Gary's Legal Blog

Nevada Offshore Lawsuit Trusts

This article introduces an exciting hybrid between the domestic lawsuit trust and the offshore lawsuit trust: the Nevada Offshore Lawsuit Trust (“Nevada Offshore Trust”).

 

We are introducing this trust to fill a need that exists with the Nevada Lawsuit Trust (“Nevada Trust”) and the Offshore Lawsuit Trust (“Offshore Trusts”).  While the Nevada Trust provides theoretical protection, it has yet to be tested in the courts, requires at least two years of “seasoning” before it can take effect (10 years if there is a bankruptcy) and there is concern that non-asset protection trust states will not honor the trust.  However, the Nevada Trust is cost effective and doesn’t require offshore trustee fees which are $3,500 the first year and $2,500 annually.

 

The Offshore Trust provides the highest level of protection and clearly outperforms the Nevada Trust, but then there are those pesky annual trustee fees. 

 

So, in the past a person who is not under a current threat and whose asset level is modest would often choose the Nevada Trust over the Offshore Trust.

 

In working with our offshore trustees, we have developed a solution: the Nevada Offshore Trust.  This new type of trust combines the benefits of the lower annual maintenance fees of a Nevada Trust with the protection of the Offshore Trust. 

 

This is accomplished by forming the trust as a Nevada Trust with domestic trustees.  

Then we add provisions to the trust that permit the domestic trustee to transfer the jurisdiction of the trust to a country that provides for better asset protection laws such as Nevis or the Cook Islands.  The domestic trustee resigns and the offshore trustee takes over.  Under no circumstances can the client be the trustee or the trust protector.  When the trust is drafted a copy of the trust is deposited with the offshore trustee so they can act quickly in the event that there is a threat against the trust and its assets. 

 

The trust will then be treated as an Offshore Trust once the “Flight Clauses” have been triggered.  Because at this point the trustee is an offshore trustee, the normal trustee fees will be due.  If there is no reason to flee US jurisdiction, the trust remains a Nevada Trust indefinitely.  It’s only when the domestic trustee foresees a problem that the “Flight Clause” provisions are triggered.

 

Now, we don’t pretend that the Nevada Offshore Trust is as strong as an Offshore Trust.  There are still concerns that a court could interpret these jurisdictional changes as an attempt to hinder, delay or defraud creditors.  If so, it will be considered a fraudulent conveyance.  There is also the concern that the offshore jurisdiction will frown on such a move if there has already been a judgment rendered against the trust, i.e., the domestic trustee waited too long to trigger the Flight Clause. 

 

The Nevada Offshore Trust may be ideal for those who do not have enough assets to justify the expense of an Offshore Trust and don’t foresee any threats in the near future but don’t want to become the test case for the Nevada Trusts.

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This is accomplished by forming the trust as a Nevada Trust with domestic trustees.  

Then we add provisions to the trust that permit the domestic trustee to transfer the jurisdiction of the trust to a country that provides for better asset protection laws such as Nevis or the Cook Islands.  The domestic trustee resigns and the offshore trustee takes over.  Under no circumstances can the client be the trustee or the trust protector.  When the trust is drafted a copy of the trust is deposited with the offshore trustee so they can act quickly in the event that there is a threat against the trust and its assets. 

 

The trust will then be treated as an Offshore Trust once the “Flight Clauses” have been triggered.  Because at this point the trustee is an offshore trustee, the normal trustee fees will be due.  If there is no reason to flee US jurisdiction, the trust remains a Nevada Trust indefinitely.  It’s only when the domestic trustee foresees a problem that the “Flight Clause” provisions are triggered.

 

Now, we don’t pretend that the Nevada Offshore Trust is as strong as an Offshore Trust.  There are still concerns that a court could interpret these jurisdictional changes as an attempt to hinder, delay or defraud creditors.  If so, it will be considered a fraudulent conveyance.  There is also the concern that the offshore jurisdiction will frown on such a move if there has already been a judgment rendered against the trust, i.e., the domestic trustee waited too long to trigger the Flight Clause. 

 

The Nevada Offshore Trust may be ideal for those who do not have enough assets to justify the expense of an Offshore Trust and don’t foresee any threats in the near future but don’t want to become the test case for the Nevada Trusts.

 

Quarterly Workshop Announcement for Clients

As part of our Client Membership Program, we are pleased to invite you to our Quarterly Workshop SECURE FINANCIAL INVESTMENTS IN UNCERTAINLY. 

 On April 16^th, you’re not going to want to miss the first of two quarterly workshops dedicated entirely to financial investing.  After surveying our clients and folks from all walks of life, there is one dominant theme on everyone’s mind: What do I do with my money now that the markets have crashed?

 When I heard the answer, I didn’t believe it myself.  But the facts don’t lie!

