旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � PROTECTING YOUR ASSets FROM CREDITORS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� @Q "Never invest in anything except your own business. @Q Otherwise, always keep all your money hidden under @Q your mattress, where only the government can steal @Q it." -- Jenkins' Fourth Law of Business Survival Starting a new business is almost always a highly risky proposition, and you should not overlook the grim fact that, if the business fails, you may be forced into bank- ruptcy and could lose everything except what the bankruptcy laws allow you to keep. This is one reason why many small businesses incorporate at the outset, since a corporation will generally limit your liability to business creditors to the amount you invest in the corporation, plus any loans you make to the corporation or any loans to the corporation from banks or other lenders, which you have agreed to guarantee. @IF120xx]NOTE re @NAME (a @ENTITY): @IF120xx]----------------------------------------------------------- @IF120xx]Accordingly, if you do incorporate, be very cautious before @IF121xx]PLANNING NOTE FOR YOUR CORPORATION: @IF121xx]----------------------------------------------------------- @IF121xx]@NAME is a corporation -- as a result, @IF121xx]we suggest that you exercise a great deal of caution before unnecessarily committing too much of your personal net worth to the business. For example, instead of putting a building or piece of land you own into the corporation, it may be bet- ter (and may save income taxes and, in some states, property taxes) for you to keep the property in your name and instead lease it to the corporation. ----------------------------------------------------------- @CODE: CA (As an example, in California, transferring real estate to a corporation will usually be an event that will trigger a re- assessment of the property for property tax purposes under Proposition 13. If the Prop 13 value before the transfer was very low compared to its actual value, such a transfer could result in a major increase in property taxes, since Prop 13 allows the local taxing authorities to reassess real estate at current value whenever there is a "change of own- ership," such as a transfer to a corporation.) @CODE:OF @CODE: AZ CO DE FL IL IA KS LA MD MN NV OK RI TX UT VA WV WY An alternative to incorporating, in a growing number of states, is to organize your business (if there are 2 or more owners) as a "limited liability company," which is a business entity similar to a partnership, but which pro- vides its owners limited liability, generally to the same extent as a corporation. One of the states that has enac- ted such an "LLC" law is @STATE. @CODE:OF PLANNING NOTE FOR @NAME: ------------------------------------------------------------ @IF120xx]Be aware that, even if you incorporate, the leases or bank @IF121xx]Be aware that although you are incorporated, leases or bank loans that you may have to guarantee on behalf of the cor- poration could still wipe out your personal savings if the business "bellies up," and you have to make good on the guarantees to the landlord or the bank. ------------------------------------------------------------ Thus, it often makes sense to have your corporation set up a tax-qualified pension or profit sharing plan and to have it contribute as much as possible to the plan on your be- half. Not only does this provide substantial tax savings and deferral, but federal law (and in many cases, state law as well) will protect your account under such a plan from your creditors or the corporation's creditors -- except, of course, from your spouse in a divorce, or, in some instan- ces, from the IRS, if you owe money to the Infernal Revenue Service. Then if, over a period of years, you are able to build up a significant retirement fund in your company's pension or profit sharing plan, you can rest reasonably assured that the failure of the business or a disastrous lawsuit will not touch that nest egg, with regard to most types of creditors. If you are going into a particularly risky kind of busi- ness, and "betting the ranch" on it, it may be a very good idea to spend a few hundred dollars up front, consulting a bankruptcy lawyer, who can outline to you what types of assets you will be able retain if the worst case scenario unfolds, and you do have to file for bankruptcy. Most states provide that varying amounts of assets, such as a certain amount of equity in your home, a car of a certain value, life insurance or annuity policies, tools of your trade, and sometimes a number of other specified assets, may be retained by you if you go through bankruptcy. You will want to know up front what your state's laws are on such matters so you can structure your affairs so that you take full advantage of any such bankruptcy "loopholes" if worse comes to worst. Also, if you don't wait until things are already looking shaky, you may often be able to protect yourself from creditors by putting a large part of your personal assets in your spouse's name, as a gift (if you have a strong marriage and feel you can trust your spouse not to take the money and run off with the local tennis pro). A good bankruptcy attorney can also counsel you on whether such a spousal transfer can be made workable (i.e., non-fraudulent) -- if you are a trusting soul. Aside from the risks of owning a business, many people are also becoming increasingly concerned about protecting their savings from the long-term debasement of the value of the U.S. currency, thanks to periodic bouts of inflation, and the "twin towers": a towering, ever-growing federal budget deficit and a massive trade deficit, which have, in recent years, led to a major decline in the value of the U.S. dol- lar vs. the currencies of most other important industrial- ized countries, such as Japan, Germany, Switzerland and other major European countries. OFFICIAL inflation rates are relatively low as of this wri- ting, spring, 1993. (But do you know of anything, other than your income, that has been going up in price by only 3% or so in recent years? Like taxes, or government spen- ding?) The Federal Reserve pumped record amounts of new money into the financial system, trying to revive a sick economy, prior to the 1992 elections. In order to get the money supply to grow at something close to its targeted rate, the Fed has been force-feeding reserves into the monetary system like a French farmer feeding a goose for pate', increasing reserves at an annual rate of over 30% in recent months, according to some monetary analysts. If past history is any guide, this massive pump-priming may help to stimulate the economy in the short run, but in 18 to 24 months down the road, there is a very good proba- bility that