Specific Structures Part 2 (US Corporation)….more

So, as long as my previous post was on corporations, I did forget to cover another HUGE benefit of holding assets in one. Besides the asset protection feature, which is by far the most important one, there is a tremendous tax benefit to holding assets in a corporation. 

Using corporations to own homes, cars, boats, and high priced items is a trick the wealthy have been doing forever. As a matter of fact, the very first thing the wealthy do when purchasing a home, is figure out the best way to own it when it comes time to sell it. I have a couple client with good sized trust funds, and whenever they buy a home, it’s always the same thing. They ask me “whats the best way to own this house if I were to sell it in 10 years.” I almost always tell them to place it in a Nevada corporation, or some sort of offshore trust if they can afford the setup fees (which are next to nothing when you look at the savings)

The advantages of this are of course the asset protection, but also a huge tax savings. If you’ve ever sold a home, you know that taxes are several thousand dollars on the sale side, and the purchase side. When you’re dealing with a home in excess of $500,000 or $1,000,000, you know that taxes are gong to be a major expense.

However, taxes are really only accessed when the property is sold, eg: changes owners. If the home is owned by a corporation, and it comes time to sell the house, you don’t actually sell the house. You sell the shares of the corporation, and the net results is – the home never changes actual owners. It’s still owned by the same corporation, therefore no actual sale has occurred, meaning no taxes. All you do is sell your Nevada corporation to the buyer, who realizes it saves him a boatload of money as well. Sign over the shares at your lawyers office, and the new corporate owner now has a home in the name of his company.

This simple process will save you thousands of dollars when you sell your home. The cost to place your home in a Nevada Corporation is negligible compared to the savings you get here. Tips like this put actual cash in your pocket, in addition to protecting your home from any financial predators. Things like this are the simple tricks that have kept money in the pockets if the wealthy for generations. Take this tiny rule form their playbook and save yourself a bundle next time you sell a home.

Specific Structures Part 2 (US Corporation)

The use of a US corporation can be a great tool for average protection. The following post will discuss the use of a US corporation as it pertains to asset protection, and I will slightly cover tax benefits to an independent contractor. I will not be discussing the use of a Corporation as a business entity, which means employees, insurance, write offs, corporate taxes, etc… I am no expert in that arena, I am an expert in protecting assets, plain and simple. 

a US corporation can be a very simple yet effective method for basic protection. It still amazes me how many people in the USA haven’t taken advantage of this simple tool. When I visit countries in Latin America, I notice that roughly 90% of all people own their cars and homes in separate corporations. These aren’t rich people either, these are the average working people, who make less than $500 per month. When I ask them why, they simply state “for protection.” Honestly, it’s just about that easy.

We live in a litigious society, unfortunately the most litigious in all of the world. People have come to realize that lawsuits are a golden ticket to easy money. And lawyers have come to realize that anyone anywhere can be sued for any amount, and when this happens the choices are two-fold. Hire your own layer to respond to the suit, no matter how ridiculous, or settle. Either way money is coming out of your pocket.

So in order to set up a US corporation for asset protection, you first have to look at the 50 states. Corporations are set up and domiciled at the state level, so most people tend to set up corporations in the state where they live. I’ll say this is a mistake for 95% of people. Choosing the state in which your corporation is set up is the very first step, and one of the most important.

Take CA for example. They have a MINIMUM annual filing fee of $800 for your CA corporation, even if you made no money, and conducted no business. If you earned a profit with your corporation, you’ll be taxed up to 12% on that. In addition states like CA have pierced the corporate veil so many times in legal proceedings, that I find corporate protection almost laughable in that state. So if you want to put your car in a CA corporation to protect it, you’ll be paying $800 per year… doesn’t make much sense. 

Nevada on the other hand, has ZERO state taxes for your corporation. Annual filing there is roughly $200 if I recall correctly. All you need is a registered agent, (a person/company that can receive your mail) in Nevada and you’re good to go. It’s important to note, that while a corporation in Nevada can own property and have bank accounts in any other state, it cannot be “conducting business” in any other state without a license and registration as a foreign corporation, which will of course make it subject to taxes in that foreign state. The definition of “conducting business” varies form state to state, but it’s normally safe to say that owning property (cars, homes, boats, etc..) and having bank accounts are not conducting business. Opening up a shop and selling products, yes that’s conducting business.

