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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 ratified 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,
tax-deferred growth stocks, trusts, corporation, and transferring
income to lower-bracket 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); payable-on-death
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.
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