The Trident Press Financial Education Series

Asset Protection
What is Asset Protection? Different Types of Asset Protection Common Traps, Pitfalls and Mistakes Made in Structuring Asset Protection Case Studies to Prove The Value of Asset Protection Structures How to Inexpensively Set Up Onshore Asset Protection How to Inexpensively Set Up Offshore Asset Protection Advantages and Disadvantages of Each Type Of Asset Protection Frequently Asked Questions and Answers on Asset Protection Contacts to Help You Set Up Your Asset Protection One Question for You To Answer Daily Action Steps To Put Theory Into Practice

What is Asset Protection?
Asset protection is the adoption of advance planning techniques, which place one's assets beyond the reach of future potential creditors. In practice, it does not involve hiding assets, nor is it based upon secret agreements or fraudulent transfers. It is based upon proven sophisticated combinations of business and financial planning techniques. The methods employed vary from simply changing the ownership of assets to the sophisticated use of offshore trusts and companies. J. Paul Getty was once quoted as saying, “When I go into any business deal, my chief thoughts are on how I’m going to save myself if things go wrong” This is the essence of asset protection. “When things go wrong”that is when we need it, and value it. It’s of no use, and too late to act when things have already gone wrong. I know from personal experience, that even the people closest to you and the most trustworthy, can turn on you. So, you must protect yourself. In the US, lawsuits are being filed at the rate of one hundred million cases a year. Many of these suits have nothing to do with right and wrong, but instead, are predicated on the desire of one party to extract wealth from another party. In many cases, this equation is not predicated on the desire to extract real wealth, but on a desire to extract small payments as "nuisance" settlements, because it is cheaper to pay out than to fight the case. If someone slips and falls in a business, or if a car taps their car's rear end, they react like they just won the lottery. If an armed thug breaks into a home in the dead of night, slips on a child's marbles, and breaks a leg, he can sue and possibly win. Here are some examples that may frighten you into action: • • One man strapped a refrigerator on his back and ran in a race. The strap broke and he hurt his back. He sued the strap manufacturer and collected $1.3 million. A woman in Texas was awarded US$780,000, by a jury after breaking her ankle, tripping over a toddler who was running amok in a furniture store. The owners of the store were very surprised by the verdict, considering the child was in fact the woman’s. A woman was awarded US$113,500 after she slipped on a spilt drink in a restaurant and broke her coccyx. Again,

Questions & Insights

Copyright  Lance Spicer 2004


surprise, she was the one who had thrown the drink on the floor during an argument with her boyfriend. If lawsuits continue at the pace they do today, each person in the top 50% of income earners in the US will ultimately be sued five times. Australia, Canada and the UK are catching up too. One does not have to lose even one of these cases in order to lose their wealth, simply the cost of litigating these issues can be onerous enough. One solicitor told me if it goes to court you’ll be up for $50,000 win or lose, minimum. For many people the threshold issue in asset protection is: do I need it? Many people believe "this won't happen to me, it can't happen to my business, my family is safe, because we don't do anything that's dangerous." However, if you are a person who: • • • • • • Deals with the public Rents properties or you are an owner of a rental property Is a director of a company Is in the medical field Is involved in a “white collar” profession working for yourself Is wealthy

Questions & Insights

You are talking a great deal of risk and as time goes on your chances of being sued, based on the laws of probability, increase. It’s only a matter of time. The reality of life is that you don't have to do anything dangerous or negligent; all you really have to do is be in the wrong place at the wrong time. Ordinary people have extraordinary problems. In many cases these problems are not problems of their own doing, they were simply matters of circumstance. Once a judgment is made against you have to tell the court everything, regardless of how unjust the case is. You must tell them what properties you own, about your bank accounts, investments, absolutely everything. They will then place a value on it and then proceed to “re-distribute” your wealth elsewhere. Good isn’t it? Now, you may say, “I have insurance to cover that!” Do you really? Check your policy, you may be surprised on how much you are not covered for. Also, if the insurance company can prove your negligence for whatever reason, they’ll drop it back in your lap. What you need to do is ensure that it doesn’t get to court and that you have nothing worth taking in the first place.

Copyright  Lance Spicer 2004


Now it has all gone wrong and you have found yourself on the wrong end of a court case and you must pay up. You are known as a “judgment debtor”. As such you virtually have no rights, as the winner now owns everything up to the value of the judgment. And heaven help you (the defendant) if you fudge your testimony. If you conceal a safe deposit box with a few goodies in it you’re committing perjury, a crime that carries mandatory sentencing guidelines. You could end up in jail! It is all too easy to go around saying it won't happen, but once it happens, it is too late. If money is transferred after an incident or accident, that is concealing assets, this can cause both criminal charges and civil loss of other assets. The law looks at it as stealing the property of the person who is suing, or who may sue. The defendant may think it is his lifetime savings from hard work, but legally he now holds it in trust for the person who has a pending claim. Presumed knowledge of the possibility of a claim is sufficient to invoke these fraudulent transfer laws. So if somebody moves their money the morning after an “incident”, it is likely to come back to haunt them. The only legally valid protection is to take careful and legal protective steps before there is even a potential claim against a person or his assets. In Australia, and several other countries it takes two years before your assets are truly protected because during this two years, any transfers can be reversed by the courts…… very scary!