To make things simple, I’ll state that for basic protection, you want Nevada or Delaware for your state selection. Both have excellent records of honoring the corporate veil in legal proceedings, and they are known as very “business friendly”. I believe nearly all major credit card companies are domiciled in Delaware, and it’s because the court system there (as is pertains to corporations) is specially designed for speed and efficiency, and has about a 99% record of finding on the corporations behalf. I’m not suggesting you’ll ever go to court, but if so, it’s nice to be domiciled in a state that has a strong record of supporting its corporations. 

So you can begin your search online. Type NV corporation into google and you’ll find all the companies you could ever want to set up your corporation. Or you can always work with a lawyer who will probably charge you more, but make you feel better. It all depends on how involved you care to be. If you want my recommendations, I have them from the do it yourself level, to the hands-off care-free corporate setup level. Please email me if you would like to set one up and I will provide links to my top choices. 

For shares, I say keep them at or under 100, it helps with initial and annual costs. For shareholders, you can put yourself, your spouse, kids, or anyone else you want to have equitable interest in the property you are protecting. Very little other than some logistical info (name, address, registered agent location, number of shares, business purpose, share holders, etc.. ) are required for setup. This info gets sent to the Secretary of State, and a few weeks later your corporation is born. You can pay for expedited services in NV and many other states if you’re in a hurry. 

Once you get back the paperwork, you can get down to business. First steps, are you just protecting assets like a homes, cars, boats, etc…? If so the corporation is good to go. If you need a bank account, then you’ll have to get an EIN number for the corporation. This is easy to do, but also makes you subject to a federal tax return. It’s no big deal if you aren’t engaged in business. But you will have to submit your form 1120 every year for the corporation stating you sold $0 worth if inventory, have no employees, paid $0 salaries, etc… It’s a minor annoyance, but one I do every year.

So if you don’t need the bank account, the next step is transferring the assets to the corporation, which is relatively straightforward. You create a bill of sale, sign it from you, and sign to you – as president of the corporation. Its very important that when signing something on behalf of the corporation, your signature have a title next to it. Otherwise you aren’t acting on behalf of the corporation, your acting as a person with no corporate authority. Always sign “your name – Title” (president, VP, secretary, treasurer) whenever conducting any transactions on behalf of the corporation.

So selling your car is easy enough, sign over the pink slip, make a bill of sale, and go the the DMV with your corporate papers. Selling your home is a bit tougher, but all banks are willing to work with you on this if you have an outstanding mortgage, in addition this isn’t an uncommon process for homeowners. Selling a home that’s already paid for is much easier.

So what happens once your car and home are protected? Well these items cant be taken from you for any liability that you incur, as they aren’t “yours” anymore. If you rear-end someone on the street, they get a bump on the head, sue you for $25 million and win – The next step is to see what you own and start handing it over. Your personal finances will take a hit, as will your paycheck, (these can be protected as well, but the US corporation is not the way to go here, I will discuss personal finances later) but if the car isn’t yours, and your home isn’t yours, and the boat isn’t yours, they’re off limits. Any lawyer who sees your home in the name of a NV corporation, knows that suing you will NOT get him that house.

Placing your home in a US corporation is basically a safety net, that ensures you and your family will never be without a place to live, as the result of a personal liability. I advise my clients to place homes, expensive cars, boats, etc.. All in their own corporation. Yes, that means you pay the state filing fee each year for these items, but its a small price to pay for the security.

Example: you rear-end someone and they do decide to sue your NV corporation, as your car is owned by it. (which for the record is very unlikely, as it will require them to hire a lawyer and travel to a NV courtroom, and attempt to sue a NV corporation, most lawyers wont bother, and if they do they will charge this person a lot of money, which further discourages the suit, but anyways…) When they see the corporation owns nothing but a wrecked car, perhaps that lawyer will not sue the corporation after all, and the person will see their efforts are futile.

Also, when operating a vehicle owned by the corporation, you can protect yourself as well. Call a meeting of the board of directors (you, spouse kids) and draw up an corporate indemnification agreement. Have it state any officers of the corporation that are driving a corporately owned vehicle, will not be held personally liable for any damages that result to the vehicle, or any other person or vehicle they come in contact with. Have it state that the corporation will be fully liable for any and all damages. Again if all the corporation owns is a wrecked car… I doubt anyone will be eager to take it.

