In This Issue:• Drive Your Personal Estate Planning• Attend to Your Corporate Housekeeping• Super Lawyers Name Our Associates Rising Stars• Attorney at Law Magazine feature article

Volume 2, Issue 1 March 2013

Washington’s negotiations about 2013 tax laws are getting lots of press. As estate planning professionals, we are often asked about what the 2013 estate tax laws are and the resulting implications for our clients.

Don’t Let the Tax Tail Wag the Dog: Individual Concerns, Not the Estate Tax, Should Drive Estate Planning

The MendenFreiMan A Report on Legal Issues Affecting Privately Held Businesses and Personal Wealth

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The MendenFreiMan advisorpage 2

Estate Planning continued

But for the vast majority of Americans, what the estate and gift tax laws are in 2013 is irrelevant. Those who could make large gifts have probably done so in 2012, and the 2013 estate tax exemption is only relevant to those who have a 2013 death. Yes, it is important for us to be aware of the state of the tax law. We can keep our ear to the ground for warnings of change emanating from Washington; but nobody has a handle on what the law will be in 5, 10, 15 or 20 years!

What we all need to do is redirect these in-quiries to our real concerns: protecting our families and assets; preserving the family business; making sure our children are provided for, educated and motivated; see-ing that our loved ones have enforceable rights where the law may not grant them; and making sure our plans do not self-destruct for lack of proper maintenance. These are the enduring issues that drive es-tate planning, regardless of what the estate tax law may be at any given time. In this issue of The MendenFreiman Advisor, we will take another look at one of those concerns -- asset protection. With our increasingly litigious society, asset protec-tion planning has become more important and is often a key motivator for individu-als who need other estate planning, too.

what is asset protection planning?Asset protection planning is not hiding or concealing assets. Rather, it is helping you use existing laws appropriately to obtain the best level of protection for your assets against possible attack by creditors. The goal is to make planning decisions that are effective if and when needed because they have legitimate

non asset protection purposes and thus are defensible. The best and most effective time to implement asset protection planning is before a claim arises, when you are merely worried that someday there may be claims founded on possible events that have not yet happened. But even after a claim has been made, some op-portunities (such as making a contribu-tion to an ERISA qualified plan or doing a Roth conversion) may still be available to shield some assets.

types of individuals and asset risksAlmost every individual would benefit from some asset protection planning; but like most things in life, there is a cost to achieve the benefit. Asset protection planning is advanced planning and requires collaboration from a team of advisors, so there is often a complexity factor to this planning. It is important to recognize the types of individuals whose profile indicates they might benefit from asset protection planning. Here are a few of the main ones:

ProfessionalsIndividuals who should strongly con-sider asset protection planning are those most likely to be sued. At the top of the list are physicians, surgeons, dentists and other health care professionals. Running a close second are lawyers, architects and accountants. A third cat-egory is individuals involved with busi-ness enterprises that pertain to health care, such as skilled nursing facilities and assisted living facilities. Builders, developers and others in construction are also at risk. Those who have already gone through a lawsuit will be keen to avoid the fear of loss associated with another one.

Partners In a general partnership, each partner is liable for the negligent acts of every other partner and every employee. It is rare to encounter a general partner-ship of medical professionals, but much more common with lawyers and archi-tects. Plus, partnerships can come into existence without any paperwork as a business is started, and then the clean-up sometimes doesn’t get done as the business grows. Entrepreneurs and ExecutivesAttacks on entrepreneurs could come from business deals that have gone bad or tort claims. Management-level personnel are exposed to claims for al-leged improper employment practices, employment discrimination, or sexual harassment.

LandlordsIndividuals who own residential rental properties have often acquired them one by one, over time. Frequently, they are owned in the landlord’s name. Every residential property exposes its owner to premises liability claims, such as for injuries from fires and slip-and-fall accidents. Legal structures can be set up that isolate a particular property from risks associated with another property, thus separating the landlord from all the risks. The Wealthy The wealthy are exposed to more risk of lawsuits because they have the ability to pay, and juries are often sympathetic to the plaintiff when the defendant is rich. Also, they often have staff, multiple properties and multiple vehicles; and those impose claim risks, too.

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Lifestyle-Based CandidatesIndividuals who have had more than one spouse are statistically at higher risk of divorce than those in first mar-riages. Many a business has collapsed as a result of an ex-spouse claiming an ownership interest in the business. In addition, an individual’s child who engages in risky or antisocial behavior creates a risk of future unnecessary dissipation of a family’s wealth, often leaving the child destitute with no one to turn to when the parents are gone.

levels of asset protectionEvery asset protection plan is a unique creation designed to meet a particular individual’s needs, risks and concerns. Typically, an asset protection plan employs a combination of strategies. Because asset protection planning is a process that frequently takes months to fully implement (and because wisdom dictates building the foundation before starting on the roof), in general, asset protection planning should be imple-mented by levels, starting at the lowest. The lower rungs on the ladder do not get you very far off the ground, but they are dangerous to skip. Asset protection planning works the same way. For ex-ample, a typical planning level strategy for a highly compensated professional in a high-risk profession would be:

Level 1: Exemptions Level 2: Transmutation or Tenancy by the Entirety

Agreements Level 3: Professional Entity Formation (PA/PC/PLLC) Level 4: FLP/FLLC to Own and Lease Practice Assets Level 5: FLP/FLLC to Own Non-Practice Assets Level 6: Domestic (U.S.-Based) Asset Protection Trusts Level 7: Offshore Asset Protection Trusts

We discuss each of these seven levels in the complete article text that can be downloaded here:

Click here for complete article.

