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Text File | 1996-11-06 | 15KB | 306 lines

@285 CHAP ZZ

        ┌───────────────────────────────────────────────┐
        │     PROTECTING YOUR ASSETS FROM CREDITORS     │
        └───────────────────────────────────────────────┘

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
bankruptcy 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.

@IF120xx]NOTE re @NAME (a @ENTITY):
@IF120xx]-----------------------------------------------------------
@IF120xx]Accordingly, if you do incorporate, be very cautious before
@IF121xx]PLANNING NOTE FOR YOUR CORPORATION:
@IF121xx]-----------------------------------------------------------
@IF121xx]@NAME is a corporation -- as a result,
@IF121xx]we suggest that you exercise a great deal of caution before
unnecessarily committing too much of your personal net worth
to the business.  For example, instead of putting a building
or piece of land you own into the corporation, it may be
better (and may save income taxes and, in some states,
property taxes) for you to keep the property in your name
and instead lease it to the corporation.
-----------------------------------------------------------
@CODE: CA

(As an 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 under
Proposition 13.  If the Prop 13 value before the transfer
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 whenever there is a "change of
ownership," such as a transfer to a corporation.)
@CODE:OF

An alternative to incorporating, in all but 2 states, Hawaii
and Vermont, is to organize your business (if there are 2 or
more owners) as a "limited liability company." An LLC is a
business entity similar to a partnership, but it provides
its owners limited liability, generally to the same extent
as a corporation.

PLANNING NOTE FOR @NAME:
------------------------------------------------------------
@IF120xx]Be aware that, even if you incorporate, the leases or bank
@IF121xx]Be aware that although you are incorporated, leases or bank
loans that you may have to guarantee on behalf of the
corporation could still wipe out your personal savings 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 deferral, 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 instances,
from the IRS, if you owe money to the Infernal Revenue
Service.

Then 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 business,
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.
dollar vs. the currencies of other important industrialized
countries, such as Japan, Germany, Switzerland and several
other major European countries.

OFFICIAL inflation rates are relatively low as of this
writing, in 1996.  (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 spending?)
For example, energy prices for things like heating oil have
jumped about 20% in the first few months of 1996, but the
"official" government figures only showed about a 2% rise
in such items.  (Don't try calling your heating oil supplier
and asking why your cost of heating oil went up 20%, while
the government says heating oil only went up by 2% -- your
supplier will probably tell you to buy your heating oil
from the government, if you don't like the price increase.)

The Federal Reserve appears to be pumping huge amounts of
new money into the financial system, trying to revive a
still rather weak economy, prior to the 1996 elections.
Meanwhile, deficits continue and the national debt continues
to grow, like a spreading oil slick.

If past history is any guide, this massive pump-priming
may help stimulate the economy in the short run, but in 18
to 24 months down the road, there is a very good probability
that it will reignite the fires of inflation.  Commodity
prices are showing increases almost across the board, with
some experts predicting that, with increasing demand from
rapidly growing middle classes in huge countries like India
and China, commodity prices, especially for foods and grains,
will go "parabolic" by the end of the decade.  Just when we
thought we had finally put a stake through the ugly heart
of the inflation virus, it may come back to bite us, and
not necessarily in the neck.  However, experts have a way
of being wrong much of the time....

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
relatively 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 another strong currency, such as the Dutch
guilder, Japanese yen, or the German mark).

Both Switzerland and Germany, in particular, have been
fanatically determined 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 Haiti 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 very
conservatively run, and thus are likely to weather any
but the most severe global depression.  Which is more than
you can say about many U.S.  banks -- even if you believe
an increasingly bankrupt federal government will once
again bail out the FDIC next time the U.S. banking
industry goes on a new lending binge, as it has shown a
penchant for doing in the past (on Third World loans, oil
patch loans, bad real estate loans, LBO financing, etc.) --
or gets too deeply into some of 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, shorting Japanese
bonds to invest in higher-yielding U.S. and Third World
debt, etc.).

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.  At present, you can buy gold bullion from
Union bank of Switzerland at a small premium over the
market price of gold, and they will buy it back from you
at a minimum price of $360 any time in the next few years.
(Contact the bank for exact details, which are subject to
change.)

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 international
in orientation, and the big ones, like Union Bank of
Switzerland, or Swiss Credit Bank (Credit Suisse), will
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 squirrel some money and investment income away
in a secret foreign bank account, you had better find
another country, since Switzerland is no longer the refuge
for questionable funds that 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
    withdraw more than a few thousand francs).  (Deposit
    accounts at U.B.S. are paying about 3.25% at present,
    in 1996 -- which is better than a lot of U.S. savings
    accounts, and is in a stable, gold-backed currency, to
    boot.)

 .  You should at the same time request information
    regarding the bank's withdrawal restrictions and
    interest rates for different kinds of accounts, and a
    description 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)
             Bahnhofstrasse 45
             8021 Zuerich
             Switzerland

Note that Switzerland imposes a substantial withholding tax
of 35% 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
return, on Form 1116.  When you open an interest-bearing
Swiss account, ask the bank to send you a Form 82, which is
a reasonably simple form (all in English) you can complete,
notarize, and mail to the Swiss tax authorities for a refund
of the most of the withholding tax.  Note that the Swiss
tax refund form will ask you about your U.S. tax ID number,
where you file your federal income tax returns, and the
Swiss government will undoubtedly share this information
with the I.R.S..

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
accounts the prior year with a value of over $10,000 in
total.  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  │
        │ investor.  But if you like to hedge your bets │
        │ a little, it may help you to sleep somewhat   │
        │ better at night while your government runs its│
        │ printing presses overtime, printing dollars   │
        │ at a record rate, if you know that at least a │
        │ 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.    │
        └───────────────────────────────────────────────┘