Same story goes with your home, which is what most clients want to protect first. If someone slips on mold in your driveway, they can sue you for negligent property care, (as you’ll be the tenant on the property) but they cant take the home, as its not yours. You’re just a renter, with an agreement to rent the house from the corporation for a cash payment of X amount every month to the treasurer (who can be your spouse). Or you can draw up corporate papers that offer free corporate lodging to all officers. In addition you could create indemnification agreements that protect officers from any personal liability on corporate property, but that would open the door to corporate liability, so be careful with home owning corporations. 

The options are almost limitless here, so I cant cover them all. However you should have a basic understanding of how corporations can protect assets. I can respond to emails and commentary on specifics though, so feel free. You can reach me at [Tomothy at hushmail.com]

Corporations for tax benefit: I’ll make a brief post on this soon, this one is long enough already.

Specific Structures Part 1 (Will)

Below you will find information on the use of a will. Honestly feel free to skip this entire post, as the use of a will serves almost no purpose in my opinion.

But why does everyone have a will then? Simply put, the vast majority (99%) of people dont know how to protect their assets. They get a will, follow the heard, maintain status quo, and get hit with estate taxes and probate as does everyone else. My goal is for you to break away from the heard, learn what really works, and then put these strategies into place.

According to the law, a will or testament is a document by which a person regulates the rights of others over his or her property or family after death.

Any person over the age of 18 (in the USA) can draft their own will without the aid of an attorney. Additional requirements may vary, depending on the jurisdiction, but every will must contain the following:

• The testator must clearly identify himself or herself as the maker of the will, and that a will is being made; this is commonly called “publication” of the will, and is typically satisfied by the words “last will and testament” on the face of the document.

• The testator must declare that he or she revokes all previously-made wills. Otherwise, a subsequently made will revokes earlier wills only to the extent that they are inconsistent. However, if a subsequent will is completely inconsistent with an earlier one, that earlier will be considered completely revoked by implication.

• The testator must demonstrate that he or she has the capacity to dispose of his or her property, and does so freely and willingly.

• The testator must sign and date the will, usually in the presence of at least two disinterested witnesses (persons who are not beneficiaries). In some jurisdictions, for example Kentucky, the spouse of a beneficiary is also considered an interested witness. In the USA, Pennsylvania is the only state which does not require the signing of the will to be witnessed. There may be extra witnesses, these are called “supernumary” witnesses, if there is a question as to an interested-party conflict. In a growing number of states, an interested party is only an improper witness as to the clauses that benefit him or her.

• The testator’s signature must be placed at the end of the will. If this is not observed, any text following the signature will be ignored, or the entire will may be invalidated if what comes after the signature is so material that ignoring it would defeat the testator’s intentions.

So everything seems nice an simple right? No laywer required, no great expense, go ahead and make yourself a will today! Feel free to do this, but know it will do very little to protect your assets. True a will can direct certain things to certain people, but whether they get it is a whole other story.

To continue: After the testator has died, a probate (this word makes me shudder, on average this simple legal process will cost 30% of the value of any estate, before estate taxes) proceeding may be initiated in court to determine the validity of the will or wills that the testator may have created, i.e., which will satisfy the legal requirements, and to appoint an executor. If the will is ruled invalid in probate, then inheritance will occur under the laws of intestacy as if a will were never drafted. Often there is a time limit, usually 30 days, within which a will must be admitted to probate. Only an original will can be admitted to probate in the vast majority of jurisdictions — even the most accurate photocopy will not suffice.

So there you have the basics on the Will. Lets go back to the initial definition I used. “According to the law, a will or testament is a document by which a person regulates the rights of others over his or her property or family after death.”

Take a look at my previous posts here, what have I made very clear about true asset protection? First of all, “you” don’t want any property to pass on in a will. When they do an asset check to see what you as a person owned, how about all they find is a personal checking account with $25 in it. You think any lawyer or court is going to bother with probate for this? They wont…

So where are all your assets then? Your home, cars, money, etc… They are safely stored in various other structures (also not owned by you). Keep in mind if you owned these structures, they would be passed along and taxed as well.

