You don't have to be gay to understand the frustration committed same-sex partners have with not being able to be recognized as a legal couple through marriage.
As the saying goes, be careful what you wish for. You might get it.
First, in legal terms, marriage is an unconscionable contract. Over 50% now end in divorce. The split up rate for gay and lesbian partners is even higher. If less than half work out, why do we need marriage at all?
The marriage contract is a three-party contract - husband, wife, and state. The state holds all the cards. The state determines who can and cannot marry, and decides if and under what terms the marriage can be dissolved.
What I suggest for couples or groups who cannot legally marry is to construct their own relationships using LLCs to define those relationships according to their own desires. An LLC cannot be set up to circumvent state laws or to legitimize an illegal sexual arrangement, but many other aspects of traditional marriage such as joint ownership of property and health insurance can be addressed quite nicely by the LLC.
For example, if the LLC provides health coverage for the members, and the relationship breaks up, the LLC will continue to insure the individual members. When a divorce takes place, if the insurance was in one spouse's name at work, the ex-spouse will likely lose his or her insurance.
Joint property via an LLC is an even better proposition. Membership can be apportioned according to the contributions each made to the LLC. If the relationship dissolves, you still retain your ownership percentage through the LLC instead of having a family court judge divide the property according to how the court wants to apportion it.
An LLC lets you control the "divorce", and works better than a prenuptial or post nuptial agreement, which can be modified or ignored by the court.
Prenuptial agreements are flawed in regard to children. For traditional couples, a prenuptial cannot contract away the rights of the unborn. The one thing all states will do is bend the divorce decree to favor the payment of child support, no matter what the financial situation of the parents. The state, quite simply, does not want to pick up the welfare tab for your failed marriage.
An LLC can include children as members. Children can have their own say in family/LLC affairs. Assets such as the family home can remain in the LLC and survive the breakup of the marriage.
And finally, husbands and wives destroy each other's credit all the time. Members in an LLC are treated like partners for tax purposes, and their percentages of the profits pass through to their individual tax returns, while members retain the limited liability protection of a corporation.
Members of the LLC are not individually liable for the debts of the LLC, and they are not liable for the debts of other members. One LLC member cannot ruin the credit of another, as husband and wife can.
For gay and lesbian couples, plural "marriages", and other unconventional relationships, keep the state out of your affairs with an LLC. Instead of tying the knot, use a slip knot to have the relationship you desire, plus the ability to change that relationship without the permission of the nanny state.
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Charles Lamm is a retired attorney who owns Trustee and RA Services Inc. in Coral Springs, Florida. He recommends asset protection for all using a no-asset corporation, LLC, and beneficiary controlled trust. Read more at: http://www.corp-llc-bct.com.
Showing posts with label divorce. Show all posts
Showing posts with label divorce. Show all posts
Tuesday, February 19, 2008
Monday, February 18, 2008
Asset Protection From the Trust Up
Asset protection against the causes of wealth depletion - lawsuits, judgments, creditors, ex-spouses, financial mismanagement, and the IRS - can be avoided or eliminated by the use of a Beneficiary Controlled Trust, created by someone else as Grantor and you as the Beneficiary/Investment Trustee. A spendthrift provision and a second Distribution Trustee shields your assets from predators.
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Asset protection works best when you start before you have a significant number of assets that need protection. You need to fix the roof before the rains pour in. The earlier a trust is created, the greater the benefits.
The time you usually worry about your assets - when facing a divorce, lawsuit, creditor demands, or a tax lien - is when you can kiss your stuff goodbye. If you have not protected it by then, it's not your property. It belongs to whoever the judge says it does.
Trusts used to be the last thing a middle-class taxpayer had to worry about. Estate taxes were the problem of the rich. A trust, along with appropriate use of corporations and limited liability companies, means never having to give your property to the ex-anyone again.
