “passes through” to the owner’s individual tax return. And, even in the highest bracket, the most the owner would be taxed is 40% because there would be no “double tax” on a dividend.
(Note from Ike: This is one of many formulas that competent tax counsel must advise you on. Other common formulas often include the physician taking a commercially reasonable salary, let’s say $250K, and taking the balance as dividends from the corporation they own. This moves a larger portion of practice income to the capital gains rate, using the hypothetical numbers above, 20% for capital gains vs. 40% as personal income.)
This merely represents the most basic “double tax” scenario. There are other taxes, including state taxes and self-employment taxes, and other factors that must be considered and weighed for your particular practice scenario. Tax policy must also be taken into consideration when electing tax status as a strategy for profit preservation.
For example, in 2011, some S-Corp practice owners may find themselves pushed into higher personal tax brackets. Based on current reports from congress and the White House, the President’s proposed budget will likely include a tax cut for middle-class taxpayers and the previously enacted tax cuts on upper-income taxpayers would be allowed to expire. If that occurs, individuals currently taxed at 33% would be taxed at 36% and those taxed now at 35% would be taxed at 39.6%. Therefore, we can reasonably anticipate that a number of practice owners will have a higher income tax for certain individuals and for that reason it is reasonable to consider a change to C-Corp status.
While there are a few exceptions, there is a rule that states that if you lose your S-election you can’t re-elect S-Corp. status for five years. For this reason, current S-Corp owners and those contemplating a change from S-Corp to C-Corp status should be especially cautious. Change to or from a C-Corp should be considered by ever practice owner but it should only be executed with the guidance of qualified tax and wealth preservation specialists.
Trisha’s examination of this issue above is a great start, here are some other profit retention strategies I encourage my clients to examine:
Cost Segregation Studies. These studies allow meaningful 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 even 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, for instance, change the kinds of light bulbs you use and add a skylight? In most cases it is.
The financial “Audit”. Give your insurance and investment planning a physical and make sure it is working as hard for you as you did to earn it. 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 cookie cutter ones we see from certain commercial brokerage firms 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 part of 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.
Similarly, we find that many practice owners are paying more than necessary for various types of insurance coverage they have in place while they are at the same time lacking in many types of coverage I now describe as essential or are underinsured in areas like their disability insurance. To put it simply, the cost of life insurance, as just one example is now cheaper for the consumer than it was a few years ago. This means that any policy that is more than a few years old should be audited to see if it can be converted or replaced at a lower cost. How dramatic can the changes be? In one case, a doctor’s children will receive 500% more from one of her life policies because of some simple changes we made and issues we spotted without her paying any increase in premium.
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.
Increasing your 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 physicians “just” an IRA or 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 like estate planning and Asset Protection.
A few examples of planning to consider include section 79, post retirement medical reimbursement, defined benefit programs and captive insurance plans. Don’t know where to start? Don’t worry, we can help direct you to experts to show you which plans apply to your unique situation and which have features like guarantee of principle, low market risk, tax deductibility and Asset Protection.
Examining your current practice tax status and the other measures suggested above are all highly effective profit preservation strategies. Each strategy should be examined with caution and undertaken only after a careful analysis of the overall economic factors of the practice and the long term effects or plans of the practice and its owner.
Most strategies can be implemented rather quickly and effectively at any time during the fiscal year. Some mid-year changes may require additional income tax reporting work by shareholders and advisors. However, in many cases this small amount of paperwork can yield great rewards and is a powerful way to preserve practice profits in uncertain times. As always contact us for more info or to discuss these issues and how they apply to your practice.
RELATED ARTICLE: BUSINESS SURVIVAL PLAN
http://www.proassetprotection.com/2009/10/2010-business-survival-plan/
ABOUT OUR GUEST CONTRIBUTOR:
Lotzer Law Group, P.C. – Phoenix, AZ: http://lotzerlaw.com/
Attorney Trisha Lotzer Specializes in business law for corporations, small businesses, medical groups and medical and dental practices. She has successfully negotiated over $200 million dollars in transactions including over $95 million dollars of successful medical and dental practice formations, affiliations, purchases and sales. She can be reached at 866-570-4449 or at: Trisha@LotzerLaw.Com
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 article 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 or (2) promoting, marketing, or recommending to another party any transaction or matter addressed in this article.
Thursday, October 7, 2010
Managing Investments held in an offshore Asset Protection Trust
Managing Investments held in an offshore Asset Protection Trust
As much as you may be told otherwise, using the massive deterrence and level of protection available in offshore Asset Protection systems can very complicated. This complication requires a team of experienced and knowledgeable professionals working to make sure that you are doing things safely, legally and effectively. That team typically includes an Asset Protection attorney, trustee, offshore bank, a great CPA, and an investment advisor. As a team they watch over your family and assets. Financial Advisor Richard Arnold is one such experienced professional. We asked him to share some important basics below. -Ike
By Richard L. Arnold
Physicians, business owners, real estate developers and others are increasingly concerned with protecting their assets/net worth in these difficult economic, political and litigious times. Those who have prepared in advance for potential lawsuits or negative economic events have considered establishing Asset Protection Trusts. These Trusts can have their assets held by a foreign bank, and managed by a financial advisor in the U.S. An Investment Policy Statement is prepared that defines the return objectives, risk tolerance and time horizon of the trust.