I’ll continue working my way through the asset protection structures so you can see what truly works. I know it seems confusing that you don’t own anything ( it was to me as well), but it will make sense soon.

Quick example: A Nevada corporation can own real estate in any other state. The shareholders in this corporation can be anyone. Another corporation, an LLC, a domestic or offshore trust, a foreign person, or they can be made out the the bearer, which means whoever holds the stock certificates in hand owns the corporation. If your home is owned by a properly structured NV Corporation, the owner of the home will never die, as a result the property never changes hands, and since you dont own it nor any of the shares in the Corporation, the home will never be considered part of your estate.

If you have a million dollar home, this strategy alone case save you over $100k in estate taxes, as the value of the home will not be included in the estate. The cost of placing your home in this structure is a very very tiny percentage of that savings.

The wealthy have been using this trick for generations. The truly rich and knowledgeable, they hardly pay a cent in estate taxes, and they never go to probate.

For specific questions/inquiries please email me at [tomothy at hushmail dot com]

Specific Structures To Use

Here’s where things get interesting. Which if the 10 dozen or so asset protections structures will work best for you? Below is a basic list of structures you may or may not have heard of in your quest for asset protection.

• Will (which in my opinion is 100% useless)
• US Corporation (C or S class)
• Nevada Corporation
• Foreign Corporation (outside USA)
• LLC
• Limited Partnership
• Revocable Trust
• Irrevocable Trust
• Living Trust
• Foundation
• Corporation Sole
• Pure Trust
• Offshore Trust
• Contractual Trust
• IBC
• Offshore bank account
• Safety Deposit box (even more useless than a will)

So which one is right for you? Obviously I cant tell exactly which one(s) are most suitable for each of you, but I can give you general outlines on the structures I use the most, why I use them, and how to use them properly and legally. Thats a key here – If you keep things legitimate you keep them safe. You do not want to merely mask your personal finances with a corporate name. That level of protection can be ripped through by any judge in any courtroom. We’re looking to make you bullet proof here, so pay attention and use these entities properly.

I’ll work my way down the structure list over the next couple of weeks to give you a better understanding of everything on it. And if I’ve left something off (which I know I have) and you want to hear about, please email me at [tomothy at hushmail dot com]

Where To Start?

This is typically the second question I get, after a client decides they want to protect their assets. This one is a bit tougher to answer, as there are quite a few places to begin. To start with look at your time horizon. How quickly do you need to protect what you have? I’ve had clients that are in such a hurry they need a 24-48 hour turn around, which is typical of people who have a potential lawsuit coming against them, those who are under collections, or have a levy against their assets. I also have clients (smarter ones) who decided to protect themselves prior to any of the situations above. That way should such an unfortunate event ever occur, there’s no need to worry and rush to get your assets safe.

Below I will outline typical steps for someone who is NOT under pressure to protect themselves. This will apply to the vast majority of you, who simply desire more privacy, more protection, and a better return on your assets.

Note: Don’t talk/mention/brag about your financial situation or asset protection strategies to ANYONE. You never know who is listening, or what their feelings are. If you want to discuss with a friend for his benefit thats another story, but don’t go around tooting your own horn about how bullet proof you are. Even if that is the case, there’s no need to attract unnecessary attention to yourself.

#1 – What do you need to protect most? Houses? Collector Cars? Boats? Gold Bullion? IRA? Savings Account? College Fund for your children? Make a list of your high priority items and accounts, those that you value most. Also make a list of low priority, or low value accounts and possessions, those that can wait a little longer.

#2 – Separate your financial accounts by frequency of use. Day to day checking accounts are needed almost every day. The college fund for the kids gets maybe one deposit a month and thats it. The IRA gets maybe one deposit a year right? How active is your brokerage account? Do you have any 3, 6, or 12 month CD’s? Separate out your financial accounts according to the following.

• Day to Day – These are your daily accounts. You buy food, gas, pay bills, etc… with these
• 1-2 transactions per month (college accounts, savings, brokerage)
• 1-2 transactions per year (CD, annuity, IRA)
• Long term Assets (3+ year CD’s, cash in a safe deposit box)

This should give you an idea of what you have, what you want to protect, when you want to protect it. The frequency of use will tell us what type of structure will best meet your needs. In addition list out your account balances for each item. My feeling is that anything over $10k goes offshore. I realize most other financial planners will tell you offshore isn’t worth it unless you have $1 million or more, but I simply disagree. You can earn a very safe 9% APY in an offshore account which is better than any US bank. In addition the funds here are protected and your relationship with the institution is 100% private; Your contact info, balance, interest, it’s not shared with anyone. This alone ads protection to a degree that you will never find in a US bank.

So you’ve got your accounts separated appropriately. Make sure you have physical possessions here as well. Cars, boat, homes need to be protected too. In addition items like small businesses, independent contractors, sole proprietorships, partnerships, these should all be re-worked for protection from lawsuits, your partner, tax savings, and more. Be sure to add these businesses/income streams to your list. Finally you can list items like TV’s, computers, baseball card collections, and other high value items. These can all be protected with a basic entity as well.

The next entry will focus on specific structures, and the benefits of each.

For specific questions/inquiries please email me at [tomothy at hushmail dot com]

Why Asset Protection???

I get asked this a lot…. Why am I so concerned about asset protection. Well there are probably a few thousand reasons, but these are the main ones. (For the record I am a 100% independent financial consultant specializing in asset protection and privacy)

#1 – With the current US banking/financial regulations you have ZERO privacy. Anyone running a basic search can find your savings account, checking account, CD’s, brokerage account, IRA account, credit cards, home loan, car loan, etc… all with balances. You are basically an open book. Why is this bad? For starters, the US is the most litigious society in the world. What if someone slips and bangs their hip on your driveway? A quick search conducted by any lawyer on your address will turn up your info. From there its about 60 seconds to find out your net worth. If you have at least $5k in the bank, you’re a target. If you get served with legal papers, you have no choice but to hire your own lawyer to respond the suit, or you have to settle with the guy who’s coming after you for however much you can agree upon. (I have many lawyer friends, and it really is that easy to get your info and file suit)

However, what if the search on your home didn’t turn up to you? Perhaps it lead to a corporation or LLC that appears to have no bank accounts, no US based address, and no officers that reside in the USA? Well to any lawyer looking at potential cases, that one gets skipped.

#2 – US banks are not concerned the least with your privacy or rights. They will turn over all records of your activity and your money at the request of any government official. But the law requires a court order right??? Tell that to the thousands of people who have had their US bank accounts tagged, frozen, and drained by the IRS, without a court order. I personally know several people who have informed their bank that the IRS is required to have a court order to levy funds. The banks response? In most cases they simply state their policy is to comply with the IRS, and that’s all. It’s not that the law requires them to, just that they choose to. They choose to hand over your money to an agency that does not have the legal right to take it. And you keep your money in these institutions why?

Wouldn’t it be nice if a search for all bank/brokerage accounts in your name returned nothing?

#3 Do you drive in the US? Is the car in your name? All it takes is a 5 mph tap on the bumper to get served a 6 figure lawsuit. However any lawyer will conduct a check first to see if you’re worth the trouble. No bank accounts, no easily accessible assets, no paper net worth… no trouble.

#4 – Estate taxes – Do you plan on leaving anything for your loved ones? Maybe a spouse, child, grand child, or charity? Every cent you leave will be reduced by at LEAST 40%. Estate taxes, gift taxes, probate costs, attorneys etc… These can whittle a million dollar estate down to pennies in no time. Whats the solution? What if “you” dont own anything when it’s your time to go. Your house, car, finances, etc… they don’t need to be yours in order for you to control them. Remember a corporation never dies, so any assets held by one never change ownership, and as a result never get taxed for passing from one generation to the next.

#5 – ID theft -As a personal victim of this I can testify to the damage it causes. With your info so easily accessible, how tough do you think it is for someone to take over your accounts? I had someone with my name, my birth date, my SS #, and a different photo that caused havoc on my accounts. They even had an official CA drivers license with my info and their photo. It took me years to clean up, and cost me my credit history.

What if an ID thief found out your name/address and set out to take your identity? How vulnerable would you be? Is your home in your name? Your car? All your personal accounts? If so you’re a sitting duck…

I chose to protect myself and my assets, from all prying eyes and hands. If you value what’s yours I can only suggest you do the same.

For specific questions/inquiries please email me at [tomothy at hushmail dot com]