Providing Asset Protection From Creditors

Bruce A. HershHarris-Hersh Financial Services

Disclaimer

The information provided in this presentation is not intended for use with the general public or as a full explanation of Harris-Hersh Financial Services Ltd. and its subsidiaries’ (“H-H”) creditor protection program. Any expression of opinion contained herein is that solely of H-H. No person shall be deemed to represent H-H without express, written authorization from H-H. This presentation should not be relied upon by any person in making any decision related to the purchase of any life insurance policy. H-H cannot provide tax or estate planning advice. Interested clients should consult their independent legal, tax and financial advisers prior to entering into any transaction. H-H makes no representations or warranties, express or implied, by any of the above statements. All transactions are subject to H-H’s approval, in its sole discretion. The potential benefits described herein may not be available to all clients and are dependent on each client’s circumstances. The transaction may be modified to suit a client’s individual needs. H-H has made all reasonable efforts to ensure that the information provided in this presentation is accurate at the time of inclusion. Terms and conditions of transactions are subject to change at any time. No part of this presentation may be reproduced, transmitted or disseminated, in any form or by any means, without the prior written permission of H-H.

The Problem

• In today’s litigious society, personally owned assets are highly exposed to attack by potential creditors.

• Liquid or near liquid assets are most exposed.• Most creditor protection techniques require

that the client move assets out of his estate or are put into programs that limit direct access to that asset.

Potential Solutions• Diversify investment risk. Continued market volatility has led individuals to

reallocate funds to maximize the protections provided under different bank and brokerage accounts. These depository accounts are generally not exempt from creditors’ claims.

• Purchase or increase the size of personal liability insurance coverage to shift the risk of certain kinds of litigation away from you to an insurance company. This may not provide full protection and may be cost prohibitive.

• Maximize deposits into IRA, pension plans, profit sharing plans and 401k accounts. While providing increased protection there are significant limits in how much may be deposited and when the assets may be withdrawn.

• Trusts, family limited partnerships and limited liability corporations can be effective in providing creditor protection, but the diminished control and expenses involved with trust formation and administration may be burdensome.

• In certain states, individual ownership of a life insurance policy may effectively address these concerns, offering significant protection from creditors.

Security and Protection Using Life Insurance

• Are you effectively using life insurance as a strategy to protect your client’s estate from possible creditors’ claims, while diversifying investments to minimize institutional risk?

• Balanced planning during turbulent times is critical in order for clients to achieve maximum security and protection. In many markets, property values are declining, unemployment is rising, and consumer debts are maturing. And, there is an increased concern about the stability of certain deposit-holding financial institutions.

How it works:

Death Benefit Statutory Creditor

Protection

+Cash Value Statutory Creditor Protection =

Sound Planning Opportunity

Protection from Creditors Depending on your state of residence and arrangement involved, up to 100% of

both the Death Benefit and Cash Value may be exempt from insured’s creditors’ claims.* Given certain arrangements, as of February 13, 2009, the following 10 states may provide the 100% exemption.

*Talk to us about state specific applications.

State Statutory Citation

1 Florida FL ST §222.13, 222.14, 222.20

2 Illinois IL ST CH 735 § 5/12-1001, 5/12-1201

3 Massachusetts MA ST 175 § 125

4 New Jersey NJ ST 17B:24-6

5 New York NY INS § 3212

6 Ohio OH ST § 3911.10, 2329.662

7 Oregon OR ST § 743.046, 18.300

8 Pennsylvania PA ST 42 Pa. C.S.A. § 8124(c)(6)

9 Texas TX INS § 1108.051, 1108.053

10 Washington WA ST 48.18.410, 48.23.300

Product Selection

• There are several carriers with specific products that offer a High Early Cash Value Rider that can be used for Asset Protection.

• These products minimize investment risk while maximizing the return for the client.

• All of the case examples reflect a Modified Endowment Contract. A Non-MEC example is available if desired.

Case Example: Male 45$1,000,000 – Single PayModified Endowment ContractPreferred Non-SmokerLife Expectancy: Age 80/Year 35

28007.70

Year Cash Value IRR on CV Death Benefit IRR on DB

1 1,043,334 4.33% 3,471,700 247.17%

2 1,081,124 3.98% 3,509,129 87.33%

3 1,110,515 3.56% 3,547,023 52.51%

4 1,147,366 3.50% 3,586,666 37.62%

5 1,183,710 3.43% 3,626,060 29.39%

10 1,437,235 3.69% 3,835,265 14.39%

15 1,825,856 4.10% 4,089,257 9.84%

20 2,305,214 4.26% 4,398,349 7.69%

25 2,890,822 4.34% 4,847,908 6.52%

30 3,569,726 4.33% 5,322,461 5.73%

35 4,379,946 4.31% 5,895,408 5.20%

45 6,451,281 4.23% 7,502,840 4.58%

55 9,538,892 4.19% 9,853,676 4.25%

CD values are post tax at a 2% interest rate and a 36% tax bracket.