Corporations and LLCs are legal entities, separate and distinct from the people who create and own them (owners are called corporate shareholders or LLC members). One of the principal advan-tages of forming a corporation or an LLC is that because the corporation or LLC is considered a separate entity (unlike part-nerships and sole proprietorships), the owners and managers have limited per-sonal liability for the company’s debts. This means people who own and run the corporation or LLC cannot usually be held personally responsible for the debts of the business. But in certain situations, courts can ignore the limited liability status of a corporation or LLC and hold its officers, directors, and shareholders or members personally liable for its debts. When this happens, it is called “pierc-ing the corporate veil.” Once the veil is pierced, creditors can reach the personal assets of the business owner (including homes, bank accounts, investments and other assets) to satisfy the debts of the company. To avoid this situation, business owners need to do their corporate housekeeping. This includes the following:

1. Maintain the Corporate Formalities. Small businesses are less likely to ob-serve corporate formalities than larger companies, which makes them more vulnerable to a piercing of their corpo-rate veil. To avoid trouble, it’s best to play it safe. It’s important for small cor-porations and LLCs to comply with the rules governing formation and mainte-nance of a corporation, including:

• holding annual meetings of directors and shareholders or members;

• keeping accurate, detailed records (called “minutes”) of important decisions made at the meetings;

• adopting company bylaws (for the corporation) or operating rules (for an LLC); and

• making sure officers and agents abide by those bylaws or rules.

2. Avoid Commingling of Funds. Small business owners may be more likely than their larger counterparts to commingle their personal assets with those of the corporation or LLC. For instance, if the owner pays personal bills from the business checking account or ignores the legal formalities that a corporation or LLC must follow (for example, by making important corpo-rate or LLC decisions without recording them in minutes of a meeting), a court

We are pleased to announce that Georgia Super Lawyers has named our Associate Attorneys, Megan

L. Richards, Allison S. Cook, and Amanda H. Klier, as

2013 Rising Stars.

Attend to Your Corporate Housekeeping Don’t ignore the corporate formalities if you want to avoid creditors poking into your personal assets.

Business can be complicated. Life can be complicated. Simplifying the “complicated” is what makes MendenFreimanLLP distinctively different. Our attorneys have strong tax, accounting and financial backgrounds which create an opportunity to analyze each client situation from a number of points of view. We not only relish the opportunity to apply what we know to solving complex client problems, but to do that in a caring and supportive way. Services include Business Representation and Transactions, Mergers and Acquisitions, Estate Planning, Wills and Trusts, and Estate Administration.

Two Ravinia Drive, Suite 1200, Atlanta, GA 30346 www.mendenfreiman.comPhone: (770) 379-1450 | Fax: (770) 379-1455

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could decide that the owner isn’t entitled to the limited liability the corporate business structure would ordinarily provide. This is called “com-mingling of assets.” Corporations and LLC’s should maintain their own bank accounts, and the owners should never use the company account for personal use or deposit checks payable to the company in a personal account.

3. Properly Capitalize the Corporation and Avoid Financial Fraud.

The company should be capitalized in a sufficient manner to keep it running.

One of the factors courts look at to determine whether the limited liability protection of the corporation or LLC should apply is whether the business was “grossly undercapitalized.” In mak-ing this determination, courts will look at factors such as a corporation’s cash flow, debt-to-equity ratio and financing sources. If the owner(s) recklessly bor-rowed and lost money, made business deals knowing the business couldn’t pay the invoices, or otherwise acted recklessly or dishonestly, a court could find financial fraud was perpetrated and the limited liability protection shouldn’t apply. While these recommendations are not intended to be an exhaustive list of necessary actions to avoid “piercing the corporate veil,” they do provide a summary of actions that can be taken in order to protect a business owner’s personal assets. If the corporate or LLC culture heeds these housekeeping details, the owners will go a long way toward keeping creditors out of their personal pockets. However, if owners ignore corporate formalities, creditors will too. If you have any questions regarding corporate and/or limited liability for-malities or need help maintaining your annual minutes, please contact us.

MendenFreiMan llp 2013

Read our profile in Attorney at Law Magazine MendenFreiman named Law Firm Of The Month

You can view the article online by going to: AAL magazine article.