Asset Protection

In Revenue Ruling 2010-18, the IRS published the applicable federal interest rates for July, 2010. These are some of the lowest rates in the past thirty years, and as far as I can see,some of the lowest rates in modern history. For example, you can sell assets in July in exchange for a promissory note with athree year termand an interest rate of 0.61%. Or, you can sell assets in July in exchange for a promissory note with a nine year term and an interest rate of 2.33%. Or, if you have previously sold assets to a trust for estate planning purposes, you could re-finance the note at these historically low interest rates. These low rates allow more of your assets to grow outside of your estate and pass to thenext generation free of estate taxes.

"Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth."

On January 1, 2010, the estate tax was repealed. But the estate tax is not really dead, only sleeping. As of this date, this is my prognosis on the estate tax.

Last weekend I took 20 young men and 8 adults on a winter campout in the Uintah National Forest in Northern Utah. We rented cross country skis and we carried our gear in backpacks and sleds. We began our trek as the sun set and an enormous full moon began to rise over the horizon. As we ski'd through the forest, we heard coyotes (and possibly wolves) howling in the distance. We traveled six miles, and the final mile was a steep climb, in soft snow, pulling heavy sleds. At times I wondered if I had made the right choice. It certainly would have been safer and easier to stay in my comfort zone at home. But in the end, I realized that the risks were well worth the rewards. I will forever cherish the friendships I enjoyed on this adventure, the brightness of the moon on the snow, the stark shadows, the erie sounds of wild animals in their natural habitat, the vitality of working my muscles and lungs in the cold fresh air, and the silence and peace of a natural setting far removed from city lights, pollution, or man made noise of any kind.

If you are looking to benefit from all the best laws, you might consider living in Florida, shopping in Oregon, forming your corporation in Delaware, forming your LLCs in Alaska, and forming your trusts in Nevada.

Two summers ago, we spent a week on a beautiful lake called Sand Hollow. This lake has huge sandy beaches, crystal clear water, warm temperatures, and stunning views. I was really excited to do alot of water skiing, but I knew that windy weather could play havoc with my plans. In order to hedge our bets, I brought along a catamaran sailboat. Sailing is great fun, but if the wind won't blow, sitting on a sailboat is beyond boredom. Having both the skiboat and the sailboat turned out to be the perfect combination; because when the weather was calm, we ski'd the glass, and when the weather was windy, we had a blast with the sailboat.

Last Saturday I went snowcat skiing with my dad and my brother. We had a marvelous time. But the most impressive part of the day was watching the guides who led us to the steepest and deepest powder runs while avoiding the dangers all around us. The guides have years of experience on the same mountains and they know exactly where the best powder is found and how to avoid the avalanches and other dangers which were apparent all around us. All day the snowcat climbed up ridges no wider than the snowcat itself with thousand foot drops on both sides. We ski’d along narrow ridges where the guides insisted that we stay directly on their tracks to avoid collapsing the rims on either side. In one large bowl thousands of yards across, the guides showed us how there was avalanche danger on the right, icy crusty snow on the left, and one perfect powder run down the middle. They had us ski between the tracks of one guide on the right and the tracks of another on the left so we could take advantage of the lightest and deepest powder the mountain had to offer.

If you are choosing a trustee for a dynasty trust, an asset protection trust, or a trust used to establish residency in a certain jurisdiction, then you better pick a corporate trustee or a professional trustee. Even if they don't provide a lot of services, their fees are justified by their credibility if the trust is attacked, by their independent approval of related party transactions, and by the cost of their malpractice insurance. The IRS and the courts have busted many a trust by proving that the trustee was a straw man and the trust was a sham. (See Sparkman v. Commissioner, 509 F. 3d 1149 (C.A. 9, Dec. 10, 2007)).

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.