Here is the good news/bad news I received from my bank today regarding my Paycheck Protection Program (PPP) Application: The good news: your application has been approved; the bad: the SBA is out of money and you must wait for Congress to refund the program!

Although I have heard of a few small businesses that have received funding I am guessing that most persons reading this letter have encountered similar frustrations. Note: if you have received funding, please so reply.

We predicted in my first letter regarding PPP that the $349 billion fund would run out of money and this Thursday it did. It lasted two weeks! For an interesting map on where the funds were distributed nationwide see PPP Loan Allocation Map.

My message to you now is don’t give up. Yes, many small businesses with average monthly payroll over $1 million got preferential treatment by the big banks. However, the banks are incentivized under the SBA program to make small loans under $1 million.

And more encouraging: there is strong bi-partisan pressure to refund the program. (If only Congress could stop the bickering and see the urgency of the threats to millions of small businesses.) Regardless, if you have applied and are waiting to get approval, keep checking with your bank to make sure they have all necessary documentation and try to get confirmation your application has been approved. If you have not applied, do so immediately.

My son-in-law is a senior manager for a major regional bank in the western states and is working over-time this weekend to continue to process applications. My bank advisor also tells me she is working this weekend on her bank’s back-log of applications. Both banks believe the program will be refunded. I think that is a good bet.

You can always count on the Americans to do the right thing – after they’ve tried everything else. – Winston Churchill.

Millions of small business owners and self-employed have filed for loans under the Paycheck Protection Program because part or all of the loan can be forgiven if you retain your employees and maintain their salary levels.

Okay, we know, as of this writing, millions have applied and few have received!

But assuming SBA gets through this current bottle-neck and the funding starts to flow, then your focus will be on maxing out the amount that can be forgiven.

The SBA will forgive the part of your loan that covers the first eight weeks of payroll, mortgage interest, rent, and utility payments immediately after you receive funding. You must use 75% of the borrowed loan for payroll costs; only 25% can be for mortgage interest, rent, and utilities.

The SBA will not forgive the portion of the loan used for other expenses; this part of the loan will be maintained at a 2 year loan at 1% interest rate. Loan payments are deferred for the first 6 months of the loan although interest will accrue during this time.

So even if part of your loan is not forgiven, the loan terms are exceptionally favorable for you – maybe this explains why many banks have been lying low in the grass and not soliciting applications because they simply do not want to take on a boat-load of low interest rate loans or short term loans that are quickly forgiven.

So here are 5 quick tips for maxing out your loan forgiveness:

1. If possible, do not reduce the number of full time employees during the 8 week period. The SBA will do a Head Count Analysis for this period and reduce the forgivable portion of your loan according to a head count formula.

Note #1: The CARES Act allows the business to remedy the forgiveness amount by June 30, 2020, but it is still unclear how mechanically you do this. Expect further SBA guidance on this point.

2. If possible, do not reduce employee salaries during the 8 week period. The SBA will do a Wage Analysis and reduce the forgivable portion according to their wage analysis formula for any such reduction. But see Note #1 above.
3. Keep the loan funds in a separate bank account and only withdraw to cover eligible expenses.
4. Keep a separate expense account to accumulate all eligible costs.
5. Document all eligible costs.

For a deep dive into the tax benefits for small business under the CARES act I highly recommend for other attorneys and professional advisors the recent webinar by estate tax lawyer, super-guru and friend Alan Gassman: Update On The Paycheck Protection Act Loan Rules.

It is a simple reality: We live in a hostile legal environment, and the chance you will not face costly litigation at some point in your career is not good. The good news is that you can fight back. Here is a quick summary of our “Porcupine” Asset Protection Strategy with tested legal strategies that can help protect your investments and property.

1. Make Your Assets As Unattractive as Possible to Attack with a Good Asset Protection Strategy

The starting point for most persons interested in helping to ensure that their hard earned investments are well protected is to make an inventory of all assets and, in consultation with an experienced asset protection attorney, divide these assets into “Protected Assets” and “Exposed Assets.” The goal is to take the Exposed Assets and turn them into porcupines, so if the wolf (creditors or future persons who may try to sue you) appears at your doorstep, their reaction will be the reaction porcupines get from their predators: after sniffing around they back off.