Case Example: Male 55Year Cash Value IRR on CV Death Benefit IRR on DB

1 1,042,703 4.27 % 2,491,483 149.15%

2 1,079,225 3.89% 2,522,346 58.82%

3 1,106,484 3.43% 2,555,092 36.71%

4 1,141,493 3.36% 2,590,048 26.86%

5 1,176,439 3.30% 2,625,137 21.29%

10 1,421,045 3.58% 2,821,527 10.93%

15 1,795,849 3.98% 3,066,437 7.76%

20 2,280,459 4.21% 3,400,164 6.31%

25 2,835,019 4.26% 3,815,935 5.50%

26 2,950,604 4.25% 3,900,698 5.37%

30 3,451,583 4.22% 4,276,511 4.96%

35 4,175,220 4.17% 4,855,781 4.62%

40 5,038,462 4.13% 5,587,654 4.40%

45 6,172,977 4.13% 6,376,685 4.20%

$1,000,000 – Single PayModified Endowment ContractPreferred Non-SmokerLife Expectancy: Age 81/Year 26

36014.25

CD values are post tax at a 2% interest rate and a 36% tax bracket.

Case Example: Male 65$1,000,000 – Single PayModified Endowment ContractPreferred Non-SmokerLife Expectancy: Age 84/Year 19

41218.88

YearGr

Cash Value IRR on CV Death Benefit IRR on DB

1 1,041,566 4.16 % 1,851,971 85.20 %

2 1,076,205 3.74% 1,882,782 37.21%

3 1,100,617 3.25% 1,914,629 24.17%

4 1,133,011 3.17% 1,947,646 18.13%

5 1,167,704 3.15% 1,981,970 14.66%

10 1,403,537 3.45% 2,170,643 8.06%

15 1,754,767 3.82% 2,403,358 6.02%

19 2,108,058 4.00% 2,661,586 5.29%

20 2,206,423 4.04% 2,733,758 5.16%

25 2,714,196 4.07% 3,156,610 4.71%

30 3,275,135 4.03% 3,632,125 4.39%

35 4,012,366 4.05% 4,144,774 4.15%

CD values are post tax at a 2% interest rate and a 36% tax bracket.

Case Example: Male 75

$1,000,000 – Single PayModified Endowment ContractPreferred Non-SmokerLife Expectancy: Age 83/Year 13

58753.75

Year Cash Value IRR on CV Death Benefit IRR on DB

1 1,038,391 3.84% 1,436,088 43.61%

2 1,067,802 3.33% 1,463,023 20.96%

3 1,084,140 2.73% 1,491,737 14.26%

4 1,109,631 2.63% 1,522,414 11.08%

5 1,143,932 2.73% 1,554,120 9.22%

10 1,366,927 3.18% 1,742,624 5.71%

13 1,550,174 3.43% 1,882,237 4.99%

15 1,683,965 3.54% 1,988,498 4.69%

20 2,099,345 3.78% 2,328,173 4.32%

25 2,597,056 3.89% 2,682,759 4.03%

CD values are post tax at a 2% interest rate and a 36% tax bracket.

In SummaryPros

• The use of this concept may provide dramatically increased protection from potential creditors for assets deposited.

• Assets transferred into the program continue to grow at a competitive rate on a tax deferred basis.

• Assets transferred into the program are highly liquid and available if necessary on short notice without loss of principal.

• If benefits are paid out as a life insurance death benefit, assets are income tax free.

In SummaryCons

• The client needs to go through medical underwriting and may not qualify for the program.

• Planning must be done well in advance of the potential need. The Statute of Limitations for fraudulent transfers and conversions is usually around four years, although each state will have its own variations. This means that any transfer or conversion that was made within the last four years might be targeted by a creditor. As in most cases, prognostication in planning will limit the effectiveness of the program.

• Overall performance needs to be closely monitored to verify that the plan remains current with the client’s needs and investment goals.

• Modified Endowment treatment may not be appropriate for all clients and needs to be reviewed before initiating the program.

Strength rests in effectively managing risk. Strength rests in the diversification of risk, the

purchase of a strong product, and the understanding of creditor statuses.

Please contact Bruce Hersh for additional information:

Bruce A. Hersh800.444.4160

Harris-Hersh Financial Services Ltd.1647 Barclay Blvd

Buffalo Grove IL 60089www.harris-hersh.com

Bruce.Hersh@capitasfinancial.com