”Asset Protection in California: Pitfalls & Opportunities” Welcome to the Advanced Legal Training Institute ”Asset Protection in California: Pitfalls & Opportunities” Thank you for joining us today! Advanced Legal Training Institute offers Customized Onsite Legal Seminars & Training (MCLE)  Legal Consulting & Coaching, Speaking  & Client Support Services For more information about our products and services, please visit our website: www.advancedlegaltraininginstitute.com

Your Instructor: Francis Burton Doyle, Esq., WealthPLAN Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” Your Instructor: Francis Burton Doyle, Esq., WealthPLAN Member, State Bar of California. Certified Legal Specialist, California State Bar, Taxation Law and Probate Estate Planning & Trust Law Founder, WealthPLAN, 30 years of experience in Tax, Estate Planning, Probate Trust Administration & Litigation Instructor, Continuing Legal Education Organizations including National Business Institute (NBI) & Lorman Education Professor; Lincoln Law School of San Jose, Wills & Trusts and Real Property Past President, Santa Clara County Estate Planning Council Past President, Silicon Valley Planning Giving Council Past Chair, Planning Committee, Annual Jerry A. Kasner Symposium, Santa Clara University, School of Law JD, University of San Francisco Law School, MS, Taxation, Golden Gate University, BA Santa Clara University www.advancedlegaltraininginstitute.com

”Asset Protection in California: Pitfalls & Opportunities” Advanced Legal Training Institute presents… ”Asset Protection in California: Pitfalls & Opportunities” Instructor Francis Burton Doyle, Esq., WealthPLAN Program Director Mary G. Anderson, Advanced Legal Training Institute

Introduction & Overview of the Presentation Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Introduction & Overview of the Presentation Definition of Asset Protection Planning For our purposes, the term “asset protection planning” will refer to the adoption of advance planning techniques that tend to place assets beyond the reach of future potential creditors. Asset protection planning must not involve hiding assets, committing fraud or perjury, or engaging in fraudulent transfers. www.advancedlegaltraininginstitute.com slide 1

Fraudulent Conveyance Rules Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities” Fraudulent Conveyance Rules California has enacted a version of the Uniform Fraudulent Transfer Act in Civil Code Sections §3439-3439.09. A “fraudulent conveyance” is a transfer made with the intent to hinder, delay, or defraud a creditor. A “fraudulent conveyance” is voidable. www.advancedlegaltraininginstitute.com slide 2

Fraudulent Conveyance Rules Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities” Fraudulent Conveyance Rules In addition to a transfer made with the actual intent to hinder, delay, or defraud any creditor, a transfer made without fair consideration by a person who is insolvent, or who will be rendered insolvent by reason of the transfer, is also deemed to be a “fraudulent conveyance”. Under the UFTA, “[a] debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation.” A person is also deemed insolvent under the UFTA if he or she is generally not paying his or her debts as they become due. A fraudulent conveyance will be found, where the transfer is made without fair consideration by a person who is engaged in a business, or who is about to be engaged in a business, for which the transferor's remaining property is unreasonably small in relation to the business or transaction. www.advancedlegaltraininginstitute.com slide 3

Two types of “fraudulent conveyance” Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” Two types of “fraudulent conveyance” “Actual”- a transfer which can be proven to have been with the intent to “hinder, delay or defraud “ any creditor; “Constructive”- transfer without “reasonably equivalent value” or a transfer made prior to an undertaking which the debtor knew would result in insolvency or near insolvency www.advancedlegaltraininginstitute.com slide 4

“Badges of Fraud” Transfer was to an insider; Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” “Badges of Fraud” Transfer was to an insider; Debtor retained possession or control after transfer; Transfer undisclosed Transfer was made after obligation or liability incurred Transfer of “substantially all” of debtors assets Debtor absconded; Debtor concealed assets; Consideration for transfer not “reasonably equivalent value”; Debtor insolvent at time of transfer or transfer made debtor insolvent; Transfer made shortly before or after debt or liability incurred; Transfer to lienholder who transferred assets to an insider. www.advancedlegaltraininginstitute.com slide 5

Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities” Who is a “creditor”? Cal Civil Code §3439.01 (c) defines a “creditor” as anyone with a “claim.” “Claim” is defined as a “right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” Cal. Civil Code §3439.01 (b) Only “unforeseen, future creditors” fall outside this definition.   www.advancedlegaltraininginstitute.com slide 6

Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” Super Creditors The following creditors are given priority over all other creditors as a matter of law: United States Federal Government (most particularly the IRS) State of California (most particularly the Franchise Tax Board) Spouses and children with reference to support orders www.advancedlegaltraininginstitute.com slide 7

Asset Protection vs. Pre-Bankruptcy Planning Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” Asset Protection vs. Pre-Bankruptcy Planning Bankruptcy Code has its own “fraudulent transfer” and “preferential transfer” rules Bankruptcy Code “fraudulent transfer” rules are modeled after Uniform Fraudulent Transfer Act Bankruptcy Code “preferential transfer” rules are strict and mechanical (e.g.: transfer made within 90 days of filing Bankruptcy Petition) no “badge of fraud” or debtor intent need be shown Bankruptcy Trustee or a creditor in the Bankruptcy can use state law fraudulent conveyance rules to void transfers and make them part of the bankruptcy estate www.advancedlegaltraininginstitute.com slide 8

Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities” Criminal Liability Cal. Penal Code §531 makes every person (including lawyers, accountants and advisors) who participates in a fraudulent transfer guilty of a misdemeanor Cal. Bus. & Professions Code §6128(a) provides that any attorney guilty of any deceit or collusions or consents to any deceit or collusion with intent to deceive the court or any party is guilty of a misdemeanor Bankruptcy Code §153-157 criminalizes participation in transfers “designed to defeat the Bankruptcy Code”   www.advancedlegaltraininginstitute.com slide 9

Aiding and abetting a fraud Participating in a Fraudulent Conveyance Welcome to the Webinar ”Asset Protection Planning in California: Pitfalls & Opportunities” Civil Liability Conspiracy to defraud Aiding and abetting a fraud Participating in a Fraudulent Conveyance Malpractice www.advancedlegaltraininginstitute.com slide 10

Ethical Prohibitions Cal. Rule of Professional Conduct 3-210 states, Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Ethical Prohibitions Cal. Rule of Professional Conduct 3-210 states, “A member shall not advise the violation of any law, rule, or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid.” Advising a client to engage in a “fraudulent conveyance” would fall within the scope of this prohibition. www.advancedlegaltraininginstitute.com slide 11

Importance of Properly Vetting the Client Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Importance of Properly Vetting the Client Does the client plan to file for Bankruptcy protection? Is the client susceptible to involuntary bankruptcy? Is the client insolvent? Is there any “badge of fraud” involved in the client’s situation? Does the client have a “Super Creditor” who is unpaid or is pursuing action against the client? Why is the client seeking asset protection planning? www.advancedlegaltraininginstitute.com slide 12

Importance of the Engagement Letter Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Importance of the Engagement Letter Defining the scope of services Good faith reliance on the client’s information and representations Excluding specific services www.advancedlegaltraininginstitute.com slide 13

Asset Protection Planning in the Context of Normal Estate Planning Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Asset Protection Planning in the Context of Normal Estate Planning Non-grantor trusts- See Cal. Probate Code §15304 Spendthrift Provisions- Authorized by Probate Code §§15300-15301 Discretionary Distributions-Authorized by Probate Code §15303 Support Trusts-Authorized by Probate Code §15302 www.advancedlegaltraininginstitute.com Slide 14

Exceptions to the Spendthrift, Discretionary, Support Trust Protection Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Exceptions to the Spendthrift, Discretionary, Support Trust Protection Claims for Child or Spousal Support-- Cal Probate Code §15305 Restitution Judgments Resulting From the Commission of a Felony-- Cal Probate Code §15305.5 Liability to State of California or local public entity for public support-- Cal Probate Code §15306 Court Order in favor of Judgment Creditor or Creditors for 25% of Trust Distributions under Cal Probate Code §15306.5 and CCP §709.010 www.advancedlegaltraininginstitute.com Slide 15

