Asset Protection Planning

Gideon Rothschild, J.D., C.P.A.

Moses & Singer LLP 1301 Avenue of the Americas New York, NY 10019 Telephone: 212.554.7806 Fax: 212.554.7700 grothschild@mosessinger.com

THE NEED FOR ASSET PROTECTION

Legal System No Longer Links Liability to Causation
Increasing Theories of Liability

Unpredictable Judges and Juries

Emotional Distress of a Defendant

Reducing Appeal as a Defendant

ASSET PROTECTION IS ORGANIZING AFFAIRS TO INSULATE FROM MALPRACTICE AND CREDITOR RISKS

ASSET PROTECTION IS NOT A MEANS TO ENGAGE IN FRAUD OF CREDITORS OR CONCEALING ASSETS FROM CREDITORS

TRADITIONAL METHODS
1. 2. 3. 4. 5. 6. Transfers to Spouse Corporate Formation Limited Partnerships Limited Liability Company Joint Ownership State/Bankruptcy Exemptions

DOMESTIC TRUSTS
1. Advantages Probate Avoidance Confidentiality Spendthrift Protection for Beneficiaries 2. Disadvantages Self-Settled Trust Rule Applies in Most States Subject to Domestic Legal System Subject to Fraudulent Conveyance and Sham Trust Challenges 3. New Legislation Alaska Delaware Nevada Rhode Island Utah Oklahoma Missouri South Dakota

DOMESTIC APTs
1. Advantages Settlor can be Beneficiary and Protector Statutory Protection from Creditors Will Substitute Protection for attorneys, advisors Settlor may retain income or principal under ascertainable standard (Delaware only). Disadvantages Subject to full faith and credit Statute of limitations open-ended for existing creditors

2.

FOREIGN TRUSTS
1. Advantages Settlor can be Beneficiary and Protector Statutory Protection from Creditors Short Statute of Limitations Period Standard of Proof to Succeed in Fraudulent Conveyance Action U.S. Judgments not Recognized Confidentiality Grantor Trust - Tax Neutral during Grantors lifetime Will Substitute Disadvantages Reporting Requirements U.S. Court Perception Foreign Trustee Concerns Section 684

2.

John Client Manager

Investment Advisor

Trustee

John Client Investment Account

LLC

Trust

Protector

Mr. Client

Mrs. Client

Child Client

DYNASTY TRUSTS
Benefits
Avoid Estate Tax in Future Generations Asset Protection from Creditors/Ex-Spouses Protect Beneficiaries from Improvidence or Influence by Spouse Trust can Acquire Property for Beneficiaries Use and Enjoyment

Can Accumulate Income State Tax-Free

Can Extend Beyond Rule Against Perpetuities Term If Created During Lifetime, Removes Future Appreciation from Grantors Estate Confidentiality

EXAMPLE
Dynasty Trust Initial Amount (Grantor 50 Years Old) Value at Grantors Death (7% Growth 25 Years) Estate Tax @ 55% Value at childs Death 50 Years Estate Tax @ 55% Value at Grandchilds Death 75 Years Estate Tax @ 55% Value after Four Generations 100 Years Estate Tax @ 55% Value after 100 Years $ 1,000,000 5,427,432 0 $5,427,432 29,457,027 0 $ 29,457,027 159,876,030 0 $159,876,030 $876,716,164 0 $876,716,164 W/O Trust $ 1,000,000 5,427,432 (2,985,088) $ 2,442,344 13,255,658 (7,290,612) $ 5,965,046 32,374,885 (17,806,187) $14,568,698 $79,070,627 (43,488,845) $35,581,782