This article is by my friend and colleague Douglass Lodmell, a nationally recognized Asset Protection expert and founder of one the leading Asset Protection only law firms in the country, Lodmell & Lodmell, which I formerly managed and am now of-counsel with. One of the most basic concepts in the martial arts is "avoid harm" and while we are firm believers in having a great, pro-active defensive plan we also place great value on behavior and thinking that minimizes exposure in the first place - here are some of Doug's tips on that.
Yours, Ike
Perhaps these tips bring to mind the oft-quoted adage, it's not paranoia if they really are out to get you. That's pretty accurate, says Lodmell. There are plenty of greed-blinded, entitlement-minded predators out there who are all too willing to separate you from your hard-earned money. Protect yourself as best you can-but don't let fear and cynicism become your defining characteristics.
Don't flaunt your wealth. Don't practice a lifestyle that advertises you have a lot of disposable income. Even if you don't consider yourself wealthy, if you're driving a top-of-the-line luxury sedan and openly discussing lavish vacations, plenty of other people will assume that you are-and will see you as a juicy target for a lawsuit.
Draw up a pre-nuptial agreement before marrying. It may not be romantic advice, but from a legal standpoint it's definitely wise. Being served for divorce is the most common lawsuit.
Identify and correct any existing personal or business liabilities. Use well-drafted and thought-out planning before the fact, and make sure you have planned for dispute resolution in the most efficient manner for after the fact. A majority of businesses fail in the first three years, and these often turn from high hopes to high drama as partners fight over the remaining assets. Good planning before there are problems can limit future potential trauma.
Know the employment laws backward, forward and inside out. Few areas are as treacherous as those involving the employment of other people. Disgruntled ex-employees can fairly easily exaggerate or even fabricate incidents that "prove" they were victims of harassment or discrimination. Know how to legally interview, hire, and fire employees, and make sure those working for you know as well.
Don't play favorites with employees. You must treat everyone equally. Think twice before you give an employee a special break or extra time off for any reason. This also applies to being too harsh on one employee and not others. If you don't do the same for everyone, then you could be in for trouble.
Be scrupulously careful about doing anything that might be construed as sexual discrimination. Here are some disturbing statistics: according to Jury Verdict Research, 38 percent of all verdicts between 1996 and 2002 involved claims of sexual discrimination. Equally sobering is the report from Jury Verdict Research that 67 percent of sexual discrimination court cases end with the plaintiff winning. And in 2000, the mean award for sexual discrimination was a hefty $529,373.
Understand vicarious liabilities. Employers can be held accountable for the actions of their employees-sometimes even for actions the employers specifically told the employees not to do. Train them effectively. And if you have children, you have a whole other set of worries. Parents are often held accountable for the actions of their children (e.g., auto accidents).
Increase your automobile insurance coverage to the highest dollar amount. Your medical practice isn't the only place where you're at risk for a lawsuit-our nation's roads are fast becoming a highway to wealth. Make sure you are insured to cover a good chunk of medical expenses should you, your spouse or your children be involved in a lawsuit.
Implement binding Arbitration/Alternative Dispute Resolution agreements with all staff and everyone with whom you do business. The American Arbitration Association estimates that 80 to 90 percent of the disputes it mediates and/or arbitrates are quickly and cost-effectively resolved without litigation. It's just good business sense to legally require that any grievances between you, your patients, clients, or even your vendors be settled out of court in arbitration.
Adequately warn customers about potentially dangerous situations. Personal injury lawsuits are big business. New York City paid $53 million in 2002 for "slip and slide" complaints, which led them to shift the burden for such claims to property owners. Putting up signs like "We use microwave ovens" or "Caution: wet floor" may seem simple, but they can go a long way toward preventing lawsuits.
Treat your clients and customers in an exemplary manner. It may sound naïve or simplistic, but it's true: being nice usually pays off. Most of us simply don't like to sue people who we think are doing a great job. On the other hand, we have no problem suing those who "didn't care about us in the first place." If you needed it, that's one more reason to practice the Golden Rule!
"Yes, we do live in troubled times and our legal system is dysfunctional," says Lodmell. "But instead of bemoaning the lack of justice in our society, we must become a force for change. Any time you get the opportunity, speak up in favor of personal responsibility. Denounce greed. Always do what's right and set a good example for your children. Unlike changes in legislative and judicial reform, changes in public attitudes cannot be mandated. They can be changed only through grassroots efforts at the citizen level. Be the change you would like to see . . . the country you save might be your own."
Showing posts with label recession lawsuits. Show all posts
Showing posts with label recession lawsuits. Show all posts
Wednesday, May 5, 2010
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.
Wednesday, July 29, 2009
TOP 10 ARIZONA LAWSUIT VERDICTS OF 2008
ASSET PROTECTION UPDATE - TOP ARIZONA LAWSUIT VERDICTS OF 2008
We are continually surprised by the number of successful and educated business people and their advisors that underestimate the exposure they and they clients face just from “walking around rich” or even with just the appearance of wealth. We warn people about these exposures and seek to place barriers between this kind of harm and the assets of those we protect on a daily basis.
Sometimes our advice and experience is well-heeded, sometimes it is not. Don’t take our word for it – here are the facts; see the original story store as published in ARIZONA ATTORNEY, the magazine of the State Bar of Arizona by clicking here.
ARIZONA LAWSUIT AWARD SUMMARY
We are continually surprised by the number of successful and educated business people and their advisors that underestimate the exposure they and they clients face just from “walking around rich” or even with just the appearance of wealth. We warn people about these exposures and seek to place barriers between this kind of harm and the assets of those we protect on a daily basis.
Sometimes our advice and experience is well-heeded, sometimes it is not. Don’t take our word for it – here are the facts; see the original story store as published in ARIZONA ATTORNEY, the magazine of the State Bar of Arizona by clicking here.
ARIZONA LAWSUIT AWARD SUMMARY
- True to what we are seeing in the real estate market, a home building company claimed the top verdict of $269 million;
- Once again, each of the top 10 verdicts was more than $5 million. The lowest was for $6Million;
- 9 out of the top 10 were more than $10 million;
- There were 24 verdicts over $1 million;
-Other verdicts resulted from actions for breach of contract, condemnation, product liability and elder abuse.
