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In comprehensive asset protection planning, there are a number of excellent strategies that can be implemented (e.g. Family Limited Partnerships). However, the most effective way to provide the highest level of protection for a professional’s billings is to perfect a lien against them. How the lien is implemented is critical to the Magnifier Advantage process as well as to a professional’s financial future. The program affords protection of this very vulnerable asset while, simultaneously, allowing the asset to be leveraged and grow tax-advantaged.
The Magnifier Advantage is an arrangement that gives business owners who generate billings the opportunity to unlock the power of their receivables. The corporation uses leverage at favorable interest rates while establishing a tax advantaged supplemental retirement income source and a high level of protection against liability claims. It accomplishes this in a number of ways, the simplest and most common being the "Personal Loan Method". In all cases, the business pledges annual collections as primary collateral to obtain financing (this guarantee may have tax consequences to the professional); the executive, who typically owns the contracts, assigns the cash value of the instrument used to fund the wealth accumulation portion of the program to the lending institution as secondary collateral. The lender facilitates the high level of accounts receivable protection by implementing a lien against the receivables.
The various methods of asset protection include the following: a Distribution of Capital, Personal Loan Method, and Creation of a new business entity (LLC). The choice of method depends entirely upon the client and his/her tax advisor as well as the "approved" insurance company alternative. Clients, of course, should have a basic need for life insurance and be insurable, unless an annuity is used as the only funding vehicle.
The primary purpose of using one of the following funding methods discussed is to insure that the professional or owner of the business is not taxed on the original loan proceeds and that, if possible, the interest on the loan is tax deductible. Under almost all circumstances, when the Magnifier Advantage Program is implemented, the professional/owner owns the insurance/annuity policies utilized in the concept. If, for instance, the loan is made to the corporation, there must be a method to effectively get the proceeds of the loan to the insurance company in order to purchase policies that are owned by the individual. If this is not done correctly, a determination could be made by the IRS that the loan proceeds are "income" to the individual.