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- @285 CHAP ZZ
-
- ┌───────────────────────────────────────────────┐
- │ PROTECTING YOUR ASSETS FROM CREDITORS │
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-
- 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, now available in all 50
- states and the District of Columbia, is to organize your
- business 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. Unfortunately, a number of states still
- require an LLC to have at least two owners, although this
- is changing rapidly, now that the IRS recognizes one-owner
- LLCs as sole proprietorships for tax purposes.
-
- 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.
-
- A new development that may offer significant protection
- from creditors, either in the event of a business bankruptcy
- or lawsuits against you personally, is a new Delaware law
- that was enacted on June 25, 1997, entitled the "Qualified
- Dispositions in Trust Act." Delaware also enacted certain
- improved and clarified limited partnership and LLC
- provisions, amending laws that had been enacted in 1996.
-
- The effect of these Delaware laws, which are quite complex,
- appears to be to create somewhat of a domestic haven from
- creditors, providing that one takes advantage of its new
- trust, limited partnership or LLC provisions well in advance
- of the time that your creditor troubles first arise, and
- provided that the transfers are not considered "fraudulent
- transfers" in fraud of creditors, or attempts to avoid
- existing spousal or child support obligations.
-
- The Delaware provisions even allow a Delaware limited
- partnership or LLC to "transfer" the limited partnership or
- the charter of an LLC to some other jurisidiction, such as
- a foreign country whose law provides for limited partnerships
- or LLCs, as the case may be. One can even choose to either
- cancel the Delaware charter, or keep it in existence, once
- the entity is "transferred" to a foreign jurisdiction. This
- new provision can, in some cases, be useful if you are
- seeking to take advantage of the asset protection laws of
- some foreign haven, such as the Bahamas, Cayman Islands,
- Switzerland, or Barbados.
-
- While these new trust, partnership, and LLC provisions have
- been adopted by Delaware, they can be of use to you even
- if you do business and live in another state, provided that
- you set up a Delaware trust or other legal entity under the
- new Delaware law. Because these new asset protection laws
- are quite complex, you will need to consult an experienced
- attorney for guidance, if you wish to attempt to utilize
- Delaware as a "haven" for protecting yourself from creditors.
-
- In addition, Alaska has also enacted new laws somewhat
- similar to the new Delaware provisions, which may also
- offer possible tax benefits, in addition to asset protection.
-
- Aside from the risks of owning a business, or of disastrous
- lawsuits, many people are also becoming increasingly
- concerned about protecting their savings and investment
- assets in the event of some kind of financial melt-down
- like the U.S. experienced in 1929 and, to a lesser degree,
- in the early 1970s.
-
- Some financial advisers feel that the major Swiss banks are
- 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 fixed price (which varies, depending on
- the date of purchase) at 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. │
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