California vs. Other Jurisdictions Regarding Trust Protection Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” California vs. Other Jurisdictions Regarding Trust Protection Non-existent or More Lenient Fraudulent Conveyance Rules Express Allowance of Self-Settled Asset Protection Trusts Federal Bankruptcy Rules Apply to US jurisdictions Federal Trade Commission vs. Affordable Media, LLC; (1999) 179 F.3d 1228 www.advancedlegaltraininginstitute.com Slide 16

Qualified Personal Residence Trust Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Qualified Personal Residence Trust Standard estate planning technique authorized by IRC §2702 Preserves equity in residence or vacation home for descendants Superior to a Statutory Homestead Exemption Cal Probate Code §15304 would only apply to grantor’s right to live in residence Future Appreciation is out of grantor’s gross estate of federal estate tax purposes The remainder interest given when the irrevocable trust is established is a taxable gift and must be reported to IRS on a Form 709 Grantor must pay fair market value rent at the end of the trust term Descendants inherit the grantor’s low “basis” in the property for income tax purposes [IRC §1015] www.advancedlegaltraininginstitute.com Slide 17

Family Limited Partnerships Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Family Limited Partnerships Standard estate and business succession planning technique Protects underlying assets of FLP from lien or attachment Exclusive remedy of creditor of limited partner is a “charging order” Creditor who obtains “charging order” is only an assignee and is not a limited partner and does not have the rights of a limited partner FLP provisions can allow for buy out of debtor-limited partner in the event of a “charging order”, insolvency or bankruptcy subject to the fraudulent conveyance rules Establishment of an FLP could under certain circumstances be a fraudulent transfer Limited Partner not liable for debts of FLP beyond limited partnership interest www.advancedlegaltraininginstitute.com Slide 18

Limited Liability Companies Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Limited Liability Companies Standard estate and business succession planning technique Protects underlying assets of LLC from lien or attachment Exclusive remedy of creditor of member of LLC is a charging order Creditor who obtains a “charging order” is not a member of the LLC LLC provisions can allow for buyout of debtor member in the event of a “charging order”, insolvency or bankruptcy subject to fraudulent conveyance rules Establishment of an LLC could under certain circumstances be a fraudulent transfer Member is not liable for the debts of the LLC beyond the member’s interest www.advancedlegaltraininginstitute.com Slide 19

Family Corporations Standard business organization Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Family Corporations Standard business organization Subject to the alter ego doctrine: unity of interests and ownership plus inequitable result Protects underlying assets of Corporation from lien or attachment Shares of debtor subject to lien and attachment Creditor may become shareholder of the Corporation with shareholder rights Shareholder agreement can provide for buyout in the event of lien, attachment, insolvency or bankruptcy subject to fraudulent conveyance rules Corporation can be capitalized with voting and non-voting shares Formation of the corporation may under certain circumstances be a fraudulent conveyance www.advancedlegaltraininginstitute.com Slide 20

Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Retirement Plans IRC §401 plans subject to ERISA are completely exempt from attachment. Patterson v. Shumate 112 S.CT 2242 (1992) IRA plans are formed under IRC 408 and are not subject to ERISA and do not have the exemption protection of the Patterson case. IRA accounts are only exempt to the extent “reasonably necessary to support the debtor and the debtor’s family” per CCP §704.115 Non-qualified retirement plans are also only exempt to the extent allowed by CCP §704.115 Bankruptcy Code allows complete exemption for “tax qualified” retirement plans under both IRC §§ 401 and 408 www.advancedlegaltraininginstitute.com Slide 21

Finally, other techniques include: Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Finally, other techniques include: Grantor retained annuity trusts-subject to Cal. Probate Code §15304 Private annuities-subject to fraudulent conveyance rules Inter-family installment notes-subject to fraudulent conveyance rules www.advancedlegaltraininginstitute.com Slide 22