 Should you invest in the stock market now that it’s down?  Should you invest in real estate and foreclosures?  What about annuities and life insurance?  Should you invest in gold?  How much cash is too much?  Our team of advisors, attorneys and CPAs have been scouring the market for answers to these questions, and we will be presenting them in the next two quarterly workshops.

 This Quarterly “Life Plan™” Membership Workshop will focus on SECURE investments for PEACE OF MIND and REASONABLE GROWTH.  You’re not going to hear us talk about how to get rich quick.  But you will hear sound, thorough advice from advisors, attorneys and CPAs.   

 For those of you who came to our last workshop at Willow Creek, you know

 Seating is limited so RSVP sooner rather than later!

 There is no fee for attending this workshop because of your enrollment in our Client Membership Program.  If you are planning on attending, please return the RSVP form in the reply envelope, sign up at www.GaryFales.com or call (702) 804-0024.  This program is restricted to Membership Plan Clients, like you, and your invited guests.  If you haven’t enrolled in the Membership Program or your membership lapsed, this event is worth 10 times your annual dues so call and get signed up.  I look forward to seeing you there.

FREE Quarterly Workshop Exclusive for Membership Plan Clients

Thursday, April 16^th   

7:00 pm

Willow Creek at San Martin

8374 Capovilla Avenue

Las Vegas, NV 89113

 REFRESHMENTS WILL BE PROVIDED

Outdated Plans

This article reviews the final reason why most trusts fail—the plans are outdated.  They are outdated for three reasons: (1) Changes in the Law; (1) Changes in Your Life; and (3) Changes in the Attorney’s Planning.

 

Changes in the Law and Institutions

            Let me share with you something that can be confusing and frustrating.  When the legislature passes laws or the judge drafts a holding, you’re supposed to know about it.  Ignorance of the law is no excuse.  But you and I know that no one can expect to know about all these changes.

 

Thumb through the legal documents when you receive them from us and imagine all the laws that could affect these documents.  And when those laws change you’re required to read through your trust to determine the impact this new law change has on you.  Then you’re to pick up the phone and call the attorney and tell him that you think Section 5 in Article 12 needs modified.  Well, folks don’t call the attorney for two reasons.  First, they didn’t know the laws changed in the first place and secondly, they don’t want to pay the attorney for the phone call and for the amendment.  Our clients don’t have this problem because of our Maintenance Plan.

 

Changes in the Your Life

            Before my Life Plans™ were used, the trusts I prepared for folks turned into garbage.  The were garbage because people and circumstances had changed in the lives of our clients, and the trust no longer reflected my client’s current wishes and desires.  Imagine you named your brother to be a health care agent and he has fallen ill.  Your next choice is Cousin Vinney but he just got out of jail for prematurely harvesting cat organs.  Now, you’re about to go into the hospital for bypass surgery.  Your plan is garbage and needs changed!

 

Changes in Our Counseling

            As the law changes and your life changes, my counseling changes.  We study the changes in the law and we note how health and financial institutions change their policies.  We apply the changes in your life to these law changes to help you and your family achieve peace of mind. 

 

            So, how do we make sure your plan never gets outdated?  Only by selling you a relationship not documents to get results not pretty paper.  Almost every estate planning lawyer only can sell you documents because they do not have a system to service their trusts.  They have no responsibility to watch over your family—they only had to prepare documents. 

 

Our responsibility extends year after year and touches you three different ways during the year.  Annually, we tell you which laws changed that affect your plan.  We summarize your plan to remind you about the provisions you’ve chosen in case you need them changed.  And we send you the list of assets that have been verified as properly funded.

 

Quarterly, we teach you about various topics from Corporate Credit to Maximizing Medicare Benefits. 

 

And continuously, we become the trusted Family Attorney by giving you unlimited access to us via phone or face-to-face meetings and unlimited amendments.

Improper Funding

This article reviews the second reason why most trusts fail. 

 

Most Trusts Are Not Properly Funded…(That Is…Until They Go Into Probate!)

 

            I have a confession: one of my trusts has been to probate.  Before I provided Life Plans™ for my clients, I was nothing but your typical Trust Pusher.  I would plan for death, give a little lip service to life issues by drafting boilerplate financial and health care powers of attorney, collect my fee and then send the clients on their way.  As they were walking out, we would mention to them that the assets should be re-registered into the trust.

 

Well, one day I got a phone call from a man whose mother received a trust from me.  He said she had died and he wanted to know what to do next.  I asked him if she had any assets in her name and he said yes, $50,000 of stock certificates.  That triggered a probate.

 

That’s when the Life Plans™ started.  That’s when I started changing my practice so that my clients got RESULTS not just trusts on pretty paper.

 

So, the bucket (the trust) needs to actually own assets to avoid probate and guardianship.  Trusts have a schedule of assets that list the property the trust is suppose to own.  The assets must actually be re-registered into the name of the trust not just listed on the schedule.  If all we needed to do was list the assets on the schedule and that somehow got the assets into the trust, then I should list Caesars Palace Hotel on my schedule. J  It doesn’t work that way.