WHAT DOES THIS TELL US?
- That in almost all cases, the amount of liability insurance carried by the defendant was insufficient to meet the verdict;
- That liability insurance remains and important first line of defense, just the cost of defending one of these suits could be financially devastating;
- That the insurance coverage needed to be supported and further recovery limited by active Asset Protection planning;
- That in several cases it is unlikely that the assets of the corporation involved will be sufficient to pay the judgment, placing owners and officers in harm’s way;
- That all industries are vulnerable, this not “just” about any one group or profession;
- That a lifetime of work and the security and future of any of these defendant businesses and their owners and employees can be destroyed by a single law suit;
- That we are in a time, socially, politically and economically that requires each of us to take proactive responsibility for protecting our wealth, or the wealth of those that we serve as advisors.
Monday, July 20, 2009
Understanding the Arizona Anti-Deficiency Statutes and What they Mean to YOU
We have many questions and conflicting interpretations of the Arizona Anti-Deficiency statutes and what they really mean and do. For clarification I turned to Attorney Neal Bookspan who is a partner at Phoenix law firm of Jaburg & Wilk and who handles a variety of business, bankruptcy and litigation issues. A link to Neal’s profile can be found by clicking here: ABOUT ATTORNEY BOOKSPAN and I have included some basic contact info for him below as well.
Neal, thanks for your help on this issue. Here’s what Neal had to share:
Ten Truths Regarding Arizona's Anti-Deficiency Laws
1. Arizona's anti-deficiency statutes only provide protection to borrowers on residential property, not commercial property, industrial property or raw land.
2. The Arizona anti-deficiency statutes are A.R.S. §§ 33-729(A) and 33-814(G). Section 33-729(A) applies to purchase money mortgages (when is the last time anyone saw a "mortgage" document used in Arizona??) and purchase money deeds of trust that are foreclosed judicially. Section 33-814(G) applies to deeds of trust foreclosed through a trustee's sale. Almost all deficiency issues in Arizona arise under § 33-814(G).
3. Under either statute, the threshold question is whether the property at issue is "two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling." Under the existing case law the dwelling must be built and at least occasionally occupied.
4. The property may be "occasionally occupied" by the owners or rented to third parties and qualify for anti-deficiency protection.
5. Arizona's anti-deficiency statutes apply to second priority mortgages and deeds of trust if they are purchase money obligations. Non-purchase money mortgages and deeds of trust are not protected by Arizona's anti-deficiency statutes.
6. If a purchase money mortgage or deed of trust subject to Arizona's anti-deficiency law is extended, renewed, refinanced, or worked out, the loan retains its status as purchase money and the borrower remains protected by Arizona's anti-deficiency law.
7. To obtain a deficiency judgment after a trustee sale, an action must be brought within 90 days after the sale. If an action is not brought within this time period, the right to a deficiency is lost pursuant to A.R.S. § 33-814(D).
8. The Arizona anti-deficiency statutes are applied both against and to protect guarantors in the same manner they are applied against and protect borrowers.
9. Lenders may continue or postpone trustee's sales. This may be done an unlimited number of times and the only notice given of the new time and place for the trustee's sale is by public declaration at the time and place of the scheduled trustee's sale.
10. Where a deficiency is permitted, the sale of the underlying property results in a credit against the amount of the judgment in an amount equal to the higher of the fair market value of the property or the sales price obtained at a public sale. If a request is made within 30 days of the foreclosure, a judgment debtor may seek to have the court determine the fair market value of the property.
ABOUT GUEST COLUMNIST ATTORNEY NEAL BOOKSPAN
Email: nhb@jaburgwilk.com
Phone: 602-248-1000
Practice areas:Bankruptcy Construction Law Corporate Transactions Creditor's Rights
Phone: 602-248-1000
Practice areas:Bankruptcy Construction Law Corporate Transactions Creditor's Rights
Remember, the best we can do here is general info - NEVER - specific legal advice, so call Neal for help that is fact specific to you.
Thursday, July 9, 2009
TRAITS OF THOSE WHO WILL SURVIVE THE RECESSION
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;
No business is completely 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.
- 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;
No business is completely 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.
Wednesday, June 17, 2009
ASSET PROTECTION 101 FOR ATHLETES AND MANAGERS
Asset Protection 101 – What Every Agent and Manager Must Know
Ike Z. Devji, J.D. © 2008
Your clients depend on you to be a source of information on a wide variety of complex topics. They assume, rightly or wrongly, that you are at least informed about every area even marginally related to your core business. One of the areas in which professional athlete clients are increasingly seeking guidance from their management team is in the area of Asset Protection.
Professional athletes are natural targets for lawsuits on a variety of issues for a number of reasons including:
They are, or are perceived to be, holders of large amounts of liquid wealth that can lead to frivolous lawsuit against them;
They are visible and easily identified and as public personalities with lavish lifestyles and spending habits;
The exact amount of wealth they have accumulated is often public knowledge as in the case of their contracts;
They earn large amounts of money in relatively short periods of time;
Any one of these factors on their own would be a legitimate source of concern to most professionals. Add to that the uncertainty of injuries, performance related compensation and relatively short amount of time that any individual might have in their peak earning years and the need to ensure and protect assets and future income stream becomes even more glaringly obvious.
As a trusted advisor you probably already seek to put your clients in touch with professionals who can create safe steady growth and avoid losses and exposures to things like market risk and income and estate taxes. A natural extension of that stewardship is making sure that the growth you are fostering, as well as the balance of your clients’ assets, are safe from exposure to an increasingly predatory and hostile litigation system. Some of your clients have obvious exposures, such as those based on their lifestyles and visibility. Other sources of exposure are more insidious, such as merely being wealthy and visible, owning income property, or something as simple as owning and driving a car every day. The numbers are staggering; we are at a point in our litigation system where we have over 70,000 lawsuits filed per day in the United States alone, many without any real merit. Unfortunately being “right” is not enough to keep our clients safe.
