Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F415.SBE

Text File | 1992-04-30 | 13KB | 221 lines

          ┌───────────────────────────────────────────────┐
          │     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 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.

Accordingly, if you incorporate, you should be cautious about un-
necessarily 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
(For example, in California, transferring real estate to a corpora-
tion 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 when there is a "change of ownership,"
such as a transfer to a corporation.)
@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 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.

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 dis-
astrous 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 insur-
ance 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 be-
coming 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 most other important industrialized countries,
such as Japan, Germany, Switzerland and other major European countries.

OFFICIAL inflation rates are relatively low as of this writing in early
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?)  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 history is any guide, this massive printing of green-
backs will help to stimulate the economy in the short run, but in 18
to 24 months down the road, there is an very good probability that it
will reignite the fires of inflation.  Just when we thought we had
finally whipped the inflation virus.

If the deteriorating financial condition of the U.S. and the "American
peso" concerns you, you may want to protect yourself from future re-
strictions 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 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 gener-
ally 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 Switzerland, are extremely well capitalized and
conservatively run, and are likely to weather any but the most severe
global depression.  Which is more than you can say about most U.S.
banks -- even if you believe the increasingly 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" game the banks are
now playing:  massive, speculative "interest rate swaps").

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 international 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 look-
ing to do something illegal and squirrel the money away in a secret
foreign bank account, you had better find another country, since
Switzerland 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 de-
      nominated 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 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 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)
             Bahnhofsträsse 45
             8021 Zuerich
             Switzerland

Note that Switzerland imposes a substantial withholding tax on interest
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 R-82, which is
a relatively simple form (all in English) you can complete 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 finan-
cial 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 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.    │
          └───────────────────────────────────────────────┘