1. Risk Management & Asset Protection Mark Jansen JD, CPA, CLU, ChFC Advanced Planning Consultant NEW YORK LIFE INSURANCE COMPANY 470596 CV exp 3.2.14

2. Disclaimer This seminar is for informational purposes only. Neither New York Life Insurance Company nor its employees are in the business of providing tax, legal or accounting advice, and none is intended nor should be inferred from the foregoing comments and observations. Everyone is advised to seek the counsel of their own tax, accounting and legal advisors who must form their own opinions on these matters based upon their independent knowledge and research. This seminar contains examples that are hypothetical and intended for illustrative purposes only and is not indicative of the actual performance of any particular product. This material includes a discussion of one or more tax-related topics. This tax-related discussion was prepared to assist in the promotion or marketing of the transactions or matters addressed in this material. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding any IRS penalties that may be imposed upon the taxpayer.

3. Why Risk Management & Asset Protection? Experience a Great Teacher Motivates Implementation of Holistic Planning Planning Incomplete Without It The Fact Finder

4. Before We Move On, A Quick Quiz Do you check the status of your portfolios regularly? Do you watch CNBC, CSPAN or CNN? Do you follow Bernanke’s announcements? Do you follow the value of the dollar, oil or other commodities?

5. Why?

6. Beware the Popular Press Books, newspapers, websites, magazines, & talk shows generally target the average person If you are not the average person, then you must be very careful not to take bad advice Affluent individuals are not average people!

7. The Right Advice is NOT Common Advice Affluent individuals are different! They require special attention! They don’t buy their planning “Off the Rack!”

8. Why You Need Asset Protection Traditional “Risk Management” Only Goes So Far – Business Liability Verdicts Often Exceed $3,000,000 – Coverage Becoming More Difficult Your greatest potential economic risk: Probably Divorce Protect Your Business Assets Protect Your Personal Assets Do you have $5 million of liability insurance? Shield Yourself From The Legal Lottery!

9. What Asset Protection Is Not About Hiding or Concealing – Use the existing laws to protect yourself Objectives – High degree of certainty – Maintain control – Discourage lawsuits from the outset Avoid Liability “Traps” – General Partnerships & Joint Ownerships Possible “Non-solutions” – Inter-spousal Transfers – Alaskan Trusts & Domestic Asset Protection Trusts (DAPT)

10. Asset Protection As a “Sliding Scale” Ultimate Shields (+4/+5) Basic Shields (+1/+3) CorporationsMulti- member Domestic LLC/LPs Irrevocable Domestic Trusts State & Federal Exemptions Offshore Entities & CICs No Shield (-5/-1) Joint Owners Own Name Debt Shield

11. PART I: Statutory Asset Protection Pensions & IRAs – ERISA Plans Protected if Structured Properly – IRA Protection Varies State to State Homestead Laws (Texas & Florida are best) Life Insurance CSV & Annuities by State Captive Insurance Companies (“CICs”)

12. Why Own a Small Insurance Company? Deduct premiums for risks you are already covering without deduction – Could be worth 40% in CA & NY – Worth no less than 35% in all other states for highest earners The CIC’s reserves are asset-protected Reserves not ultimately used to pay claims are distributed as dividends to the owners – Taxed at dividend rate of15% (or cap gain rate of 15%)

13. PART II: BUSINESS PROTECTION Statutory Protections – ERISA Qualified Plans – Captive Insurance if Suitable Multiple Entities Strategy Income Stream Protection

14. How NOT to Structure Business All Owners All Employees All Lawsuits Accounts Receivable Real Estate Equipment Corporation Business Owner – Maximum Vulnerability

15. Don’t Put Eggs in One Basket! Multiple Entity Approach Segregation Techniques – by Business Function – by Location – Asset Based Segregation for Real – Estate, Valuable Equipment, IP, A/R’s

16. Limited Partnerships & LLCs are Key Limited Liability Companies (LLC) & Limited Partnerships (LP) Protect Assets from Lawsuits Recommended for Real Estate Portfolio May Use for “Large” Investment Accounts Offer Estate Planning Benefits

17. FLP* or FLLC* What Is A “Charging Order?” Doesn’t become partner (RULPA sec 27) Can’t touch Assets Gets no FLP voting rights Can’t force FLP distributions CREDITOR Charging Order Your A$$ET$ Creditor gets the K-1 (Rev. Ruling 77-137) on phantom income * Family Limited Partnership (FLP) * Family Limited Liability Corporation (FLLC)

18. How to Use LLC’s for Business Assets *Assets are protected and there is a capacity for income sharing with family members and/or estate planning with gifts of LLC interests Operating Business Operating Business LLC Real Estate Transfers assets from Business to LLC Lease Assets back to Business