Here are a few answers to FAQ’s related to managing your investments in an offshore Asset Protection Trust:
• The foreign bank is the custodian for the investments in the Asset Protection Trust, therefore it is important to choose a bank that is financially solid as the investments will be in excess of insurance on deposits. Financial information on the banks can usually be obtained and evaluated.
• Generally, foreign banks can buy any U.S. individual stock, ETF or mutual fund. They can also buy foreign stocks, bonds and mutual funds, but contrary to typical wealth management in the U.S., money managers are normally not used due to the volume of transactions. If the trust is using a U.S. Advisor, purchase recommendations are sent by the Advisor to the Trustee, who then instructs the bank to make the purchase.
• The custodian bank charges transaction fees to buy and sell securities, which are about 1.8% for both a purchase and a sale. If the bank is managing the assets, additional fees run about 1.1% to 1.3% depending on the size of the account. This fee can be avoided by using a U.S. Advisor whose fees generally range from 70 to 90 basis points depending on the size of the trust. Be sure to choose an advisor who is experienced with offshore trusts.
• IRS rules require the preparation of various forms and there have been recent changes to the reporting requirements. Consult a knowledgeable tax specialist to be sure you are complying. The tax requirements are not onerous, but of course must be complied with. We work with tax advisors who have experience in reporting offshore investments.
We operate as a multi-family “family office”, managing approximately $1B in assets. Please call me if you are interested in discussing our services further, or contact Ike Devji.
Richard L. Arnold, Advisor and Operations Manager
CB&T Wealth Management and The Corundum Group
1 South Nevada Ave., Suite 200
Colorado Springs, CO 80903
Direct (719) 228-1083 Cell (719) 330-1226
Rick.Arnold@centralbancorp.com www.centralbancorp.com
As much as you may be told otherwise, using the massive deterrence and level of protection available in offshore Asset Protection systems can very complicated. This complication requires a team of experienced and knowledgeable professionals working to make sure that you are doing things safely, legally and effectively. That team typically includes an Asset Protection attorney, trustee, offshore bank, a great CPA, and an investment advisor. As a team they watch over your family and assets. Financial Advisor Richard Arnold is one such experienced professional. We asked him to share some important basics below. -Ike
By Richard L. Arnold
Physicians, business owners, real estate developers and others are increasingly concerned with protecting their assets/net worth in these difficult economic, political and litigious times. Those who have prepared in advance for potential lawsuits or negative economic events have considered establishing Asset Protection Trusts. These Trusts can have their assets held by a foreign bank, and managed by a financial advisor in the U.S. An Investment Policy Statement is prepared that defines the return objectives, risk tolerance and time horizon of the trust.
Here are a few answers to FAQ’s related to managing your investments in an offshore Asset Protection Trust:
• The foreign bank is the custodian for the investments in the Asset Protection Trust, therefore it is important to choose a bank that is financially solid as the investments will be in excess of insurance on deposits. Financial information on the banks can usually be obtained and evaluated.
• Generally, foreign banks can buy any U.S. individual stock, ETF or mutual fund. They can also buy foreign stocks, bonds and mutual funds, but contrary to typical wealth management in the U.S., money managers are normally not used due to the volume of transactions. If the trust is using a U.S. Advisor, purchase recommendations are sent by the Advisor to the Trustee, who then instructs the bank to make the purchase.
• The custodian bank charges transaction fees to buy and sell securities, which are about 1.8% for both a purchase and a sale. If the bank is managing the assets, additional fees run about 1.1% to 1.3% depending on the size of the account. This fee can be avoided by using a U.S. Advisor whose fees generally range from 70 to 90 basis points depending on the size of the trust. Be sure to choose an advisor who is experienced with offshore trusts.
• IRS rules require the preparation of various forms and there have been recent changes to the reporting requirements. Consult a knowledgeable tax specialist to be sure you are complying. The tax requirements are not onerous, but of course must be complied with. We work with tax advisors who have experience in reporting offshore investments.
We operate as a multi-family “family office”, managing approximately $1B in assets. Please call me if you are interested in discussing our services further, or contact Ike Devji.
Richard L. Arnold, Advisor and Operations Manager
CB&T Wealth Management and The Corundum Group
1 South Nevada Ave., Suite 200
Colorado Springs, CO 80903
Direct (719) 228-1083 Cell (719) 330-1226
Rick.Arnold@centralbancorp.com www.centralbancorp.com
Friday, September 24, 2010
2011 Business Plan - Survival and Positive Momentum
© Ike Z. Devji, J.D.
The first 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 fourth 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 “lessons” of the last 3 years we feel it is most important to reflect on and examine for yourself as we tackle 2011.
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;
The right financial advice matters now more than ever.