As it stands now, with modest homes in many parts of the U.S. fetching over $1 million, trusts are the most powerful asset preservation device available. In addition, all gifts and bequests should be made and kept in trust instead of being given outright.
What we call a BCT (Beneficiary Controlled Trust) goes by a more accurate description of "Crummey Defective Grantor Spendthrift Trust".
Crummey is the name of an individual who challenged the IRS and won, not a depiction of the quality of the trust. For that alone he deserves your respect and admiration.
In our Beneficiary Controlled Trust, the beneficiary also serves as trustee, hence the control. Crummey powers are handled by the second trustee, known as the Distribution Trustee, but all control and decisions remain with the beneficiary/trustee.
The BCT is designed to:
1. Give the beneficiary beneficial use and control of trust property without having ownership which can be reached by creditors or distributed by a judge in a divorce case. You can't lose property in a divorce settlement if you don't own it.
2. Have no negative gift or estate tax for the beneficiary or the person creating the trust (Grantor).
3. Own businesses in the form of corporations or LLCs to provide protection from personal liability from debts of or judgments against the business entities.
4. Pass income earned by the trust to the beneficiary to be taxed at lower individual tax rates.
5. Provide a way for parents to use their annual gift tax exemption to transfer wealth to children or grandchildren without estate tax issues for either the grantors or beneficiaries.
6. Restrict income and principal distributions only for HEMS (health, education, support, and maintenance). Distributions are discretionary, not mandated. HEMS conforms with IRS standards to make sure the assets are not included in your estate, and cannot be reached by creditors.
7. Gives you the right to replace the Distribution Trustee (2nd trustee) at any time. While this might not seem important at first, this is one of the few irrevocable trusts that can be "rewritten". The trust can continue for the beneficiary's lifetime and for successive generations. The only caveat is that the beneficiary/trustee may not rewrite in such a way as to increase his own benefits.
8. Our BCT has special testamentary powers of appointment which allows you to direct who receives the trust property upon your death. To prevent assets from becoming a part of your estate, the BCT will prohibit you from giving any property to creditors, your estate, or estate creditors. You can now pass the trust assets on to your family or charities or anyone you choose.
9. For parents who want to help their children start a new business, funds given outright to the individual child are exposed to claims of creditors or ex-spouses. Seed money contributions to the trust can be used to form a corporation or to organize a new limited liability company. An LLC owned 98% by the BCT, and 1% owned each by two natural persons such as the parents, is the structure we have found to provide superior asset protection. The LLC can then acquire assets 98% owned by the trust.
10. The beneficiary has no enforceable right to demand income or principal from the trust, so creditors cannot step into the shoes of the beneficiary and force a distribution. In bankruptcy, the beneficiary cannot voluntarily or involuntarily assign his interest in the trust for the benefit of creditors.
If you have full ownership of property, creditors, spouses, and the IRS can come gunning for you. Failure to exploit trusts to their maximum advantage puts a bull's-eye on your chest.
When distributions are subject to the absolute discretion of the independent Distribution Trustee, even though the beneficiary can replace that independent trustee, you now have unequalable divorce and creditor protection.
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beneficiary controlled trust,spendthrift clause,trustee,beneficiary,asset protection,assets,IRS,taxes,taxation,creditors,divorce,property settlement,tax lien,trust,
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Charles Lamm is a retired attorney and owner of Trustee and RA Services, Inc., in Coral Springs, Florida. His asset protection articles appear on his blog at: http://www.corp-llc-bct.com. To learn more about how to combine a corporation, LLC, and Beneficiary Controlled Trust for maximum asset protection and tax benefits, please email him at: asset-protection@corp-llc-bct.com.
-----------
Asset protection works best when you start before you have a significant number of assets that need protection. You need to fix the roof before the rains pour in. The earlier a trust is created, the greater the benefits.
The time you usually worry about your assets - when facing a divorce, lawsuit, creditor demands, or a tax lien - is when you can kiss your stuff goodbye. If you have not protected it by then, it's not your property. It belongs to whoever the judge says it does.
