While CPAs and tax advisors still await direction from the IRS on compliance, those taxpayers who must now abide by the new FACTA rules should be aware of the additional reporting they will need to do to comply.  And in some cases, it may be duplicate reporting.

For example, if you have more than $10,000 in an offshore bank account, you were already filing a Report of Foreign Bank and Financial Accounts with the IRS.  If you have more than $50,000, you will have to report it separately on your 2010 return.

If you own foreign real estate, you will also need to file a new FACTA form in addition to the IRS forms you may have already been filing if the real estate was held by a foreign corporation or partnership.  And, if you have a family villa outside the U.S. that is owned by several family members, the property must be valued and if that value exceeds the $50,000 limit per person, it will need to be reported to the IRS.

If the new FACTA reporting rules have your head spinning, don’t worry.  Contact a California asset protection attorney to learn what the new rules may mean for you and your estate.

Generally, homestead exemptions vary from state to state. Florida, Texas, Kansas and Minnesota have very favorable and generous homestead exemptions. The Texas homestead exemption includes an unlimited amount on up to 200 acres of land if the residence is not in town or up to 1 acre of land if the residence is in town. In Florida, the exemption includes an unlimited amount up to 160 acres if the residence is not in town or up to one-half acre if the residence is in town.

In California, the homestead exemption is $50,000 for a single person, $75,000 for families and $125,000 if over 65 or disabled. In California, a creditor can force the property to be sold to satisfy his debt with the debtor being awarded the homestead exemption amount out of the sale proceeds.

It may be then that asset protection planning includes changing domicile to a more favorable homestead exemption state. In a reasonably recent Florida Supreme Court Case, the Court held that the debtor’s residence is protected under Florida’s homestead exemption even if the debtor purchased the residence with the intent to protect the value of the residence from his pre-existing creditor. See Havoco v. Hill 790 So. 2nd 1018 (Fla. 2001).

Other Exemptions

Florida law exempts the entire cash value of the life insurance policy and most annuities from creditor’s claims. California, on the other hand, has a very limited life insurance and annuity exemption.

The Bankruptcy Code specifically excludes from the bankruptcy estate property that is deemed to be subject to a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non bankruptcy law. In this regard, the anti alienation provisions required by ERISA in retirement plans is such a restriction on transfer.

Moreover, since federal law preempts state law, where state law might otherwise subject an ERISA retirement plan to creditor’s claims in a state court judgment enforcement proceeding, the protection afforded by ERISA supersedes state law and, arguably, the ERISA retirement plan assets are protected. The plan must be within the purview of ERISA, however, and its anti alienation provisions.

For more information on California asset protection, contact our California estate planning law firm.

The combination of the property being in an asset protected structure and having no, or very little, equity, acts to deter creditors from attempting to pierce the protective structure in the first place, since there would be no equity left for even a successful creditor.

It normally does not make much sense from a business standpoint to place a residence in an entity structure. Therefore, the client can utilize the home equity line of credit technique to substantially encumber the residence and make it more unattractive to creditors. There are other planning steps that can be taken, but one has to be very judicious in dealing with the protection of residences.

Establishing a FAPT requires sophisticated and competent advisors because of the increased legal and tax complexities involved.  For more information on California asset protection, contact our California estate planning law firm.

1. No Comity of Law in Foreign Jurisdictions

Most foreign jurisdictions do not recognize U.S. judgments. This may force a trial de novo on the merits under the laws of the foreign situs trust in order for the creditor to impose liability on the trustor and reach the assets of the FAPT. Obviously, the fees and expenses of this trial de novo and the burden of having to select offshore counsel can be substantial. Moreover, the FAPT jurisdiction generally requires plaintiffs to employ attorneys who are licensed in that jurisdiction.

2. More Favorable Law

Most foreign situs jurisdictions require that the burden of proof in challenging asset transfers to a FAPT is always on the creditor and does not shift to the trustor. Moreover, many foreign jurisdictions impose a higher standard of proof upon civil litigation plaintiffs such as the “beyond the reasonable doubt” standard. This is in sharp contrast to the “preponderance of the evidence” principle utilized in U.S. domestic civil cases.

3. Statue of Limitations

The FAPT legislation of many jurisdictions establishes a statute of limitations for challenging asset transfers to a FAPT that begins to run on the date of transfer. This is contrary to U.S. law where the statute may begin to run from the date the transfer is “discovered” by someone with a claim against the trustor. Additionally, the statue of limitations of many FAPT jurisdictions is much shorter than the typical four year statute found under U.S. law.

