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Welcome

2013 April 8
by Asset Protection Solutions

Welcome to the Asset Protection Newsletter & Blog, dedicated to helping our readers to protect their hard earned Assets.[1] Learn how to protect your money, home, businesses, retirement and income. This information is directed not only to the wealthy, but also those who have seen their wealth dissipate through a job loss, extended litigation or bad investments. In this Newsletter, this latter group will be referred to as the “financially challenged,” with information provided to not only help them to get back on their feet financially, but also to find peace of mind, especially when dealing with continuous computer generated phone calls from disgruntled creditors and collection agents. This Newsletter and Blog will also provide you with the information that the money center banks do not want you to know.[2]

Many people do not realize that the income tax rates when Ronald Reagan came to office were at 70% for unearned income and 50% for earned income.

Many people do not realize that the income tax rates when Ronald Reagan came to office were at 70% for unearned income (such as interest and dividends) and 50% for earned income (wages). Reagan became the symbol of the Republican Party and gained enormous popularity by cutting taxes. They have stayed at these low rates (36%) for three decades. The bad news is that precedent exists for higher rates, and with the looming deficits, tax rates can only go up. Capital gain rates are already scheduled to go up from 15% to 20% starting in 2011, so sell your capital assets in 2010 as you will never see such a low tax rate again.

We will also refer to what is now known as the “New Economy.” In this “New Economy” your wealth is no longer measured by your available credit or your credit score, but by your equity and cash flow. Credit is no longer the fuel that makes this economy grow.

ADVICE FOR THE WEALTHY

For wealthy residents of Washington State, there exists an attractive “Window of Opportunity” for lifetime family gifting during the last few remaining weeks of 2010.

Lifetime Family Gifts in 2010 – In today’s world, protection of your hard earned Assets is more important than ever. State and federal agencies are facing ever increasing budget deficits, which will only be balanced by increased taxes. And not just income taxes – estate & gift taxes and employment taxes as well. Some increases will be subtle such as the elimination of the home mortgage interest deduction for federal income tax purposes.

For example, estate & gift taxes are a tax on transfers of wealth from one generation to the next. In 2009, the federal tax rate was a flat 45% on transfers at death of over $3.5 million, but in 2010, and only for 2010, the federal estate tax was temporarily repealed. On January 1, 2011, if Congress does nothing (which they seem to be very good at doing) the 2001 Bush tax cuts will officially be repealed and the estate tax will revert to 2001 levels with a 55% estate tax rate on death transfers in excess of $1 million. Washington State has a flat rate starting at 10% and increasing to 19% for estates over $9 million. But, for lifetime transfers, Washington has no gift tax (a legislative oversight which will soon be corrected). So, obviously, for wealthy residents of Washington State there exists an attractive window of opportunity for lifetime family gifting during the last few remaining weeks of 2010.

Congress Is Dysfunctional – It goes without saying that with no estate tax in place, 2010 is a great year to die! Look at the recent deaths of George Steinbrenner and Taco Bell founder Glen Bell. Take a look at the following example:

Dan Duncan, a Houston, Texas oil billionaire, passed away earlier this year. Because he died in 2010, with no federal estate tax in place, his entire $9 billion estate will pass tax free. Had he died in 2009, his estate would have owed Uncle Sam approximately $4 billion. If Mr. Duncan been a resident of Washington State, an estate tax would be due on all assets valued over $2 million.

Think how much estate tax revenue our federal government has lost!

If you are considering family gifting, see our Blog for a discussion on the use of family entities as the best way to lower your effective tax rate and retain control over your estate.

CONVERT TO ROTHS

Distributions from a Roth IRA, including all income and appreciation, are tax free if you play by the rules. Also, there are no RMDs (required minimum distributions at age 71.5) and if left to a non-spouse, there is no five year distribution rule (if the non-spouse is under age 70.5). You can convert any qualified plan, regular IRA or even a 401K, and there are no income limitations to the right to convert. The reason the IRS permits this is because it represents revenue to them. You have to pay income tax on the fair market value of your total assets in the IRA in the tax year of the conversion to a Roth IRA.

ADVICE FOR THE FINANCIALLY CHALLENGED

The most common mistake we see is that people do not file bankruptcy soon enough. The second most common mistake we see is that they want to file it too soon.

If you are spending more than you are making each month, it is time to recognize and accept the reality of your situation. Your negative cash flow situation cannot sustain itself much longer.  Recognizing the problem and own it. Only then can you take steps to correct the problem. You need to convert your negative cash flow situation to a positive one. How is that accomplished? Through what we call “Pre-Bankruptcy Counseling,” which involves careful analysis of your balance sheet and income statement to determine a likely bankruptcy scenario. From that, we determine strategic defaults that are designed to create positive cash flow. This is the first step toward a new life.

Ultimately, you will gain an understanding that you have certain rights under federal law. You do not have to be broke to file bankruptcy. You can keep certain exempt assets, including your retirement accounts, and yes, you can convert your unsecured credit card debt into tax free income! You can get a credit card after you file bankruptcy for car rentals and other needs. Shedding your unsecured liabilities is the most important step you can take toward a new life focused on building equity and not credit. The timing of filing the bankruptcy petition is the most important single decision that needs to be made, and the pre-petition planning is critical. The most common mistake we see is that people do not file bankruptcy soon enough. The second most common mistake we see is that they want to file it too soon. Take advantage of the most powerful legal right that you have, and avoid mistakes in this most important time in your financial life.[3]

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[1] This Newsletter and Blog are the property of Asset Protection Solutions, LLC, a Washington limited liability company dedicated to helping its readers protect their Assets. © All Rights Reserved.

[2] Not that we are not all financially challenged…but, those facing insolvency are particularly challenged because the laws providing relief in these situations are complicated, and good advice during this stage is critical.

[3] Mr. Seward is licensed to practice law in Washington and has offices in Seattle and Port Orchard. The contents herein do not constitute legal advice and do not create an attorney/ client relationship. The content is in the form of legal education and is intended to provide general information about the topics discussed. Many times the reader, in drawing conclusions, may leave out details which would make the conclusions unsuitable. Mr. Seward strongly advises the reader to confer with an attorney in their own state to acquire more information about the specifics of their situation.

The Law Offices of Richard D. Seward PC

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