 

At this point in my practice, you either pay us to fund the trust or you convince us that you will fund it under our guidance.  If you fund it, you received the Funding Credit. 

 

Funding or re-registering the assets doesn’t need to be done until after the Life Plan™ (or LLC or Lawsuit Trust™) is signed.  But you can begin to prepare for funding by collecting your list of assets including bank statements, life insurance policies, investment accounts, deeds, etc.  I have attached a form to the email you received today to help you begin collecting the list of assets.  At your signing, you will be meeting with one of my Client Concierges.  They have been trained to help you understand how to transfer the assets into the trust.  For difficult assets, one of our attorneys will be involved.  If you paid us to do the funding, then your Concierge will begin to plan for the re-registration. 

 

            As you re-register the assets into the trust, we want you to send us a copy of the statement or deeds so that we can literally place our APPROVED stamp on the statement.  We will then enter that asset into our computer where your assets are listed.  At the end of each year, we will send you a copy of the approved assets so that you can compare them with your records.  Any new assets that you acquire should be funded and then verified by our offices.  We want you to prove to us that the funding is correct so that your loved ones can prove it to the judge when you’ve died or become incapacitated.

The Missing 14 Critical Provisions

This article reviews the first reason why most trusts fail.  For our clients that have not purchased a Life Plan™ trust, this article may shake you.  That’s OK because if you don’t have a Life Plan™, you’re not fully protected.  Recall that most trusts fail for 3 simple reasons:

 

1. the trust was not formed with the 14-protective provisions we use in drafting trusts;
2. the assets were not properly re-registered into the name of the trust; and
3. the plans are outdated through a change in the law, a change in your life or a change in the counseling of the attorney. 

 

There Are Up to 14 Critical Provisions That Now Should Be In Every Trust

 

            Every estate consists of two parts: the Death part and the Life part.  The first 3 Critical Provisions fall under the death part: (1) avoid probate; (2) minimize estate taxes; and then (3) get the assets to the beneficiaries.  While these are critical, they are fairly straightforward and are contained in most trusts out there.  However, the remaining critical provisions are only found in the life part of an estate plan.

 

You’re Not Going To Die Anytime Soon!

Dying is not your problem.  Folks that come into my office with Death Plans Trusts formed by other attorneys aren’t dead.  But they have lost their independence, dignity and control because they are growing older or have become ill or have been sued in a lawsuit or have remarried.  Or their children or grandchildren have been irresponsible or have been in a lawsuit, a bankruptcy or divorce. 

 

Your Life Plans™ deal with issues that arise with the living.  Yes, it does the death part, but more importantly it protects you from disability, creditors, predators, heath care issues, and provides asset protection for children and protection for grandchildren. 

 

Missing Critical Provision #4—Alternative to doctor or court incapacity determination

In keeping your dignity, the first question is simple: how do we know when you are no longer able to manage your financial affairs?  Seems simple enough.  Most trusts we review have a 2-doctor standard that must be used—but that standard doesn’t work. 

 

Doctors can’t make this determination because it is a violation of a federal law called HIPAA.  This law restricts who can get access to your medical records.  If you have Alzheimer’s disease, for example, the doctor cannot reveal your conditions without your permission, but because you have Alzheimer’s, you don’t have the capacity to give the permission. 

 

Critical Provision #5—Conflicts That Leave You Broke Or In a Nursing Home

If you are no longer able to manage your affairs then in most trusts, such as yours, the successor trustee is assigned to take over the assets.  Essentially, this successor trustee is assigned to gather and preserve the assets, pay off your creditors and give what’s left to your beneficiaries (or their creditors).  But, this creates a conflict of interest.

 

You see, the more money that the successor trustee spends on you for your benefit, the less money there is for the beneficiaries.  The successor trustee may attempt to remove the conflict by doing what is acceptable to society.  It’s acceptable to qualify you for Medicaid or welfare.  But to qualify you for Medicaid they have to show that you belong in a nursing home—and then put you in one!  That would be a disaster.

 

Critical Provision #6—Emergency Helpers

Current laws create problems if you are single or become single.  For example, if you fall and have a hip replacement surgery and you’re in rehab, who will pay the bills?  You’re vulnerable.  Unfortunately, older folks or those who are quite ill name a trusted person to become a joint owner on their assets.  This is a disaster because your assets can be seized by your joint owner’s creditors if there is a lawsuit or divorce.

 

Critical Provision #7—Properly Drafted Power of Attorney

            Most trusts I review have a financial power of attorney—but they’re drafted wrong. 

 

            They only become effective if you are declared incompetent.  Because of HIPAA, your incapacity cannot be determined by 2 doctors, so banks won’t accept it.  Next, powers of attorney don’t work because they have as few as 5 pages of powers (ours has 26 pages).  Finally, they don’t work because they are too old.  How does the bank or institution know that this is the most current document?  They aren’t going to accept it because of the liability, and they’ll require a guardianship court order (but that is what we’re trying to avoid in the first place!).  You don’t have this problem because you can get you documents updated at least annually through our Maintenance Program. 

