Protecting Your Nest Egg from the Vultures?

[Martha]

The people with plans sold nationwide by large well known legal and accounting firms thought the same thing and many are now broke because years later the IRS determined they owed more than they paid. My point was, frequently there is no way to escape the IRS, even if you do pay what you legally owe.

I don't have a lot of sympathy for the abusive tax shelter buyers. They violate the don't be piggy rule. Sometimes people are too clever for their own good.

I do think the lawyers that wrote canned opinions regarding iffy tax shelters should be disciplined.

From the IRS site discussing various types of abusive tax shelters: http://www.irs.gov/compliance/enforcement/article/0,,id=105822,00.html

 

[Dreamer]

I am very sorry for the loss of your child also.

Dreamer

 

[Free_at_49]

Suppose you invest your money in another country like Germany, France or Canada. Doesn't that put it out of reach of US based predators? US corporations operating internationally do this all the time, why not small investors?

 

[farmerEd]

>>It's all part of being associated with a 'free' country.

No kidding, the USA is one of the few countries that feel they *own* you no matter where you live. Friend of mine moved to Europe 20 years ago, married a german, has a house, business and kids in germany...comes back to visit once in a while as a tourist....and yet he STILL needs to file a 1040 every year. Land of the free?

 

[Free_at_49]

Having earned my early retirement, I'm at the stage where I want to enjoy life. I want to spend a few years in southern France, Italy and the Greek islands. I want to return home to Canada where my friends are, and where healthcare is better.  That means having the freedom to take my person and my money anywhere I please.

I'm NOT talking about tax evasion. I've always paid my taxes, and as a Canadian citizen I'm willing to file tax returns in both countries and receive appropriate credits under the existing tax treaties.

The original post was about predators. I'm talking about car accidents, and other predatory litigation. I grew up in Canada and have lived in Western Europe for 10+ years, so I'm well aware that the US is a Corporate Police State, and that freedoms and privacy taken for granted in more advanced countries does not exist here. Most of us understand that the US Congress is for sale to corporations and other special interests, and therefore does not protect its citizens against abuse.

I truly believe that under the rule of law, plaintiffs should be able to collect damages on rightful claims, but that would be impossible if people could easily put their assets out of reach. However, if it is MY money, I must be free to take it anywhere I want without being penalized. If I am free, I want the option to live and invest in any country of my choice without being persecuted by the US government or other domestic parasites.

I suppose one could renounce US citizenship, remove all assets and never come back again, but I know that there are "laws" against that too. There's a lot of info on the web on offshore trusts, but it all seems to be for those seeking to escape taxes, court judgements, pending divorce, etc. Even my lawyer doesn't want to touch estate planning that includes foreign assets!  What does that tell you?

I've moved internationally several times, and I had no problem taking my money with me legally. But my assets are more substantial now, I own a house by the beach and IRAs that cannot be liquidated without serious tax consequences, thus I am a very good target for predatory litigation, not to mention paternity suits . I've been planning to diversify away from dollar-denominated assets. Any ideas on how a law-abiding citizen can do that?

 

[Nords]

... and that freedoms and privacy taken for granted in more advanced countries does not exist here.

Any specific examples? I'm not planning on moving anytime soon, but I'm curious.

 

[Free_at_49]

Any specific examples?  I'm not planning on moving anytime soon, but I'm curious.

Examples too many to mention here. Here's one of the top:

In Canada and in EU countries, your Social Security Number is used only for communicating with the government on matters of taxation and old age pensions. It is illegal for anyone to ask for, or to use your SS# for any other purpose.

In America, SS numbers are used for just about everything. Your tax records, healthcare records, credit info, spending habits, etc., everything is in databases under your SS#. It is public information and it is for sale to anyone. Privacy is non-existent, because Congress allows it.

 

[justin]

My understanding of law has always been that unless something is prohibited, it is allowed. If it is not prohibited to send money to an offshore trust to save on taxes then people shouldn't be fined or imprisioned for doing such. If offshore trusts are such a problem, then Congress needs to make laws prohibiting that specific activity.

The Internal Revenue Code makes all income subject to tax, unless it is excluded somewhere in the Code.

Section 61 of the Internal Revenue Code states in part that "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived...".

This means income from offshore trusts, unless it is excluded from taxation, are subject to taxation.

 

[Martha]

Martha,
Being a 'piggy' shouldn't really enter into the equation.

My understanding of law has always been that unless something is prohibited, it is allowed. If it is not prohibited to send money to an offshore trust to save on taxes then people shouldn't be fined or imprisioned for doing such. If offshore trusts are such a problem, then Congress needs to make laws prohibiting that specific activity.