Why are your clients concerned?
As illustrated by the numbers below, awards continue to spiral out of control, fueled by litigation attorneys who have become partners in lawsuits and who are economically incentivized to create and magnify adversarial relations between parties who might otherwise reach some reasonable, if not amicable, settlement.
WHAT ESTABLISHES THE NEED?
Facts about our litigation system for you:
- We live in a society that files some 70,000 lawsuits per day, many without merit;
- The average legal costs of settling a frivolous lawsuit is $91,000 – plus the actual settlement amount itself;
- Only the top 5% of Americans have a net worth of over $1MM. Using that as a baseline, it’s pretty easy to see where even a client who is worth only a few million dollars fits in on the food chain.
COMMON RISK FACTORS – some combination of any of the following:
-They are high net-worth, high liability, or they will be soon
-They are highly visible, traceable, and or collectible
-They have assets that would be difficult to replace if lost or reduced
-They have employees
-They own their own business
-They have professional liability
-They own liability generating assets, i.e. rental property
- They have children
- They are single and need to back up their pre-nup planning.
What we and our clients must take to heart is that litigation attorneys are in business. Just like any business, including yours, they have weekly meetings in which they examine growth, cash flow, revenue goals and new leads or opportunities. This economic motivation is a key and explains in part why we see awards rising and why plaintiffs’ attorneys regularly seek and obtain awards above the limits of applicable liability insurance policies. The average medical malpractice policy, as just one example, is $1MM, whereas the average national malpractice award is about $3.9 million. This leaves the physician holding the bag for the other several million dollars. Could your average client survive that kind of a loss and maintain their financial goals? Likely not.
Can’t we just insure their way to safety?
No, unfortunately, for a number of reasons. First, it’s impossible to insure yourself against every possible contingency and exposure. There will always be many exposures for which no insurance exists or which are not adequately covered by the amount of coverage the client has in place or can afford.
Second, the liability insurance business model is simple: Take lots of premiums in and pay as few claims as possible. The difference equals profit. When an insured contacts their own carrier to report a claim, a number of the questions asked by the insurance company seek to determine if coverage can be reduced or excluded due to the contributory negligence of their own insured. Think about the questions, “Were you wearing your seatbelt? Were you smoking or on your cell phone at the time of your accident? Do you wear corrective lenses? Have you ingested drugs or alcohol within the previous 24 hours?”
Third, the holy grail of the “umbrella policy” and policy limits are rarely fully understood by clients and advisors. To the consumer, “umbrella” means “everything”. To the insurance company it means specific occurrences to specific limits under specific conditions. Add to that the fact that many liability insurance polices are inclusive of defense costs and the actual amount left for the award is reduced, again exposing the insured person personally. For example, your client has a $1 million liability policy in place and gets sued. The insurance company spends $400 thousand on defense costs and loses, resulting in an award of $1.2 million. In this scenario, only $600 thousand is available from the policy to put towards the claim itself. Our advice: buy as much insurance as you can afford, assume it won’t work and have a good back up plan.
A little proactive medicine goes a long way
We are all aware that there is a ton of offense out there. You can’t drive across town without seeing ads for contingency fee attorneys plastered on billboards, bus stops and without hearing their ads on the radio. “Were you injured at no fault of your own? Have you been treated unfairly at work? Did you take a medication that may have injured you? Call us; we will get you compensated at no cost to you”. An interesting experiment is for you to Google “personal injury” and add the name of your city. The number of listings for attorneys will be staggering to you, especially when you consider that all those attorneys are in their offices right now waiting for the phone to ring, or thinking of ways to make it ring.
The question is what kind of defensive planning have your clients examined? They insure their homes, cars, personal property, health and even their very lives, but what level of planning and forethought have they, or you, invested in insuring their net worth? Typically very little forethought, other than liability insurance, has gone into this area. This lack of planning can be disastrous, especially for clients who have reached the pinnacle of their career and who are looking towards retirement. What options would your 38 year old client have if he or she lost a substantial portion of their net worth to a car accident in which there was a fatality, because their child had a party and another teenager died or was injured, or because they were accused of sexual harassment by a disgruntled employee (all issues I’ve addressed for clients recently). Think you or your locality are immune? Just turn on the nightly news and realize that every fatal accident you see reported that day will likely be accompanied by a seven figure lawsuit.
A great deal of the defensive planning involves the proper titling and compartmentalization of assets into acceptable and easily manageable units of risk. It’s easier than it sounds but still needs experienced guidance. The mantras I teach my clients are simple:
1. Own nothing, control everything;
2. What you don’t own can’t be taken from you;
3. The best defense is being an uncollectible target, take steps to remove the economic incentive to pursue you.
As is illustrated below, moving the title of assets to various appropriate and legitimate entities can dramatically reduce the amount of the exposure the client faces, and can actually help make the liability insurance they have in place more effective. How? It removes the economic incentive to pursue the defendant beyond the limits of the policy and forces settlements into a reasonable range. Why pursue someone for more than the limits of their policy through a long and expensive court proceeding if they didn’t have any assets that can be reached? For the plaintiff’s attorney this is a losing proposition and he will likely encourage his client to settle so that he can move on to the next case after taking his share of the award.
In most cases, collectible assets can be sheltered or reduced by over 90% with the use of well tested and established tools like LLCs, Limited Partnerships, Asset Protection Trusts and Receivables and Income Protection plans, to name just a few examples.
As you can see, the vast majority of the client’s collectible assets are accounted for and sheltered in this example. The best tools used are legal, tax neutral and have a legitimate business purpose. The numbers scale easily up or down. Remember, what each client has is all they have, so their $500 thousand may be as important to their long term goals as another clients’ $5 million is to them.
My client already has a “Revocable Living Trust”. Doesn’t this make them safe?
No, this is a dangerous misconception that the majority of your clients are working under. The Revocable Living Trust or RLT is a wonderful estate planning tool. However, like most tools it has a specific purpose, in this case primarily avoidance of probate and estate taxes.
