Asset Protection Manual – Chapter 3: Summary
How Estates and Trusts Provide Asset Protection
By: Michael Scott Ioane, 2010
One of the tenets of asset protection is that your plan must not look like one of asset protection. That purpose must be concealed behind some other justification for your business entities and their activities.
Estate planning can be very useful for this purpose. It can be the veil behind which you hide asset protection. Estate planning is a means to state what you want done with your properties and assets after you die. You can declare how much, if any, each of your heirs should receive. This allows your family to avoid paying for death taxes and a probate. A probate is a court-supervised process of distributing your wealth.
Estate planning becomes your justification for forming a Family Limited Liability Company. A Family Limited Liability Company (FLLC) is a business entity that you form and control as the recipient of your estate. It allows you to transfer your assets from your ownership to the FLLC’s. You can then assign shares of these assets to your heirs while remaining in control of them.
This strategy helps you avoid estate taxes as you can decrease the taxable value of your estate. Not only can you transfer property out of your possession, you can also decrease its value when you move it into an FLLC.
Notice that an FLLC’s assets are considered separate from your own. It now becomes unavailable to claims from attackers or from taxation. It becomes, in essence, an asset protection tool. This wonderful side benefit is a product of estate planning and is therefore unlikely to be held under suspicion.
This arrangement may still be improved. An FLLC would still need a bank account and creating one would require you to sign documents. This decreases your privacy. Your own life insurance is subject to estate tax. A tax that could be as high as 40%!
Using trusts helps you solve these problems. A privacy trust can be set up to be the manager of your FLLC. You may then have a trustee sign the documents on behalf of your FLLC. Using an “Irrevocable Life Insurance Trust” also allows you to avoid estate taxes so long as the policy has been in the trust for at least three years before you pass away.
The intricacies of putting together trusts, estates and FLLCs are better explained at length in Chapter 3 of Michael S. Ioane’s “Asset Protection Manual”. Do not forget that you also need to find someone you can trust to become your trustee; another need addressed by the book.
Michael Scott Ioane
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