Risk Management & Asset Protection

Question 1

What does blanket coverage cover?

Answer 1

Up to $1 million
Per-item limits of up to $50k
No inventory required
Best for collections with many, smaller items
Rates are higher because of uncertainty

Question 2

What does specialty coverage cover?

Answer 2

Coverage into the millions per item
Documentation and verification are required
Considered efficient protection per unit of coverage
Special policies are often written for unique situations

Question 3

What is a variation from an expected outcome?

Answer 3

Risk

Question 4

What does umbrella coverage cover?

Answer 4

Covers amounts from $1-$10 million
Covers bodily injury, property damage, and personal injury liability

Only pays claims in amount “above” required property and casualty coverages (check for gaps in coverage)

You have to max out the initial coverage - umbrella is ABOVE that.

Question 5

How is risk quantified?

Answer 5

compares loss exposures relative to:

a. the loss frequency versus loss severity
b. the cost of insurance

Question 6

Is insurance protected from for asset protection?

Answer 6

Most states exempt life insurance and annuities from creditors.
Many states impose restrictions on the exemptions.
Many states extend protection to cash surrender value.
Private Placement Life Insurance is typically protected.

Question 7

Is real estate protected for asset protection?

Answer 7

Almost all states offer homestead protection.

Most states have placed restrictions on this protection, including limiting the value of the exemption.

The homestead exemption may protect a debtor in cases of bankruptcy but not against IRS liens.

Question 8

What is the limit for protecting traditional and roth IRAs?

Answer 8

Traditional IRAs and Roths have protection generally limited to $1 million (adjusted for inflation currently around $1.3m).

Question 9

are inherited iras protected from creditors claims?

Answer 9

No

Question 10

Does a taxpayer lose the protected status of the Qualified Retirement Plan when they roll the assets into an IRA?

Answer 10

No. IRA rollovers consisting entirely of qualified assets that are rolled into the IRA are not subject to the protection cap.

Question 11

What assets are at greater risk for creditors claims?

Answer 11

Individual assets
Tenants in common and JWROS accounts
second homes and vacation homes
Non-qualified retirement accounts and assets
IRA rollover and Roth IRA assets above $1m
Real estate and other large assets owned by entities
Assets transferred to protected structures within statute of limitations for fraudulent conveyance

Question 12

What is the entity theory?

Answer 12

The partnership is a distinct legal entity separate from its partners.

Partners do not own a interest in partnership property, they own an interest in the entity

Charging Order laws are needed to protect the partners

Question 13

What is the Aggregate Theory?

Answer 13

The partnership is not a distinct legal entity separate from the partners

Each partner owns an undivided interest in partnership property making turnover of assets to creditors without impact on non-debtor partners impossible

Charging Order as a remedy protected both the creditor and the non-debtor partners

LLC statutes were modeled on partnership statutes, and so they adopted the partnership statutes’ Charging Order provisions

Question 14

How does the US legal system make it easier to sue?

Answer 14

Contingency fees are allowed in the U.S. (while not allowed in most countries)
Pleadings are protected speech
Punitive damages are allowed in civil cases against individuals (rather than only in cases involving corporate products liability)
There is no bond requirement, except for appeals
There is no loser–pay system in the U.S.

Question 15

How do offshore jurisdictions discourage law suites?

Answer 15

Creditor must retain offshore counsel
Contingent fee cases typically not allowed
Losing party may have to pay winning party’s attorney fees
Judgments of other situs courts generally not recognized
Offshore creditor normally must file suit in offshore jurisdiction
Statute of limitations is short
Creditor may have burden of proving fraudulent transfer
Protector is often named to oversee trustees of the trust

Question 16

______ ______ Trust: no tax on transfer of appreciated assets when trust is a Grantor Trust; no tax on appreciated assets at Grantor’s death.

Answer 16

Incomplete Gift Trust

Question 17

_____ _____ Trust: no tax on transfer of appreciated assets when trust is a Grantor Trust; but tax is imposed on appreciated assets at Grantor’s death.

Answer 17

Completed Gift Trust

Question 18

What are restrictions for DAPTs?

Answer 18

Support or alimony for former spouse (except Alaska)
Creditor claims arising prior to trust creation
Fraudulent conveyances

Question 19

What are the protections for 529 plans under the Bankruptcy code?

Answer 19

Funds in a 529 Plan are excluded from the bankruptcy estate if the money was deposited more than a year before the filing.
This is limited to $5,000 for funds added to the 529 plan between one to two years before the case is filed.

For funds deposited more than two years before the case is filed, however, there is an unlimited protection.

Question 20

What is the statute of limitations on fraudulent conveyances?

Answer 20

4 years from the transfer or within 1 year of when the transfer could reasonably have been discovered (if later)

Question 21

A bankruptcy trustee can have fraudulent transfer set aside if the transfer is made within how many years of bankruptcy?

Answer 21

2 years

Question 22

A ____ ______ is an order issued by a court pursuant to statute which charges the debtor’s interest in the entity with the amount due to the judgment creditor.

Answer 22

charging order

Question 23

When do you use a QDRO?

Answer 23

A QDRO is used to split assets between divorcing couples for qualified plans (e.g., 401k, 403b, etc.)

Question 24

Is a QDRO used for IRAs?

Answer 24

No. a “transfer incident to divorce” is used to split assets between divorcing couples for IRAs.