19. Protecting Equipment or IP License *Could reduce taxes through “bracket-borrowing” Operating Business Operating Business Equipment/IP LLC Business Owner & Family Pays Rent

20. Riskiest, Overlooked Asset Receivables & Revenue Stream – Cash within 60-120 days – Possibly the ONLY business asset – Most likely to be attached/taken in suit – Least commonly protected – Every partner’s actions threaten YOUR salary for the next 2 – 4 months – Will cover in tax deductible asset protection

21. Business as Financial Fortress R/E, IP, Equipment Leasing Administration or Factoring Company Administration or Factoring Company A/Rs or Revenues A/Rs or Revenues Operating Business Operating Business Max Qualified Plan Max Qualified Plan Real Estate LLC Equipment/IP

22. Segregate Multiple Operations Business #1 (Corp/LLC, etc) Business #1 (Corp/LLC, etc) Business #2 (Corp/LLC, etc) Business #2 (Corp/LLC, etc) Business #3 (Corp/LLC, etc) Business #3 (Corp/LLC, etc) Equipment or Building LLC Equipment or Building LLC Equipment or Building LLC Equipment or Building LLC Equipment or Building LLC Equipment or Building LLC

23. PART III: How To Protect Your Personal Assets Statutory Protection – IRAs, Homestead, Life Insurance, Annuities (by State Statute) “Inside” Creditors – Isolates their lawsuit damage only to FLP/ LLC property “Outside” Creditors – Usually cannot reach principal LLC/FLP assets – Creditors may be limited to “charging order” relief against the FLP interest (RULPA Sec. 703)

24. How to Use LLC’s for Personal Assets LLC/LP #1 LLC/LP #2 LLC/LP #3 Brokerage Accounts Brokerage Accounts Real Estate Real Estate or Rec. Vehicles Real Estate or Rec. Vehicles

25. Improving LLC & FLP Protection Non-spouse Partners Non-family Partners True Capitalization Non-asset Protection Purpose FORMALITIES No Fraudulent Conveyances

26. Protecting Your Home Not in LLC/FLP – Mortgage call may be triggered – Capital gains exemption compromised QPRT is tough sell – Giving it away to later pay rent Debt Shield is best – Limit downside, improve cash flow, upside potential

27. The Debt Shield Bank Loan $ Client Secured Interest Home, real estate, etc. Interest $ LLC/FLP Investment

28. Equity In Real Estate – A Creditor’s Delight  Immediately available to satisfy judgment  Lien can be filed easily:  Debt shield Insulate Equity Possible Tax Arbitrage May Increase Savings $$$$$$$$ Equity

29. PART IV: Estate Planning & Creditor Protection Living Trusts – Decedent’s half (B-C) Irrevocable at 1st Death & protected – Most living trusts distribute assets to heirs upon the heir attaining certain ages (for example: a third at age 30, half of what’s left at 35, balance at 40) – This is inefficient for the purpose of protecting heirs from potential divorcing spouses or judgment creditors – It is also inefficient for the purpose of protecting assets from estate taxation for future generations

30. Irrevocable Trusts – Qualified Personal Residence Trust (QPRT) Low Asset Value/Higher Interest Rates – Intentional Defective Irrevocable Trust (IDIT) & Grantor Retained Annuity Trusts (GRAT) Low Asset Value/Lower Interest Rates Caveat: “Zeroed Out” GRATS – Irrevocable Life Insurance Trust (ILIT) Protects Death Benefit from Creditors

31. FLPs /LLCs Are Your Bridge to Estate Planning In addition to asset protection, FLPs & LLCs form the basis of many estate tax reduction plans Easy to Gift Fractional Interests Valuation Discounts!!

32. The Comprehensive Asset Protection Plan Business – Revenue Protection – LLC/LP for Real Estate, Equipment, I/P – Qualified Plan Personal: – Exempt assets for investments – Homestead Exemption & Debt Shield for Residence – LLCs/FLPs 2d Home, Investment Real Estate, Portfolio – Living Trusts, ILITS, GRATS, QPRTS, etc.

33. Typical Client Plan Lawsuit Protection – Revenue Protection – LLCs for business asset – Statutory Exemptions (Retirement Plans, Life, & Annuities) – LLCs or LPs for personal investments Tax Strategies – Maximum Retirement Planning – Life Insurance Planning Estate Analysis – Review of Life Insurance, Wills, Trusts – LLC/FLP, other estate reduction strategies if high net worth

34. Next Steps – Contact Contact your local New York Life agent

35. Any Questions?