Specialty Coffee Retailer is a publication for owners, managers and employees of retail outlets that sell specialty coffee. Its scope includes best sales practices, supplies, business trends and anything else to assist the small coffee retailer.
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DIVIDING ASSETS He recommends having several LPs and FLPs, dividing your assets among them according to how much liability they carry. Liquid assets like cash and bonds, which can’t trigger a lawsuit but could be the target of one, would go into one LP or FLP; more “dangerous” assets like your business or home, which could trigger a lawsuit, would go into another (oſt en, more than one, according to the degree of liability associated with them). “Some attorneys will discover that you have all those assets, but it’s interesting what happens when they take you to court,” Mangelson says. “Th e judge is going to call that attorney up and say, ‘Well, didn’t you notice that these people have their assets in limited partnerships?’ “And the attorney’s going to have to say, ‘Well, yes, I did.’ “‘Well, are you aware that these assets were in limited partnerships before the lawsuit even started?’ “‘Yes.’ “Th en you’re going to hear the most beautiful thing you’ve ever heard in a lawsuit. Th e judge is going to say, ‘Counselor, you are prohibited against proceeding against these people except for one option.’ Th at option is called a charging order.” Charging orders vary by state, but generally, in return for granting a creditor (such as a winning plaintiff ) a share of future income in an LP, they prohibit a plaintiff from going aſt er any asset of that LP except insurance. Th at removes much of the incentive for a plaintiff ’s attorney who is working on a contingency basis—which most of them do. “Th at’s when the attorney decides, ‘You know, this is not a hot one—let’s go somewhere else,’” Mangelson says. To make the protection even better, the IRS ruled in 1977 that a plaintiff who uses a charging order to try to get at an LP’s income can be held liable for taxes on that income—even if he never sees a penny of it. “So the person who’s suing you gets your tax bill, even though you don’t have to give them the money you earned in your partnership,” Mangelson says. “But that only occurs if their attorney used the charging order to come aſt er you.” GETTING AROUND PROBATE For avoiding probate—i.e., legal disputes over a recently deceased person’s assets—Mangelson recommends a living trust. Th ey allow the asset’s owner to list which assets he does not want to go through probate. (It’s important that this list be kept up to date.) If you establish LPs, they should be part of that list. To lower taxes, the best move is to set up a corporation, but you should be careful not to make yourself (or yourself and a partner) the sole owners, Mangelson says: “Corporations are a great tax-reduction tool, but they’re a lousy lawsuit-protection tool.” Th e best strategy, he says, is to set up the corporation as an asset of one of your limited partnerships. “If you own your own coff ee business, for example, set up a separate [corporation] to be the general partner for your limited partnerships,” he says. “Technically, we don’t like to mix the two businesses.” Th e limited partnership could own the business, equipment, etc., and lease it back to the corporation, thus leaving the corporation with protection against lawsuits. To lower liability for capital gains taxes, possible tools include a charitable remainder trust or a family foundation. Th e American Society for Asset Protection off ers a package of asset protection advice, including legal forms that are easy to fi ll out and ready to fi le. For more information, call 800-848- 9238 or visit www.americansocietyforassetprotection.com. SCR July 2011 • www.specialty-coffee.com | 39