SECTION 1.1 DISTRIBUTION OF INCOME AND PRINCIPAL Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Trust Provisions: SECTION 1.1 DISTRIBUTION OF INCOME AND PRINCIPAL So long as the child is living, the Trustee may from time to time pay to or apply for the benefit of the child so much of the net income of the Trust as the Trustee, in his or her sole and absolute discretion, shall deem reasonably necessary for the proper health, education, support or maintenance of the child. At the end of each calendar year, any of the net income not so distributed shall be accumulated and added to principal. If the Trustee considers such income payments insufficient, the Trustee may pay to or for the benefit of the child those sums from principal as the Trustee, in his her or her absolute discretion, considers necessary for the child's proper health, education, support or maintenance, after taking into consideration, to the extent the Trustee considers advisable, any other income or resources of the beneficiary's made known to the Trustee and reasonably available for those purposes. www.advancedlegaltraininginstitute.com Slide 23

SECTION 2 Spendthrift Clause Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Trust Provisions: SECTION 2 Spendthrift Clause Each and every beneficiary's interest in both the income and principal of this Trust or any trust established pursuant to this Agreement, with the exception of the Trustor, as to whom this provision shall have no application, is not subject to voluntary or involuntary transfer, and a beneficiary's interest in both the income and principal may not be anticipated, assigned, encumbered, transferred or subjected to creditor's claim, legal process, or enforcement of a money judgment until actually paid to the beneficiary. Accordingly, no beneficiary of this Trust shall have any right, power, or authority to sell, assign, pledge, mortgage or in any other manner to encumber, alienate, or impair all or any part of his or her interest in the trust or in the principal or income of the trust. The beneficial and legal interest in, and the principal and income of, the trust and every part of it shall be free from the interference or control of any creditor of any Beneficiary of the trust and shall not be subject to the claims of any such creditor nor liable to attachment, execution, bankruptcy, or any other process of law. advancedlegaltraininginstitute.com Slide 24

SECTION 2 Spendthrift Clause (Continued) Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Trust Provisions: SECTION 2 Spendthrift Clause (Continued) The income and principal of the trust shall be paid over to the Beneficiary in person, or in the event of the minority or incompetency of the Beneficiary, to any guardian of the person of that Beneficiary, or to or for the benefit of the Beneficiary, in such manner as in the Trustee's discretion seems most advisable at the time and in the manner provided by the terms of the trust, and not upon any written or oral order nor upon any assignment or transfer by the Beneficiary nor by operation of law. If the creditor of any Beneficiary who is entitled to any distributions from a Trust established under this instrument attempts by any means to subject to the satisfaction of his or her claim that Beneficiary's interest in any distribution, then, notwithstanding any other provision in this instrument, until the release of the writ of attachment or garnishment or other process, the distribution set aside for such beneficiary shall be disposed of as follows: advancedlegaltraininginstitute.com Slide 25

SECTION 2 Spendthrift Clause (continued) Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities” Trust Provisions: SECTION 2 Spendthrift Clause (continued) 1) The Trustee, in the Trustee’s sole and absolute discretion, may pay to or apply for the benefit of the Beneficiary all sums the Trustee determines to be necessary for the reasonable health, education (including study at an institution of higher learning or vocational school), support or maintenance of the Beneficiary according to his or her accustomed mode of life; and 2) The portion of any distribution that the Trustee determines to exceed the amount necessary for health, education (including study at an institution of higher learning or vocation school), support or maintenance shall be delayed until one month after the release of the writ of attachment or garnishment or other process.   www.advancedlegaltraininginstitute.com Slide 26

Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities” Summary & Conclusion Top three tasks for you to consider – call to action… Q&A www.advancedlegaltraininginstitute.com Slide 27

Questions & Answers ”Asset Protection in California: Pitfalls & Opportunities” Feedback? Questions? Comments? Please post your question(s) now by typing each question into the box on the right side of your screen. www.advancedlegaltraininginstitute.com © Copyright 2006-2014

www.advancedlegaltraininginstitute.com © Copyright 2006-2014 Thank You for Attending Our Webinar Today! “Asset Protection in California: Pitfalls & Opportunities” Advanced Legal Training Institute offers Customized Onsite Legal Seminars & Training (MCLE)  Legal Consulting & Coaching, Speaking  & Client Support Services 
www.advancedlegaltraininginstitute.com © Copyright 2006-2014

For more information about our products and services, please visit our website: www.advancedlegaltraininginstitute.com