The RLT is, as the first word in the title suggests, REVOCABLE during the client’s lifetime. This means that during a client’s lifetime they can easily be ordered to revoke the trust and tender trust assets for the payment of a judgment by a court. This is a common occurrence. The trust becomes irrevocable only upon the client’s death. Thus, during their lifetime it does not shelter them from any sort of law suit exposure. Conversely, Asset Protection does not replace or duplicate good estate planning, but rather works in conjunction with it.
What exactly can be protected?
Non-qualified investments, cash, stocks, both personal and investment or commercial real estate, business equipment, intellectual property, interests in non-liability generating businesses, valuable collection such as art and cars and even future income and business receivables are just a few examples. We typically exclude the personal checking accounts, personal “daily driver vehicles” and personal property.
Some Basics of Good Asset Protection Planning
Realize your value as a target and do something now, this is pre-planning. You cannot do any effective or legal planning after a lawsuit has been filed or a demand has been made. The time to act is now when waters are calm. Hoping that that it won’t happen to you is not a plan.
Be realistic about the possibility of exposure and about the effect that a six or seven figure judgment would have upon the financial plan in place. The most common mistake made by advisors is telling clients who are worth “only” a few million dollars that they are not big enough to justify doing this kind of planning. This is possibly the worst advice possible. Of course a client worth five or ten or even $100 million needs this type of planning. But who will be affected more? The ten million dollar client can take a hit for a million or two and keep the cars, house, lifestyle and put the kids through college, but your more average client would be financially devastated. They need it even more.
Use the right tools. Asset Protection is part art part science, just like your business. There are certain proven methods and tools that work and others that do not. Be wary of promoters, do it yourself kits and promises of domestic jurisdictions that will make you safe and save you money on taxes. Each tool has a specific business purpose that protects specific types of property, they are not all interchangeable.
No, Nevada Corporations do not work. In fact, they are increasingly viewed as presumptively fraudulent due to a long history of abuse and tax fraud. Thousands of consumers have purchased them under false promises of secrecy, bearer share anonymity and tax advantages. Almost all these promises are completely fictional. Our information shows us that the term “bearer shares” does not even exist in the statutes of the state of Nevada. Unless you or your client live there, do business primarily from or in the state of Nevada and have the assets in question housed in the state, a Nevada LLC will not help you, especially if it lacks a real business purpose as explained below.
Maintain a legitimate business purpose for all legal tools. We commonly see good tools misused by clients and inexperienced planners which do more harm than good. In order to take advantage of the full protection the law affords we must maintain an essential business purpose for the tools we use. The use of limited partnerships for investment management and LLCs to hold investment or commercial real estate are two examples of well proven and tested business usages.
No, transfers to a spouse, child or relative are not effective. This is especially true if the transfer is made after an exposure has occurred. A thinly disguised “gift” will easily be reversed and the property seized by the court in the event of a judgment. Further, these types of transfers are rarely legitimized by the appropriate recording and tax reporting formalities. If you gave your 17 year old your $1 million home at full equity you better have a gift tax return illustrating that, and it better have been done well in advance of the harm complained of. Even if the gift is effectively made, all you have done is given away something you want to protect and exposed it to another person’s liability.
“Just” an S-corp. or an LLC is not enough. Single member or closely held corporations with just one or two owners are exactly they type of entity you commonly hear referred to when you hear the phrase “piercing the corporate veil”. If a business has only one or two owners who closely manage and control the operations of the business on a daily basis, or even worse, which are also directly responsible for a harm or injury, it is relatively simple for a court to pierce the veil and grant access to the owner’s personal assets. This is especially true with successful small businesses and family businesses that often don’t maintain the formalities of keeping personal and business expenditures completely separate, bolstering the argument that the person and the corporation are one and the same.
Get professional, individual help. There are a wide variety of skill levels in every profession, including the law. Many so called Asset Protection professionals are not attorneys, or are attorneys who apply bits and pieces of knowledge from other fields of practice that may actually diminish legal protections in existence. Every plan must be uniquely tailored to the individual, their activities and the unique nature of their assets. There is no one size fits all solution, even though clients with similar assets may have similar looking plans.
The legal tools used are typically tax neutral. Don’t try to combine tax planning and Asset Protection. In most cases, the tools used are taxed neutral and do not provide tax advantage or tax liability. Many times abusive tax structures are disguised as Asset Protection, often promising tax free growth offshore in various trusts or captive insurance plans. As a financial professional you already know that putting money into a plan tax free, growing it tax free and pulling it out tax free is rarely if ever possible. The one general exception to this rule is in the application of certain receivables protection plans.
Don’t forget about income and receivables – protect the source. Very often we see individuals that are concerned about protecting everything they have been fortunate enough to accumulate while ignoring ways to protect their future income. We find that many clients, even those with a very high net worth, often have fixed business and personal overhead commitments based on the expectation of a certain income level. If many of them suddenly had that cash flow tap turned off, they would not be able to sustain their current monthly expenditures. This scenario would force them into a situation where they were either selling off assets, going into qualified plans early and making substantial lifestyle changes. There are options available for qualified clients that can securitize that income stream.
Don’t draw liability in. In many cases clients unintentionally escalate their value as a target. For instance, how many of your clients have vehicles that they or their spouse drive titled in the name of their business? Which of the following three defendants is most exciting to a plaintiff: John Smith; Dr. John Smith, or Smith Cosmetic Surgery? As you can see the corporate defendant is often the most exciting, deepest pocket. In order to fix this we simply transfer the vehicle back to the client’s name and have them take a car allowance from the business. Remember, with a good plan in place your client won’t have substantial exposed assets anyway.
This article just scratches the surface of Asset Protection and provides some generally applicable rules and issues to be aware of. When you and your clients are ready to explore the solutions available, seek qualified counsel that has a proven record of experience in this specific field.
Ike Z. Devji, J.D. – Executive Vice-President, The Wealthy 100,
Of-Counsel, Lodmell & Lodmell, P.C.