Justin hit the nail on the head--the rule is just the opposite, you pay tax on the income unless exempt from tax under the IRC. Certainly some tax avoidance is specifically allowed. Depreciation, 401(k) contributions, etc. Designing overly clever schemes for the purpose of avoiding tax is putting yourself at risk of a claim.

 

[justin]

Justin hit the nail on the head--the rule is just the opposite, you pay tax on the income unless exempt from tax under the IRC. Certainly some tax avoidance is specifically allowed. Depreciation, 401(k) contributions, etc. Designing overly clever schemes for the purpose of avoiding tax is putting yourself at risk of a claim.

I think from a risk-reward perspective, taking aggressive but defensible tax positions can have a positive outcome. If I recall correctly, the penalty for negligent underpayment of taxes is the tax you owe for underpayment, plus 20% of the underpayment as a penalty, plus interest. If you assume a 2-3% chance of getting audited and a potential risk of paying 30-40% of your underpayment as a penalty, you will come out ahead most of the time. Additionally, you may win your negotations with the IRS without going to trial and incurring lots of expenses. Otherwise, just pay what you owe plus penalties.

Just don't commit tax fraud. You don't want to ER to jail... You have to have some reasonable basis for your tax position. If, after the fact it is determined you negligently underreported your taxes, you pay up usually.

Food for thought. I don't usually take that many "aggressive positions". Jail scares me

 

[Patrick]

. . . I am a very good target for predatory litigation, not to mention paternity suits .

Preemptive strike: vasectomy. 

 

[bosco]

Examples too many to mention here. Here's one of the top:

In Canada and in EU countries, your Social Security Number is used only for communicating with the government on matters of taxation and old age pensions. It is illegal for anyone to ask for, or to use your SS# for any other purpose.

Although I agree that privacy is better protected in Canada than the US, I think you are wrong about "Social Security Number" (I assume you mean social insurance number)

It seems to be required by phone, electric, and oil companies to set up any sort of account.

I was aware that US citizens are required to file US tax returns even when living in Canada, and tha the US is one of a very few countries to expect this. I was not, however, aware that the IRS required so much information about accounts in other countries.

I wonder if they require it about RRSP accounts.

 

[Finance Dave]

The umbrella policy is a good idea. I have lower liability (state minimum only) on my cars and other toys but I carry an umbrella policy to cover the liability on all of the stuff in one policy. I can have higher limits and it costs less.

Just don't let anyone know you have it or they might try to sue you to get their hands on it.

My insurance carrier required that I increase my auto limits before they'd let me have an umbrella. I'm in Indiana and have Prudential.

 

[kumquat]

Any specific examples? I'm not planning on moving anytime soon, but I'm curious.

I'm a Canadian citizen, always lived in Canada but while [-]chasing the filthy $$ required for ER[/-] w*rking made occasional business trips to US, now occasional sun-bird trips. While rewriting my will, lawyer asked about assets. I admitted to a 6-digit holding in VTI among others. His advice was to restructure US holdings as after $60K of US holdings in a brokerage account the IRS would consider they have the right to collect estate tax on ALL my holdings worldwide.

How about:
No taxation without representation.

 

[kumquat]

Any specific examples? I'm not planning on moving anytime soon, but I'm curious.

There are others that don't invole civil litigation or taxation. While I'm not about to start a thread, I'll contribute if someone gets it going.

 

[OAG]

My insurance carrier required that I increase my auto limits before they'd let me have an umbrella. I'm in Indiana and have Prudential.

The same here (USAA). When living in FL I took out a Umbrella policy and they required the Liability of the Home and Auto Policies be increased to, I think, $500K each before issuing the UP.

 

[Da Nag]

Nearly all 401(k)s have complete protection from creditors under ERISA, no matter how much money is in the plan.

Hmm...a rank amateur here, but this raises a question of great interest to me.

I'm fairly certain most, if not all of our ER income will be well protected. 401k, 401a, 457b and our pensions are pretty much untouchable in Washington State, from the little research I've done on the subject. Needless to say, this gives me significant warm fuzzies.

However, there seems to be some consensus that rolling over some/all of these plans to IRAs can make financial sense. And in our case, this would be required if we set up 72T withdrawals...an option I'd like to see remain on the table.

So, the above is the long-winded way of asking the following - do IRA rollovers jeopardize any protections I'd have otherwise?

