IN THIS ISSUE– 6 Classic Techniques

for Protecting Your Assets

– 6 Estate Planning Techniques for Blended Families

A Report on Legal Issues Affecting Privately Held Businesses and Personal Wealth

If your professional, business or other activities expose you to potential financial liability, asset protection should be a key component of your wealth-planning. No matter how successful you are at building wealth, if you do not protect your assets, a large portion could be lost to a lawsuit or an unreasonable creditor’s claim.GOOD DEFENSEEveryone’s situation is different, but the following are six asset protection techniques that can benefit many individuals:

6 Classic Techniques for Protecting Your Assets

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1. OUTRIGHT GIFTS. Giving assets to your spouse, children or other family members is one of the simplest and most effective ways to protect assets from your creditors. The downside is that you will lose control over the assets and any economic benefits associated with them.

2. TENANCY BY THE ENTIRETY. If authorized in your state, you and your spouse should hold title to your principal residence or other eligible property as tenants by the entirety (a special type of joint tenancy). This form of ownership insulates assets against your or your spouse’s individual creditors. It does not, however, protect you from joint liabilities.

DO NOT OVERLOOK REPORTING REQUIREMENTSIf you set up an offshore asset protection trust, you must file information returns for foreign assets. Failure to comply can result in severe monetary and even criminal penalties.

Compliance includes filing the Report of Foreign Bank and Financial Accounts (FBAR) with the Financial Crimes Enforcement Network if the aggregate value of your foreign accounts, including trusts, exceeds $10,000 at any time during the year. You will also need to file Form 8938 with the IRS if your aggregate balance of certain foreign assets exceeds a specified threshold. In 2016, the threshold was $50,000 on the last day of the year or $75,000 at any time during the year ($100,000 or $150,000, respectively, for joint filers). Higher thresholds apply if you live abroad.

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3. RETIREMENT PLANS. Qualified retirement plans — such as pension, profit-sharing or 401(k) plans — are surprisingly effective asset protec-tion vehicles. Qualified plans gener-ally are protected against creditors’ claims, both inside and outside bankruptcy. IRAs offer more limited protection. In bankruptcy, IRAs are exempt from creditors’ claims up to a specified threshold: currently, $1,283,025. However, this limit does not apply to rollovers from qualified plans to an IRA. Outside bankruptcy, the level of creditor protection var-ies from state to state.

4. IRREVOCABLE TRUSTS. By includ-ing “spendthrift” provisions in a trust, you can protect the assets against claims by your beneficiaries’ creditors. These provisions prohibit beneficiaries from selling or as-signing their interests in the trust (either voluntarily or involuntarily). You can also place the trust beyond the reach of your creditors, as long as you relinquish any interest in the assets. If, on the other hand, the trust is “self-settled” — that is, if you name yourself as a beneficiary —

6. OFFSHORE TRUSTS. If you want an even higher level of protection, consider offshore trusts, which are similar to DAPTs but are established in foreign countries with favorable asset protection laws. Typically, they are irrevocable for a specified term, enabling you to retrieve the assets down the road when your risk may be lower. An ideal jurisdiction for an offshore trust is one that does not recognize judgments from U.S. courts and whose laws place vari-ous administrative obstacles in the way of U.S. creditors attempting to collect debts there.

Offshore trusts have a shady reputation as vehicles designed to hide assets or evade taxes. When used correctly, they offer legitimate

then the assets generally are not protected against your creditors, except as described below.

5. DOMESTIC ASSET PROTECTION TRUSTS (DAPTS). Permitted in several states, these are self- settled, irrevocable spendthrift trusts that provide protection against your creditors, even if you are a discretionary beneficiary. To use a DAPT, you do not necessarily have to live in a state with a DAPT law. But you will need to locate some or all of the trust assets in one of those states and use a local financial institution to administer the trust. The level of creditor protection varies by state. The main disadvantage of DAPTs is uncertainty over whether they are enforceable in court, particularly when the grantor is a nonresident. A potentially less risky option is a “hybrid DAPT,” which is initially established for the benefit of your children or other third parties. Hybrid DAPTs enable your trustee to add you as a discretionary beneficiary at a later date.

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A “blended family” is more than just a staple of TV sitcoms. Today, it is not unusual for a household to include children and

even grandchildren from prior marriages, as well as adopted family members or same-sex couples. These various family ar-

rangements can create estate planning complications that could lead to challenges in the courts after your death.

6 Estate Planning Techniques for Blended Families

Fortunately, you can reduce the chances of family squabbles by using estate planning techniques designed to preserve wealth for your heirs in the manner you want, with minimal estate tax erosion, if any. Here are six prime examples.

1. WILL. A will is the foundation of most estate plans. Your will general-ly determines who gets what, when, where and how. It may be combined with “inter vivos trusts” established during your lifetime or be used to create testamentary trusts, or both. While you can include a few tweaks for your blended family through a codicil to the will, if the intended changes are substantive — such as removing an ex-spouse and adding a new spouse — you should meet with your estate planning advisor to have a new will prepared.