JUST ONE EXAMPLE OF PROFESSIONAL RISK:
1. Pro Athletes who Deliberately Injure Another Player Should Face Criminal Prosecution, Says New FindLaw Survey
http://company.findlaw.com/pr/2004/041204.proathletes.html
Ike Z. Devji, J.D. © 2008
Your clients depend on you to be a source of information on a wide variety of complex topics. They assume, rightly or wrongly, that you are at least informed about every area even marginally related to your core business. One of the areas in which professional athlete clients are increasingly seeking guidance from their management team is in the area of Asset Protection.
Professional athletes are natural targets for lawsuits on a variety of issues for a number of reasons including:
They are, or are perceived to be, holders of large amounts of liquid wealth that can lead to frivolous lawsuit against them;
They are visible and easily identified and as public personalities with lavish lifestyles and spending habits;
The exact amount of wealth they have accumulated is often public knowledge as in the case of their contracts;
They earn large amounts of money in relatively short periods of time;
Any one of these factors on their own would be a legitimate source of concern to most professionals. Add to that the uncertainty of injuries, performance related compensation and relatively short amount of time that any individual might have in their peak earning years and the need to ensure and protect assets and future income stream becomes even more glaringly obvious.
As a trusted advisor you probably already seek to put your clients in touch with professionals who can create safe steady growth and avoid losses and exposures to things like market risk and income and estate taxes. A natural extension of that stewardship is making sure that the growth you are fostering, as well as the balance of your clients’ assets, are safe from exposure to an increasingly predatory and hostile litigation system. Some of your clients have obvious exposures, such as those based on their lifestyles and visibility. Other sources of exposure are more insidious, such as merely being wealthy and visible, owning income property, or something as simple as owning and driving a car every day. The numbers are staggering; we are at a point in our litigation system where we have over 70,000 lawsuits filed per day in the United States alone, many without any real merit. Unfortunately being “right” is not enough to keep our clients safe.
Why are your clients concerned?
As illustrated by the numbers below, awards continue to spiral out of control, fueled by litigation attorneys who have become partners in lawsuits and who are economically incentivized to create and magnify adversarial relations between parties who might otherwise reach some reasonable, if not amicable, settlement.
WHAT ESTABLISHES THE NEED?
Facts about our litigation system for you:
- We live in a society that files some 70,000 lawsuits per day, many without merit;
- The average legal costs of settling a frivolous lawsuit is $91,000 – plus the actual settlement amount itself;
- Only the top 5% of Americans have a net worth of over $1MM. Using that as a baseline, it’s pretty easy to see where even a client who is worth only a few million dollars fits in on the food chain.
COMMON RISK FACTORS – some combination of any of the following:
-They are high net-worth, high liability, or they will be soon
-They are highly visible, traceable, and or collectible
-They have assets that would be difficult to replace if lost or reduced
-They have employees
-They own their own business
-They have professional liability
-They own liability generating assets, i.e. rental property
- They have children
- They are single and need to back up their pre-nup planning.
What we and our clients must take to heart is that litigation attorneys are in business. Just like any business, including yours, they have weekly meetings in which they examine growth, cash flow, revenue goals and new leads or opportunities. This economic motivation is a key and explains in part why we see awards rising and why plaintiffs’ attorneys regularly seek and obtain awards above the limits of applicable liability insurance policies. The average medical malpractice policy, as just one example, is $1MM, whereas the average national malpractice award is about $3.9 million. This leaves the physician holding the bag for the other several million dollars. Could your average client survive that kind of a loss and maintain their financial goals? Likely not.
Can’t we just insure their way to safety?
No, unfortunately, for a number of reasons. First, it’s impossible to insure yourself against every possible contingency and exposure. There will always be many exposures for which no insurance exists or which are not adequately covered by the amount of coverage the client has in place or can afford.
Second, the liability insurance business model is simple: Take lots of premiums in and pay as few claims as possible. The difference equals profit. When an insured contacts their own carrier to report a claim, a number of the questions asked by the insurance company seek to determine if coverage can be reduced or excluded due to the contributory negligence of their own insured. Think about the questions, “Were you wearing your seatbelt? Were you smoking or on your cell phone at the time of your accident? Do you wear corrective lenses? Have you ingested drugs or alcohol within the previous 24 hours?”
Third, the holy grail of the “umbrella policy” and policy limits are rarely fully understood by clients and advisors. To the consumer, “umbrella” means “everything”. To the insurance company it means specific occurrences to specific limits under specific conditions. Add to that the fact that many liability insurance polices are inclusive of defense costs and the actual amount left for the award is reduced, again exposing the insured person personally. For example, your client has a $1 million liability policy in place and gets sued. The insurance company spends $400 thousand on defense costs and loses, resulting in an award of $1.2 million. In this scenario, only $600 thousand is available from the policy to put towards the claim itself. Our advice: buy as much insurance as you can afford, assume it won’t work and have a good back up plan.
A little proactive medicine goes a long way
We are all aware that there is a ton of offense out there. You can’t drive across town without seeing ads for contingency fee attorneys plastered on billboards, bus stops and without hearing their ads on the radio. “Were you injured at no fault of your own? Have you been treated unfairly at work? Did you take a medication that may have injured you? Call us; we will get you compensated at no cost to you”. An interesting experiment is for you to Google “personal injury” and add the name of your city. The number of listings for attorneys will be staggering to you, especially when you consider that all those attorneys are in their offices right now waiting for the phone to ring, or thinking of ways to make it ring.
The question is what kind of defensive planning have your clients examined? They insure their homes, cars, personal property, health and even their very lives, but what level of planning and forethought have they, or you, invested in insuring their net worth? Typically very little forethought, other than liability insurance, has gone into this area. This lack of planning can be disastrous, especially for clients who have reached the pinnacle of their career and who are looking towards retirement. What options would your 38 year old client have if he or she lost a substantial portion of their net worth to a car accident in which there was a fatality, because their child had a party and another teenager died or was injured, or because they were accused of sexual harassment by a disgruntled employee (all issues I’ve addressed for clients recently). Think you or your locality are immune? Just turn on the nightly news and realize that every fatal accident you see reported that day will likely be accompanied by a seven figure lawsuit.
