Risk Management (II.C)(10%, 12-13 Questions) Flashcards
1
Q
Insurance on Collectibles
A
Typically two forms
1) Blanket Coverage
2) Specialty Coverage
2
Q
Insurance on Collectibles - Blanket Coverage
A
- Coverage up to $1M
- Per-item limits of up to $50k
- No inventory required
- Best for collection with many smaller items
- Rates are higher because uncertainity.
3
Q
Insurance on Collectibles - Specialty Coverage
A
- Coverage into the millions per item.
- Documentation and verification required.
- Considered efficient protection per unit of coverage.
- Special policies are often written for unique situations.
4
Q
Umbrella Liability Insurace
A
- Coverage amts from $1-$10M.
- Covers bodily injury, property damage, and personal injury liability.
- Only pays claims in amounts “above” required property and casualty coverages (check for gaps in coverage).
- Covers insured and family members living in household.
- Typically excludes: Aircraft and watercraft, Director and officer activities and Business activities.
5
Q
Broad-based Asset Protection Strategies - Insurance
A
- Most states exempt life insurance and annuities from the reach of creditors.
- Many states do however impose restrictions on those exemption.
- Many states extend protection to cash surrender value (interpolated reserve).
- Private Placement Life Insurance is typically protected.
6
Q
Broad-based Asset Protection Strategies - Real Estate
A
- Almost all states offer homestead protection.
- Most states have placed restrictions on this protections, including limiting the value of the exemption.
- The homestead exemption may protect a debtor in cases of bankruptcy but not against IRS Liens.
7
Q
Broad-based Asset Protection Strategies - Retirement Funds
A
- Qualified Retirement Plans are generally protected from the claims of creditors under ERISA.
- Traditional IRAs have protection generally limited to $1M (adjusted for inflation currently around $1.5M)
- Roth IRAs are considered protected to the extent of traditional IRAs described above.
-IRA rollovers consisting entirely of QRP assets that were rolled into an IRA are not subject to the protection cap above. - Inherited IRA assets are at risk from creditor claims, including in cases of bankruptcy.
8
Q
Assets at Greater Risk
A
- Assets registered to individuals.
- TIC and JTWROS
- Second homes, vacation homes.
- Non-qualified retirement accounts and assets.
- IRA Rollovers and Roth IRAs above $1M (adjust inflation is about $1.5M today).
- Real estate and other large assets (aircrafts, autos, etc) not owned by entities or p-ships.
- Assets transferred to protected structures within statute of limitations for fraudulent conveyance.
9
Q
Predator and creditor protection strategies - Entities
A
- Trust assets may be protected from creditors due to a spendthrift provision.
- Corporate, LLC, and LP assets may be subject to creditors of the corporation or entity but not typically to claims of shareholders.
- In some cases, partnerships assets may be attached due to claims against partners, but these assets are considered “ugly” given lack of control and potential tax liabilities.
- Charging orders are the most common form for creditor reach into an entity.
10
Q
Entity Protection
A
- In most states, the necessary burden of proof for a creditor needed to pierce the corporate (or entity) structure in order to secure a claim against the individual debtor’s assets within such an entity is fraud or gross negligence.
11
Q
Family Limited Partnerships (FLPs)
A
- Type of partnership typically designed to help families manage a family business farm, assets.
- FLPs help families manage assets and plan for estate xfer.
- FLPs offer a form of creditor protections.
- Most FLPs include mom and dad as general partners with children and grandchildren named limited partners.
- Mom and dad transfer assets to the limited partners over time and often use valuation discounts to reduce the amount of exposure to gift tax.
12
Q
Grantor vs. Non-Grantor Trusts
A
-Grantors retain certain powers and control over grantor trusts.
*Not considered a seperate entity
*Income passes through to the grantor
*Grantor trust offer little, if any, creditor protection.
-Non-Grantors give up most power and control
*Treated as a taxable entity (not a pass-through)
*Assets are owned by the trust
*Certain non-grantor trusts offer significant creditor protections.
13
Q
Dynasty Trust
A
- Created to shift wealth over generations
-These trusts are irrevocable
-Includes a spendthrift provision.
-Typically lasts 21 years past the life of the last living beneficiary who was alive when the trust was established.
14
Q
US Legal System
A
- Contingency fees are allowed in the US (while not allowed in most countries).
- Pleadings are protected speech.
- Punitivtive damages are allowed in civil cases against individuals.
- There is no bond requirement, except for appeals.
- There is no loser-pay system in the US.
15
Q
Offshore Asset-Protection Benefits
A
- Creditors must retain offshore counsel
- Contingent fee cases typically not allowed.
- Losing party may have to pay winning party’s attorney fees.
- Judgements of other situs courts generally not recognized.
- Statute of limitations expiration may be very short.
- Creditor may have burden of proving fraudulent transfer.
