Offshore accounts  – – whether in trusts, LLCs or just in your own name – – can have a variety of financial, business and asset protection advantages.  But they will generally be subject to U.S. tax.  And they have special reporting requirements.  See for example my post from last year about IRS Form 8938.  So make sure your tax preparer knows about the applicable filing requirements.

The IRS and the United States Justice Department are relentlessly pursuing wealthy Americans with secret offshore assets.  U.S. authorities seemed to initially target accounts at banks in Switzerland.  But the Wall Street Journal recently reported that there are also actions by U.S. officials involving accounts in numerous other offshore locations – – including India, Israel, Hong Kong and Singapore. 

So make sure your tax preparer is aware of your offshore accounts – – and comply with the U.S. reporting requirements applicable to those accounts. 

 

Avoiding U.S. taxes by hiding your assets is illegal.  Last month, Switzerland’s oldest bank pled guilty to a criminal conspiracy charge for helping wealthy Americans avoid taxes by hiding their assets in secret accounts. 

Wegelin & Co., founded in 1741, is the first Swiss bank to plead guilty to a criminal charge in the on-going U.S. investigation of secret offshore accounts.  The bank plans to close once this criminal case wraps up. 

Asset protection essentially involves protecting your assets while keeping them in plain sight.  There may be privacy considerations; but asset protection should never be designed to unlawfully avoid taxes.  Offshore accounts can be appropriate and very beneficial for many Americans – – if they are opened, operated and titled properly.

 

I am frequently asked whether placing your home in a limited liability company will protect it from your creditors.  The answer is generally no. 

An LLC will likely be ignored by a court if there is no business purpose for it.  If you own rental property, that can be held in an LLC.  In that situation your clearly have a business purpose.

Contributing your personal assets (like your home, jewelry, furniture, etc.) to an LLC will not likely protect those assets from your creditors.  If you could avoid all of your personal debts by simply contributing your assets to an LLC, everyone would do it!

Other strategies may be available to protect your home from creditors.  States like Florida and Texas have a virtually unlimited homestead exemption.  So called “equity stripping” arrangements (borrowing funds with your home as collateral and then using those funds for other purposes) may be reasonable in some circumstances.

But simply contributing your personal residence to a limited liability company in and of itself will likely offer little protection from your personal creditors.  

Ohio House Bill 479, signed by the Governor on December 20, 2012 and effective in March of 2013, has a provision that specifically protects contributions to 529 plans. 

A new provision was added to Section 2329.66 of the Ohio Revised Code to protect contributions to a so-called 529 plan.  Funds held in such a plan by any person who is domiciled in Ohio will be exempt from execution, garnishment, attachment or sale to satisfy a judgment. 

The Ohio Legacy Trust Act, which will become effective in March of 2013, cannot be used to avoid child support or alimony payments.  The new statute (part of Ohio House Bill 479) provides creditor protection under certain circumstances for assets contributed to a legacy trust (also commonly known as a domestic asset protection trust).  But new Ohio Revised Code Section 5816.03 excludes child support and alimony payments from the protection of the statute.  This is consistent with DAPT statutes in many other states.

Certain payments and obligations to a former spouse can be limited by an antenuptial agreement that is entered into prior to the marriage.  The new Ohio Legacy Trust Act should not be considered a substitute for a pre-nuptial agreement. 

As of January 1, 2013, the annual federal gift tax exclusion has changed to $14,000 per donee.   This means that during 2013 you can give up to $14,000 per donee without filing a federal gift tax return.  So, for example, if you have three children – – you can give each of them $14,000 without any reporting requirement.

The annual gift tax exclusion amount is important to estate planners.  It is also important to asset protection planners because gifting is frequently an integral part of many asset protection plans.

The so called “fiscal cliff” bill passed by the House of Representatives on January 1 sets the federal estate and gift tax exemption amount at $5 million for 2013 and thereafter.  If Congress had not taken any action, the exemption amount would have fallen to about $1 million.  The exemption will be adjusted for inflation going forward.

While the federal estate tax rate will increase to 40% from last year’s 35% it appears that “portability” (a surviving spouse’s ability to take advantage of the unused exemption of the deceased spouse) will become permanent.

The federal gift tax can be an important consideration in connection with an asset protection plan, since asset protection planning frequently involves making gifts to family members. 

Ohio House Bill 479, signed by Governor John Kasich on December 20, 2012, will raise Ohio’s homestead exemption from its current $21,625 to $125,000.  The new law amends Section 2329.66 (A)(1)(b) of the Ohio Revised Code to provide for the higher amount.

The original version of the legislation had provided for an unlimited homestead exemption.  But this provision did not survive as the bill worked its way through the legislative process.  An initial amendment dropped the exemption to $500,000 and the final version contained the $125,000 exemption.

The new exemption amount will become effective in March of 2013.

Ohio now has a Domestic Asset Protection Trust statute.  A new section 5816 of the Ohio Revised Code (the Ohio Legacy Trust Act) creates what is commonly known as a Domestic Asset Protection Trust.  The new statute was signed into law by Governor Kasich on December 20, 2012 and will become effective in March of 2013.  The Ohio Legacy Trust Act is modeled after statutes in Delaware and Nevada and several other states that have similar statutes.

The Ohio Legacy Trust Act is part of Ohio House Bill 479  – commonly known as the Ohio Asset Management Modernization Act.  This new law not only creates legacy trusts in Ohio, but has other provisions relating to asset protection.

Ohio House Bill 479 – – commonly known as the Ohio Asset Management Modernization Act (OAMMA)  will affect a variety of asset protection strategies in Ohio.  The new law was signed by Ohio’s Governor on December 20, 2012 and will become effective in March of 2013. 

House Bill 479 authorizes legacy trusts in Ohio.  Ohio is now one of approximately 15 states that allows this kind of trust, commonly known as a domestic asset protection trust.

The new statute also increases Ohio’s homestead exemption to $125,000; regulates the use and enforceability of certain loan covenants in non-recourse commercial loan transactions; and makes other changes that will affect asset protection planning.