Asset Protection

Many of my clients make occasional loans to their children. A few of these loans have actually been repaid, or at least partially repaid.

The problem is that if you make a loan to your child for his new business, and the child’s new business experiences temporary or permanent financial losses, the child can’t take a deduction for the loss because the child has no basis and no income, and you only get a capital loss that can only be offset against capital gains.

The best way to prepare for the sale of your business is to sell your stock to a grantor trust (often called a Dynasty Trust) In addition to other benefits, this will protect the appreciation of your stock from estate taxes as well as other potential creditors

If you want to provide incentive to key employees by promising them a portion of the proceeds from a sale of the business, a “profits interest” may be the most tax efficient way to do it A “profits interest” is simply an interest in the future profits of a partnership without any current equity or liquidation rights A profits interest can be granted without any income tax affect and it can allow an employee to receive long-term capital gains from the proceeds of a sale A profits interest can be designed with any kind of limits, restrictions, adjustments, vesting schedules or other specific features.