 

[two4theroad]

USAA Umbrella policy

My question is this: If I purchase an Umbrella policy for $1m to protect my assets, what keeps the vultures from suing for $2m to get my insurance co. to pay $1m and me to pay the other $1m from my hard earned retirement money?

Also as an aside,
I have been getting quotes for an umbrella policy and use USAA for my auto coverage. Their quote was exactly the same as my homeowners policy quote for all coverage options.
They both require $500,000 min liability on house and cars and $250,000 on boat. They are both quoting from the same carrier Is this normal?

 

[FinanceDude]

I am with those who suggest the umbrella policy on top of your regular liability policy.

We have had several threads discussing whether having your assets in an "asset protection trust" or a "family limited partnership" is a good idea. I have said that they are not bullet proof ways to protect assets from creditors, but at least do put one more barrier between your assets and potential claims. It is something to think about anyway.

Knowing what assets are exempt from creditors in your state of residence is also helpful as you can maximize those exemptions.

When I was a bankruptcy trustee I saw over the years people file bankruptcy due to personal injury claims against them arising out of car accidents. Most of the time the claims were pretty small. The problem generally was that the debtor had no insurance or the bare minimum. Oddly, more often it was the debtor who had a personal injury claim against someone else and as a result of getting hurt, couldn't pay their bills. Sometimes I had to follow up on these claims. Generally I ended up settling with insurance companies.

Martha......... NICE AVATAR!! I don't need any explanation.........

 

[Martha]

So, the above is the long-winded way of asking the following - do IRA rollovers jeopardize any protections I'd have otherwise?

If you file bankruptcy, the rollover IRA is fully protected if the money came from a 401k, or 457b. I am not absolutely sure about the 401a, I haven't looked it up.

If you don't file bankruptcy, then the protection of the rollover IRA is governed by state law. Some states provide full protection, many limit protection to the amount reasonably necessary for your and your dependents support, other states place a dollar limit on the amount protected. There might even be a few states that give no protection.

So, if things get bad and you have a big rollover IRA you might end up filing bankruptcy to protect it from creditors.

 

[pedorrero]

Lively thread.... For those interested, I'd recommend a few layman's guides. I have the PC (Cd-rom) version of Made E-Z "Asset Protection" which covers much of what's gone before in this thread. I was concerned at the time (because I was considering marriage, a risk to one's assets all its own.) I'm pretty low risk -- retired, not an OB-GYN, don't drink and drive ("any more"). Most of "my" income comes from a family trust (not my choosing!).

Some things I didn't see mentioned, by the way:
Trusts -- many flavors, must be done right or you're screwed.

Retirement Assets -- mentioned, but protection can vary enormously by State. Sometimes as simple as buying the otherwise-disreputable variable annuity.

Homestead (your home) is all but untouchable in many States -- also varies enormously.

Florida has many of these attributes, perhaps due to [-]the large number of old farts here in God's Waiting Room[/-] its popularity as a retirement haven.

Pay your taxes, and don't buy investment land that turns out to be a Superfund site, and you should do acceptably.

Finally, please consult with a legal or financial professional before committing to a change. Asset protection, or even plain estate planning, is really one place where trying to do it yourself can really *&$# things up.

 

[MJ]

How would you get an umbrella policy when you don't own a home or car to insure?

MJ

 

[wolfbay]

offshore account

I'm recently retired but years ago set up a family limited partnership and an offshore account because I'm so paranoid of lawyers{if they really are out to get you maybe it's not paranoia]I've never been sued but it helped my peace of mind.From one of the posts it sounds like it can be pierced anyway. I'm glad I didn't know that before.Ignorance is bliss.

 

[Spanky]

... I'm so paranoid of lawyers{if they really are out to get you maybe it's not paranoia]I've never been sued but it helped my peace of mind.From one of the posts it sounds like it can be pierced anyway. I'm glad I didn't know that before.Ignorance is bliss.

Lawyers can be your friends also according to the profession: "Lawyers take a lot of heat from the general public. People sometimes see lawyers as evil or detrimental to society. However, most of the time this is only because people are judging lawyers based on a lack of knowledge of the legal system and all the work that goes into it. The truth is, when you are in a bind, a lawyer can be the best friend you have."

They claim that they have helped victims of Vioxx to achieving justice.

 

[audreyh1]

How would you get an umbrella policy when you don't own a home or car to insure?

MJ

I think you still can. They just require some minimums on home and car insurance - if you own them. Talk to your (or an) insurance company.

There is also renters insurance. Perhaps an umbrella policy can tie to that.

Audrey