Questions & Insights

Copyright  Lance Spicer 2004


Questions & Insights The most common structure used in asset protection is the Trust.were unit holders have a number of units in the trust.where the trustee has a discretion when distributing funds to the beneficiaries. Terminology Appointor .Different Types of Asset Protection (including the use of International Business Companies) There are several ways to protect your assets. A trust is not a separate legal entity in the same way that a company is. • unit trust .this is the person who has power under the trust deed to remove the trustee and appoint another trustee.this is usually a company (it can be a person). The trustee is responsible for the financial "health" of the trust and makes decisions about distributing income. but as trustee of the trust. Distribution from the trust is on the basis of the number of units held.this is a combination between a unit trust and a discretionary trust. They range from simply making some changes to who owns your assets and rearranging the directorships of your domestic company (which we’ll discuss in the Onshore Asset protection section) to the more sophisticated use of Offshore Companies and Trusts which we’ll discuss in the Offshore asset protection section. Beneficiaries .this is a person (who is unrelated to the beneficiary or trustee) who provides an amount of money (eg $10) to establish the trust. Copyright  Lance Spicer 2004 4 . borrowing money etc.these are the people (can include a company) who are entitled to distributions from the trust. Trustee . which owns the assets of the trust. In simple terms it is a business structure where a trustee (usually a company) carries out the business on behalf of the members of the trust. Which structure you use will really depend on your individual circumstances and what degree of protection you require. The most common example is the family trust. • hybrid trust . A trust is set up through a trust deed. Here is a definition of what a trust is: Trusts are often used in connection with running a small business. Settlor . not in its own right. Types of trust There is a range of trusts: • discretionary trusts .

The disadvantages of a trust include: • possible implication for capital gains tax. Questions & Insights Copyright  Lance Spicer 2004 5 . • distribution of tax losses.although this depends on current tax laws. establishment and administration costs etc.The pros and cons Advantages of a trust include: • there may be taxation advantages . • limited liability etc. • allows for income streaming.

if they accumulate purely as a result of physical or mental exertion of an individual. • for the purpose of defeating creditors. costs such as stamp duty and tax may be encountered when transferring assets. Pitfalls and Mistakes Made in Structuring Asset Protection Whilst considering the options available. There may not be a need to change the strategy. but you should view it as a health check for your future financial security.Common Traps. therefore limiting the amount of protected superannuation. and taxation exemptions and deductions may be lost (e. These could include: • transfers of assets may be void if transferred for: • less than ”commercial” or fair consideration. Numerous questions are to be considered when addressing the most appropriate strategy to adopt. Questions & Insights • • • • The above is not an exhaustive list and other issues may also need to be considered when formulating an appropriate asset protection strategy. Copyright  Lance Spicer 2004 6 . and to mitigate the potential pitfalls and the risks of asset protection strategies. The best time to consider and review your asset protection strategy is now. you should remember that before implementing any asset protection strategies that there may be pitfalls and risks that need to be thoroughly examined prior to proceeding with a particular course of action. • or within a specified timeframe of insolvency occurring. principal place of residence exemption) as a consequence of restructuring ownership of assets. assets that accumulate in separate legal entities may not be protected. and superannuation limits may be exceeded.g. you are more likely to succeed in protecting your assets. • at a time when the business or individual was insolvent. an individual may be liable for corporate debts in certain circumstances. Addressing the pitfalls and risks that may impact on your strategy from the outset will ensure that if the need arises.

but unfortunately this is not the case. this driver was on company business. climbs into their car. In days gone by. if it can to pass blame back to the “insured” and absolve itself from the claim. it amounted to a settlement by the insurance company but the business partners spent small fortunes in legal fees defending themselves (the insurance company refused to pay the legal fees) and they lost much sleep for many months. and selling some and keeping others to add to his portfolio. this employee has a poor driving record. insurance was a protector of the family and the business. Questions & Insights Copyright  Lance Spicer 2004 7 . The stop sign is missed. as a result of their negligence. Their homes. one of the remaining family. In the court case. their holiday homes. more wealth to be uncovered. renovating them. and proceeds to pick up lunch. their investments. One of the secretarial staff in the office is asked to go to a local restaurant to pick up an order for these partners. one would think. The secretary leaves the building. These days it often acts as a target and will attempt. and a life is lost.Case Studies to Prove The Value Of Asset Protection Case Study 1 . The employee pays more attention to the radio than to an upcoming stop sign.Employee problems A group of business partners got together for an informal lunch to discuss their work. Unfortunately. based on several accidents and many speeding fines. even their business are up for grabs. in not determining that this driver was. and the heirs of the woman who died now seek retribution from the remaining partners. in fact unsafe. All of the partners are sued. More importantly.A Nasty Scenario That Will Frighten Many Property Investors A property investor working for himself acquiring properties. In many cases one of the prime financial elements that is being sought is insurance. finds himself the subject of a lawsuit. Unknown to the partners. From time to time during her errand. several hundred thousand dollars are spent in an attempt to defend this claim. would simply blame the employee for her negligence. this case is not settled because the main suing party. In this case. the car is smashed. Is it worth it? Case Study 2 . continues to expect more money to be found. she drives at excessive speeds. their boats. A subsequent lawsuit.

the old paint contains lead and is very toxic and the children become very ill. It is imperative that families and businesses today understand that they are at risk and that problems can arise. These are people who have entered vacant property. No surgeon is 100% successful. and through their own negligence.000. The days are gone when only the rich and powerful were the subjects of lawsuits. Surgery leaves the patient crippled. they are squatting. but the jury in the malpractice suit awards the plaintiff $20. keep in mind these people have no right to be in this property. The doctor must make up the shortfall of $5.000. Now. He is wiped out. their children become sick.000.000 out of his own pocket. This squatting family now brings a lawsuit against the property owner. an amount greater than the policy limits for this procedure. How unfair can it be for someone to enter your property without your knowledge and without your permission. and he must defend himself in court against this squatter suit. and the squatters are able to obtain free legal aid. The people who move in have small children. Case Study 3 . The days are gone when right or wrong truly become the litmus test by which a lawsuit was either filed or dismissed.Inadequate insurance A doctor works all his life to provide competent and effective care for his patients. These small children eat some the paint coming off the walls in this property. have set up households. He must pay for his legal costs. and then they turn around and attempt to sue you? To what degree can the system be so unfair? These are simply examples of what you could call extraordinary problems for ordinary people. He eventually settles out of court to avoid the whole “legal battle” thing.The lawsuit is brought by a group of “squatters”. and are living rent free in houses with no electricity. Asset protection is one solution…… doing nothing in life and hiding under your bed is the other. Questions & Insights Copyright  Lance Spicer 2004 8 . no water and none of the comforts most of us would expect in a home. Unfortunately.