Trusts used to be the last thing a middle-class taxpayer had to worry about. Estate taxes were the problem of the rich. A trust, along with appropriate use of corporations and limited liability companies, means never having to give your property to the ex-anyone again.
As it stands now, with modest homes in many parts of the U.S. fetching over $1 million, trusts are the most powerful asset preservation device available. In addition, all gifts and bequests should be made and kept in trust instead of being given outright.
What we call a BCT (Beneficiary Controlled Trust) goes by a more accurate description of "Crummey Defective Grantor Spendthrift Trust".
Crummey is the name of an individual who challenged the IRS and won, not a depiction of the quality of the trust. For that alone he deserves your respect and admiration.
In our Beneficiary Controlled Trust, the beneficiary also serves as trustee, hence the control. Crummey powers are handled by the second trustee, known as the Distribution Trustee, but all control and decisions remain with the beneficiary/trustee.
The BCT is designed to:
1. Give the beneficiary beneficial use and control of trust property without having ownership which can be reached by creditors or distributed by a judge in a divorce case. You can't lose property in a divorce settlement if you don't own it.
2. Have no negative gift or estate tax for the beneficiary or the person creating the trust (Grantor).
3. Own businesses in the form of corporations or LLCs to provide protection from personal liability from debts of or judgments against the business entities.
4. Pass income earned by the trust to the beneficiary to be taxed at lower individual tax rates.
5. Provide a way for parents to use their annual gift tax exemption to transfer wealth to children or grandchildren without estate tax issues for either the grantors or beneficiaries.
6. Restrict income and principal distributions only for HEMS (health, education, support, and maintenance). Distributions are discretionary, not mandated. HEMS conforms with IRS standards to make sure the assets are not included in your estate, and cannot be reached by creditors.
7. Gives you the right to replace the Distribution Trustee (2nd trustee) at any time. While this might not seem important at first, this is one of the few irrevocable trusts that can be "rewritten". The trust can continue for the beneficiary's lifetime and for successive generations. The only caveat is that the beneficiary/trustee may not rewrite in such a way as to increase his own benefits.
8. Our BCT has special testamentary powers of appointment which allows you to direct who receives the trust property upon your death. To prevent assets from becoming a part of your estate, the BCT will prohibit you from giving any property to creditors, your estate, or estate creditors. You can now pass the trust assets on to your family or charities or anyone you choose.
9. For parents who want to help their children start a new business, funds given outright to the individual child are exposed to claims of creditors or ex-spouses. Seed money contributions to the trust can be used to form a corporation or to organize a new limited liability company. An LLC owned 98% by the BCT, and 1% owned each by two natural persons such as the parents, is the structure we have found to provide superior asset protection. The LLC can then acquire assets 98% owned by the trust.
10. The beneficiary has no enforceable right to demand income or principal from the trust, so creditors cannot step into the shoes of the beneficiary and force a distribution. In bankruptcy, the beneficiary cannot voluntarily or involuntarily assign his interest in the trust for the benefit of creditors.
If you have full ownership of property, creditors, spouses, and the IRS can come gunning for you. Failure to exploit trusts to their maximum advantage puts a bull's-eye on your chest.
When distributions are subject to the absolute discretion of the independent Distribution Trustee, even though the beneficiary can replace that independent trustee, you now have unequalable divorce and creditor protection.
-----------
beneficiary controlled trust,spendthrift clause,trustee,beneficiary,asset protection,assets,IRS,taxes,taxation,creditors,divorce,property settlement,tax lien,trust,
-----------
Charles Lamm is a retired attorney and owner of Trustee and RA Services, Inc., in Coral Springs, Florida. His asset protection articles appear on his blog at: http://www.corp-llc-bct.com. To learn more about how to combine a corporation, LLC, and Beneficiary Controlled Trust for maximum asset protection and tax benefits, please email him at: asset-protection@corp-llc-bct.com.
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