 

Critical Provision #8 and #9—Properly Drafted Health Care Documents and Availability

            Most attorneys use a statutory form for health care.  Doesn’t your family deserve more attention for your needs?  For example, how do your loved ones know if there is no longer reasonable hope of recovery?  I’ve determined that reasonable hope is determined by the questions that are asked by your loved ones.  To help guide your loved ones, I co-authored with a physician the “7 Life Questions” that prevents your premature death and gives peace of mind to your family that there was nothing that could have been done to save you.

 

            Most plans are so outdated that we find no reference to HIPAA Authorizations anywhere in the plan.  If they do have HIPAA, it is usually no more than one paragraph of authorization (it should be 4 pages).

 

            Plus, hospitals report that in 9 out of 10 cases health care documents are not available when needed.  To ensure you can have them at any time and any place in the world, our Plan provides you with a card to keep in your wallet giving you full access to the documents.

 

Critical Provision #10 and #11—Creditor Protection for Surviving Spouse

You can be sued by anyone, at any time, for any reason.  Folks that have assets do not expect justice when they go to court. 

 

When you have died, wouldn’t it be nice to know that the income and principal of the estate is protected from lawsuits?  It is with your Life Plan™.  Why don’t most trusts do this?  Because it was drafted to deal with death not life.

 

Critical Provision #12—Re-marriage Protection

            And what if your husband remarries after you’ve died?  What if your wife remarries Biff the Pool Boy?  Will he spend your nest egg?  You don’t need to worry about that because all re-marriage issues are planned for—even if you are 90+ years old.  Financial predators don’t care how old you are or what you look like.

 

Critical Provision #13—Protection for Children or Beneficiaries (Life Plan™ B)

 

            If you love your children, you should disinherit them (but not on accident).  Why?  Because what you give to your children can be taken away from them in a lawsuit, bankruptcy, divorce or by the IRS.  You should want your responsible adult children to have full control to their inheritance but not own it, so it can’t ever be invaded.  If you have a special needs child or one with addictions, you can have someone else control it so that the child has basic needs met.

 

Critical Provision #14— Protection for Grandchildren or Beneficiaries (Life Plan™ C)

 

            Most trusts accidentally disinherit the grandchildren.  For example, I have a son, his name is Nathan.  Let’s say Nathan marries a woman named Hottie and they have children.  When my wife and I die with a typical Death Plan Trust or a Life Plan™ A, Nathan’s inheritance gets commingled with Hottie.  Now, when Nathan dies, Hottie gets my inheritance.  Then, Hottie gets remarried to Hunk.  The inheritance I tried to give to Nathan and then to my grandchildren ends up with Hottie and Hunk.  This is happening all over

America

.

 

Even with a Life Plan™ A or Life Plan™B, the grandchildren can still get disinherited.  Often, most of my clients tell me that if their son or daughter predeceases them, that they would like that son or daughter’s children to inherit the assets.  Yes, legally it goes to the grandchildren but does it really?  Let’s say Nathan dies before me (predeceases me) and then I die.  Unless I have a Life Plan™ C (which I do) the trust will instruct the trustee to give Nathan’s share to Nathan’s children.  If Nathan’s children are minors, Hottie is in charge of the money, and now I’ve got the same problem of accidentally disinheriting my grandchildren.  But if I had an asset protection trust for my grandchildren, I can appoint my brother or another trusted person to manage the trust while the grandchildren are minors.  Sorry Hottie.

 

Finally, the grandchildren’s inheritance can be lost for the same reason that your children’s inheritance can be lost: through a divorce, lawsuit, bankruptcy or IRS problem.  Only an asset protection trust for grandchildren will guarantee that the inheritance actually makes it to your posterity.  

Why Most Trusts Fail

Brace yourself.  I am about to give you the real story on living trusts, why they fail and why the Life Plan™ Trust, if you purchased one from our offices will NOT fail.

 

Most Trusts Fail for 3 Simple Reasons

1. the trust was not formed with the 14-protective provisions we use in drafting trusts;
2. the assets were not properly re-registered into the name of the trust; and
3. the plans are outdated through a change in the law, a change in your life or a change in the counseling of the attorney. 

 

Reason #1: There Are Up to 14 Critical Provisions That Now Should Be In Every Trust—Most of the “Other Guys’” Trusts Have No More Than 5!!

 

And at least 2 of their critical provisions are outdated.  Let me explain… 

 

Every estate consists of two parts: the Death part and the Life part.  Most trusts drafted by other attorneys only plan for death—I call them Death Plan Trusts.  How do I know? Last year we gave numerous workshops throughout the state offering $1,000 to anyone who could present an estate plan that contained at least 10 of the protective provisions we currently use when designing a plan.  Only one estate plan even came close to having all 14 provisions. 

