The World of Computer Software/The World of Computer Software.iso/sbadv64a.zip/F133.SBE

Text File | 1992-12-01 | 13KB | 257 lines

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        │     PROTECTING YOUR ASSets FROM CREDITORS     │
        └───────────────────────────────────────────────┘

       "Never invest in anything except your own business.
        Otherwise, always keep all your money hidden under
        your mattress, where only the government can steal
        it." -- Jenkins' Fourth Law of Business Survival

Starting a new business is almost always a highly risky
proposition, and you should not overlook the grim fact
that, if the business fails, you may be forced into bank-
ruptcy and could lose everything except what the bankruptcy
laws allow you to keep.  This is one reason why many small
businesses incorporate at the outset, since a corporation
will generally limit your liability to business creditors
to the amount you invest in the corporation, plus any loans
you make to the corporation or any loans to the corporation
from banks or other lenders, which you have agreed to
guarantee.

Accordingly, if you incorporate, you should be cautious
about unnecessarily committing too much of your personal
net worth to the business.  For example, instead of put-
ting a building or piece of land you own into the corpor-
ation, it may be better (and may save income taxes and,
in some states, property taxes) for you to keep the prop-
erty in your name and instead lease it to the corporation.
@CODE: CA
(For example, in California, transferring real estate to
a corporation will usually be an event that will trigger a
reassessment of the property for property tax purposes un-
der Proposition 13.  If the Prop 13 value before the trans-
fer was very low compared to its actual value, such a
transfer could result in a major increase in property
taxes, since Prop 13 allows the local taxing authorities
to reassess real estate at current value when there is a
"change of ownership," such as a transfer to a corpora-
tion.)
@CODE:OF

Be aware that, even if you incorporate, the leases or bank
loans that you may find it necessary to guarantee on behalf
of the corporation could still wipe out your personal sav-
ings if the business "bellies up," and you have to make
good on the guarantees to the landlord or the bank. Thus,
it often makes sense to have your corporation set up a tax-
qualified pension or profit sharing plan and to have it
contribute as much as possible to the plan on your behalf.
Not only does this provide substantial tax savings and de-
ferral, but federal law (and in many cases, state law as
well) will protect your account under such a plan from your
creditors or the corporation's creditors -- except, of
course, from your spouse in a divorce, or, in some instan-
ces, from the IRS, if you owe money to the Infernal Revenue
Service.

Thus if, over a period of years, you are able to build up a
significant retirement fund in your company's pension or
profit sharing plan, you can rest reasonably assured that
the failure of the business or a disastrous lawsuit will
not touch that nest egg, with regard to most types of
creditors.

If you are going into a particularly risky kind of busi-
ness, and "betting the ranch" on it, it may be a very good
idea to spend a few hundred dollars up front, consulting a
bankruptcy lawyer, who can outline to you what types of
assets you will be able retain if the worst case scenario
unfolds, and you do have to file for bankruptcy.  Most
states provide that varying amounts of assets, such as a
certain amount of equity in your home, a car of a certain
value, life insurance or annuity policies, tools of your
trade, and sometimes a number of other specified assets,
may be retained by you if you go through bankruptcy.  You
will want to know up front what your state's laws are on
such matters so you can structure your affairs so that you
take full advantage of any such bankruptcy "loopholes" if
worse comes to worst.  Also, if you don't wait until things
are already looking shaky, you may often be able to protect
yourself from creditors by putting a large part of your
personal assets in your spouse's name, as a gift (if you
have a strong marriage and feel you can trust your spouse
not to take the money and run off with the local tennis
pro).  A good bankruptcy attorney can also counsel you on
whether such a spousal transfer can be made workable (i.e.,
non-fraudulent) -- if you are a trusting soul.

Aside from the risks of owning a business, many people are
also becoming increasingly concerned about protecting their
savings from the long-term debasement of the value of the
U.S. currency, thanks to periodic bouts of inflation, and
the "twin towers":  a towering, ever-growing federal budget
deficit and a massive trade deficit, which have, in recent
years, led to a major decline in the value of the U.S. dol-
lar vs. the currencies of most other important industrial-
ized countries, such as Japan, Germany, Switzerland and
other major European countries.

OFFICIAL inflation rates are relatively low as of this wri-
ting in late 1992.  (But do you know of anything, other
than your income, that has been going up in price by only
3% or so in recent years?  Like taxes or government spend-
ing?)  However, the Federal Reserve has been pumping record
amounts of new money into the financial system in order to
revive a sick economy in this election year.  If past his-
tory is any guide, this massive pump-priming may help to
stimulate the economy in the short run, but in 18 to 24
months down the road, there is a good chance that it will
reignite the fires of inflation.  Just when we thought we
had finally whipped the inflation virus, it may come back
to bite us.

If the deteriorating financial condition of the U.S. and
the "American peso" concerns you, you may want to protect
yourself from future restrictions the government may place
on investing in foreign currencies or on investing your
funds abroad, while at the same time investing in a rela-
tively safe and stable foreign currency.  One good way to
do this may be to put some of your long-term savings in a
Swiss bank, perhaps denominated in Swiss francs (or in an-
other strong currency, such as the Dutch guilder, Japanese
yen, or the German mark).  Both Switzerland and Germany,
in particular, have had a fanatical determination for many
years to keep inflation as low as humanly possible, even
at the cost of economic growth, and it doesn't seem likely
that they will change those deeply-ingrained habits any
time soon and start printing money like Argentina or Russia
-- or our own Federal Reserve.