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.
Energy Studies.
The first 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 fourth 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 “lessons” of the last 3 years we feel it is most important to reflect on and examine for yourself as we tackle 2011.
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;
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.
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.
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.
- 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 at 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.
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:
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
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
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.
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.
Monday, August 30, 2010
Doctors Asset Protection 101 - Featured on Wills, Trsust & Estates Blog
The Wills, Trusts and Estates Prof blog of Professor Gerry W. Beyer recently featured my article "Asset Protection 101 For Physicians".
Professor Beyer, a Governor Preston E. Smith Regents Professor of Law at Texas Tech Univ. School of Law, has a great, informative blog that draws upon a variety of sources in related fields and it is an honor to have been included.
The link to the post, summary and downloadable PDF are below.
http://lawprofessors.typepad.com/trusts_estates_prof/2010/08/asset-protection-for-doctors.html
Professor Beyer, a Governor Preston E. Smith Regents Professor of Law at Texas Tech Univ. School of Law, has a great, informative blog that draws upon a variety of sources in related fields and it is an honor to have been included.
The link to the post, summary and downloadable PDF are below.
http://lawprofessors.typepad.com/trusts_estates_prof/2010/08/asset-protection-for-doctors.html
Wednesday, August 11, 2010
NEVADA TRUST FOR ASSET PROTECTION? BETTER MAKE SURE YOUR TRUST COMPANY STILL EXISTS
Even within the specialized Asset Protection legal community professional opinions vary on the use and effectiveness of Nevada and other states' Domestic Asset Protection Trusts (DAPT's). One thing all agree on however, is that for such a strategy to hold up to even the weakest attacks the formalities of the state's trust laws must be met to the letter.
Since many Nevada DAPT's have been created by attorneys in other practice areas who dabble in Asset Protection or by promoters with no on-going guidance or client contact available (often not even attorneys) I think it is inevitable that a large number of people who have purchased Nevada trusts are going to wake up one day, need to "use" their trust and find that the trust company appointed and required by the state laws of Nevada no longer exists or that they have moved. In this case the trust, lacking proper legal formalities under Nevada Law, would offer little or no protection at all.
The full article on the Nevada trust business and those leaving, including the oldest trust company in the state, is here:
Nevada’s Oldest Trust Company Calls it Quits After 107 Years in Business
I suspect that we will see many planners and clients caught unaware by theses changes. Even worse, we will also hear tales of trust companies collecting fees and continuing to manage trusts even with their legal status revoked.
As always, we are watching the development and defensibility of the DAPT in various jurisdictions and hope to use it when and if it ever becomes a viable alternative to to the proven results of International Asset Protection Trusts. We don't feel the case law and the courts are there yet, especially given the current social and political climate that is so hostile to wealth and business owners.
Ike Devji
Since many Nevada DAPT's have been created by attorneys in other practice areas who dabble in Asset Protection or by promoters with no on-going guidance or client contact available (often not even attorneys) I think it is inevitable that a large number of people who have purchased Nevada trusts are going to wake up one day, need to "use" their trust and find that the trust company appointed and required by the state laws of Nevada no longer exists or that they have moved. In this case the trust, lacking proper legal formalities under Nevada Law, would offer little or no protection at all.
The full article on the Nevada trust business and those leaving, including the oldest trust company in the state, is here:
Nevada’s Oldest Trust Company Calls it Quits After 107 Years in Business
I suspect that we will see many planners and clients caught unaware by theses changes. Even worse, we will also hear tales of trust companies collecting fees and continuing to manage trusts even with their legal status revoked.
As always, we are watching the development and defensibility of the DAPT in various jurisdictions and hope to use it when and if it ever becomes a viable alternative to to the proven results of International Asset Protection Trusts. We don't feel the case law and the courts are there yet, especially given the current social and political climate that is so hostile to wealth and business owners.
Ike Devji
Tuesday, August 10, 2010
Tougher Tax Law For Overseas Assets
August 10, 2010
Tougher Tax Law For Overseas Assets
(Dow Jones) A new U.S. law that is part of a crackdown on tax havens means that wealthy clients will be hit with stricter filing requirements next tax season.
New rules will result in duplicate reporting for some taxpayers and steep penalties for those who fail to comply. The law makes it more difficult to hide assets overseas, partly by taxing foreign banks that don't share information about U.S. account holders.
READ MORE:
Tougher Tax Law For Overseas Assets
The link above illustrates the need for proper tax counsel and full reporting when dealing with any offshore assets.
Tougher Tax Law For Overseas Assets
(Dow Jones) A new U.S. law that is part of a crackdown on tax havens means that wealthy clients will be hit with stricter filing requirements next tax season.
New rules will result in duplicate reporting for some taxpayers and steep penalties for those who fail to comply. The law makes it more difficult to hide assets overseas, partly by taxing foreign banks that don't share information about U.S. account holders.
READ MORE:
Tougher Tax Law For Overseas Assets
The link above illustrates the need for proper tax counsel and full reporting when dealing with any offshore assets.
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