A great deal of the defensive planning involves the proper titling and compartmentalization of assets into acceptable and easily manageable units of risk. It’s easier than it sounds but still needs experienced guidance. The mantras I teach my clients are simple:
1. Own nothing, control everything;
2. What you don’t own can’t be taken from you;
3. The best defense is being an uncollectible target, take steps to remove the economic incentive to pursue you.
As is illustrated below, moving the title of assets to various appropriate and legitimate entities can dramatically reduce the amount of the exposure the client faces, and can actually help make the liability insurance they have in place more effective. How? It removes the economic incentive to pursue the defendant beyond the limits of the policy and forces settlements into a reasonable range. Why pursue someone for more than the limits of their policy through a long and expensive court proceeding if they didn’t have any assets that can be reached? For the plaintiff’s attorney this is a losing proposition and he will likely encourage his client to settle so that he can move on to the next case after taking his share of the award.
In most cases, collectible assets can be sheltered or reduced by over 90% with the use of well tested and established tools like LLCs, Limited Partnerships, Asset Protection Trusts and Receivables and Income Protection plans, to name just a few examples.
As you can see, the vast majority of the client’s collectible assets are accounted for and sheltered in this example. The best tools used are legal, tax neutral and have a legitimate business purpose. The numbers scale easily up or down. Remember, what each client has is all they have, so their $500 thousand may be as important to their long term goals as another clients’ $5 million is to them.
My client already has a “Revocable Living Trust”. Doesn’t this make them safe?
No, this is a dangerous misconception that the majority of your clients are working under. The Revocable Living Trust or RLT is a wonderful estate planning tool. However, like most tools it has a specific purpose, in this case primarily avoidance of probate and estate taxes.
The RLT is, as the first word in the title suggests, REVOCABLE during the client’s lifetime. This means that during a client’s lifetime they can easily be ordered to revoke the trust and tender trust assets for the payment of a judgment by a court. This is a common occurrence. The trust becomes irrevocable only upon the client’s death. Thus, during their lifetime it does not shelter them from any sort of law suit exposure. Conversely, Asset Protection does not replace or duplicate good estate planning, but rather works in conjunction with it.
What exactly can be protected?
Non-qualified investments, cash, stocks, both personal and investment or commercial real estate, business equipment, intellectual property, interests in non-liability generating businesses, valuable collection such as art and cars and even future income and business receivables are just a few examples. We typically exclude the personal checking accounts, personal “daily driver vehicles” and personal property.
Some Basics of Good Asset Protection Planning
Realize your value as a target and do something now, this is pre-planning. You cannot do any effective or legal planning after a lawsuit has been filed or a demand has been made. The time to act is now when waters are calm. Hoping that that it won’t happen to you is not a plan.
Be realistic about the possibility of exposure and about the effect that a six or seven figure judgment would have upon the financial plan in place. The most common mistake made by advisors is telling clients who are worth “only” a few million dollars that they are not big enough to justify doing this kind of planning. This is possibly the worst advice possible. Of course a client worth five or ten or even $100 million needs this type of planning. But who will be affected more? The ten million dollar client can take a hit for a million or two and keep the cars, house, lifestyle and put the kids through college, but your more average client would be financially devastated. They need it even more.
Use the right tools. Asset Protection is part art part science, just like your business. There are certain proven methods and tools that work and others that do not. Be wary of promoters, do it yourself kits and promises of domestic jurisdictions that will make you safe and save you money on taxes. Each tool has a specific business purpose that protects specific types of property, they are not all interchangeable.
No, Nevada Corporations do not work. In fact, they are increasingly viewed as presumptively fraudulent due to a long history of abuse and tax fraud. Thousands of consumers have purchased them under false promises of secrecy, bearer share anonymity and tax advantages. Almost all these promises are completely fictional. Our information shows us that the term “bearer shares” does not even exist in the statutes of the state of Nevada. Unless you or your client live there, do business primarily from or in the state of Nevada and have the assets in question housed in the state, a Nevada LLC will not help you, especially if it lacks a real business purpose as explained below.
Maintain a legitimate business purpose for all legal tools. We commonly see good tools misused by clients and inexperienced planners which do more harm than good. In order to take advantage of the full protection the law affords we must maintain an essential business purpose for the tools we use. The use of limited partnerships for investment management and LLCs to hold investment or commercial real estate are two examples of well proven and tested business usages.
No, transfers to a spouse, child or relative are not effective. This is especially true if the transfer is made after an exposure has occurred. A thinly disguised “gift” will easily be reversed and the property seized by the court in the event of a judgment. Further, these types of transfers are rarely legitimized by the appropriate recording and tax reporting formalities. If you gave your 17 year old your $1 million home at full equity you better have a gift tax return illustrating that, and it better have been done well in advance of the harm complained of. Even if the gift is effectively made, all you have done is given away something you want to protect and exposed it to another person’s liability.
“Just” an S-corp. or an LLC is not enough. Single member or closely held corporations with just one or two owners are exactly they type of entity you commonly hear referred to when you hear the phrase “piercing the corporate veil”. If a business has only one or two owners who closely manage and control the operations of the business on a daily basis, or even worse, which are also directly responsible for a harm or injury, it is relatively simple for a court to pierce the veil and grant access to the owner’s personal assets. This is especially true with successful small businesses and family businesses that often don’t maintain the formalities of keeping personal and business expenditures completely separate, bolstering the argument that the person and the corporation are one and the same.
Get professional, individual help. There are a wide variety of skill levels in every profession, including the law. Many so called Asset Protection professionals are not attorneys, or are attorneys who apply bits and pieces of knowledge from other fields of practice that may actually diminish legal protections in existence. Every plan must be uniquely tailored to the individual, their activities and the unique nature of their assets. There is no one size fits all solution, even though clients with similar assets may have similar looking plans.
