Taxes, Estate Planning, and Asset Protection

To accumulate wealth, you must do more than invest well. You also must protect yourself (and your estate) against losses stemming from poor tax planning, vulnerability to lawsuits, property forfeiture laws, and probate. In the U.S., the first income tax was imposed from 1862 to 1870, to pay for the expenses of the Civil War. In 1894 another income tax was imposed, but was declared unconstitutional in 1895. After the Sixteenth Amendment was ratifies in 1913, income taxes were here to stay, and legal tax avoidance eventually becomes a concern of Americans of virtually all incomes. Tax avoidance techniques, or devices include tax havens, tax shelters, tax exempt bonds, life insurance, tax deferred annuities, retirement savings accounts, taxdeferred growth stocks, trusts, corporation, and transferring income to lowerbracket family members. Legal tax avoidance becomes illegal tax evasion if the taxpayer a (goes beyond the bounds of the law, and b) does so with the intent to evade taxes. While you are alive, other important threats to your assets include lawsuits (which increasingly make wealth vulnerable to aggressive litigants), and U.S. forfeiture laws (which can make property vulnerable to government agencies, even if you are not charged with a crime). Asset protection essentially involves planning the manner in which you hold title to assets, and in which you structure your business affairs. Asset protection typically is an adjunct to estate planning, a complicated matter usually requiring the advice of an attorney an/or professional estate planner. Probate, the legal process for settling an estate, can be very expensive; the techniques for avoiding probate include revocable living trusts; Joint Tenancy with Rights of Survivorship (JWTROS); payableondeath accounts (a.k.a. Totten Trusts); naming a beneficiary on pensions and retirement accounts; giving away property while still alive; life insurance planning; and others.