How to Manage Banking with your Asset Protection Plan

When you set up a new Asset Protection plan, what is the best way to reorganize your bank accounts?  

This is a great questions and very important, so let's start with some of the things which

WILL NOT CHANGE:

1. Your existing accounts which you use for everyday expenses like gas and groceries will not change.  These accounts should stay just as they are, which is to say, normally in your own personal name.  This can include a "small" savings account which most people attach to their checking and holds 3-6 months of expenses.  This may also include savings accounts which are for specific short-term uses like a tax savings account.
2. Your Business accounts which are opened in the name of your businesses will also stay exactly the same as always and will not change.  You will continue to manage your business cash flow through these accounts as you always have.  This would also include business savings accounts which are also for short-term (within one year) expenses such as capital expenditures or quarterly tax payments.
3. Your W-2 income and other wages which are normally deposited into your personal account will also stay the same.
4. Bills such as your mortgage or other household expenses which are normally paid from your personal account will remain unchanged. This would include utilities, repairs and maintenance and of course the mortgage and any line of credit payments on the home.
5. Qualified Retirement Plan accounts.  This would include 401K, IRAs, Defined Benefits plans, etc.  Basically, any account which is 'qualified' as a retirement account must stay in your name to continue to be considered a qualified account.

While the above will not change, there are some very important accounts which will, so let's take a look at 

WHAT WILL CHANGE:

1. Long-term saving and investment accounts (not including qualified retirement plans).  These are accounts which have your long-term (over one year) investments. This would include your brokerage accounts at firms like, Schwab, E-trade, Merrill Lynch, etc. This would also include large savings accounts which you do not intend to need to use within one year. For these accounts you want to open a new account (or accounts) in the name of your Asset Management Limited Partnership (AMLP), using the tax ID number of the AMLP, and transfer the money into the new AMLP account. 
2. In some cases, if we have created one or more LLCs for your business or real estate activity, then these LLCs may also need new accounts.  For additional guidance on managing your real estate, see our guide on How to Manage Rental Property.

Moving money into your Asset Protection Plan

While these are the primary accounts which will need to be set up for your new plan, you now also want to manage the money between your 'personal life' which is represented by the accounts which are not changing, and your 'asset protected life', which is represented by the new AMLP and LLC accounts. Here are some basic concepts to keep in mind:

1. Moving money between your personal accounts and you AMLP or LLC account DOES NOT trigger any tax consequences.  Since your AMLP and LLCs are all 'pass-through' tax entities, moving money in or out of the LP does not have any direct tax effect. You do still need to keep a good record of all transfer for your CPA to ensure an accurate accounting of your income and expenses.
2. Any syndication investments, or other types of investments which are not directly held by a brokerage also need to be changed into the AMLP. This is done by contacting the holder of the syndication or investment directly and asking them to change the account name.  Again you will use the new Tax ID of the AMLP.
3. When your short-term personal, or business, savings becomes too large, you should move any excess money into your long-term AMLP accounts. Remember, because there is no tax effect of moving money into your AMLP, you can always move it back as needed. There could be a tax effect of taking money from your operating business, please consult your tax advisor on this issue. Your AMLP is the safer place for you to hold assets, so if in doubt, I would recommend moving the money to the AMLP.

Moving money out of your Asset Protection Plan

Moving money out of your asset protection plan should be done with care and awareness.  While there are generally no tax consequences, as explained above, it is still important to keep good records of movements of money in and out of your plan.  Here are some examples of good practices:

If you need to access money in your AMLP for a personal use, you have 2 options:

1. You may set up an account in the name of the Trust and make distributions from the LP to the Trust and account for that distribution on the capital account of the LP. From there, the Trustee (normally the clients) may make a discretionary distribution from the Trust to the Beneficiaries and transfer the money from the trust account to their personal account.  This method creates a very good record of all the transactions and the flow of funds; however, it does require the trust to apply for an EIN and open a separate account.
2. The second option is for the Trust to authorize a direct distribution from the LP to the Beneficiaries of the Trust.  This method removes the need to apply for an EIN for the trust or open a trust bank account.  If this method is preferred, then the Trustee should sign an authorization for direct distribution (attached here) as well as complete a NOTICE OF DISTRIBUTION OF TRUST (also attached here) for each distribution.  

When distributing money from the AMLP or directly from the Trust, the Trustee should complete and sign a NOTICE OF DISTRIBUTION OF TRUST.  The form is attached here. Protector consent is not required in most circumstances.

Once the distribution has been made you are free to use the money without restriction.

It is good practice to keep a list or spreadsheet of all contributions and distributions to and from the Trust and the Asset Management Limited Partnership.

If you have any questions please do not hesitate to contact our office at [e-mail] or 602-230-2014.