The Connection Bernards-Ridge Edition January February 2015

PAGE 64 THE BERNARDS-RIDGE CONNECTION FEB/MARCH 2015 The Connection Magazines Warren-Watchung Edition Bernards-Ridge Edition Bridgewater-Somerville Edition Next Exc ti g Issue Deadline March 6, 2015 908-903-1799 email: Connectionsnj@gmail.com See your ad ON-LINE at: www.theconnectionsnj.com Featuring These Sections Spotlight on Tie The Knot Dining Out Health and Wellness Summer Programs 2015 Summer Programs 2015 and More! Visit our Connection On-Line ad to view our video The CONNECTIONS HANDS OFF! FOUR ASSET-PROTECTION STRATEGIES TO CONSIDER INCLUDING IN YOUR WEALTH MANAGEMENT PLAN Submitted by: Saul M. Simon, CFP ® , CFS, RFC When it comes to forming a comprehensive wealth plan, including asset-protection strate- gies is a must. Executed properly, they can reduce the chances of creditors and litigants gaining access to your personal assets. Because the term “asset protection” is rather vague, let’s look at four specific strategies. 1. Review your insurance coverage The first line of defense in your asset-protec- tion strategy is having complete insurance coverage. Liability insurance is a critical front- line protection for your assets. You certainly already have such coverage as part of your homeowners’ and auto policies. But is your coverage sufficient? When determining how much coverage you need, consider the property’s or vehicle’s value and the likelihood of a liability-generating event. Consider purchasing an umbrella poli- cy that can provide supplemental coverage at a smaller cost than purchasing additional cov- erage for each property or vehicle. Because a serious accident or illness can quickly deplete your assets, adequate health insurance is key to any asset-protection plan. Disability insurance, while frequently over- looked, can protect your earning power in the event of extended health challenges. Life insurance proceeds can help preserve wealth for your heirs if estate taxes are due at your death. If you’re a business owner, life insur- ance can also supply working capital for the continuation of your business and provide wealth equalization for heirs not involved in your company. 2. Shelter assets in retirement accounts With proper planning, Employee Retirement Income Security Act (ERISA) provisions can be implemented to keep creditors from delving into your retirement fund. Examples of plans covered by ERISA include qualified profit-shar- ing plans, defined benefit plans and 401(k)s. Contributing to such a plan may be done pri- marily to fund your retirement in a tax-effi- cient manner, but asset protection is an important added benefit. If yours is a non-ERISA plan, creditors can access plan assets unless a state law prevents them from doing so. IRAs and qualified plans in which the only participant is the owner (or also the owner’s spouse) are examples of non- ERISA plans. Check to see if your state pro- vides IRAs with asset-protection capabilities. 3. Separate business interest into different entities If you own a business, consider dividing it into separate entities to reduce risk. However, be sure to balance the benefits of forming sepa- rate entities with the complexity of setting up each entity, the costs involved and the burden of ongoing administration. How far you should go in segregating your business’s assets depends on the level of your litigation risk and the value of the assets you could lose in a lawsuit. If you have strong family relationships, con- sider divvying up ownership among your fam- ily members. If your company is structured as a corporation, whoever holds more than 50% of the voting stock has control. So, transfer- ring voting stock to family members through direct gifts may be a viable asset-protection strategy. In addition to preventing a creditor from taking control of the corporation, divid- ing corporate stock in this way can provide substantial income and estate tax savings. Limited liability companies (LLCs) and limited partnerships (LPs) also provide valuable asset- protection opportunities. Although LLCs and LPs are similar, they have distinct differences. In an LLC, all owners receive the benefit of lia- bility protection from business debts and claims, and none are excluded from manage- ment functions. In an LP, on the other hand, the general partners are personally liable for business debts and the limited partners are excluded from managing the business. 1. Create a trust Certain trusts can provide another line of defense in asset protection. Although revoca- ble grantor trusts (often referred to as “living trusts”) provide no legal protection from cred- itors, irrevocable trusts generally offer some protection. When you place property in an irrevocable trust for the benefit of your spouse, children, grandchildren or other heirs, future creditors generally can reach the assets only by con- vincing a court that the transfer was made to intentionally “hinder, delay or defraud” cur- rent or potential creditors of the grantor, and that you became insolvent as a result of the transfers to the trust. The downside of such trusts is that you no longer have access to the assets in the trust. If you’ll need access to the trust assets, an alternative is to set up an asset-protection trust. This is typically established in an off- shore jurisdiction (or one of the handful of states that allow such a trust) to insulate assets against creditor attack. Keeping what’s yours Because of today’s uncertain economic envi- ronment and litigious society, incorporating asset-protection strategies into your wealth plan is a smart move. Your financial and legal advisors can help you determine which ones are appropriate for your situation. Saul M. Simon, CFP ® , CFS, RFC is a registered repre- sentative and investment advisor representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor, 333 Thornall St, Ste 9b, Edison, N.J. 08837 offering insurance through Lincoln affiliates and other fine companies. This information should not be con- strued as legal or tax advice. You may want to con- sult a tax advisor regarding this information as it relates to your personal circumstances. www.theconnectionsnj.com