Most people opening their own businesses are experts in their fields. But when it comes to the intricacies of running a successful business, many entrepreneurs find themselves struggling to survive.
With entrepreneurship on the rise, there’s a growing need for expert guidance to help today’s entrepreneurs face their new legal, tax, and financial challenges. Advising Entrepreneurs helps financial advisors address the special needs of their entrepreneurial clients. It provides a comprehensive approach to growing wealth, shielding business assets from liabilities, lowering taxes, and much more by promoting prudent risk-taking.
Delaware has long been recognized as a business-friendly state. Its easy-to-live-with, pro-management business laws have motivated thousands of corporations to organize there. And its courts have advanced the philosophy that Delaware is a good place to do business. Thanks to a recent amendment to Delaware’s trust law, the state may also become the jurisdiction of choice for financial advisers and tax experts seeking to shelter their clients’ wealth from claims of creditors.
The amendment permits anyone, even if he or she has no Delaware connection, to set up an “asset protection” trust and shelter assets from most claims. All that’s required is that one of the trustees be a Delaware resident or trust company and that some, but not necessarily all, of the trust’s assets be held in a Delaware financial institution.
There are two public-policy exceptions to the rule. The first allows a claimant to access trust assets if the claim accrued before the trust was funded; the state simply won’t help a debtor defraud a creditor. The second protects children, spouses and former spouses who are after child support, maintenance or property division. Otherwise, a Delaware trust can help wealthy people hold on to their property.
A candidate for such a trust understandably might be disinclined to transfer his assets away. But his enthusiasm is likely to be sparked once he learns that he can name himself a “discretionary beneficiary,” eligible to have trust assets paid out to him whenever he makes a request of the trustee.
Some wealthy people may benefit from transferring assets into a family limited partnership. (Read the April, 1999, “Lane Report” to see “how family limited partnerships build wealth.”) A husband and wife can serve as the general partners; and the limited partnership interests can be held by a Delaware trust. That way a couple can continue to control their assets while safeguarding any limited partner distributions. Or, transfers of significant wealth can be made to a Delaware trust, with the transferor and a trust company jointly serving as trustee. The trust can include all the dispositive and estate tax-sheltering provisions available to the transferor so that, at death, his or her assets can be distributed – without probate, subject to a minimum of estate tax, and without having suffered the risk of creditors’ claims.
Of course, every planning decision should be a measured and deliberate effort to address the needs and objectives of the client. And, where it fits, the Delaware trust, may be one component in a carefully considered wealth-management strategy.
About the Author
Marc J. Lane, Chicago, IL USA
mlane@marcjlane.com
Learn more about Offshore-Style Asset Protection Planning
Marc Lane is a business and tax attorney, a Master Registered Financial Planner, a Registered Financial Consultant, and a Certified Investment Specialist. Marc is the author of 30 books on business organization, taxation, and personal finance. His newest book, “Advising Entrepreneurs: Dynamic Strategies for Financial Growth” draws from his experience working with those who have successfully built their businesses. Marc is an Adjunct Professor of Law at Northwestern University and an Adjunct Professor of Business at the University of Illinois. His practice areas include Individual Taxation, Corporate Tax Planning, Business Tax Planning, Estate Planning, Investments, Retirement Planning,Elder Law, International Trade, Business Law, and Wills, Trusts and Estates. Additional articles, case studies, and a free email newsletter are available at www.marcjlane.com.