Some financial advisers feel that the major Swiss banks are
also much safer places to deposit money than U.S. banks,
since Swiss banks generally maintain much larger financial
reserves and are operated much more conservatively than
banks in this country.  This is not to say, of course, that
Swiss banks don't occasionally go broke; or that the FDIC
won't pay off the first $100,000 of your deposits if your
money is in a U.S. bank, like they have -- so far -- in the
case of the failures of hundreds of American banks.  But
some of the larger Swiss banks, such as Union Bank of
Switzerland, are extremely well capitalized and conserva-
tively run, and are likely to weather any but the most se-
vere global depression.  Which is more than you can say
about most U.S.  banks -- even if you believe the increas-
ingly bankrupt federal government will continue to bail
out the equally bankrupt FDIC year after year, to cover the
gambling losses of the U.S. banking industry (on Third
World loans, oil patch loans, bad real estate loans, LBO
financing, etc. -- or the latest "easy money" games the
banks are now playing:  massive, speculative "interest rate
swaps", and borrowing short-term to "invest" long-term in
government bonds and notes).

In addition, Swiss banks offer considerable advantages if
you wish to invest in gold or silver bullion or gold coins,
since their charges for executing transactions and storing
precious metals for you are often only a fraction of what
American banks and precious metals dealers charge for the
same services.  It is also quite easy to open a Swiss bank
account in a foreign currency, such as the Swiss franc or
Deutschemark.

Opening a Swiss bank account is quite simple (although many
Swiss banks will not open a new account for amounts for
less than $500).  The major Swiss banks are very interna-
tional in orientation, and the big ones, like Union
Bank of Switzerland, Swiss Credit Bank and Swiss Bank
Corporation, will all correspond with you in English and
provide bank statements in English.  However, the days of
total bank secrecy and numbered Swiss accounts are pretty
much over, so if you are looking to do something illegal
and squirrel the money away in a secret foreign bank ac-
count, you had better find another country, since Switzer-
land is no longer the refuge for "dirty" money it once was.

To open a Swiss account by mail, simply do the following:

 .  Write to one of the major Swiss banks mentioned above
    (you can contact one of their U.S. branches in New
    York, Los Angeles, San Francisco, or other major U.S.
    banking centers, to obtain the address of their Zurich
    headquarters).

 .  Enclose a check in U.S. funds for at least $500, and
    tell them what kind of currency you want your account
    to be denominated in.

 .  Specify the type of account you want to open -- a
    "current" account (like a U.S. checking account -- it
    pays no interest, but has no withdrawal restrictions)
    or a "deposit" account (like a savings account in a
    U.S. bank -- usually requires six months notice to with-
    draw more than a few thousand francs).  (Deposit ac-
    counts at U.B.S. are paying 5% at present, in 1992
    -- which is better than a lot of U.S. savings accounts,
    and is in a stable currency, to boot.)

 .  You should at the same time request information re-
    garding the bank's withdrawal restrictions and inter-
    est rates for different kinds of accounts, and a des-
    cription of their services and fees in connection with
    purchasing and storing precious metals and coins, if
    that interests you.


The Swiss address for Union Bank of Switzerland is:

             Schweizerische BankGesellschaft
             (Union Bank of Switzerland)
             Bahnhofsträsse 45
             8021 Zuerich
             Switzerland

Note that Switzerland imposes a substantial withholding tax
on interest credited to your Swiss bank account.  However,
you can apply for an annual refund of all but 5% of that
tax under the U.S.-Swiss Income Tax Treaty, and that small
tax can be taken as a credit on your U.S. income tax re-
turn, on Form 1116.  When you open an interest-bearing
Swiss account, ask the bank to send you a Form R-82, which
is a relatively simple form (all in English) you can com-
plete and mail to the Swiss tax authorities for a refund
of the most of the withholding tax.

Remember also that you must report the existence of any
foreign financial account on your U.S. income tax return
and file Form TD F 90-22.1 with the Department of the
Treasury by June 30 of each year if you had foreign ac-
counts the prior year with a value of over $10,000 in to-
tal.  Also, Schedule B of your Form 1040 requires you to
answer "YES" or "NO" to the question of whether or not you
had any foreign account(s) during the preceding tax year.

Finally, note also that you will have to keep track of the
"cost" of all the Swiss francs or other foreign currencies
you purchase (or receive as interest payments).  Our tax
law treats all foreign currencies like commodities, so if
you buy francs, guilders, yen or Deutschemarks, you will
have a gain or loss on your "investment" when you sell them
or convert them back into U.S. currency.


        ┌───────────────────────────────────────────────┐
        │ Swiss bank accounts are not just for shadowy  │
        │ underworld types; nor are they are for every- │
        │ one.  However, if you like to hedge your bets │
        │ a little, it may help you to sleep somewhat   │
        │ better at night while your government is run- │
        │ ning the printing presses overtime, printing  │
        │ dollars at a record rate, if you know that at │
        │ least part of your savings are in a relatively│
        │ safe currency; thus, you may want to consider │
        │ putting some portion of your investment funds │
        │ into a Swiss account, in a sound currency.    │
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