Methods to Protect Yourself #1 – Simple Plan This simple method is for the average person who wants basic protection. The assets of the shareholders are unclaimable. if they already hold this position. there are Onshore ways and means to protect your assets. • The other partner should resign as director immediately. Methods to Protect Yourself #2 – Company Plan This protection method should be employed by people. not really wanting or requiring the added benefit of being able to go Offshore. The “attackers” will simply by-pass the company structure knowing full well there are very few assets to go after. This person will remain (or become) the director. The “shareholder” should hold no official capacity other than as a part-time worker. • Shares of the company should then be consolidated and held by the NON-Director person. (usually a family business). on dissolution of the marriage. Generally they will be anyway. only the director’s assets can be claimed. • Ensure the shareholder can’t sign cheques etc. Questions & Insights Copyright  Lance Spicer 2004 9 . Have your solicitor or lawyer put together a “post nuptial” agreement stating that. in many cases. these assets are to be included equally in any property settlement. whom have their own company. • Decide which of you should bear the brunt of any claims. to ensure protection for the director’s assets. This will strengthen your argument that this person has no authority over the business on a day-to-day basis. but this is no longer true. and go after the assets of the director or directors. • You have a home and a few investments to protect • You are in a “risk” category but your partner isn’t • Transfer the house and investments to her or him to reduce your “exposure”. It was believed that a company structure provided protection for the business’ directors. but this can’t hurt and it gives you extra piece of mind.How to Inexpensively Set Up Onshore Asset Protection That’s Right For You For those people. These days you only need one director. There will be stamp duty to pay but this will only be on half the value of the transfers assuming that they are also in your name initially.

There are risks with any investment. Now. This will mean that. Borrow as much as you can. • • Go along to your bank or financial institution and apply for a Home Equity Loan. Simple!! Placing it offshore is a better idea simply because demonstrated returns are better. within your comfort level of course. There are benefits!! 1) The amount you borrow could be tax deductible if used for investment purposes 2) Your returns could easily be higher than your mortgage interest rate and you could be in front overall.• • • The non-director / shareholder should also be the person that holds the family’s personal assets etc. if you borrow a further $250. However. This is the amount a litigant can take off you if successful. Would you be able to cope with it? Interest rates on your home loan may go up. to ensure that it’s not possible for courts to “clawback” or reverse what you have done to protect yourself.000.000. so you must understand sometimes investments go down. Methods to Protect yourself #3 – Home Equity Plan If you are concerned about your home getting claimed in some future litigation. you can always return all or part of the funds to you and pay off • • • • • • Copyright  Lance Spicer 2004 10 . 3) Your home is protected from litigation (to a great extent). You place this either onshore or into our offshore structure that I will discuss in the next section..000 and you have an existing mortgage of $100.000 (subject to your ability to make repayments). and it will be isolated from any litigant that is after you. can you cope with this? If you find the whole thing unsettling or it’s not for you.000 to do something with. that leaves you with equity of $300. there is a simple way to ensure there’s not much to run off with and at the same time picking up some money to invest. This is all that is at risk. you now have $250. Questions & Insights Remember…… this structure must be setup at least two years before you have any problems. However. your home is worth $400. In this way the assets are held with the “non-responsible” person The director or “responsible” person holds all the authority but none of the assets. things to keep in mind…. just say. your equity will reduce to $50.000.

Your solicitor should be consulted on all the issues discussed in this module of the program. Questions & Insights Succession Issues: When considering any asset protection. Copyright  Lance Spicer 2004 11 .the loan. Remember…… this structure must be setup at least two years before you have any problems to ensure that it’s not possible for courts to “clawback” or reverse what you have done to protect yourself. Your death could quite literally cause chaos for those left behind if no plan is made. This would be the strategy to employ if rates start moving up quickly. by giving your solicitor a “letter of wishes” and a will stating that upon your death that he or she be appointed trustee of any trust you have established until such time as a new one be appointed (probably. this leaves you exposed again. a beneficiary or relative). as everyone’s situation is very different and requires due consideration. This is a simple matter. however. there should also be a plan for “succession”.

business owners. In many cases. could well fall in this 'deep pocket' category. Asset protection strategies basically work by making the assets of an individual unavailable. Therefore. in which the defendant is being targeted not necessarily because of his culpability in the case. (and hence potentially more unattractive) in the event of legal proceedings being taken against them by employees. Although professionals of many kinds are obliged to have liability insurance or professional indemnity insurance. and while there are many domestic alternatives. or exceptionally difficult to recover. patients. It is also becoming more expensive because of the rising level of damage awards. and this financial management strategy will be of particular interest to those working in professions where there is a high risk of litigation. This is another great deterrent in the first place. some additional asset protection measures. including family trusts. trusts and companies are usually more effective for this purpose. to name but a few. out of sight and out of mind.How to Inexpensively Set Up Offshore Asset Protection That’s Right For You Introduction Anyone with a reasonably substantial net worth could benefit from offshore asset protection. for example doctors. Protection of assets can take a number of forms. simply because not only are the structures straight forward. As discussed earlier. it is increasingly important to consider putting in place. Individuals in the above high risk groups with savings or significant assets. litigious family members or other creditors. but because of his ability to pay. lawyers. what’s worse. clients. and financial planners. and family partnerships offshore vehicles. is that your insurance may not even cover the full size of an award. Copyright  Lance Spicer 2004 Questions & Insights 12 . this is becoming more and more expensive due to the increase in litigation (and of course the collapse of insurance companies like HIH). ”Clawback” attempts and litigation is made just that little bit more complicated and difficult. but your asset ownership lies outside your resident jurisdiction and therefore. there are increasing numbers of lawsuits being brought. and risk losing everything if there are not proper protection measures in place. limited liability partnerships and companies.

