Kansas & Missouri Estate Planning

Charging Order Challenges In Overland Park, KS

The structure of your business is, in essence, not just about taxation. That is a given. You want a structure that protects you from liabilities of the business itself in Overland Park and elsewhere.

Since the very structure of your business is a means to protect both you and your business, it is worth understanding and maintaining this fortress.

Have you heard of “charging orders.” These are legal wedges creditors try to employ to try and drive a wedge between you and your business. If your business is an LLC (Limited Liability Company) or an LP (Limited Partnership), then there is more you should know about charging orders. This was addressed in a recent Forbes article titled “The Misunderstood Charging Order.”

While this is a complex subject, basically a “charging order” is a creditor’s first and last tool to extract your interests and capital from your business (assuming they do not try to "pierce the veil"). In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business. This can be disastrous. “Limited” company structures are specifically designed with “charging order protection” in mind and this is worth understanding.

The original article goes into greater detail, but essentially a “charging order protection” is a means by which a creditor can place a lien on your LLC membership interests and claim any distributions. Fortunately, however, a creditor cannot claim the membership interest itself and sabotage the business.

Certainly there is much more to know on the subject of asset protection, to include on the subject of company structures themselves. Although some this discussion tends toward the academic, only you know your personal needs and the corresponding needs of your business. Plan accordingly.

 

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

 

Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order” 

IRA Asset Protection Increases In Overland Park, KS

The more you have, the more you have to lose. Right? That’s a cardinal rule of asset protection planning.

If you have accumulated savings in an IRA, then you should be aware of the asset protection legally afforded your IRA. And, for a change, I have a little good news for you in Overland Park and elsewhere.

As recently reported by the Slott Report, the IRA bankruptcy exemption has just increased. The article is titled “IRA Bankruptcy Exemption Amount Increases.” Background: the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) cleared the way and exempted the first $1 million of IRA funds (including Roth IRAs) in the event of bankruptcy.

Fortunately, this amount is subject to cost of living adjustments (COLA). Accordingly, the new number as of April 1, 2013, is $1,245,475. This is great news for most American savers, since the average IRA is less than $1 million. Still, it’s also a figure worth knowing for larger IRAs given the important function they serve in many retirement and/or estate plans.

Caveat: What is just as important as the exemption are the limitations to the exemption. The safety of the exemption is only afforded in the case of filed bankruptcy, and might be voided in certain instances even then, but other events like divorce may easily trigger a levy on the IRA.

The important lesson to remember is that there are existing IRA protections to be understood, but they need to be considered as part of a comprehensive asset protection strategy. Such a strategy will necessarily involve considerations of state law protections, asset titling and insurance coverage.

Be sure to engage competent legal counsel, as proper asset protection planning is not a do-it-yourself project.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: The Slott Report (April 9, 2013) “IRA Bankruptcy Exemption Amount Increases”

Planning Prenuptial Priorities Properly In Overland Park, KS

The air is still heavy from another tax season. However, if you lift your ears to the gentle spring breezes, you may hear distant bells announcing in this year’s wedding season.

With many of these wedding season weddings will come financial complications that require addressing well before the vows are exchanged, even in Overland Park.

Marriage is not just tying the knot, so to speak. No, marriage by its legal nature includes tying together all of your financial resources and interests. Unfortunately, these days marriage also has a dark side too: divorce.

For those couples with important financial resources and interests in the marital mix, they may elect to use a prenuptial agreement as sort of an “insurance” policy in the event the marriage doesn’t work out as planned.

Prenuptial agreements are nowhere as exotic as they are portrayed in the popular imagination. They can be, nevertheless, useful and important documents when produced through a spirit of full disclosure, careful deliberation and independent legal representation. Otherwise, as pointed out in numerous articles these days, no prenuptial agreement is ironclad unless it is done correctly and, essentially, treated like the contractual understanding that it is.

Recently, Forbes provided some practical pointers to evaluate the effectiveness of your prenuptial agreement in an article titled “Five Reasons Your Prenup Might Be Invalid.” In addition, The Wall Street Journal offers some specific guidance to get your prenuptial agreement ship-shape in an article titled “Shoring Up Your Prenup.”

Used correctly, a prenuptial agreement, or even a "post-nuptial" agreement as the case may be, can help a couple frame their financial resources and interests in the context of their life together come what may. That can provide great peace of mind, especially when blending families and the children from those families.

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (April 2, 2013) “Five Reasons Your Prenup Might Be Invalid”

The Wall Street Journal (March 29, 2013) “Shoring Up Your Prenup”

Asset Protection – Substance Over Form Controls In Overland Park, KS

Asset protection, for better or worse, is not a game of silver bullets or invincible armor. Unfortunately, this fact of life will never stop certain salesmen from marketing asset protection that way and certain debtors from buying into it.

A tale of gullibility, faked complexity, and predictable endings can be found in a recent Forbes article titled “Bill 'Bulletproof A$$et Protection' Reed's Complex Plan Pierced By Nominee And Alter Ego Theories.” The case of U.S. v. Cohen, C.D.Ill. Case No. 08-3282 (Mar. 8, 2013), chronicles an asset protection plan so frightfully poor it could only be described as the “Bulletproof A$$et Protection.” Just the label used to market this “asset protection” scheme should give pause to the prudent.

Asset protection is all about understanding the legal nature of your assets and the potential risks that may threaten your future use and enjoyment of those assets. Certainly state and federal laws offer varying degrees of protection, as do time-tested legal strategies.

Asset protection is as much art as science, but not magic. This is true whether you live in Overland Park or Omaha.

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel, especially when it comes to asset protection concerns.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (March 31, 2013) “Bill 'Bulletproof A$$et Protection' Reed's Complex Plan Pierced By Nominee And Alter Ego Theories”

Asset Protection Planning – Plan Now, Or Lose Later

There's a time to be planning, and there's a time to be putting that plan into action. However, whether it's the battlefield, the sports field, or the legal field, you ought not be planning when the fur begins to fly! Then, it's just too late.

A recent Forbes article is a good reminder that asset protection is like fire insurance – the best time to take out a policy (i.e., make proper asset protection plans) is before the fire department arrives. The article is appropriately titled "Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival."

Asset protection is about making sure matters are structured now to protect them if a legal claim may threaten them later. If there already is a claim, then any act to protect assets becomes suspect and reversible (or punishable.)

If you have reason to protect your assets due to some future risk you can envision, then now is the time to plan. Courts do not look favorably on "cute" last minute legal maneuvering to protect assets.

Reference: Forbes (January 31, 2013) "Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival"

Asset Protection Planning - Are You At Risk?

While it's important to plan for the eventual transfer of your assets at death, it's equally important to protect those assets now for yourself so there might be something to eventually transfer. Enter the world of "asset protection" planning. 

So, from what are you protecting your assets anyway? The New York Times addressed the subject of asset protection in a recent article titled "Safeguarding Your Assets Against the Hazards of a Lawsuit." 

Before getting lost in the legal weeds of asset protection risks, it should be confirmed right up front that insurance can be your first line of defense. In fact, there are as many types of insurance as there are risks. This is a product where one person literally buys piece of mind (assuming you trust your broker) and pays another to accept their uncommon liabilities and costs in exchange for common payments.

Unfortunately, insurance only provides a certain level of protection. In the end, insurance simply transfers liabilities without eliminating them, and it doesn't work proactively on its own. No, you really need to pay heed to how you structure your assets.Although the "titling" of your assets generally falls under the rubric of "estate planning," proper "asset planning" (regardless whether for estate planning, asset protection planning, or both) is an ongoing life activity.

If you have particular concerns or you're prone to specific risks, asset protection planning for your estate can help ease your worries. Remember, as you read the original article, your individual circumstances and consequent risks will ultimately determine a suitable asset protection plan for you.

Reference: The New York Times (November 2, 2012) "Safeguarding Your Assets Against the Hazards of a Lawsuit"

If It Walks Like A Partnership And Quacks Like A Partnership…

There are quite a few ways of structuring a business entity. But how do you choose between the veritable alphabet soup of LLCs, S Corps, C Corps, LPs, LLPs, and so on and so forth? This can be quite a headache, since not all of them do the same thing.

A golden rule for business is to do business the way your business is structured, and to structure your business entity in the way you need to be doing business! If you mix and match it has an unfortunate tendency to create serious liabilities which often come with a fairly aggressive tax assessment.

With liabilities and taxes in mind, consider reading a recent Forbes article titled "Beware Of Partnership Status Sneaking Up On Your Business Venture."

