Due to the nature of our practice with thousands of Americans we have safely helped use a variety of tools including offshore trusts in a safe and legal way, we get lots of questions about expatriation.

Our position remains the same;  the best of usage of these tools is tax neutral and provides surety while allowing you to maintain your life and family inside the U.S. Below are some recent articles that address issues faced by those seeking to flee taxation by abandoning their U.S. citizenship forever.  – Ike Devji

FORBES: TEN FACTS ABOUT TAX EXPATRIATION:

http://www.forbes.com/2010/03/23/expatriation-exit-tax-limbaugh-obamacare-personal-finance-robert-wood.html

SCHUMER, CASEY ANNOUNCE PLAN TO STOP FACEBOOK CO-FOUNDER FROM DODGING TAXES BY DROPPING U.S. CITIZENSHIP

http://www.schumer.senate.gov/Newsroom/record.cfm?id=336808

Expats Face Steep Exit Tax Courtesy of Facebook

http://www.forbes.com/sites/robertwood/2012/05/18/expats-face-steep-exit-tax-courtesy-of-facebook/

But if your employer sponsors a defined benefit plan, it gets a little more complicated. A defined benefit plan promises to pay you a specific monthly benefit at retirement. While defined benefit plan assets are also held in trust (or insurance contracts), apart from your employer’s assets, whether a particular plan has enough cash to pay promised benefits depends on your employer’s contributions and the plan’s investment earnings and actuarial experience.

When a defined benefit plan is about to terminate, the Pension Benefit Guaranty Corporation (PBGC), a federal agency created specifically to protect employees covered by these plans, is notified. If the plan has enough money to cover all benefits that participants have accrued up to the plan termination date, then the PBGC will permit a “standard termination,” and your employer will either purchase an annuity from an insurance company (which will provide lifetime benefits when you retire) or, if your plan permits, let you choose a lump-sum equivalent.

However, if the plan doesn’t have enough money to pay all promised benefits earned up until plan termination (that is, the plan is “underfunded”), the PBGC will take over the plan as trustee in a “distress termination,” and assume the obligation to pay basic plan benefits up to legal limits. For plans ending in 2012, the maximum annual benefit (payable as a single life annuity) is $55,840 for a worker who retires at age 65. If you begin receiving payments before age 65, or if your pension includes benefits for a survivor or other beneficiary, or if your plan was adopted (or amended to increase benefits) within five years of the termination, the maximum amount is lower. According to the PBGC, only 16% of retirees in recent years have seen their benefit reduced because of the annual dollar limits.

 My thanks to my friend Mike Stolp, Managing Member CFO Financial Advisor Network, for sharing this info and alowing us to use it here.  Contact Mike and his advsiory team at 800-283-2468   or learn more about him here: cfofa.com

The emotional toll for Americans who lose a friend or loved one in a motor vehicle crash has a steep financial counterpart — an average $6 million per fatal accident, according to auto club AAA.

See The Article Here: http://www.usatoday.com/news/nation/story/2011-11-02/fatal-vehicle-crashes-cost-millions/51051030/1 

Then Check Your Coverage Limits, and Get an Umbrella Policy from Your Insurance Company.

Don’t think you are at risk? Go home and flip on the six o’closck news tonight; the people in the fatal accidents you will see  reported didn’t think so either.

In his informative book, “Three Felonies a Day; How The Feds Target the Innocent,”¹ attorney and civil libertarian Harvey Silverglate shines a light on the federal criminal system, often focusing on prosecutions of physicians and other health providers.  His thesis is that the laws and regulations have become so numerous, vague and impossible to understand that in the hands of ambitious prosecutors, every businessman unknowingly commits at least three felonies a day.

SEE THE ARTICLE HERE:

http://newsandinsight.thomsonreuters.com/Legal/Insight/2012/05_-_May/The_pitfalls_of_pleading_to_a_misdemeanor/

 At the end of the day, both of these types of planning address the same concerns from different angles; the people you care about and their happiness, saftey and well being.

The most passionate questions and concerns I and the many fine Estatee Planners I work with all over the country concern our client’s children, and how they will be protected and provided for. The article below concisely summarizes many of the issues that must be addressed when selecting a a guardian for their minor children.

As attorney Vonda W. Chappell explains, “A guardian is the person or persons who are nominated in the Last Will and Testament of a decedent to provide for the care and custody of minor children in the event that neither of the natural parents survive until all of their minor children attain the age of majority. In essence, a parent is being asked to name a substitute for himself or herself to continue to raise his or her children in the extremely unfortunate event that he or she is not able to do so”.