Although trusts could once be used in order to “break the link” between an individual and his assets. is not obliged to name the eventual beneficiary. vary from country to country. in Australia. although offshore bank accounts on their own can provide enhanced privacy and confidentiality. Offshore trusts and companies can be used separately or together (better together though) for asset protection purposes (usually in conjunction with an offshore bank account). and distributed. In a trust arrangement. is that you are obliged to disclose the existence of such assets to your local tax man. and even prospers as the instrument of choice for asset protection. false information on your tax return can Questions & Insights Copyright  Lance Spicer 2004 13 . If a person sets up an offshore company (usually an International Business Company or IBC) to hold his assets. this is less the case in recent times. he will normally be a shareholder in that company and vulnerable to Court action. an offshore company can still go a long way towards providing privacy and asset protection . and unless criminal activity or money laundering is suspected. who manages and controls them for the benefit of a beneficiary or beneficiaries (of which the settlor can be one). as high tax countries have had time to develop legislation forcing at least some degree of transparency into trust arrangements. and once it's on your tax return. Unfortunately.The trust is the lynch-pin of offshore asset protection. the agent establishing an IBC (or indeed a trust) on behalf of an individual. The flaw in this line of reasoning. Banking secrecy legislation does however. in many cases. Banking secrecy laws in offshore jurisdictions are usually significantly stricter than domestic laws. detailing how he would like the money to be managed. the trust has to be declared even if just formed. the trustees have legal control over the assets. So the trust survives. and for this reason. However. There is also plenty of pressure on offshore jurisdictions to change their rules by installing 'know-your-customer' and mandatory registration rules. the whole world knows about it. Although the settlor will usually provide a letter of wishes. However. in many offshore jurisdictions.after all. the settlor (the person who transfers assets to the trust) legally gives over control of his assets to a trustee (or trustees). they are usually an integral part of an asset protection strategy. so you will obviously have to check the situation in your preferred jurisdiction before taking action. your creditors first have to find your company before they can sue it. you can expect that your details will not be made available to a third party.

if you invest in offshore funds and shares. you must “work with” the requirements of disclosure making sure you don’t qualify as someone who must disclose these requirements. beneficiaries have no say in the running of the trust. Shareholders in a company can remove the directors if they wish. For example. The trust will hold all the assets in our structure. Beneficiaries.e. Asset protection. funds . strong banking secrecy laws. you need to establish the structure in a jurisdiction with effective IBC privacy legislation. is not something that should be attempted when legal proceedings are imminent. or already underway. So.lead to serious problems. This is illegal. and would provide no protection against creditors whatsoever. These people are like the company’s shareholders. it gives you the same asset protection and even possibly better. it will own them. In our structure. An example of this is using the “under $50. but unlike shareholders.000 rule” where you don’t have disclose your interest if the amount offshore is less than $50. In order to ensure effective offshore asset protection. This applies to both the Offshore and Onshore versions of this Asset Protection Plan. It will also allow you to invest offshore. Firstly. whereas an onshore setup will still have the downside. Also issues of “ownership and control” can be looked at. What you will need: You will need a company to be established as well as a trust. and modern trust legislation. The trustee makes all the decisions on behalf of the trust. who receive income or profits received by the trust. of not allowing you to participate in some investments. The beauty of this structure is that: • It can be easily set up onshore for asset protection purposes • When established offshore. because the assets are located offshore. It will own them on behalf of the “beneficiaries”.000. it will act as the “trustee”. It is controlled by a “trustee”. as any attempt to transfer assets under these circumstances would be considered a fraudulent transfer. a trust is a legal entity that can invest in shares. set in place ahead of time could prove a very valuable strategy. due to you residing in Australia. It has a director and shareholder or shareholders. However. The company is also a legal entity. however.virtually anything. property. Questions & Insights Copyright  Lance Spicer 2004 14 . a well-structured asset protection strategy. such as what it invests in and whom it provides distributions for i.

your children. you and the company owns no assets. they can get nothing! The Company The Trustee The company manages the trustee and controls everything. However. just controls them The Trust The Trust owns everything The trust owns all the assets i. As the director of company you have control over the trust ultimately. All the money it makes – it distributes to the beneficiaries The Beneficiaries These people get all the benefits of the trust – they could include you. The structure will look like this: Questions & Insights The Director and Shareholder of the Trustee Company This will be “you” in the structure You get to control everything but you own nothing. In the event that they come after you…. relatives your spouse Copyright  Lance Spicer 2004 15 .e. investments etc and holds them on behalf of the beneficiaries. you will act as the company’s director and shareholder.Finally.

it’s best to isolate each property in its own trust. however. not related to this one. only need the one trustee company looking after all the different trusts. it’s worth it. as well as stamp duty. 2) if the trust owns a property that is rented and issues related to the property give rise to a dispute. Do not use it for business or run any personal business through it. • Also. If you have multiple properties in a trust. remember there are capital gains tax considerations. That way the only thing at risk is the one property. before you put the family home in a structure. The reason for this is simple. then all the rest in the trust are at risk. You can use a separate trust called a “service trust”. it may be advisable to leave property. particularly your home out of these structures and employ: Methods to Protect yourself #3 – Home Equity Plan shown a couple of pages ago • Copyright  Lance Spicer 2004 16 . which can use the same trustee company. and one property goes wrong. This can only happen in certain circumstances and they are: 1) if the trust is trading or operating as a business. You still. and a little more expensive. • If you are using this trust setup for properties.Questions & Insights Bringing The Together Ultimate Asset Protection Plan I should point out a few rules here to the asset protection scheme: This structure should be used only to protect assets. While this may seem inconvenient. This brings us to second rule. The only chink in the armour is if someone sues the trust itself. So keep all your business operations in a separate entity. So.