The legal tools used are typically tax neutral. Don’t try to combine tax planning and Asset Protection. In most cases, the tools used are taxed neutral and do not provide tax advantage or tax liability. Many times abusive tax structures are disguised as Asset Protection, often promising tax free growth offshore in various trusts or captive insurance plans. As a financial professional you already know that putting money into a plan tax free, growing it tax free and pulling it out tax free is rarely if ever possible. The one general exception to this rule is in the application of certain receivables protection plans.
Don’t forget about income and receivables – protect the source. Very often we see individuals that are concerned about protecting everything they have been fortunate enough to accumulate while ignoring ways to protect their future income. We find that many clients, even those with a very high net worth, often have fixed business and personal overhead commitments based on the expectation of a certain income level. If many of them suddenly had that cash flow tap turned off, they would not be able to sustain their current monthly expenditures. This scenario would force them into a situation where they were either selling off assets, going into qualified plans early and making substantial lifestyle changes. There are options available for qualified clients that can securitize that income stream.
Don’t draw liability in. In many cases clients unintentionally escalate their value as a target. For instance, how many of your clients have vehicles that they or their spouse drive titled in the name of their business? Which of the following three defendants is most exciting to a plaintiff: John Smith; Dr. John Smith, or Smith Cosmetic Surgery? As you can see the corporate defendant is often the most exciting, deepest pocket. In order to fix this we simply transfer the vehicle back to the client’s name and have them take a car allowance from the business. Remember, with a good plan in place your client won’t have substantial exposed assets anyway.
This article just scratches the surface of Asset Protection and provides some generally applicable rules and issues to be aware of. When you and your clients are ready to explore the solutions available, seek qualified counsel that has a proven record of experience in this specific field.
Ike Z. Devji, J.D. – Executive Vice-President, The Wealthy 100,
Of-Counsel, Lodmell & Lodmell, P.C.
JUST ONE EXAMPLE OF PROFESSIONAL RISK:
1. Pro Athletes who Deliberately Injure Another Player Should Face Criminal Prosecution, Says New FindLaw Survey
http://company.findlaw.com/pr/2004/041204.proathletes.html
Friday, June 12, 2009
DEALING WITH EMPLOYEE EXPOSURE IN A DOWN ECONOMY
DEALING WITH EMPLOYEE LAWSUIT EXPOSURE IN A DOWN ECONOMY - ARE YOU PREPARED?
Are you properly protected from employee liability? For those of you who are business owners and have employees or have clients who do, this is very important, especially if you may have to consider lay-offs or downsize as a result of the current business climate.
American business owners are 5 times more likely to be sued by an
employee than for any other reason, and employees win 75% of the time.
Remember that the people affected by these kinds of economic necessities take it personally, not just as a business decision, and will often turn a necessity based lay-off into a discrimination claim (or something worse) with the help of an employment attorney. Be sure you carefully document any staff reduction, whether based on economic necessity or performance; how would you react if you were fired or laid off amidst fears of a recession? Most people panic and grasp at straws.
Make sure you have adequate employee/work place policy manuals in place and that those manuals include detailed arbitration/mediation policies of the type we have discussed in the past. These policies give you opportunities to amicably resolve the issue in an informal way without being subject to the high risk, expense and distraction of a formal court proceeding. Caution – the “jury of your peers” will be made of employees – NOT employers, and given the current social, political and economic climate being a business owner is more dangerous than ever.
More importantly, if the agreement is properly drafted and implemented the employees (both new and old) MUST comply and we remove most of the economic incentive their attorney was motivated by. This is also a good time to review what your employees are doing with your clients and each other and to remind them of policies that you may have in place to protect you. We must be vigilant of the fact that you are responsible for their actions with clients and how they interact with each other as well. At times like this maintaining safe and proper procedures in everything from billing and id theft prevention to keeping the hallway floor dry is especially important.
If you are my client, or an advisor whose clients we serve, we have likely already discussed the PPDRP or “employee mediation agreement” which includes a mandatory mediation and arbitration policy for any employee-employer disputes, and which I strongly recommend for all clients who have employees. I really feel that this, in conjunction with a good employee handbook is an important step towards closing gaps that may be a source of liability.
The devil is often in the details, and issues with employees can be a huge exposure but can be easily and cost effectively addressed by implementing such a policy. We have thousands of these in place for clients across the U.S. including here in our office and in my family’s own businesses. Remember the employer is going to be held accountable, as the “deep pocket” for just about any grievance the employee has and that they employer is help responsible not just for what happens on the premises and their own interactions with the employee, but also how every employee interacts with the others, that’s a lot of variables! In your case multiply that variable by 50, or even 5 people you might have working for a particular business organization and the reason for my concern becomes clear. Employees are suing more often, winning an average of 75% of the time, and are winning proportionally larger and larger judgments. The average sexual harassment judgment as just one example has risen to $530K.
The problem with the stock arbitration clauses in most employee agreements is that they are unenforceable because they lack the specificity required by the courts. The same is true of the majority of dispute resolution policies we see. The policy we have discussed outlines a clear simple system of procedures that unambiguously provide steps for any employee with a grievance to follow. The agreement “provides actual notice” of the policy in a consistent manner and provides a road map for employees to follow that makes the employer aware of the issue and gives the employer 3 good faith chances to solve the problem before it escalates. As you probably know, many of these exposures occur when people feel they are at a dead end or have no voice or recourse.
The policy is recorded with the American Arbitration Association, is distributed to all employees and as we discussed is a modification of a workplace policy, not a contract that would require offer, acceptance and consideration to be valid and enforceable. The courts have consistently held, as in the landmark “Circuit City” case, that the employer does have the right to amend these policies but that they must “provide notice” of the changes to the employees. We do that and also include important items like a non-disclosure and confidentiality clause.
I hope this helps, please contact me with any other questions. This is a huge exposure that you can’t afford to ignore, especially given the fact that it takes a VERY small amount of time and money to insulate yourself from this exposure.
American business owners are 5 times more likely to be sued by an
employee than for any other reason, and employees win 75% of the time.
Remember that the people affected by these kinds of economic necessities take it personally, not just as a business decision, and will often turn a necessity based lay-off into a discrimination claim (or something worse) with the help of an employment attorney. Be sure you carefully document any staff reduction, whether based on economic necessity or performance; how would you react if you were fired or laid off amidst fears of a recession? Most people panic and grasp at straws.