SEE THE ORIGINAL ARTICLE AND MS. CHAPPELL’S THOUGHTS HERE:

http://www.martindale.com/trusts-estates-law/article_Kaufman-Canoles-A-Professional_1505242.htm

Several readers have contacted me with a similar question after reading many of the discussions featured here. Though phrased in different ways, the question is essentially this: How can I quickly figure out what I have exposed at any given time? I’ve provided a simple start to answering this question for you below. It will help identify issues that need attention and help provide a hard number on your current exposure.

Do the Math

Start with your home. If your home is in your name or the name of your revocable living trust, take the current value of your home and subtract what you owe on it. Then take that number and subtract the homestead value protected in your state (This number varies from state to state from as high as “unlimited” to almost nothing, make sure you know what your state’s current dollar value is and if your home qualifies or not). The difference is the equity value in your home exposed to your creditors. Assuming that your home value is at least stable, this number gets bigger with every payment and improvement you make. If you have more than one home in your personal name subtract current value from any loan due on the home, but don’t subtract homestead, you only get it on the primary residence.

Then count the money. Assume for the purposes of this simple analysis that assets in “qualified” or tax deferred plans like IRAs and 401K-type plans are protected. Add up the approximate value of your cash, savings, CDs, bonds, securities, and all other negotiable investments held in your own name or in the name of your revocable living trust and don’t forget to include any distributions or income they produce. This number is the value of the liquid assets exposed to your creditors.

Have any toys like boats, planes, or classic cars? Add that number into the mix along with value of you and your spouse’s jewelry and any special collections of personal property like coins, art, antiques, or guns.

If you own your practice, determine the amount of cash on hand. If the exposure is practice-related, assume it’s all collectible. Remember that a patient-related exposure will name both you and the practice, the corporation is not just a shield. It and its assets are also a target. Do not forget the practice’s outstanding receivables; your creditors are happy to wait for them as well.

If you have investment real estate like lots, rentals, or a commercial building in your own name, in the name of your revocable living trust or an LLC you own all of, add that equity number in as well along with any income it produces.

For most physicians, this relatively simple calculation can comprise much of the wealth they have amassed and are concerned about having to replace for their family. Now that we have at least a ballpark understanding of your current “number” — the WHAT — let’s look at some the factors that threaten it the WHY.

Common Asset Protection Risk Factors for Physicians

• Do you and or any family members drive a vehicle?
• Do you have employees?
• Do you have a professional malpractice exposure?
• Do you have a legal responsibility to protect medical and financial data?
• Are you married and do you have assets not protected by a pre-nuptial agreement?
• Do you have a current tax obligation?
• Do you have children?
• Do you own a business?
• Are you a board member, officer, or director of a corporation?
• Do you have hobbies or engage in activities like hunting, flying, boating, etc?
• Do you have partners whose actions create joint and several liabilities for you?
• Do you have personal guarantees on real estate or for business loans?
• Do you have tail liability for professional services performed in the past?
• Have you made specific legal or financial representations that others have relied upon in a business context?
• What kind and what dollar amount of insurance and legal planning have you implemented against these exposures?

This list is simple and by no means complete, but it helps explain the detail and variety of issues and exposures involved in preserving the assets you have at risk. Knowledge is power, so use the links above to continue your exploration and act on these issues before an exposure threatens, while the widest and most effective array of options can be implemented to protect your success.

 The short answer is no, money market fund holders don’t have the same (very limited) guarantees that holders of CDs, money market deposit accounts, and checking and savings accounts have.

See The Details Here: http://news.morningstar.com/articlenet/article.aspx?id=449684

THE VAULT - CREDITOR PROTECTED CASH ALTERNATIVES

Despite last year’s dip in U.S. bank failures, at least 758 lending institutions are at risk of failure over the next two years, according to an analysis by Invictus Consulting Group, which conducts stress and sustainability tests on all FDIC-insured banks for regulators, banks and investors.

Based on all publicly available data on banks for the third quarter ended Sept. 30, 2011, Invictus said that, absent corrective action to raise capital or merge, the 758 banks it identified are unlikely to remain viable primarily due to the weak recovery, which could trigger a new wave of loan defaults, according to the consulting firm. Approximately 200 of these banks are subsidiaries of publicly traded bank holding companies.