 

You should be congratulated because if you have purchased a Life Plan™ trust it now contains all these critical provisions.  Life Plans™ include planning for death and life. 

 

Reason #2: Most Trusts Are Not Properly Funded…(That Is…Until They Go Into Probate!)

 

            Think of the trust as a bucket.  To avoid probate, the assets must be re-registered (funded) into the bucket so that you don’t have assets in your name when you die.  Unfortunately, most trusts have assets outside the trust because the attorney simply gave the client some instructions and shoved them out the door (after getting paid).  As part of our Membership Plan, we either do the funding for you or we coach and verify each step of the way. 

 

Reason #3: Trusts Printed On Pretty Paper Don’t Solve Problems…They Just Collect Dust!

 

            The truth is the laws are constantly changing, and your life is changing and because the law changes and you are changing, our counseling changes.  We decided to change our practice (at great expense) and introduced a Membership Program.  This Program permits the firm to spread our legal wings over you on an annual basis through letters and phone calls, quarterly through client workshops, and continuously by giving clients full access to the law firm.

What the Obama Proposal Means to the "Rich"

Starting in 2011, the "rich" can expect to pay significantly more in income taxes.  

The top income tax rate is to be increased to 39.6%.

There will be new limits on itemized tax deductions including deductions for charities, mortgage interest and state and local taxes.

It really too bad that those that are most productive are getting punished for their success.

Planning for Boomers

I just read an interesting article on Baby Boomers.  According to Amy Hess writing in the Taxation Newsquarterly, about 25% of Americans are Baby Boomers.

When Social Security was enacted, average life expectancy was 59 years.  Today it's 77.5.  A person who lives to age 65 can expect to live almost 20 years in retirement.

In order to have an "active" retirement it will cost the Boomers about 80% of what they spend their last few working years.

How are they going to pay for it?

She concludes that the retirement of the Boomers will very different from that of their parents.  For one thing, they will have less equity in their home.

The new 65 is 75.  Boomers will be working until at least 75--and why shouldn't they...they are healthier at 75 then the generations before them.

She also emphasizes the need for financial powers of attorney, health care powers of attorney and living trusts. 

I couldn't agree more!

Trustee Succession

So, if you have a trust...good for you.  Please be aware that a trust will prevent most of the time delays, costs and publicity of probate, but not all of it.  Successor trustees bear a big responsibility to see that the desires of the decedent are followed. 

Last night, we presented our first Membership Plan Quarterly Workshop of 2009 for our clients.  The entire presentation was on the duties of successor trustees when taking over either because the Trustmaker has become incapacitated or the Trustmaker has died.  It was a huge success with high attendance.  I think there is a lot of interest in this area because folks want to know some of the details so they know how difficult or easy it will be when a trustee takes over.  Knowledge really is power.

Doing

I've been reading the book "Done!" by Don Aslett and it has really put me in touch with my drive to accomplish.  I've been stuck in working hard at work, spending time with my family, but then my other time has been wasted.  Now, I'm back to practicing the piano, learning Spanish and taking advantage of every minute I've been given on this Earth.  Wow, what an eye opener!

The Third Basket of Savings: Credit Capital

Good credit enables you to whether stormy times because it gives you the ability to borrow money when you need it most.

My advice is that you borrow money when you don't need it.  By the time you do need it, often you won't be able to get a loan. 

Lenders will lend you money based on your ability to pay.  But, even if you have a great income you will find it much harder to get a loan or you will pay a higher price if your credit is poor.  And when times are tough, the last thing you want is to pay high interest rates.

Keeping your credit score high is like savings because you can use it to get a loan for a rainy day.  There are lots of tools and information with tips on how to maximize your score.  I monitor my score

When used with your other savings, good credit may well be what you need to bridge hard times.

Bayonets!

Riding the economy is like riding on the Titanic--the ship is going down!  Everywhere around us we read of the national and world economic turmoil.  It hasn't been this bad since the recession in 1973 and many try to compare it to the Great Depression.

 

Whether you own a business, are retired, go to school, or work this economic period will affect you.  The question is: will you survive or go down?  It reminds me of July 2, 1863 and the fight for Little Round Top.

 

Colonel Joshua Lawrence Chamberlain and his 20th Maine Infantry fought with the Union forces defending the far left line of the Union.  The Confederates had decimated their line.  If the line broke, the battle at Gettysburg may well have been a victory for the Confederates and perhaps the Civil War lost.  Colonel Chamberlain knew he must rally his men or be destroyed.  He called his officers together to explain his proposal.

 

“Not a moment was about to be lost!  Five minutes more of such a defensive and the last roll call would sound for us!  I stepped to the colors.  The men turned towards me.  One word was enough—‘BAYONETS!’  It caught like fire and swept along the ranks.  The men took it up with a shout…it was vain to order ‘Forward!’

 

I meet many people in my workshops and in consultations who are like the 20^th Maine, and are in the financial fight of their lives.  Many are giving up.  Some just keep doing the same thing over and over hoping that it will pull them out.