4. Fees and Expenses Litigating in Foreign Jurisdictions

Manifestly, it is going to be much more expensive and inconvenient to prosecute a claim offshore. Think of the inconvenience of having to pursue a claim out of state and then multiply that by two to three times the cost to pursue the matter in a foreign jurisdiction. Many foreign jurisdictions prohibit contingency fee arrangements, forcing the claimant to finance a litigation process entirely on his/her own. Creditors may think twice about having to deal with a completely different legal system out of the country, and this unfamiliarity, plus the additional expenses and costs, and the entire uncertainty with respect to the process, adds a substantial element of protection to the FAPT.

5.  Non Asset Protection Purposes

The FAPT may assist the trustor in achieving several other objectives and planning goals independent of asset protection planning. Traditional estate planning issues such as the orderly transfer of property at death, the avoidance of probate, the strengthening of spendthrift provisions, greater privacy than under U.S. law, the management of offshore assets and businesses and premarital planning can all be addressed by FAPT.

One of the greatest advantages of the FAPT is the fact that, by its very nature, any legal attacks against its assets are transferred abroad to a different legal system. The FAPT is generally much more expensive to set up and create than a domestic trust and requires a certain willingness on the part of the Trustor to deal with offshore jurisdictions and trust entities.

The FAPTs’ greatest value is for asset protection planning well in advance of any potential creditor problem. Moreover, many times FAPTs are only used when the client already has some international connections and networking.

Recent cases have emphasized the need for careful planning in the structuring of the FAPT if it is to be legally efficacious and successful in meeting the purposes and objectives of the Trustor.

Establishing a FAPT requires sophisticated and competent advisors because of the increased legal and tax complexities involved.  For more information on California asset protection, contact our California estate planning law firm.

• An Irrevocable Trust is one that one that cannot be altered – this means you’ll want to make sure you are absolutely certain that all the parameters of the trust are something that you will be able to agree to for the long haul. In addition, an irrevocable trust can never be terminated, no matter what the surrounding circumstances are. Again, a good reason for careful consultation with your Newport Beach trust attorney before signing any dotted lines.

• A Revocable Trust can be altered as much as the grantor wants, though he or she will have to do so through the trustee. Nonetheless, the option to make changes is there, and this means that you can change your mind about the parameters anytime. In addition, unlike an irrevocable trust, a revocable trust can be terminated by the grantor at any time. This means if you have a change of heart or your life circumstances change, you can change or end the life of the trust.

While the revocable trust may sound better than the irrevocable trust, both have their pros and cons, and you won’t know which meets your needs best without first consulting a California asset protection lawyer. Contact Jeffrey Matsen today to find out what your options are for trusts.

Choosing a trustee: When you are considering who should be the trustee of your offshore trust, there are a few options.

1. You can choose a friend or family member: If the person you choose is a friend or family, the reasons may be because the individual you entrust has a vested interest in the assets held within the trust. This can be a safer way to go because they want to ensure the safety of the assets due to business dealings or because they want to protect you. In either case, have your California offshore trust attorney help you decide — appearance can be deceiving, and while you trust this person now, money can change relationships.

2. You can choose an offshore bank as your trustee: This is often a good way to go depending on the trust, especially in Cook Islands Trust where banks are extreme defensive players when it comes to the rights of the grantor of the trust.

3. You can choose a professional trustee who lives where the trust is held: This person will charge you a fee, but the beauty here is that they are an objective party who has no interest in what family members, a divorcing spouse, or a U.S. attorney may want to do with or to your trust.

To help you decide which type of trustee is best for you, get in touch with Orange County asset protection attorney Jeffrey Matsen today by visiting our Contact page.

• The Assets you place in an offshore trust will not be in your name anymore — they will be in the name of the trust and controlled and managed not by the grantor (you) but by the trustee. The trustee can be an individual or a banking institution based upon your personal needs.
• In most cases, the trustee will not have the power to make decisions about the assets held within the trust without your go ahead, but you should always advise your California asset protection lawyer of any changes you wish to make before moving forward — it could be that he counsels you not to make the move.
• An offshore trust will take the assets from being communal property between you and your spouse since the trust in which they are held will be the entity named as the owner of the assets. This means that as the grantor of the trust, the assets (while not technically in your name) are no longer accessible to the spouse you are divorcing.
• BEWARE that you can’t decide after divorce has been decided upon to stash a what you feel is rightfully yours in an offshore trust. You must have created the trust while the marriage is still legally binding and before anyone is served with divorce papers.

If you have an interest in an offshore trust you will want to discuss it with a California offshore trust attorney who can advise you as to which kind of trust suits your needs best. Always consider the needs of your loved ones and yourself when you decide on a trust; it can be a phenomenal way to protect what is rightfully yours in the event of malpractice, predatory creditors, and much more.