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Example of Plan #2

Here’s an illustration of a typical plan. Our client, Henry, is married with three small children. He owns a dry cleaning business and a four-unit apartment building. These assets represent his lifetime savings. Henry and his wife want a plan to achieve three major goals:

  1. Privacy-An important goal is anonymous ownership of the business and the real estate. During the previous ten years, Henry has been named in six frivolous lawsuits from customers, employees, and tenants. Although he won in court each time, the legal fees and the worry associated with the litigation have taken a financial and emotional toll.
  2. Protecting Family Savings-The business and the real estate are both Dangerous Assets. A liability produced by either could wipe out all of the equity in the other. Henry wants a plan to ensure that if something goes wrong with the business or the property, he will not lose all of his savings.
  3. Estate Planning-Avoiding probate, minimizing taxes, and providing for the care and support of his minor children are the remaining objectives of Henry’s overall plan.

Each of Henry’s concerns can be addressed within the convenient strategy of the Privacy Trust-Plan #2.

We transferred the dry cleaning business into a Limited Liability Company (LLC #1) and gave the trust 100 percent of the interests in the LLC. Henry’s name no longer appears as the owner. Licenses and permits are in the name of the company, and the public filing shows that the LLC is the owner of the business. The Articles of Organization for the LLC list the name of the trust-but not Henry’s name. The same plan was followed for the apartment building. A deed transferred title to the apartment building into LLC #2. Anyone attempting to discern the owner of the LLC would find only the name of the trust. Important privacy goals have been achieved.

This strategy also provides a high level of asset protection. The LLC creates a legal shield, which protects each asset from a liability generated by the other. Henry can operate the dry cleaning business in LLC #1 without concern about being named in a lawsuit and without jeopardizing the apartment building. Similarly, liability from the property will be contained in LLC #2 without risk to the business.

Additional protection is furnished because a judgment creditor cannot seize the assets of either LLC. If there is a lawsuit against Henry for an unexpected reason, the business and the real estate-secure in the LLCs-are insulated from the claim. Although the membership interests held by the trust are subject to a charging order, this remedy is generally not effective and is unlikely to be pursued by a plaintiff.

A variety of estate planning features are easily integrated into this plan. The Privacy Trust has provisions that allow Henry’s wife to continue the management of the family assets if something happens to Henry. Guardians and successor trustees are named to act on behalf of the children if both parents should die. Probate is avoided, estate taxes are minimized, and the proper structure is in place to provide for the survivors.

If Henry had liquid savings in a bank or brokerage account, we would add a third LLC as the owner of the account. The ownership of the LLC would be placed in the trust. As we discussed, when our goal is privacy and asset protection we attach an asset protection vehicle-such as an LLC to the plan.

All financial accounts require the name and identifying information for the authorized signatory. Although the account is in the name of the LLC, we will need to provide a signatory. If Henry uses his name and Social Security number, the account will be disclosed in a search. The proper strategy is to have the trust company act as signatory. Henry can manage the investments and even make trades in the brokerage account. The trust company issues checks according to Henry’s instructions.

With the Privacy Trust-Plan #2, the account is both private and protected. The account is in the LLC and Henry is not connected to it in the public filings or on the signature card. His ownership of the account won’t be discovered through any available search techniques. If a lawsuit or a claim develops against Henry for any reason, the funds are legally insulated against liens or collection actions in the LLC.

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