 

But like the 20^th Maine, if we keep doing the same thing the last roll call will sound for us.  BAYONETS! is the cry.  Full charge ahead!

 

Whether you are an employee or you are a small business owner, you must be better, faster and stronger than your competitors.  You must forecast and adapt.  You must focus on your strengths and minimize your weaknesses.

 

You must stay focused on the goals and provide a better service/product and communicate the value of that service or product better than you ever have.  Your financial life and that of your family’s is at stake.

 

Obama Tax Policies

For those that are interested (and that should be everyone), here are some changes that are coming with Obama taken from a report by Morgan Stanley.

Tax Policy: Storm on the Horizon
A fundamental component of the federal budget is the level of revenues or taxes, a finite resource that has implications on individuals, business and the broader economy. Historically, tax revenue as a percent of GDP has averaged around 18.1 percent. Under current projections by the Congressional Budget Office, revenues will grow to about 20 percent of GDP by 2012, the end of the next administration, absent additional action. A key issue before the next administration will be the appropriate level and composition of federal taxation. An examination of the ideas presented during the campaign by Senator Obama provides insight into the answer.

There are two key drivers that will greatly impact the tax debate – the federal budget deficit and the
expiration of the 2001 and 2003 tax cuts. Federal budget scorekeepers estimate the deficit for this year will be about $450 billion and could exceed $750 billion next year, after factoring in the recent cost of the economic rescue plan recently enacted. In addition, as the economy slows, predictions of future revenue collections will be revised downward, putting further pressure on the deficit and the level of revenues to run the government.

Against this backdrop is the fact that the current structure of the tax code is set to change dramatically as a long list of tax rates and tax credits will automatically expire December 31, 2010, creating a large built-in tax increase. Beginning in 2011, the following changes are set to occur:

♦ The top marginal tax rate for individuals increases from 35% to 39.6%
♦ The maximum long-term capital gains rate increases from 15% to 20%
♦ The top tax rate on dividend income increases from 15% to 39.6%
♦ The estate tax will be repealed in 2010 and then reappear in 2011 at pre-2001 high tax
rates and low exemption levels
♦ Tax credits for children, education, and other incentives will expire or be reduced

Given these built-in changes, President Obama and Congress will face significant tax policy decisions.
Underlying the decision process will be two competing philosophical views on the coming 2010 changes.
Proponents of extending the 2001 and 2003 tax cuts argue that failure to act will “allow” a $1.5 trillion tax increase to occur. From a competing perspective, extending the 2001 and 2003 tax cuts would “cost” $1.5 trillion in lost revenue to the Treasury, highlighting the budgetary challenge of continuing the current tax structure into the future.

Faced with the reality of the current and projected fiscal pressures, Congress and President Obama are
unlikely to agree on extending all of the expiring tax relief. Thus, the debate will center on prioritizing tax policies and engaging in a give-and-take exercise to find a tax structure that fits within the current fiscal and economic environment. Looking ahead, two overarching pressures will put opposing constraints on the outcomes – (1) the size of the deficit will limit the size and duration of any tax extensions or tax cuts and (2) a stagnant or recessionary economy in 2009 and 2010 will make it difficult to raise taxes too high or too quickly for fear of making the economy worse.

Tax Proposals
According to the Tax Policy Center, Obama’s tax plan would cost $2.9 trillion over 10 years. Hidden
within these numbers are proposals to raise taxes on business by either eliminating “corporate welfare,” ending “incentives for companies to ship jobs overseas” or using “tax havens,” and/or raising payroll taxes.

The incoming Obama Administration will need to decide which proposals to enact and which proposals to put aside as a new budget is crafted. One theme that is prevalent in the Obama plan is the clear distinction between tax reductions for lower- and middle-income Americans and tax increases for individuals making $200,000 or more and couples earning $250,000 or more. For these taxpayers, the Bush tax cuts would generally expire and they would see higher taxes in the form of additional payroll taxes and the phase-out of certain deductions.

The following chart outlines the various tax proposals Barack Obama announced during the campaign:

BARACK OBAMA’S TAX PLAN

Business Provisions
Corporate Tax Rates	· No specific proposal to lower corporate tax rate · Provide a tax credit to employers that increase the number of employees in the United States; maintain U.S. headquarters; and provide certain benefits to employees
R&D	· Make permanent R&D tax credit
Health Care	· Provide a refundable tax credit of up to 50 percent of health insurance premiums paid by a small employer for health care for employees
Renewable Energy Production Tax Credits	· Make permanent the current tax credit for the production of electricity from renewable sources
Revenue Raisers/Tax Increases	· Tax offshore income and “tax haven abuse” · Codify economic substance doctrine · Tax publicly traded partnerships as corporations · Tax the “carried interest” income from investment partnerships as ordinary income rather than capital gain · Tighten rules on tax deductibility of executive compensation
Capital Gains	· Raise capital gains rate to 20% (from 15%) for individuals earning $200,000 or more ($250,000 for couples) · Eliminate capital gains for certain investments in a small business or start-up business
Dividends	· Raise tax rate on dividend income – from a top rate of 15% to top rate of 20% -- for individuals earning $200,000 or more ($250,000 for couples)
Individual Provisions
Marginal Tax Rates ·	Make permanent lower income tax rates (10/15/25/28% rates) · Restore top rates of 36% and 39.6% (unclear what income level threshold new rates apply)
Phase Out of Personal Exemption and Itemized Deductions	· Restore phase-out of personal exemptions and itemized deductions in 2009 and beyond (taxpayer earning $200,000 (single) or $250,000 (couple))
AMT	· Extend and index AMT exemption at 2008 levels (i.e., maintain current patch)
Savers Tax Credit	· Make the Saver’s Credit refundable and change credit to provide a 50 percent match of the first $1,000 saved in a retirement plan
Tax Benefits for Families	· Make permanent $1,000 per child tax credit and marriage penalty relief · Expand Earned Income Tax Credit · Expand child and dependent tax credit
Seniors/Retirees	· Exempt from the first $50,000 of income received by a senior/retiree
Mortgage Tax Credit	· Provide a refundable “universal mortgage credit” equal to 10 percent of mortgage interest paid up to a maximum credit of $800 for taxpayers who do not itemize
Worker Tax Credit	· Provide a refundable tax credit of 6.2% of the first $8,100 in wages 4 to offset the current payroll tax
Estate Tax
Rates and Exemption Amount	· Freeze 2009 estate tax exemption and tax rate levels -- $3.5 million exemption and 45% tax rate
Payroll Tax	· Subject incomes above $250,000 to payroll taxes. (The new payroll tax would be between 2% and 4% and paid by both the employee and the employer like the current Social Security tax. All income is already subject to the 1.45% Medicare tax)
Temporary Proposals to Address Economic Slowdown	· Eliminate the tax on unemployment insurance for 2008 and 2009 · Allow penalty free withdrawals from retirement accounts (limited to the lesser of 15 percent account balance or $10,000) · Provide employer tax credit of $3,000 per employee hired in 2009 or 2010 (credit would be refundable)

Observations on the Consequences of Obama’s Tax Proposals

As with most policy decisions, there are winners and losers from changes to existing tax policy. An
examination of the details of the tax proposal can provide some insight into who may benefit and who may see tax increases under the different tax policy changes outlined above.

Corporate versus Pass-Through Entities – The current top corporate tax rate is 35%. Under the
Obama plan, the top tax rate on pass-through income would increase to 39.6% or higher. Although
corporate income is taxed twice (again when distributed as capital gain or dividend) the annual tax for
pass-through entities could increase above that for corporations.

Domestic over International Businesses – Senator Obama has proposed to “tax corporations that ship
jobs overseas.” Details of the proposal have not been provided, but multinational corporations could
see a tightening or repeal of the current rules that allow tax on foreign earnings to be deferred until
repatriated to the United States. This change would only impact U.S. multinational corporations that
have earnings from foreign operations.

Cost of Capital – Senator Obama would allow the capital gains rate to return to 20% and the top rate
on dividend income to increase to 20%. Thus, the after tax cost of investments would increase. The
shift to more and higher corporate dividend payouts would likely end with the increased tax on
qualified dividends.

Cost of Labor – Senator Obama would impose a new payroll tax (between 2% and 4%) on incomes
above $250,000. The tax would be imposed on both the employee and the employer, increasing the
cost of labor. However, some employers would qualify for the new worker tax credit (up to $3,000 per
employee) for firms that are increasing their number of employees.

Housing Subsidy – The proposed new universal mortgage tax credit of up to $800 for non-itemizers
would further expand the various subsidies in the tax code for housing.

The Second Basket of Savings: Career Capital

The second basket of savings is career capital that includes your social and business networks.  Can you pick up the phone and ask someone you know for $10,000?  What will they ask in return?  Will they just give it to you?  I hope you have at least 5-10 people on whom you can call.  Those who are self-reliant would do almost anything before they would ask for a short-term loan...and those are the kind of people you would loan to. 
 
What if you don't need a loan, you need a job.  Perhaps you lost your job or you are not earning your full potential at your current job.  The best way to find one is networking through someone you know.

Here is the irony: to be self-reliant, you need to invest in others.  I think you will find the work of Dr. Robert Cialdini on point.  He has done studies at Arizona State University on Reciprocation among people.  To fill you well before it's dry, you should seek to help others before you need the help.  The principle of reciprocation is that humans are bound to help those who have helped them.  So, by helping others when you don't need help, you are saving for a rainy day.  Dr. Cialdini states "You, then me, then you, then me...Be the first to give service, information, concessions."  Visit his site at www.influenceatwork.com. 