• The assets of the business not protected at all. • Capital Gains Tax may be payable on the transfer of investments other than personal assets. • It can make the person transferring the assets uncomfortable about giving up ownership. This should be thoroughly discussed with your solicitor to ensure rights are maintained. business assets and the family home. trust in your partner is required. • Effective asset protection where the potential target is going to the business or the company. Otherwise. Copyright  Lance Spicer 2004 17 . or even some sort of postnuptial agreement. A power of attorney can be helpful. Questions & Insights The Company Plan Advantages • Very inexpensive to transfer ownership of the shares of a family company. remains distanced from any activities that may attract litigation Disadvantages • The stamp duty can be very costly if the assets are already owned. Disadvantages • Only protects the personal assets of the non-director and shareholders.Advantages and Disadvantages of Each Type Of Asset Protection Onshore Protection Strategies The Simple Plan Advantages • This plan is very easy to put in place and can be done quickly by transferring the assets to a person out of “harms way”. • Most solicitors think this is an effective way to protect the family home and assets and is very effective as long as the “ownership” person. Transferring directorships also inexpensive. • Solicitors fees will be incurred (but usually no more than a simple property conveyance). This attack will come against the business assets and in turn the director.

It can cost up to $6. For those on a budget. Disadvantages • Cost.Advantages • In taking a loan against your assets (probably property) it frees up cash to invest elsewhere. as with many of the other plans. • Provides financial privacy. This is a real plus and one of the main reasons for considering a structure like this. stamp duty and Capital Gains Tax considerations. • A long term solution and an effective way of structuring your family’s estate planning. Offshore Protection Strategies Advantages • By far the most effective way to protect assets by removing the right out of reach and out of sight. could fall in value creating a net asset value decrease overall. • Fees will be charged by the bank and of course repayments and interest will be incurred. • Allows offshore investment opportunities not available without a structure like this. • Interest rates on your loan could go up. this is the best way to remove your home as a target.) • The investments you use the equity for. allowing future generations to use the plan. • Effective in reducing “exposed” assets by reduction in the net value. There are also. hopefully via an asset protected structure. (This should be offset by investment income and gains in your asset protected investment structure. • No stamp duty or Capital Gains Tax considerations in transferring the house. Questions & Insights Copyright  Lance Spicer 2004 18 .000 per annum to maintain it.000 for a structure like this and will incur around a $1. Disadvantages • Not as effective as the “Simple Plan” as it still leaves a degree of equity exposed (but far cheaper).

high net worth individual whose business. are most susceptible to creditor lawsuits. Clearly. The methods employed vary from simply changing the ownership of assets to the sophisticated use of offshore trusts and companies.000 is a guideline point. Questions & Insights ARE MY ATTACK? ASSETS SUSCEPTIBLE TO CREDITOR Possibly. or immune from lawsuits and creditor attack. and the Copyright  Lance Spicer 2004 19 . especially doctors. doctors. A net worth of approximately $500. which place one's assets beyond the reach of future potential creditors. you may be vulnerable. WHAT DOES ASSET PROTECTION MEAN? Asset protection is the adoption of advance planning techniques. and people in similar occupations are exposed. lawyers. with the ongoing crisis in the insurance industry. I CARRY SIGNIFICANT LIABILITY INSURANCE COVERAGE . executives. accountants.WHY SHOULD I BE INTERESTED IN ASSET PROTECTION? If you review your insurance policy. accountants. corporate executives and others with highly visible careers.Frequently Asked Questions and Answers WHO SHOULD CONSIDER ASSET PROTECTION PLANNING? Any high income. It is based upon proven sophisticated combinations of business and financial planning techniques. financial consultants. it does not involve hiding assets. or other activities expose him or her to potential litigation. nor is it based upon secret agreements or fraudulent transfers. you'll find that it does not cover you for punitive damages or intentional wrongdoing. many levels of asset protection planning are available. No one is judgment proof. owners of closely held businesses. the financial stability of liability insurance companies is never certain. and some strategies are available to almost everyone. In addition. In practice. but professionals. including frivolous litigation. However. corporate directors. investment. by using the some of the steps that have been outlined earlier. Depending on your profession and many other factors. where the benefits of sophisticated asset protection planning begin to outweigh the costs. real estate developers.

it may be well worth it. Simply rearranging directorships and share ownership in your company will cost very little and can be done yourself.000 for the offshore setup described in this section. Copyright  Lance Spicer 2004 20 . of course stamp duty liability and the possibility of Capital Gains Tax on the transfer of certain assets. a claim can always be made which will exceed your coverage. Costs. Forming a trust.000 to as much as $6. Questions & Insights HOW MUCH WILL IT ALL COST? The costs will obviously vary depending on your needs. Prudent planning might indicate a combination of asset protection strategies and liability insurance. transferring properties will attract some legal fees but mostly the costs will come in the form of Stamp Duty. These costs could be prohibitive and must be evaluated whilst considering your needs when it comes to asset protection. However.scope of coverage seems to be decreasing all the time. in this case. but for some high net worth individuals with high levels of exposure. Finally. could run from $2. whether that be domestic or offshore will run into much more money. Plus.

Contact .Onshore: Your accountant or solicitor.500 . They should be able to do it for you. effective tool in protecting both wealth and privacy.Contacts to Help You Set Up Your Asset Protection Contact .000 depending on how much work they will need to do for your particular circumstances.Offshore: Eilish Murphy ICSL Iberia Limited Av. They know what they are doing and have an excellent record of honesty and integrity and they have been around for a long time. The cost will vary of course but expect $1. 6E 1000 – 109 Lisboa Portugal + 351 21 314 2030 – Phone + 351 21 314 2031 – Fax E-mail: eilish. If you would like someone to help you establish an offshore asset protection Questions & Insights Copyright  Lance Spicer 2004 21 .$5.murphy@icsl. these people are recommended. Defensores de Chaves No 15.

how “safe” will you feel? Will it give you peace of mind? 7. If your assets were “attacked”. Does “peace of mind” assist you in your goals? Questions & Insights Copyright  Lance Spicer 2004 22 .One Question for You To Answer Daily 1. Describe the Asset Protection you already have in place. Do you think there is some value in Asset Protection? 2. Can you define your risks? Do you have concerns already or do you have some idea where the “attack” could come from? Describe your concerns. Do you think Asset Protection should be a priority in securing wealth? 3. 6. “Do you care if you lose everything you own? If you answered YES to both questions. how confident would you be that your assets would be safe? 5. “Do you have any assets? Next question. Do you feel it is adequate? 4. After implementing the appropriate plan.