Therefore, the key point of the Porcupine Asset Protection Strategy is to turn attractive assets or “low-hanging fruit” into Porcupines with the initial goal to preempt lawsuits.

Note: What is the lowest of the low hanging fruit? Answer: Real estate titled in your name or joint name with your spouse.

Real estate is the ideal asset for creditors, because (1) it does not disappear overnight; (2) creditors can quickly lien it; and (3) creditors can foreclose on it. This is why almost all investment property should be in a multi-member Limited Liability Company (“LLC”) with a post 2012 Operating Agreement or Limited Partnership. See 4 Take-Aways Under Florida’s New LLC Law.

2. Asset Protection Planning is Not Dogmatic

Good asset protection strategy is not dogmatic; by this I mean that it does not apply a one size fits all approach. Sometimes in this field, you will find attorneys who have a hard bias toward off-shore planning; others will have a strong preference for domestic asset protection trusts; while others may say just stay at home and take advantage of your strong Florida laws. What is best for you depends on your unique goals, unique bundle of assets, and risk tolerance.

Good asset protection planning often combines multiple layers of protection with multiple defense options – not unlike Geno Smith, the legendary basketball coach of North Carolina, who employed a successful basketball defense based upon applying multiple defensive schemes. Therefore, it is possible – and commonly used – to employ multiple asset protection techniques: some assets will be protected by Florida law, some assets by a Delaware LLC, other assets by a Nevada Asset Protection trust; if the Nevada Asset Protection Trust is seriously threatened, it can be moved off-shore and established as a Nevis Asset Protection Trust or a Cook Island Asset Protection Trust.

3. Not Based Upon Concealment

Many lay persons believe that they can protect their assets by concealing them from creditors. For example, it may be tempting to transfer an investment real estate property to a family member or friend. Such transfers are likely doomed to failure – and we are assuming your friend or family member does not get sued. The reason is two-fold. First, with modern discovery laws in the United States, a creditor can discover virtually any transfer you have ever made because they can simply depose you and you must tell the truth under penalty of perjury. In addition, there is always a paper trail, in the form of texts, email’s, bank transfers, or tax returns. The second reason concealment does not work is FUFTA, the Florida Uniform Fraudulent Transfer Act, F.S. 726. Under this law, transfers made “with actual intent to hinder, delay, or defraud any creditor of the debtor” may be clawed back. See Point #8,

Note: While concealment should never be a basis for asset protection planning, there may be value in maintaining a low public profile, so that when a creditor performs a Google search your investment entities do not show up. This could be particularly beneficial for any professional in a high-risk profession – such as a doctor, dentist, or health professional.

4. Take Full Advantage of Florida Law

It is often surprising to me that some Florida residents think they need to go to Wyoming or South Dakota to protect their assets when they often have good options under Florida law. Florida has one of the strongest (if not the strongest) homestead laws in the United States. Of course, this is one reason why O.J. Simpson moved to Florida: he purchased an expensive Florida home and claimed it as his primary residence.

For decades, Florida courts have done a superb job of protecting homestead. A good example is the Florida Supreme Court Havoco decision. In this case, Havoco obtained a $15,000 judgment against Hill. Three days before the judgment became enforceable, Hill purchased a $650,000 property claiming to make this property his homestead. Creditors argued this property could not be protected homestead because Hill converted non-exempt assets into the homestead with the intent to defraud his creditors. Despite the obvious intent to defraud the creditors, the court found the homestead was protected. See 790 So. 2nd 1018 (Fla. 2001).

Of course there are limitations to the Florida homestead protection that are beyond the scope of this summary. Florida homestead is a complex and often misunderstood protection where you need to consult with an experienced Florida attorney.

Florida homestead is not the only Florida law that residents should take advantage of. Real estate investors should almost always consider LLC’s – limited liability companies – to protect their real estate and limit creditors to an unattractive remedy called a charging order. The two fundamental take-aways on Florida LLC’s is that they should be multi-member (unless owned by a limited partnership) and they must have a robust LLC Operating Agreement drafted after 2012 because the Florida LLC law was fundamentally changed in 2012. See Basic LLC Checklist.