See the whole story here below:

http://www.costar.com/News/Article/More-Than-750-Banks-at-Risk-of-Failure-over-Next-Two-Years/135651

A common recurring question I get from high-income practice owners and executives centers on the best techniques to protect a medical practice’s income after the individual physicians’ personal assets are well secured.

The marketing for these strategies peaks around tax time and at year end when promoters are aware that doctors are especially sensitive to tax planning issues. Income protection strategies, typically referred to as “accounts receivable financing” and in similar terms do have a place and value for those that are financially qualified, but the strategy is not for everyone and must be a carefully determined fit for your income, expenses, and long-term plans. Just because it’s theoretically a good idea does not mean it’s a good idea for you, no matter what the salesman says. This is not advice specific to you. Ever.

First, please understand that this is an insurance-based strategy, so if you are one of many doctors that automatically recoils at the mere mention of the “I” word it may not be attractive to you. If that is the case, I’d suggest taking a deep breath and taking a look at the previous articles on life insurance I have shared in this forum, then revisiting this discussion.

Why Is Life Insurance Involved?
Because the economic efficiency is based in part upon the cash value, death benefit, and tax-free growth the law provides to life insurance in certain forms. It just happens to be a good tool for the job.

Who Qualifies?
I have examined and implemented variations of the strategy for a variety of physician and business owner clients in various specialties. Although the qualifications vary slightly between providers, here’s a basic outline of what I usually see:
• Insurable physician in relatively good health
• Has a net worth of $2 million to $3 million plus, minimum
• Has a history of generating at least one million dollars in production annually for at least three years in a row
• Good credit
• Can contribute to and maintain a plan for at least 10 years
• Wants additional retirement income
• Wants additional death benefit for family and estate planning or at least has capacity for additional insurance

How Does It Protect My Income?
You take a large (typically million dollar plus) loan from one of several specialized commercial lenders familiar with complex financial strategies for high-income professionals. That loan is guaranteed by your practice, which makes a formal “collateral assignment” of your practice’s future income. This in essence “equity strips” the future income so that a recorded first position creditor, the lender, has first right to that income to pay back what you borrowed, much like the mortgage on your home being secured against the home itself.

What If I Die During The Plan?
The bank takes what you owe them and pays your family the rest from the insurance policy. For example, if you have a $4 million death benefit and die owing the bank $1 million, they pay off the loan and give your family the $3 million balance.

Where Does The Money I Am Borrowing Go?
It goes into a (gasp!) life insurance policy in large, lump installments. Remember, the lender is making a speculative loan and taking the risk of you earning as much and working as hard as you did the previous years. They don’t just hand you the money and let you spend it as you please, lose it, or want it taken by another creditor. The insurance policy itself becomes additional collateral and the bank is collateralized by the cash value, receivables, and the death benefit in most cases, making them “triple collateralized” against your death, insolvency or other creditors.

What Are The Loan Costs?
It varies, and interest rate exposure is significant in making a decision on a strategy like this. Sometimes the loan is a floating rate, typically LIBOR-based and in others it is fixed at a higher, but more predictable interest rate. You are responsible for the monthly interest on the loan for 10 years to 20 years, or as long as you wish to have the protection of the lien over your receivables.

How Is It Paid Off?
You pay it back by dying, or from the last period of receivables, and end up with a large, well-funded life insurance policy and in some cases, a significant source of retirement income in the form of payments from the cash value of your policy for many years, tax free.

Is it deductible?

Some promoters advise that the interest payments are deductible – my tax experts say it is not. Assume it isn’t and factor that into your costs carefully. Plans ignoring the “Rule of Three.” Many of the top tax advisors I work with around the country agree that the Rule of Three is a simple lay-person test and red flag for independent verification of the legality of any given tax plan. It’s amazingly simple; if you are promised that contributions are deductible, growth is tax free and distributions or withdrawals are tax free, tread very lightly. Many plans can offer two of the above three in some combination, but we rarely see all three together.

The numbers in the case above are small but many clients we deal with have significant life insurance policies in place for business, estate and Asset Protection planing purposes. Imagine if the policy had been funded with six or seven figures as we often see…

This article clearly shows the need to:

1.  Work with experienced life insurance and tax advisors and to ask questions about exit and liquidity strategies and the tax implications of policy lapse and cancellation beyond just replacement and cash value;

2. Understand the formal process and paperwork involved as dictated by the policy itself, not just what you felt was adequate compliance;

INSURANCE POLICY CANCELLATION TAX LAND-MINE