Asset Protection

Physicians and other medical professionals often stress preventative care and a healthy lifestyle. Preventative care can detect the onset of disease and other problems in time to design an effective treatment plan. It also allows for the detection of risk factors, and educating the patient on lifestyle choices that can help mitigate that risk. If this is such an important part of what it means to be a physician then you should put just as much care into your money.  High Net Worth Americans, Business owners, and High Risk Professionals need Integrated Estate Planning.

Integrated Estate Planning is the preventative care plan for your money. It plans for the growth and protection of your assets. Your assets are managed with tax efficiency, safety from litigation, and your end goals in mind. Many people have an estate plan so that they can plan for disability and the end of their life. Physicians need more. They are at a very high risk for lawsuits and other financial challenges.

Integrated Estate Planning

Integrated Estate Planning adds Asset Protection to the tax and succession planning that most planners provide. Integrated Estate Planning uses many different tools to keep your assets safe. Many of these tools are used by most people every day. Things like Gift Giving, Joint Ownership, Insurance, and Exemptions are useful for everyone wanting to protect what is theirs. The affluent often need a more robust plan.

Since business owners are high income earners, they tend to acquire a lot of assets that make them especially attractive targets to lawsuits. That is why some more sophisticated tools are needed. Your  finances can face almost unlimited malpractice liability. Most of the affluent need to add some other tools to protect their assets.

LLCs, Partnerships, and Corporations

Each professional will have to decide how much protection and how far they would like to plan. However, most of the plans in Minnesota should include LLCs and trusts. LLCs are more favored for Asset Protection than Partnerships because Minnesota doesn’t place any limits on a creditors ability to foreclose on Partnership interests. Minnesota at least puts a limitation on the rights of a creditor to foreclose an LLC interest. However, LLCs and other business structures must be properly used in order to provide the protection that they promise.

Trusts

Trusts are the backbone of most Estate Plans. These instruments often combine with other tools to provide for what happens to your assets when you die while also providing protection for these assets during life. The plan should also provide the same protection to your heirs after death. Most Integrated Estate Plans for High Risk professionals will contain either a Domestic Asset Protection Trust or a Third Party Settled Spendthrift Trust. These trusts have asset protection built into them.

Domestic Asset Protection trusts are often used by the affluent that have assets in more than one state. They were created explicitly for asset protection by the states that have passed laws enacting them. Minnesota is not one of those states. This does not mean that they don’t have their place in an Integrated Estate Plan for Minnesota residents. They can still be a very powerful combination with other tools to protect your money. You may be surprised to find out that even your IRA and annuities are not safe in Minnesota.

A Third Party Settled Spendthrift Trust is a trust created by the physician for the benefit of someone else, usually his spouse and children. The trust holds quite a bit of assets and the spouse uses them to make sure that the family and herself are cared for. The physician will lose ownership of the assets, but they are protected from creditors and can be used for the family’s benefit if the spouse or children desire. This type of trust is recognized in Minnesota and physicians have them as a part of their Integrated Estate Plan.

It is necessary to make this type of trust not be for the benefit of the physician. Should the physician become a beneficiary, this trust will be a Self Settled Spendthrift Trust. Minnesota law allows for the creditors of the physician to get the assets of this type of trust.

A fair percentage of the affluent choose to have their plan use only these domestic tools. However, there are a significant number of high net worth Americans, and other high risk professionals, that choose to go international with their protection efforts. This is because almost all of the strategies discussed before this are dependent upon State law. There are certain creditors whose claims originate within Federal law. These claims can often pierce through these previous structures and get at assets underneath. Because of this, many physicians choose to have an international element to their planning.

International and Foreign Tools

The international tools that can be used in an Integrated Estate Plan are the Foreign Integrated Estate Planning Trust, Civil Law Foundations, Hybrid Companies, Foreign LLCs, and Foreign Insurance or Annuities. These tools rely on more debtor friendly laws of an international jurisdiction to protect assets. These are not tax shelters. These are not tax havens. They often have stringent IRS reporting requirements and sometimes increased tax liability, but the cost is often less than the damage to your money that a lawsuit will bring.

International Foundations

In the United States, private foundations can only be created for charitable purposes. A foundation can exist in the United States for no other purpose. Internationally, a foundation can exist for many purposes. These can be charity, artistic, or even for the family. There are more purposes permitted for the international foundation, but we will focus on the family foundation.

This foundation can be made for the benefit of a patriarch/matriarch and his/her heirs. Unlike trusts in Minnesota, which can not last forever, the international foundation can exist in perpetuity. Not all countries allow them for the family purpose. However, those that do either treat the foundation as a Trust, a Corporation, or some hybrid of the two. The foreign jurisdictions often also have very powerful creditor protection. Many will not even recognize a judgment obtained in the United States. There really is no equivalent in the U.S. system. Because of this, the IRS can choose to tax them using any of these methods. If you choose this vehicle, you will want a skilled Integrated Estate Planner and CPA to assist you in getting a Letter Ruling from the IRS before placing property into the foundation to be certain of its tax treatment.

Foreign Integrated Estate Planning Trust

The Foreign Integrated Estate Planning Trust is a trust just like the trusts in the United States. They can be classified as Domestic Trusts so that they are taxed just like any other trust in the United States or they can be classified as Foreign Trusts. Foreign Trusts have less favorable tax treatment and IRS reporting requirements. However, they are less complicated than the Hybrid Company and the Civil Foundation. The IRS is also more used to dealing with them. These trusts can also last forever.

That is why they are useful for the Integrated Estate Plan. They can operate in many ways just like the Dynasty Trust used in the United States. However, they have superior asset protection. The foreign jurisdiction’s laws often prevent creditors from getting at the assets. They also normally do not recognize U.S. judgments. This can provide significant protection for the physician and leverage to settle debts with creditors.

Hybrid Companies

The Hybrid Company is a fairly new tool in the Integrated Estate Planning toolbox. This is a company that a few offshore jurisdictions now allow. There are two types of shareholders. Voting Shareholders that operate much like the trustees of a trust. There are general members that operate like the beneficiaries of the trust. The company can also last forever so it has similar estate planning purposes that the Foreign Trust does. These can be taxed as a trust, a partnership, or a corporation for U.S. tax purposes. Much like the International Foundation, you should have a skilled Integrated Estate Planner and a CPA on your team. It is also recommended that you receive a Letter Ruling regarding how this vehicle will be taxed before using it.

LLCs

Foreign LLCs are much like their U.S. equivalents. They are just formed in another country like Belize or Nevis. These countries make it much harder to get at the company’s assets. There are also similar reporting requirements to that of the Foreign Integrated Estate Planning Trust. However, they do remain a very viable option. Their perpetual nature can also give them a solid foundation for passing on property to your heirs.

The Purpose Of Integrated Estate Planning

The main things to remember about these international tools is that they are not for hiding assets. They are also not tax shelters. You will be reporting more information to the IRS than you would with domestic tools. You may also potentially pay a higher tax burden, but that might be worth it to you for the increased protection. You also have to remember something about your assets too.

You can send money and many more liquid assets truly overseas. However, you can’t send your car, your office building, or your house overseas. These will always remain in the U.S. and subject to U.S. jurisdiction. This should be kept in mind because, while they may make it much harder for a lawsuit to reach the assets, a foreign trustee can’t really take it to his country. He can for liquid assets though.

To find out how these techniques might help you develop a preventative care plan for your money, seek the advice of an Integrated Estate Planning Attorney.

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More information can be found in Michael Redden’s book on Amazon:

Asset Protection Book

A complimentary copy is available for those who schedule a planning session.