Other investments protected by Florida law are (1) IRA & qualified plan benefits; (2) wage exemption; (3) wage accounts (but only for 6 months); (4) life insurance, both term and cash value provided the policy is owned by the insured; (5) annuities; (6) Florida Pre-Paid Plans; (7) 529 college plans. Note: this is not a complete list.

5. Domestic Asset Protection Trust – That Can Be Moved Off-Shore – As A Core Planning Tool

Most persons considering the best way to protect their cash, stocks and other equities likely need a Domestic Asset Protection Trust (“DAPT”). This is where Florida residents usually need to consider another state jurisdiction because Florida does not protect “self-settled” trusts: a trust where the grantor is also the beneficiary. However, Nevada, Delaware, Alaska and other states do have strong legislation protecting self-settled trusts.

Nevada has modern laws designed for robust DAPT’s. The 5 major advantages of a Nevada DAPT are: (1) no state income tax; (2) 2 year statute of limitations for future creditors; (3) 2 year statute of limitations or 6 months from date of discovery for pre-existing creditors; (4) No pre-existing torts exception creditors; (5) allows self-settled trusts. For a more complete discussion of such trusts, and specifically the Hybrid Nevada DAPT, see my article Nevada Asset Protection Trusts: Your Best Option?

6. Asset Protection Plan integrated with Estate Plan

Prior to the new federal tax law, the Tax Cut and Jobs Act of 2017, much asset protection planning could have a sound estate tax avoidance rationale. Now, with the estate tax exemption of $5.6 million in 2026 (the current exemption is $11.2 million, but this is temporary and drops down to $5.6 million in 2026) such a rational is not realistic for many persons. However, there are often fundamentally sound estate planning reasons to do such planning because a good asset protection plan should usually be integrated with your estate plan. Usually the goals are not just to protect your assets now and for the rest of your life, but also to protect them for your children and grandchildren. No one wants to spend your life working to build a valuable nest-egg, only to see a big piece of this nest-egg lost in your child’s divorce case. Further, the core component of most estate plans is a revocable living trust; such a trust must be integrated with all domestic corporate entities and other trusts. The take-away here is that you should not do asset protection planning without connecting and integrating it with your estate plan. If challenged, you have a legal basis to claim that transfers made were done as part of your over-all estate planning, and not attempts to “to hinder, delay, or defraud any creditor”.

7. Insurance As War Chest – Not An Incentive For Lawsuit

Insurance – such as malpractice insurance for the professional or casualty insurance for the real estate investor – is a critical component of a comprehensive asset protection plan. However, in determining how much insurance you need consider that a primary purpose of your insurance should be to give you a war chest to defend a legal attack. More commonly, insurance is an incentive to a lawsuit. The first request you will get from a personal injury for a person injured at your business is a demand letter for disclosure of all insurance that you have on the property. You are required to disclose this information under Florida law. If the damages are substantial, the PI attorney will want to go beyond the policy limits and sue you personally. Insurance – not coupled with an asset protection plan – is a big incentive for a lawsuit; it is the equivalent of putting a bulls-eye target on your assets. Under our Porcupine Asset Protection Strategy we want to minimize any such incentive. Therefore, the two big take-aways here are: First, have adequate insurance to fund a war chest to vigorously defend a lawsuit. Second, do not rely simply on insurance – take advantage of Florida law and other laws to protect these assets with a good asset protection plan. In the long run, such a plan is far cheaper than paying for large insurance policies.

8. Timing Is Critical

Timing is one of the most critical considerations in asset protection planning. Asset protection planning is usually not viable after:

• Parent of 18 year old driver who seriously injures a young biker
• Owner of rental real estate where late night party results in a fight and guest getting stabbed;
• The doctor who is served with a summons after a botched surgery;
• Pre-divorce planning by a husband trying to scam his wife (or wife trying to scam her husband. (Here there is a good pre-marriage legal solution: it is called a Prenuptial Agreement.)
• Owner of house where worker pressure cleaning the roof falls off and breaks back.

In such situations it may be too late to do any planning. The reason is FUFTA: Florida Uniform Fraudulent Transfer Act, F.S. 726. This is a powerful creditor civil remedy (not a criminal remedy) that allows a creditor to claw back any transfer made “with actual intent to hinder, delay, or defraud any creditor of the debtor”. Creditors may rely upon the “badges of fraud,” such as making transfers to an asset protection entity that renders the creditor insolvent.