it will reignite the fires of inflation. Just when we thought we had finally put a stake through the heart of the inflation virus, it may come back to bite us, and not necessarily in the neck. If the deteriorating financial condition of the U.S. and the "American peso" concerns you, you may want to protect yourself from future restrictions the government may place on investing in foreign currencies or on investing your funds abroad, while at the same time investing in a rela- tively safe and stable foreign currency. One good way to do this may be to put some of your long-term savings in a Swiss bank, perhaps denominated in Swiss francs (or in an- other strong currency, such as the Dutch guilder, Japanese yen, or the German mark). Both Switzerland and Germany, in particular, have had a fanatical determination for many years to keep inflation as low as humanly possible, even at the cost of economic growth, and it doesn't seem likely that they will change those deeply-ingrained habits any time soon and start printing money like Argentina or Russia -- or our own Federal Reserve. Some financial advisers feel that the major Swiss banks are also much safer places to deposit money than U.S. banks, since Swiss banks generally maintain much larger financial reserves and are operated much more conservatively than banks in this country. This is not to say, of course, that Swiss banks don't occasionally go broke; or that the FDIC won't pay off the first $100,000 of your deposits if your money is in a U.S. bank, like they have -- so far -- in the case of the failures of hundreds of American banks. But some of the larger Swiss banks, such as Union Bank of Switzerland, are extremely well capitalized and conserva- tively run, and are likely to weather any but the most se- vere global depression. Which is more than you can say about most U.S. banks -- even if you believe the increas- ingly bankrupt federal government will continue to bail out the equally bankrupt FDIC year after year, to cover the gambling losses of the U.S. banking industry (on Third World loans, oil patch loans, bad real estate loans, LBO financing, etc. -- or the latest "easy money" games the banks are now playing: massive, speculative "interest rate swaps", and borrowing short-term to "invest" long-term in government bonds and notes). In addition, Swiss banks offer considerable advantages if you wish to invest in gold or silver bullion or gold coins, since their charges for executing transactions and storing precious metals for you are often only a fraction of what American banks and precious metals dealers charge for the same services. It is also quite easy to open a Swiss bank account in a foreign currency, such as the Swiss franc or Deutschemark. Opening a Swiss bank account is quite simple (although many Swiss banks will not open a new account for amounts for less than $500). The major Swiss banks are very interna- tional in orientation, and the big ones, like Union Bank of Switzerland, Swiss Credit Bank and Swiss Bank Corporation, will all correspond with you in English and provide bank statements in English. However, the days of total bank secrecy and numbered Swiss accounts are pretty much over, so if you are looking to do something illegal and squirrel the money away in a secret foreign bank ac- count, you had better find another country, since Switzer- land is no longer the refuge for "dirty" money it once was. To open a Swiss account by mail, simply do the following: . Write to one of the major Swiss banks mentioned above (you can contact one of their U.S. branches in New York, Los Angeles, San Francisco, or other major U.S. banking centers, to obtain the address of their Zurich headquarters). . Enclose a check in U.S. funds for at least $500, and tell them what kind of currency you want your account to be denominated in. . Specify the type of account you want to open -- a "current" account (like a U.S. checking account -- it pays no interest, but has no withdrawal restrictions) or a "deposit" account (like a savings account in a U.S. bank -- usually requires six months notice to with- draw more than a few thousand francs). (Deposit ac- counts at U.B.S. are paying 5% at present, in 1992 -- which is better than a lot of U.S. savings accounts, and is in a stable currency, to boot.) . You should at the same time request information re- garding the bank's withdrawal restrictions and inter- est rates for different kinds of accounts, and a des- cription of their services and fees in connection with purchasing and storing precious metals and coins, if that interests you. The Swiss address for Union Bank of Switzerland is: Schweizerische BankGesellschaft (Union Bank of Switzerland) Bahnhofstr꼜se 45 8021 Zuerich Switzerland Note that Switzerland imposes a substantial withholding tax on interest credited to your Swiss bank account. However, you can apply for an annual refund of all but 5% of that tax under the U.S.-Swiss Income Tax Treaty, and that small tax can be taken as a credit on your U.S. income tax re- turn, on Form 1116. When you open an interest-bearing Swiss account, ask the bank to send you a Form R-82, which is a relatively simple form (all in English) you can com- plete and mail to the Swiss tax authorities for a refund of the most of the withholding tax. Remember also that you must report the existence of any foreign financial account on your U.S. income tax return and file Form TD F 90-22.1 with the Department of the Treasury by June 30 of each year if you had foreign ac- counts the prior year with a value of over $10,000 in to- tal. Also, Schedule B of your Form 1040 requires you to answer "YES" or "NO" to the question of whether or not you had any foreign account(s) during the preceding tax year. Finally, note also that you will have to keep track of the "cost" of all the Swiss francs or other foreign currencies you purchase (or receive as interest payments). Our tax law treats all foreign currencies like commodities, so if you buy francs, guilders, yen or Deutschemarks, you will have a gain or loss on your "investment" when you sell them or convert them back into U.S. currency. 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � Swiss bank accounts are not just for shadowy � � underworld types; nor are they are for every- � � one. However, if you like to hedge your bets � � a little, it may help you to sleep somewhat � � better at night while your government is run- � � ning the printing presses overtime, printing � � dollars at a record rate, if you know that at � � least part of your savings are in a relatively� � safe currency; thus, you may want to consider � � putting some portion of your investment funds � � into a Swiss account, in a sound currency. � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴�