Articles Posted in Asset Protection

Illinois laws provide asset protection for homes and life insurance policies.

The protection provided to a home, whether it is a house, a condominium or other form of primary residence, is $15,000 per individual.

The protection provided for life insurance policies equals the value of the policy as long as the proceeds payable because of death go to the wife or husband of the insured, a child, parent or other person dependent upon the insured.

These laws apply to everyone and no action is needed to take advantage of their protection.

Additional steps can be taken to protect other assets from the claims of creditors. These steps include establishing trusts and other entities which hold title to the assets. When properly created, the owner of the property can enjoy the benefits of the property without the worry that the property may be attached by a creditor.

Another step to protect assets from creditors is to retitle the asset. By doing this, the retitled asset is now in the name of a different individual and a creditor cannot reach the asset. Often an individual who uses this method already had the intent to pass the property to the other party, usually a family member, at some time in the future.
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In his article, When is it Too Late for Asset Protection?, Attorney Robert Mintz discusses the pitfalls of asset protection planning.

He points out that states, including Illinois, have fraudulent transfer laws. These laws prohibit an individual from transferring property to another entity to “hinder, delay or defraud” someone owed a debt in order to avoid paying that debt. As a result of these laws, there is little one can do to protect assets against a claim that has already been made, sometimes referred to as an “existing claim”.

Where asset protection planning is allowable and is effective is in the situation where an individual seeks to protect himself from unseen future risks. Mr. Mintz gives the following example in his article: ” . . . say you set up an asset protection plan and a negligent act involving a patient occurs several months later. Fraudulent transfer is not an issue in this case because the property transfer was unrelated to the claim subsequently developed by this patient. Presumably, at the time you implemented your asset protection plan, you did not know or intend that the patient would be injured. Similarly, loans and contracts entered into after establishing a plan, as long as the creditor is not misled, are also outside the scope of the fraudulent transfer rules.”.

Illinois law is clear that the fraudulent transfer laws can overturn an asset protection plan where the intent of the plan was to avoid paying an existing claim. It is also clear that in Illinois asset protection planning to protect against unforeseen future risks is allowed and is effective. The tricky part comes in when one is confronted with the situation where one must prove to a court that the transfers involved fall into this second, acceptable area of planning.
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Asset protection for a business can be straight forward and a relatively simple matter to implement. At the same time, it can protect a large chunk of the assets of a business.

For example, in the case of a company that runs a manufacturing business, the usual business structure is for the manufacturing company to be organized as a corporation. That is fine as far as it goes.

But if a second corporation were to be formed as a trucking corporation, all of the assets the manufacturing corporation has in the fleet of fifty trucks could be transferred to the trucking corporation. As long as this trucking corporation is fully capitalized and fully insured, the effect of creating the trucking corporation would be to remove all of the other assets of the manufacturing corporation from exposure to a judgment regarding an accident involving one of the fifty trucks in the shipping fleet.

This protection could be taken a step further by creating a third corporation which leases the trucks. With a fully capitalized and fully insured leasing corporation in existence, the capital tied up in the fifty trucks owned by the trucking corporation could be protected from judgment in the event that a truck driver employed by the leasing corporation were involved in an accident.

Thus, layers upon layers of protection can be added to accommodate whatever the needs of the business are. The only limitation is the bookkeeping involved with keeping the corporations’ assets separate and keeping the corporations fully insured. As long as the owner of the business is able to keep up with the bookkeeping aspects of the arrangements, the protection afforded by this type of asset protection planning is substantial and completely within what the law allows.
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You do not have to sell your home in order to qualify for Medicaid coverage of nursing home care in Illinois; however the state can file a claim against your house after you die.

You can freely transfer your home to the following individuals without incurring a transfer penalty which will make you ineligible for Medicaid for a period of time. Those individuals are:
• Your spouse • A child who is under age 21 or who is blind or disabled • Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
• A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home • A “caretaker child”, who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during the period provided care that allowed the applicant to avoid a nursing home stay.

Medicaid can put a lien on your house for the amount of money spent on your care. If the property is sold while you are still living, you would have to satisfy the lien by paying back the state. The exception to this rule is the case where a spouse, a disabled or blind child, a child under age 21 or a sibling with an equity interest in the house is living there.
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Asset protection planning is about protecting your assets from creditors – and it is not just for the super-wealthy.

Anyone can get sued. Lawsuits can stem from car accidents, credit card debt, bank foreclosures or unhappy customers. If someone wins a monetary judgment against you, your family could become bankrupt trying to pay it off. To keep your assets away from creditors, you need to move them somewhere creditors cannot reach them. Asset protection techniques include maximizing contributions to IRAs, moving funds to an irrevocable trust, retitling various assets or using limited liability companies or family limited partnerships.

It is important to note that asset protection planning only works if you act before you are sued. Under the law, you may not defraud current creditors. If you are already being sued or if you know you are going to be sued and you transfer assets so that creditors cannot reach them, the court will reverse the transfer. That is why it is a good idea to put a plan into place now.
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The basic premium for Medicare Part B will be $115.40 a month in 2011, up from $110.50 in 2010 (a 4.4 % increase). But because there will be no cost of living benefit increase for Social Security recipients for 2011, most beneficiaries will be exempted from paying this increase and will instead pay the same $96.40 premium amount they have paid since 2008.

A “hold-harmless” provision in the Medicare law prohibits Part B premiums from rising more than that year’s cost of living increase in Social Security benefits. Since there is no Social Security increase, most beneficiaries – about 73 percent – will not have to pay any increased Part B premiums because of the hold-harmless provision. Those covered by the provision will continue to pay Part B premiums of $96.40 per month in 2011.

But this hold-harmless protection does not apply to the other 27 percent of beneficiaries – about 12 million in all – who either: do not have their Part B premiums withheld from their Social Security checks; or pay a higher Part B premium surcharge based on high income; or are newly enrolled in Part B.

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary’s premiums. So the income reported on a beneficiary’s 2009 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2011. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary’s MAGI decreases significantly in the past two years, he may request that information from more recent years be used to calculate the premium.
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The White House is proposing to limit the ability of families to use partnership structures to minimize the valuation of assets for estate tax purposes.

A family might set up a partnership to introduce younger family members to investing while the parents maintain control over the assets, or a family might set up a partnership to account for the possibility of divorce.

Restrictions often accompany these partnership setups, including a partner’s ability to take a distribution or to transfer an asset without the consent of a general partner. Accordingly, families discount the value of these partnership interests when valuing them for estate tax purposes.

The White House is seeking to curtail these adjusted valuations.
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Here’s another reason to convert your traditional IRA to a Roth IRA:

When you convert to a Roth IRA, you can pay the conversion fee out of other assets. That is, you can pay the conversion fee from funds not in the traditional IRA. This will maximize the amount that you are converting to a Roth.

Because portfilios have been beaten down and values are currently likely to be far below their amounts in the past, you will have assets with depressed values in an account likely to increase significantly in value. All of this increase will be tax free when withdrawals are made from the Roth account.
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Daniel Henninger’s recent article in The Wall Street Journal titled “U.S. Says It Will Bail Out Christmas” is too entertaining not to be included in this Christmas blog:

With the government on the brink of rescuing the U.S. auto industry, we have learned that the Treasury Department is drawing up plans to bail out Christmas. “We have reason to believe,” said a person close to the matter, “that without an immediate capital injection, Santa Claus will fail before December 24.” Mr. Claus could not be reached for comment.

Government officials are said to be concerned at the risk that the collapse of Santa Claus could pose to the nation’s intricately related system of holiday happiness. Though a failure by Santa Claus poses the largest systemic risk, the government is also prepared to step in to bail out Christmas trees, caroling parties and mistletoe producers.