While this advice is nothing new, yet another tax court case has come down the pike to confirm this conventional wisdom. In the case a father and son operated a moderately large agricultural business. The father and son, however, each formed their own entities, worked together to do the work, and split the income equally, but disproportionately split the expenses. The IRS determined that this juggling of the books didn’t compute, so the IRS slammed both father and son with the taxes that would have applied on a single "partnership."

You could say this was another case of "substance over form."

Teaching point: if there are two business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there should be only one entity, if such is an accurate reflection of how the work is being done.

Of course, the accidental partnership is not the only pitfall...

Be sure to read the original article for the full scoop.

Reference: Forbes (October 21, 2012) "Beware Of Partnership Status Sneaking Up On Your Business Venture"

Revocable Trust Planning Thwarts Creditors?

Trusts are powerful devices. In fact, it seems even "revocable trusts" can afford valuable protection.

Consider the case of Frank and Geryl Pearl, as reported in a recent Forbes article titled "Pearl -- Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor."

Essentially, the Pearls case illustrates the magic of a revocable trust. Frank, upon a cancer diagnosis, moved his business assets under a revocable trust, which meant that he was still effectively accountable for everything because the "revocable" trust was still under his control for all intents and purposes. Frank arranged for the bank to name him personally as guarantor to the business loans. Geryl was named beneficiary to the trust. When Frank died the assets in the trust, that were otherwise entirely accessible to the bank and other creditors, passed over to Geryl and were completely inaccessible to the creditors. Poof! How did this happen? As summarized by Forbes:

It should not be overlooked that a revocable trust can provide near-absolute asset protection to the beneficiaries of the trust after the settlor dies, so long as the trust is well-drafted, has only discretionary distribution, and a solid spendthrift clause. What is no protection for the settlor almost magically turns into fantastic protection for beneficiaries after the settlor's death. A beneficiary's interest is simply not acceptable by creditors except in the most extreme cases, such as unpaid child support or if the beneficiary commits a violent crime, etc.

The Pearl case is an interesting one for those planning their estates (and their creditors). To learn more you can consult the Forbes article, the case itself (as cited in the article), and consult with competent legal counsel before relying on this case in your own planning.

Reference: Forbes (September 30, 2012) "Pearl -- Transfers to Revocable Trusts Were Not Fraudulent Transfers As To Creditors Of The Settlor"

When (Business) Partners “Divorce”

In every end there is a beginning. When it comes to the founders of a business, there also ought to be an end. An amicable end.

As Stephen Covey noted so adroitely, one of the keys to effectiveness is to "begin with the end in mind." Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning this oftentimes is called "exit planning."

If you fail to "begin with the end in mind" and make legal plans to memorialize the end game for your personal and business relationships, then you likely will only enrich lawyers. So, when it comes time to part ways down the road, what steps should you be taking now?

The Wall Street Journal recently addressed this subject in an article titled "Breaking Up (With a Co-Founder) Is Hard to Do."

One key takeaway from the article is the "when and how" of exit planning. The best time to address the issue is when the business is founded. Consequently, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various fundamental legal documents created when the business is founded. For example, an Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements.

Regardless, one thing is clear: do not bury your head in the sand. For every business, an "exit" will be required. As a result, you can either make plans now, or leave it up to lawyers to clean up (literally) later.

Reference: The Wall Street Journal (September 22, 2012) "Breaking Up (With a Co-Founder) Is Hard to Do"

Potential Postnuptial Possibilities

Marriage is, in very real sense, a contract to be together for life, through thick and thin. Hopefully, that's not a difficult choice. But what about all of the other "stuff" that can get in the way of such plans?

The stuff that can throw a monkey wrench into a marriage include things like children from a prior marriage, separate assets and estate plans, and, yes, even inheritances. So, even if you did not work out agreements regarding such stuff before exchanging vow, there's always a potential cure after the fact. Enter the postnuptial agreement.

According to recent studies and a article in Private Wealth titled "Postnuptial Agreements On Rise, Lawyers Say," you may never have considered a postnup, but an increasing number of people have and are. Across various incomes, married couples have found them to be valuable tools. There are many reasons to support this trend, even between spouses who otherwise would not ordinarily commit such agreements to paper.

Then again, even if you not a newlywed, you may want to ensure even your children make the best of themselves and their future inheritances. Accordingly, postnuptial agreements can provide a practical pre-condition for an heir and spouse to adopt as part or your estate planning.

Reference: Private Wealth (September 12, 2012) "Postnuptial Agreements On Rise, Lawyers Say"