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RSS FeedDecember 1, 2011 Asset Protection
Carpe Diem (Seize the Day)
Kevin D. Quinn, J.D.Legacy Counsellors, P.C.
Member of WealthCounsel
U.S. taxpayers are experiencing a “perfect storm” of opportunity to make tax free wealth transfers. The gift tax was first enacted in 1932. Over the coming months, Americans have what may be the best opportunity since 1932 to transfer huge amounts of wealth without transfer tax. This is almost certainly a short term, “use it or lose it,” opportunity. Several key elements have transpired to create this perfect short term opportunity.
The window of opportunity is narrowing. Now is the time to encourage clients to implement a comprehensive wealth transfer strategy.
Gifting
It is a widely accepted belief among financial advisors that
taxpayers should transfer underutilized wealth as soon as possible. We expect assets values to increase in the future. As the value of underutilized assets recover and begin to grow, so do the client’s current and future tax burdens.
Inaction can result in underutilized wealth being subjected to confiscatory estate taxes. The client who transfers appropriate assets today removes the future appreciation of those assets from his or her taxable estate. We focus on underutilized assets because other family members may be in a position to increase the economic utility of transferred assets. As an example, other family members may be able to use these resources to reduce debt, capitalize on new markets, or exploit other opportunities. The sophisticated wealth preservation techniques we can all offer our clients can enhance the utility of transferred wealth for generations.
The importance of acting now can’t be over stressed. The law is set to change soon; please, don’t let your clients be a victim of either your or their inaction. The greatest threat to wealth today is not taxes, regulation, national debt, or markets volatility. The greatest threat to wealth is complacency, born of a sense of powerlessness. You possess the tools to empower your clients, have you offered your clients the use of these empowering strategies?
Sales
If a client can’t or won’t give it away, why not sell it? Wealth transfers to heirs also can occur through private sales.
A business can be sold to family members at its current depressed value, lessening the original owner’s estate value. The original owner can still retain control of the business and can receive income from a promissory note or another form of receiving the sale proceeds.
Our slow economy has created a unique opportunity for business owners to conduct leveraged sales. If a business has experienced a recent drop in revenues due to the economic downturn, a current appraisal may be significantly lower than the value of the business a few years ago. A sale at these low values reduces future transfer taxes. A well structured sale will allow the client to retain cash flow from the transferred business interest.- A recent regulatory change allows for the transfer of up to $5 million per individual and $10 million per couple without Federal gift tax.
- Asset values, particularly for real estate, are still artificially depressed.
- Certain widely accepted leveraging techniques used by experienced planners allow sophisticated wealth holders to transfer 10 to 20 times the $5 million or $10 million gift tax exemption without gift tax.
- Several of the most effective leveraging techniques are enhanced by a near historic low interest rate environment.
- Most transfers that are made to effectuate gift, estate, and generation skipping tax savings also provide significant asset protection for the assets.
The window of opportunity is narrowing. Now is the time to encourage clients to implement a comprehensive wealth transfer strategy.
Gifting
It is a widely accepted belief among financial advisors that
taxpayers should transfer underutilized wealth as soon as possible. We expect assets values to increase in the future. As the value of underutilized assets recover and begin to grow, so do the client’s current and future tax burdens.Inaction can result in underutilized wealth being subjected to confiscatory estate taxes. The client who transfers appropriate assets today removes the future appreciation of those assets from his or her taxable estate. We focus on underutilized assets because other family members may be in a position to increase the economic utility of transferred assets. As an example, other family members may be able to use these resources to reduce debt, capitalize on new markets, or exploit other opportunities. The sophisticated wealth preservation techniques we can all offer our clients can enhance the utility of transferred wealth for generations.
The importance of acting now can’t be over stressed. The law is set to change soon; please, don’t let your clients be a victim of either your or their inaction. The greatest threat to wealth today is not taxes, regulation, national debt, or markets volatility. The greatest threat to wealth is complacency, born of a sense of powerlessness. You possess the tools to empower your clients, have you offered your clients the use of these empowering strategies?
Sales
If a client can’t or won’t give it away, why not sell it? Wealth transfers to heirs also can occur through private sales.
A business can be sold to family members at its current depressed value, lessening the original owner’s estate value. The original owner can still retain control of the business and can receive income from a promissory note or another form of receiving the sale proceeds.
Asset Protection
Whether they choose to transfer wealth now or later, we think all clients should prepare for the claims of “catastrophic creditors,” which are lawsuits and judgments growing out of car accidents, slip and fall cases, employer and contract suits.
A client’s creditors have the same legal claim to a client’s assets the client does. With this in mind, it logically follows that the greater the client’s “control” over an asset then the more use and control (value) she offers to her creditor.
Fortunately, many of the same strategies we use to protect clients from estate taxes will also remove those assets from the reach of creditors. A well designed plan can protect assets from the client’s catastrophic creditors, as well as from the creditors of successive generations. To one degree or another, we can even protect a family’s wealth from successive generations of divorcing spouses.
We cannot stress enough the necessity that clients establish an Asset Protection plan before they actually need it. Once a creditor makes a claim, we are severely limited in our ability to transfer assets into a Trust, Limited Liability Company (LLC), or to another person’s name.
Conclusion
As the economy stabilizes, and is perhaps beginning its recovery, we feel generally more in control of our wealth. This is the time for exploring not only Gifting and Sales, but also significant Asset Protection strategies.
Once again, our message to clients and their advisors is Carpe Diem, seize the day! Take action now — not later — to transfer and protect the wealth they have worked so hard to build.
Due in part to WealthCounsel’s collaborative philosophy our firm has helped attorneys and advisors from around the country develop comprehensive plans to strategically deploy family wealth. There simply has never been a better time for families of wealth to employ today’s powerful transfer strategies, to protect, preserve and perpetuate family wealth. If you are not comfortable implementing these strategies today, give us a call or collaborate with another WealthCounsel members, but act now before this unique “perfect storm” abates, Carpe Diem, Seize the Day!
About the Author:
Mr. Quinn is the founder and president of Legacy Counsellors, P.C., an estate and business planning law firm, serving successful individuals and families throughout the country with offices in Easthampton, Massachusetts and Bloomfield, Connecticut. Mr. Quinn is admitted to the bars of the Commonwealth of Massachusetts and State of Connecticut. Mr. Quinn is the founder and an instructor of The Wealth Strategies Institute, LLC, a professional education institute which provides continuing education to Certified Public Accountants, Certified Financial Planners, attorneys, development officers and insurance professionals. He is a former Adjunct Professor of the Estate and Wealth Strategies Institute at Michigan State University and an instructor of the National Network of Estate planning Attorneys and WealthCounsel.
Editor's Note:
What are you doing to encourage clients to implement a comprehensive wealth transfer strategy?
Watch our recorded webcast on the Most Compelling Opportunities Now: Making Two Years Last a Lifetime.With the enactment of new estate, gift tax and GST tax (but possibly temporary) laws, how should professionals and their clients think about estate planning over the next two years? What might be lost if clients wait to act? Who should act now?
What You Will Learn:
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