And with a basket name like "Career Capital" it almost goes without saying that you should aquire all the education you can get.  It's competitive out there, and those that are more attractive to employers or that can produce a good or service better than the other guys are going to win.  Never stop learning and never be lured into a sense of false security in the workforce.

The First Basket Of Savings

The first basket of savings is food storage and cash.  We all know the story of the ant and the grasshopper.  During the warm months, the grasshopper relaxed and played while the ant worked to store food for the winter.  When the winter came, the snow was so deep the grasshopper couldn't get any food while the ant had plenty.  The moral of the fable is that it is best to prepare for the days of necessity.

Often, however, we might think that preparing means putting away money in the bank.  But preparing or saving for the days of necessity can be done with the most fundamental necessity: food. 

I recommend a three-month supply of food and cash.  It's not hard--just put away a little extra until it has built up.  The food can be stored in extra spaces around the house.  The cash can be stored in a safe bolted to the floor.  For those who have the space, you should store a year's supply of food.  Many of the stored foods can last over 30 years! 

With my first basket of savings, I have the peace of mind knowing that I can be self-reliant during hard times.  

The 5 Baskets of Savings

I meet many people, including myself, who have a hard time saving money.  Yet, if we don't save we are vulnerable to getting our debts so high that we could face financial disaster.  I see many people in my law office seeking advice on how to protect their few remaining assets from their creditors.  They just can't pay all their bills anymore.  They are financially ruined.  Sure, we can protect what's left, but often there isn't much there to protect in the first place. 

There is nothing I would love more than to meet rich people who need their assets protected.  Elizabeth Zagajeski, the head of the Asset Protection Group at the law firm, likes to say we help rich people stay rich.  Well, what if you're not rich...we can help with that too.

There are 5 fundamental levels of savings:

1.  food storage & cash (I mean cash)
2.  career capital including your social and business networks
3.  credit capital
4.  non-retirement investments
5.  retirement investments

So, Savings isn't just about putting money in the bank.  Savings is a term that describes a set of resources that you can draw upon during hardships.  A person will feel more secure the more assets are placed in each of the five baskets.  Our asset protection strategies turn the baskets into impenetrable vaults.

Taxes--the new play!

    We're having more and more clients seek tax planning from us than ever before.  And the real tax increases haven't even hit us yet!  It won't matter who is elected, taxes are going to significantly increase. 

While estate tax planning is important, it's not as important to most people as income tax planning.  Estate tax planning is great for those who have significant assets and understand they will die someday.  However, income tax planning is important to almost every income-earning adult. 

We're expanding our income tax planning group and providing more services to those who want to legally reduce the amount of taxes they must pay.  When you pay less in taxes, it's like earning more money.  Actually, it's better than that because the more you pay in taxes, studies show the less motivated you are to earn more money.  That's especially true when earning an additional dollar puts you into the next higher tax bracket.

Only 250!

I've been to many performance coaching programs and have read many books on setting and achieving goals.  These books and events will help you focus your energies into your life's purpose or primary aim.  Often they encourage you to write your own eulogy that will be given at your funeral to help you see how you would want your life to be written.  What they don't tell you is that there probably won't be more than 250 people attending the funeral.

According to a funeral home director in San Diego, when a person dies they will print 250 programs regardless of how popular or unpopular that person was.  Now, if you think 250 sounds like a lot, think about all the people in your life that you've grown up with, gone to school, worked with, gone to church with, played with, served in the military with, and on and on.  250 should really start to seem like a small number. 

And why should anyone care that even one person shows up to your funeral?  I believed the books and events that said you can live life more fully by focusing on the end.  Life should be created with a design--not that it turns out the way we thought.  But I don't believe in drifting through life without worthy goals. 

Plus, I believe those goals should have for their purpose the improvement of the lives of those we touch.  And touch them so deeply that they would flock to attend your funeral.  I wonder if I can get 251 to attend mine? 

Denial Won't Change Reality

Last night's Quarterly Workshop was a real success.  I wasn't surprised when many of our clients told me how upsetting it was to think about going into a nursing home and losing their money.  We had about 80 clients there, but we should have had everyone. 

Denial is a threat to millions of the older generation and their children.  Denial won't change reality, though.  2 out of 3 seniors over the age of 65 will experience a nursing home.  That's a fact.

Efficient Markets

I just can't help saying something about the market fluctuations. 

A person simply has to look at the long-term horizons when investing.  I hold a degree in Economics and I learned an important lesson about the markets.  They are efficient.  In 1990, three economists won the Nobel Prize in economics for their contributions to the body of work known as Modern Portfolio Theory.  When I was studying economics, I had to recreate their research using integral calculus--I have actually seen the proof in the math. 

This means you can't beat the market.  You can only pick your proper asset allocation for your particular risk class and then wait...and wait.

For a great book on this topic in down-to-earth tones, see The Only Guide to a Winning Investment Strategy You'll Ever Need by Larry E. Swedroe.