Illinois Estate Planning & Elder Law Blog

Asset protection for a business can be straight forward and a relatively simple matter to implement. At the same time, it can protect a large chunk of the assets of a business.

For example, in the case of a company that runs a manufacturing business, the usual business structure is for the manufacturing company to be organized as a corporation. That is fine as far as it goes.

But if a second corporation were to be formed as a trucking corporation, all of the assets the manufacturing corporation has in the fleet of fifty trucks could be transferred to the trucking corporation. As long as this trucking corporation is fully capitalized and fully insured, the effect of creating the trucking corporation would be to remove all of the other assets of the manufacturing corporation from exposure to a judgment regarding an accident involving one of the fifty trucks in the shipping fleet.

This protection could be taken a step further by creating a third corporation which leases the trucks. With a fully capitalized and fully insured leasing corporation in existence, the capital tied up in the fifty trucks owned by the trucking corporation could be protected from judgment in the event that a truck driver employed by the leasing corporation were involved in an accident.

Thus, layers upon layers of protection can be added to accommodate whatever the needs of the business are. The only limitation is the bookkeeping involved with keeping the corporations' assets separate and keeping the corporations fully insured. As long as the owner of the business is able to keep up with the bookkeeping aspects of the arrangements, the protection afforded by this type of asset protection planning is substantial and completely within what the law allows.

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In his Wall Street Journal article titled A Short Banking History of the United States, John Steele Gordon gives a succinct and interesting overview of the banking system in this country and explains why the current banking crisis may have a bright side and may result in a unified banking system free from unwanted political influence.

Mr. Gordon points out how the struggle to establish a central banking system began at the founding of the United States. Alexander Hamilton, who had experience with and an understanding of markets, won his battle with Thomas Jefferson and established the Bank of the United States in 1792. But as the Jeffersonians gained power and dominated, the Bank's charter was not renewed in 1811. President Madison realized the importance of a central bank and a second bank was established in 1816. This second bank was short lived, having been killed by Andrew Jackson, a staunch Jeffersonian, and the United States had no central bank for many decades.

This back and forth between political forces in favor of a strong central banking system which would guard the money supply and act as a lender of last resort to regular banks in times of financial crisis and those political forces opposed to the concentration of economic power went on until after the Civil War when Congress passed the National Bank Act. This made federal charters available to banks with enough capital and which would also agree to strict regulation.

As Mr. Gordon sums it up in his article, "In the 1990's interstate banking was finally allowed, creating nationwide banks of unprecedented size. But Congress' attempt to force banks to make home loans to people who had limited creditworthiness, while encouraging Fannie Mae and Freddie Mac to take these dubious loans off their hands so that the banks could make still more of them, created another crisis in the banking system that is now playing out. While it will be painful, the present crisis will at least provide another opportunity to give this country, finally, a unified banking system of large, diversified, well-capitalized banking institutions that are under the control of a unified and coherent regulatory system free of undue political influence."

In his article in The Wall Street Journal titled Obama Plans to Keep Estate Tax, Jonathan Weisman points out that President-elect Barack Obama and congressional leaders plan to retain the estate tax instead of allowing it to expire as scheduled in 2010.

Under the new plan, the estate tax would be locked in at the 2009 rate and exemption levels. This would mean that estates of $3.5 million ($7 million for couples) would be exempt from the estate tax. The value of the estate which exceeds $3.5 million would be subject to a tax of 45%.

If the tax were returned to the levels before the change in the tax law in 2001, the tax would exempt only $1 million with the excess over $1 million taxed at 55%.

The Obama plan could be looked at as a compromise position. It imposes a limit on exemptions from estate tax ($3.5 million) while at the same time it keeps the exemption at a level high enough that fewer than two percent of annual deaths would be subject to the estate tax.

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In a recent article in the Wall Street Journal titled, How to Fix Your Life in 2009, Eleanor Laise provides advice for individuals whose stock portfolios have been beaten down.

She suggests taking advantage of the $13,000 exemption from gift taxes that one can use to give up to $13,000 in stocks to as many recipients as one wants without incurring any gift tax liability. This has the advantage of reducing the size of one's estate and, accordingly, one's estate tax liability. It also allows the recipients of the gift to benefit from an increase in stock prices over the long term.

Another suggestion is to consider a Grantor Retained Annuity Trust or GRAT. Ms. Laise points out, "You can put your beaten-down stock in the GRAT, name your children as beneficiaries, and receive an annuity from the trust based on a percentage of what you contributed. As long as you survive the trust term, often just a couple of years, any stock appreciation beyond a 'hurdle rate' set by the government passes to the beneficiaries tax-free. That hurdle rate, currently 3.4 %, is at historically low levels, and it's set to move even lower".

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