The take-away on this is simple: Plan when waters are quiet – before the problem arises. Do not put this planning off to another time; do it now.

Conclusion

Asset Protection Planning covers a wide breadth of law; it requires an experienced attorney who concentrates in such planning. For more information contact Rarick Trusts & Wills Law at info@raricklaw.com or call (305) 709-2858.

Here is a simple fact: most small businesses cannot afford or even survive a major dispute between partners if the dispute ends up in court. Such disputes can doom the small business due to interruption of the company business, distract the principal partners from focusing on growth, and soak up all capital needed to sustain the company.

The following are 5 Take Away Points for avoiding court intervention in your business:

1. Find a creative business attorney with a proven track record in resolving business disputes – outside of court. You often need a creative asset protection attorney with a good business and tax background. Typically, each side has to realize they will not get 100% of what they want – there will need to be compromise. But this compromise will be far less costly and destructive than having a bureaucratic court intervene.
2. Do the economic analysis. In other words do the math. Compare the cost, time, business interruption, and uncertainty of going to court with the minimal costs and certainty of reaching an agreement outside of court. Even a simple dispute can cost $20,000 to resolve if each side has to file court pleadings.
3. Do the litigation risk analysis. Litigation always involves risk. You risk getting a judge or jury who may not understand your case regardless of how strong it is. Every good litigator will emphasize this fact in their engagement letter with you: he or she cannot guarantee any results – there is no such thing as a “slam dunk” legal case.
4. Find a friendly forum. A court venue is by definition a non-friendly forum, and is designed to encourage expensive discovery and expand the contentious issues. A mediation venue is designed to encourage compromise, narrow the issues, focus on the big ones, and reach settlement quickly.
5. Preemptive Planning to avoid disputes. By far the best solution is to pre-empt disputes in the first place by having a clear agreement for resolving disputes, and a clear exit strategy if disputes cannot be resolved. This means that whenever you have one or more partners you should have an Operating Agreement, if you have an LLC, or a Shareholder Agreement, if you have a corporation. You may be best of friends with your partner now, but of course, just like you, your partner is going to put his or her interests, and the interests of his family first if disagreements arise.

Jay Beskin and I have over 50 years of combined experience helping business partners reach amicable agreements even though the differences between the partners first appeared to be insurmountable. Helping the small business owner grow and succeed while avoiding court intervention has been a major theme of Rarick Trusts & Wills Law for many years. For more information about our Miami asset protection services, contact us as (305) 709-2858 or info@raricklaw.com Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami asset protection attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

1. Annual Minutes Up-to-date?

2. Are any Special Meeting Minutes required?

3. Shareholder Agreement Up-to-date? Note: If you do not have a Shareholder Agreement and you have one or more partners we need to talk about this important agreement to protect your interest.

4. Is the Shareholder Agreement adequately funded? Note: Most shareholder agreements need to be funded with life insurance.

5. Do the stock certificates accurately reflect ownership?

6. Are By-Laws current and accurate?

7. Have you paid the Florida Annual Registration Fee? Deadline is May 1. After May 1, there is a $400 penalty.

Regarding this last point Number 7, remember the state is no longer giving liberal waivers if the annual registration fee is not paid by the May 1 deadline. The annual fees are as follows:

• Limited liability company: $138.50
• Corporation: $150.00
• Limited Partnership: $411.25

You can easily check the status of your Florida entity by going to www.sunbiz.org. Payment of the annual report can be done on-line at this web site.

Note: The annual report is the easiest and least expensive way to make changes to the public corporate record. If you have a change in corporate officers, managers, address or other corrections to the public record, this is the best time to make those changes.

Conclusion

In conclusion, along with other Spring cleanup tasks, this is a good time to conduct an annual review of your LLC, corporation, or limited partnership. Remember: the state can charge you a late fee of $400 if payment is not made by May 1.

Rarick Trusts & Wills Law can assist you in this review of your Florida entities. To schedule an appointment, call attorney Phil Rarick at (305) 709-2858 or email to prarick@raricklaw.com