Make sure you have adequate employee/work place policy manuals in place and that those manuals include detailed arbitration/mediation policies of the type we have discussed in the past. These policies give you opportunities to amicably resolve the issue in an informal way without being subject to the high risk, expense and distraction of a formal court proceeding. Caution – the “jury of your peers” will be made of employees – NOT employers, and given the current social, political and economic climate being a business owner is more dangerous than ever.
More importantly, if the agreement is properly drafted and implemented the employees (both new and old) MUST comply and we remove most of the economic incentive their attorney was motivated by. This is also a good time to review what your employees are doing with your clients and each other and to remind them of policies that you may have in place to protect you. We must be vigilant of the fact that you are responsible for their actions with clients and how they interact with each other as well. At times like this maintaining safe and proper procedures in everything from billing and id theft prevention to keeping the hallway floor dry is especially important.
If you are my client, or an advisor whose clients we serve, we have likely already discussed the PPDRP or “employee mediation agreement” which includes a mandatory mediation and arbitration policy for any employee-employer disputes, and which I strongly recommend for all clients who have employees. I really feel that this, in conjunction with a good employee handbook is an important step towards closing gaps that may be a source of liability.
The devil is often in the details, and issues with employees can be a huge exposure but can be easily and cost effectively addressed by implementing such a policy. We have thousands of these in place for clients across the U.S. including here in our office and in my family’s own businesses. Remember the employer is going to be held accountable, as the “deep pocket” for just about any grievance the employee has and that they employer is help responsible not just for what happens on the premises and their own interactions with the employee, but also how every employee interacts with the others, that’s a lot of variables! In your case multiply that variable by 50, or even 5 people you might have working for a particular business organization and the reason for my concern becomes clear. Employees are suing more often, winning an average of 75% of the time, and are winning proportionally larger and larger judgments. The average sexual harassment judgment as just one example has risen to $530K.
The problem with the stock arbitration clauses in most employee agreements is that they are unenforceable because they lack the specificity required by the courts. The same is true of the majority of dispute resolution policies we see. The policy we have discussed outlines a clear simple system of procedures that unambiguously provide steps for any employee with a grievance to follow. The agreement “provides actual notice” of the policy in a consistent manner and provides a road map for employees to follow that makes the employer aware of the issue and gives the employer 3 good faith chances to solve the problem before it escalates. As you probably know, many of these exposures occur when people feel they are at a dead end or have no voice or recourse.
The policy is recorded with the American Arbitration Association, is distributed to all employees and as we discussed is a modification of a workplace policy, not a contract that would require offer, acceptance and consideration to be valid and enforceable. The courts have consistently held, as in the landmark “Circuit City” case, that the employer does have the right to amend these policies but that they must “provide notice” of the changes to the employees. We do that and also include important items like a non-disclosure and confidentiality clause.
I hope this helps, please contact me with any other questions. This is a huge exposure that you can’t afford to ignore, especially given the fact that it takes a VERY small amount of time and money to insulate yourself from this exposure.
Monday, April 27, 2009
BUSINESS SURVIVAL PLAN 2010
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 2009 draws to a close 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 2008and 2009 “lessons” we feel it is most important to reflect on and examine for yourself as we start 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. 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;
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 2009 draws to a close 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 2008and 2009 “lessons” we feel it is most important to reflect on and examine for yourself as we start 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. 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;
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.
BAD ECONOMY = OPPORTUNITY FOR LAWSUIT PROFITS
BAD ECONOMY = OPPORTUNITY FOR LAWSUIT PROFITS
The link below is to an article targeted at plaintiff’s attorneys explaining how they can capitalize on current conditions to make more money (like they need help). He astutely points out some very specific reasons that now is a good time to be a plaintiff, especially if you are suing a busine$$.
It will sound familiar to you if you have known me for some time, as I have been warning our partners and clients for over two years that the depressed economy and current social and political environment requires us to be more aware and defensive than ever before. We are faced with a nation of desperate people looking for additional sources of income, many of whom are fueled by a sense of entitlement based on the actions of the government and big business. This, “I want some money too…” mindset presents a huge business development opportunity for plaintiff’s attorneys.
Skeptical? Spend just one day being “aware” of the massive increase in plaintiff law advertising and you will that the author of this article is exactly on point. Now is a dangerous time to be a successful business owner in the U.S. Please be defensive in your thoughts and actions, take the right steps and then practice fearlessly. As always, please let us know how we can help.
The Age of Obama & The Court of Public Opinion: New Opportunities for Trial Lawyers
The link below is to an article targeted at plaintiff’s attorneys explaining how they can capitalize on current conditions to make more money (like they need help). He astutely points out some very specific reasons that now is a good time to be a plaintiff, especially if you are suing a busine$$.
It will sound familiar to you if you have known me for some time, as I have been warning our partners and clients for over two years that the depressed economy and current social and political environment requires us to be more aware and defensive than ever before. We are faced with a nation of desperate people looking for additional sources of income, many of whom are fueled by a sense of entitlement based on the actions of the government and big business. This, “I want some money too…” mindset presents a huge business development opportunity for plaintiff’s attorneys.
Skeptical? Spend just one day being “aware” of the massive increase in plaintiff law advertising and you will that the author of this article is exactly on point. Now is a dangerous time to be a successful business owner in the U.S. Please be defensive in your thoughts and actions, take the right steps and then practice fearlessly. As always, please let us know how we can help.
The Age of Obama & The Court of Public Opinion: New Opportunities for Trial Lawyers
Author: Jonathan BersteinOrganization: Bernstein Crisis Management, Inc.Newsletter: Legal Update - April 2009
The Age of Obama could be a particularly lucrative period for trial attorneys in which to pair legal strategy with effective Internet-centered communication to the Court of Public Opinion, communication that marries the best legal strategy with sound public relations/issues management techniques.
See the article here: OPPORTUNITY FOR TRIAL LAWYERS UP AS ECONOMY IS DOWN
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