Questions & Insights Copyright  Lance Spicer 2004 23 . a trust.Action Steps To Put Theory Into Practice 1. contact our agent in Portugal. therefore making the assets secure. is better than nothing? Ask yourself how much do you have to lose? 5. The trust will own all the assets. and as there is technically no owner of the trust. how much will it cost? For instance: Legal Fees ? Stamp Duty ? Capital Gains Tax ? In relation to capital gains tax and stamp duty on your home. you first must establish a company and secondly. 3. Assess your risk. assess (with the help of a solicitor) which plan would provide you with the protection you need. this can be alleviated by using the “Home Equity Plan” and then applying a mixture of the other plans (or possibly all of them) to reduce exposure. Assess the Viability Now that you understand the full cost. one that while not providing you with absolute protection. no one is subject to having themselves sued for the assets of the trust. Establish your Plan Contact your solicitor to discuss the plans shown here and put things into place. One of the misconceptions of this type of arrangement is that the Trustee sort of owns the trust… it doesn’t. They will be able to guide you through the process. is it still a consideration? Or do you believe that the costs are prohibitive? Is there a cheaper solution. Plan Your Strategy Of the Plans discussed. First calculate your net assets Identify the assets at risk Identify where an “attack” on your assets will come from 2. Calculate the Costs Having determined the best plan for your needs. Additional Note for The Offshore Plan: To start off with. The company can be a simple $2 company and it will act as the Trustee for the trust that will be established under it. 4. If you are interested in the Offshore solution and understand the benefits. just the “Trustee” (the company) and the beneficiaries. at the same time keeping costs to a minimum.

However. Doing things this way is essential. no one owns the trust or it’s assets other than the trust itself. There are several ways to improve this situation. you can add further trusts for extra investments. Questions & Insights Copyright  Lance Spicer 2004 24 . For example. this can only happen if someone has a claim on the assets of the trust. nobody will sue you for what you haven’t got. add a trust for business. As the company is the trustee for the trust. This means you control the company and own the company as the shareholder. This structure can also be expanded. As all the assets are in the name of the trust. Make sense? This is just a simple way to protect your assets. However. which would be rare. such as having multiple trusts to further isolate litigants from making a claim on the assets of the trust. As I said before.So. as the assets would be insured for third party claims. can’t penetrate the trust and make a claim against the assets of the trust. it owns everything. Rest assured. the company (you) will nominate who the beneficiaries are. you control the trust. and the only people who can benefit from these assets are the Beneficiaries. which would hold business assets and another one that could actually run the business. if your assets are in a trust like this. because you need to isolate assets so there can be no linkage of assets. not the trustee. However. only the trustee does. this is how it works. You see how it works? You end up controlling the whole thing but have no ownership of anything and without ownership. you only need one trustee company to control any number of trusts. they have no say in the running of the trust. by simply adding more trusts under the control of the trustee. You become the director and shareholder of the company. As the trustee. if one trust for whatever reason gets into trouble. but not own the trust. civil action against you personally.

you've written a will to distribute your assets to your children after your death and now you're feeling pretty secure that you've safeguarded your children's inheritance. After this experience. he left his business. You may be leaving for your children months. with both of them acting as trustees. even years. She was fairly familiar with her father's financial affairs but. she had to hire a solicitor to probate the will. hassles with court officials and emotional anxiety of waiting for their inheritances. a holiday home and other assets to her. of agony in court. the living trust will allow them to avoid lengthy and costly court proceedings. you transfer legal ownership of the assets to the trust. but you name yourself Copyright  Lance Spicer 2004 25 . Debby learned the value of a revocable living trust firsthand. or even cancel it at any time. But this may be a false peace or mind. Fortunately. But the problems started cropping up almost immediately. As Debby put it. but paid a heavy price for it. In the event of incapacity or incompetence. Finally. whopping legal fees.The Asset Protection Guide Special Reports Section Special Report 1 . the surviving spouse will continue to act as trustee and control and manage their assets. "I want everything to be as easy as possible for my kids if something happened to me. when it came to probate. In setting up the trust. there's a simple solution to this problem and a growing number of people are taking advantage of it. When one of them dies." The Flexibility of a Living Trust The beauty of a revocable living trust is its flexibility. they can change its terms. the probate was over more than two years later but took a heavy financial and emotional toll on Debby. It seemed like the court and solicitors were getting involved in every decision. was named the executor and sole beneficiary of the estate. let's say. family residence. there was very little she could do to expedite the process. an accountant by profession. he had left a will and at first it seemed everything would go smoothly. Because the trust is revocable. it did not take much to persuade Debby and her husband to set up a revocable living trust. Surprisingly. The Revocable Living Trust -A Real Experience Like many people. All of their assets were transferred to the trust. Although Debby. The once-thriving business was pretty much ruined.The Living Trust Avoiding Financial Disaster with a Living Trust Using a little foresight. When her father died four years ago. I wouldn't want them to go through what I did with my father's estate.