2. LIVING TRUST. The problem with a will is that it has to pass through probate. In some states, this can be a costly and time-consuming process. Alternatively, you might transfer assets to an inter vivos living trust and designate members of your blended family as beneficia-ries. Unlike a will, these assets are exempt from probate. With a revo-cable living trust, the most common version of a living trust, you retain the right to change beneficiaries and distribution amounts. Typically, a living trust is viewed as a supple-ment to — not a replacement for — a basic will.

3. PRENUPTIAL AGREEMENT. Gener-ally, a “prenup” executed before marriage defines which assets are characterized as the separate prop-erty of one spouse or marital prop-erty of both spouses upon divorce

or death. As such, prenuptial agree-ments are often used to preserve wealth for the children of a first mar-riage before their parents enter into a second union. It may also include other directives, such as estate tax elections, that would occur if the marriage dissolved. Be sure to in-vestigate state law concerning the validity of your prenup.

4. DURABLE POWER OF ATTORNEY. As the name implies, this document authorizes another person to le-gally act on your behalf in the event you are incapacitated or otherwise unable to conduct your own affairs. Be aware that the power may be “broad” or “limited” (for example, restricted to selling or managing personal property such as a home). Because some discretion is involved, it is important for an individual heading up a blended family to choose the attorney-in-fact wisely. This document may be coordinated with health care directives and/or a living will.

5. MARITAL TRUST. This type of a trust can be customized to meet the needs of blended families. It can provide income for the surviving spouse and preserve trust principal for the deceased spouse’s desig-nated beneficiaries, who may be the children of prior relationships. If certain tax elections are made, estate tax that is due at the first death can be postponed until the death of the surviving spouse.

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At MendenFreiman, we understand business and life can be complicated. For 20 years, we have made it our mission to identify and simplify complex business, wealth and life-planning issues for our clients. In addition to law degrees, most of our attorneys have earned advanced degrees in business, accounting or tax; and several are certified public accountants. This diverse combination of legal, management, tax and financial expertise sets our firm apart. Our clients trust us to help them solve complicated business planning, transactional, wealth transfer and estate planning matters.

5565 GLENRIDGE CONNECTOR, N.E. SUITE 850 ATLANTA, GA 30342 PHONE 770.379.1450 FAX 770.379.1455 MENDENFREIMAN.COM

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6. IRREVOCABLE LIFE INSURANCE TRUST (ILIT). Life insurance is often used to provide needed benefits should the main breadwinner sud-denly pass away. However, if you retain any “incidents of ownership” in a life insurance policy, such as the right to change beneficiaries, the proceeds will be included in your taxable estate. This result can be avoided by transferring the policy to an ILIT. The trustee, who may be a professional or family member, will follow the directives spelled out by the ILIT, and if implemented correctly, can avoid estate inclusion of the insurance proceeds.

These are just six estate planning strategies that could prove helpful for blended families. You might use others, or variations on these, for your personal situation. Consult with the attorneys at MendenFreiman to develop a comprehensive plan.

UPDATE PLAN AND POLICY BENEFICIARIES

Do not be cavalier when you fill out the paperwork for qualified retirement plans, traditional and Roth IRAs, and life insurance policies. Absent any proactive changes, your choices are effectively written into stone. Be aware that the designations for beneficiaries generally trump conflicting provisions of your will. Therefore, if you name an ex-spouse as the primary beneficiary, he or she may be entitled to benefits — even if a revised will names a new spouse as the beneficiary of your estate.

Remember to designate both primary and secondary beneficiaries. If the primary beneficiary dies before you do, the benefits will automatically go to the secondary beneficiary. This can avoid potential hassles later on.

Finally, if you are part of a blended family, review your current beneficiary designations. Depending on your situation, you might reallocate the percentages going to children or grandchildren from a first marriage to accommodate offspring from a second marriage and even decide to include stepchildren and step-grandchildren as beneficiaries.

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protection against unreasonable or excessive claims. If you establish an offshore trust or foreign account, you will need to file information returns. (See “Do not overlook reporting requirements.”)

LEGITIMATE TOOLIt is important to note that asset pro-tection planning is meant to protect you against unanticipated future claims. It provides you with legitimate methods of setting aside wealth for your heirs,

deterring litigants and providing credi-tors with an incentive to settle.

Asset protection planning is not a tool for evading taxes or other obligations, hiding assets or defrauding creditors. Indeed, fraudulent conveyance laws pro-hibit you from transferring assets with the intent to hinder, delay or defraud existing creditors or foreseeable future creditors. To ensure you do not step over any lines, always work with repu-table financial and legal advisors.

THE SOONER THE BETTERThese six tips are only a few of the techniques available to protect and preserve wealth. Whichever strategies you choose, it is critical to implement them as early as possible. If you wait until creditor claims are imminent, it will likely be too late.