The biggest downside being the stamp duty involved in property transferral that can run into thousands. Upon the death of one joint tenant. Most estate planners advise against joint tenancy for a variety of reasons. and the injured person files a lawsuit. you'd Copyright  Lance Spicer 2004 26 . other that the beneficiaries. including designation of beneficiaries. Thus. the trust is an entirely private affair and no one. So far so good. you've been administering the trust for several years. the surviving joint tenant inherits the assets. Most trusts are relatively simple to prepare. For some trustee of the trust. However. presumably. needs to know the contents of the instrument. This requires some paperwork and you'd need to contact your banks. joint tenancy may be a wise decision. brokers. you can do so quite easily. a parent and a child) hold title to a property in joint tenancy with the right of survivorship. although you've relinquished the nominal ownership of the assets. A living trust is one sure way to avoid that problem. however you continue to be the beneficial owner. but this is a once off and will ultimately be worth it. Placing Assets in “Joint Tenancy” is Not a Solution Most married couples (and often. Remember. in certain situations. in a vast majority of cases. It would be difficult to challenge your competency to set up the trust under these circumstances. without the intervention of a probate court. ruling out the possibility of blackmail. etc. Anyone wishing to contest the trust would have to sue each and every beneficiary. revocable living trusts have few disadvantages. mortgage or give away your assets as you please and the trust won't interfere. after they've received the assets. This precludes disgruntled heirs from using the threat of a court battle to tie up the estate in years of litigation. unless he or she has placed the property in joint tenancy with someone else. joint tenancy spells major disadvantages. A living trust is set up during your lifetime and. insurance agents. sell. you can manage. For instance. There are Few Disadvantages with a Living Trust According to most estate planners. Trusts are Difficult to Contest when Compared to a Will Living trusts are extremely hard to penetrate. Upon your death. If the son gets into an accident. say you own your home and care in joint tenancy with your son. the trust estate is distributed to the named beneficiaries almost immediately. that property will be subjected to the vagaries of a will. or even revoke it in entirety. But when the second spouse dies. but you would need to formally transfer the title of various assets to the trust. If at some point in time you wish to change terms of the trust.

" Upon your death. or give them away. In this named a defendant along with your son. The Essence of a Living Trust is its Simplicity. Now you would need to go to court before being able to do anything with the jointly-owned assets. You and your wife own all assets in joint tenancy with a view to avoid probate when one of you dies. the successor trustee takes over the estate immediately without going through probate and terminates the trust. You name yourself as "trustee" and you maintain full control over your assets just as before. But your wife has to be put into a nursing home due to Alzheimer's disease. sell them. This type of structure should really be considered as part or your asset protection strategies as well as ensuring the security of your family when you are gone. joint tenancy actually turned out to be a curse. It provides you with the maximum amount of flexibility. If an adverse judgment is Or take this scenario.manage them. Copyright  Lance Spicer 2004 27 . It's that simple. Control and Flexibility Living Trust is set up by you while you're alive. your personal assets are at risk. The trust does not become effective till you die or become incapacitated. rendered. You can also abolish the trust or alter its terms or change the beneficiaries at any time you wish. The person you would designate as beneficiary of the trust (your husband or wife or children) is called "successor trustee. You can do whatever you wish to do with them -.

there is an old solicitors trick that works quite nicely if you are concerned about your asset assailant being work related. They make these things disappear for many reasons. greedy governments and of course the most hated of all asset thieves – the vicious lawyer under the employ of an ex-employee. they will find there are few if any assets to sue you for and will probably give up. This solution is simple. Ensure your spouse has nothing to do with the business. we’re all in serious trouble and “viva la revolution!” Instead. customer. This could and should include shares. Of course there will be the need to have some assets “onshore”. or your spouse’s. neighbour. before we start if you transfer assets after some legal action has commenced you could be guilty of a crime. passer by. Now. one of the categories of people described above are after all or part of your assets and you obviously have a desire to keep them to yourself. In the unlikely event that your spouse and you dissolve your relationship. The most amusing and best idea for safeguarding your assets I have heard in a long time is the one cooked up by the wealthy PT father of a friend of mine. Let’s assume for the purposes of this exercise that your government hasn’t been taken over by fascists or communists and that the government isn’t taking everybody’s property including that owned by foreigners. malevolent ex-spouses. such as being a director etc (shareholder is ok though) and transfer all the assets into their name.Special Report 2 . let’s focus on the more likely scenario whereby. The courts don’t really care who owns what. The beneficiaries were the unborn children of his son and Copyright  Lance Spicer 2004 28 . assets located in your home country are easy to find for any investigator worth his salt. properties and bank accounts. get your solicitor to issue you with a power of attorney so you can still use and sell the assets if you wish to. In this way. quick and easy for most people and is a cheaper alternative. Assets such as shares. keep in mind. so don’t even think about doing that. One thing that should be made perfectly clear. property and other investments. business partner etc. all in all worth many millions of dollars. Before I get right into it. If this in fact was the case. like property or shares etc. your home remains capital gains tax free as long as it’s in your name. Also. They are more concerned about the sum total of assets between the partners. costing only stamp duty and some minor legal costs.Hiding & Safeguarding Your Assets Making things disappear from view has been a sport of rich people for years. The best place to have assets is offshore and not in your name if possible. bonds. However. if someone has a shot at you. He had a trust established and had all his assets placed in this trust. Get in early before your assets are attacked. the family law courts will still split the assets on the same basis as they would have if the assets had have remained in your name. Forward planning is the key. and this should be placed in an offshore entity if at all possible.

bank accounts. Wherever you and your assets are. Let’s look at each of the categories. These may be assets held in a third party’s name such as a trust or company. then the beneficiary didn’t exist yet. electoral roles. This can uncover those unlisted assets such as coins. My friend’s father never saw the Egyptian man again and to this day remains the trustee even though the man holding the power of attorney (my friend’s father in actual fact) controls the trust without fear of being held to account for any matter arising from the trust. There are basically 3 categories of assets. Assets hidden but have been found and then seized without notice This is where things get a little harder for the authorities and they can make your life hell. Assets easily located and seized without notice Your home is the first thing that will go. they’ll find you and them. shares in private companies and cars in your name and in the name of associated entities. the titles office. once the trust was established he simply found a beggar on the streets. credit reference organisations. foreign cash and other “minor” assets. The first was the trust deed agreeing to act as trustee and the second was an enduring power of attorney appointing my friend’s father to act in all things regarding the trust. police records. They use council records. As my friend had not yet had any children. but has full rights to use the money as he feels fit. Medicare records. telephone accounts etc.the trustee was a kindly Egyptian man from the streets of Cairo. bonds.000 will be spent on the streets of Cairo. Assets easily located and seized without notice Assets hidden but have been found and then seized without notice Assets that are hidden and immune from seizure Which category could your assets fall into if something happened? The first one. On the death of my friend’s father. US President Copyright  Lance Spicer 2004 29 . banks. the Egyptian man had no idea what was going on and even if he did he couldn’t read English and didn’t know the name of the trust anyway or what it was all about. They can also find assets by checking all of your financial records including bank and credit card statements and cheques drawn. travelers cheques. Then shares. -Thomas Jefferson. So. As my friend’s father had a long standing business relationship in Egypt he had a good understanding of how things work there. ASIC. “Your assets have been seized!” It’s frightening just reading those words but it can happen – it does every day. art. motor transport records. but it doesn’t have to be this way. Quite often these will often only delay the process once it can be proved that these assets are beneficially held for you. the assets will be transferred to the beneficiary or a new Trustee will be appointed and no doubt another $1. The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. right? Most people are in the same boat.000 for his name and two signatures on two pieces of paper. tax records. offered him US$1.

IBC. Other assets that can’t be seized because they are out of your control include Privacy Services do it all. Gibraltar Ph: 0011 346 108 04378 Fax: 0015 49 30690 88244 Email: privacyservices@yahoo.psi. companies and asset protection.Assets that are hidden and immune from seizure These are assets that are offshore in the name of a company or trust in which you don’t hold shares or office. superannuation. trusts. In the case of a company it’s all pretty simple. driving permits and maildrops. Privacy Services International 24 College Lane. and beneficial interests in irrevocable trusts. Suite Website: www. Wellesley MA 02181. These could include bank accounts. The bottom line is you should have at least some of your assets offshore tucked away in a secret company or trust. they can’t be seized. Contacts: Azaria Financial Services LLC 70 Walnut St. offshore These people can help with a wide range of services including offshore banks. properties and the contents of safety deposit boxes in banks. you don’t hold shares and don’t hold any office such as director or secretary (see The Invisible World for more details) and as far as a trust is concerned as long as the trustee (not you) has control of the assets. shares. Copyright  Lance Spicer 2004 30 . Offshore bank accounts also available. passports. USA Phone: 0011 1 781 239 8103 Fax: 0015 1 781 239 8095 Email:

. etc. cheque or electronic transfer. Keep your transactions under AUD$10. but what you throw away says a lot about you. associates and partners. where you travel (domestic & foreign). Federal Express. the list goes on. Reviewing credit card statements to determine who you do business with. whether made by cash. For example. creditors…. use cash for purchases.) for delivery of special or important letters and packages. The Bahamas. and many leads can be found there. DHL. and what products and services you use. Netherlands Antilles. Cayman Islands. and other known banking and tax havens. be sure to ask your correspondents to stop using a return address. Use a high quality paper shredder. use phone cards for telephone calls. And use a maildrop. ex-friends. or burn and crush it. If you must receive important mail at your residence or business address. business and hotel). fax and mobile phone records to identify undisclosed business connections and contacts. greedy relatives.000. Copyright  Lance Spicer 2004 31 . This technique can disclose friends. It sounds drastic. correspondence. litigants. All withdrawals and deposits of AUD$10. Travel to these types of areas will surely throw up a red flag. giving investigators a place to start looking for your assets. invoices.How hidden assets are found …. Checking private courier's logs (UPS. ex-husbands. and other relevant material useful in tracking your affairs. Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail. • • • • • • The solution is to destroy or hide these records or better still. Isle of Man. use a maildrop for mail.. Garbage is often sifted through for information such as statements. These records leave a paper trail a mile long. keep as much off these records as you possibly can. • Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland. discard your garbage at another location. destroy unwanted records and possibly get a second passport. By just about everyone! I can’t count the number of people who have written to me asking how to hide their assets.Special Report 3 .000 cash or more must be reported by your bank to the federal government. Examining telephone (home. business partners. They fear being put upon by ex-wives. Looking into banking transactions. Sometimes the best way to foil them is know how they will find your assets and this will give you a head start in heading them off.

that is. The only way a creditor can seize such an annuity is if the purchase of the policy. or orders that they be included in.Special Report 4 . If not. Beneficiaries may be named on a revocable or irrevocable basis. is found to be a fraudulent conveyance under Swiss law. relative to the insurance needs of your family. each of which can be in a different country or jurisdiction. The four parties are: Copyright  Lance Spicer 2004 32 . or six months before some other collection action. the policy can be seized by a creditor. Nor can it be proven if your policy is not written for an excessively large sum. Swiss annuities can even be used to shield assets from a bankruptcy proceeding. say. Of course. or the designation of the beneficiaries.happy society such as the United States is the increasing danger of being sued. the designation must be made on a irrevocable basis. Switzerland. your asset protection remains intact. or (2) if the insurance policy was bought or the beneficiaries chosen with the clear intent of damaging creditors. One such vehicle is a Swiss annuity. And if you should have the misfortune to wind up on the receiving end of some courtroom debacle. Note that an annuity or life insurance policy can involve up to four parties. As long as your beneficiary is your spouse. it doesn't matter whether he or she is named on a revocable or irrevocable basis. such intent cannot be proven if the policy was purchased and the beneficiaries named at a time when the insured person was solvent or when no creditor’s claims were outstanding. a bankruptcy settlement.Asset Protection with A Swiss Annuity A little bit of thinking outside the square One of the unhappy facts of financial life in a lawsuit. if your beneficiary is a third party (that is. Even if a court specifically orders the seizure of assets in a Swiss annuity. One of the best ways to protect yourself against such a calamity is to invest in a vehicle that will be beyond the reach of the courts. it could easily cost you your life savings. However. In either case. That is because the rights of an insured person subscribing to a Swiss annuity policy are deemed to be located at the domicile of the Swiss insurance company. Another item that can make an important difference in the amount of asset protection a Swiss policy provides is the designation of beneficiaries. Fraudulent conveyance takes place only: (1) if the insured person bought the policy or named the beneficiaries less than six months before the bankruptcy decree was issued. neither a spouse nor a descendent). such an annuity will be protected under Swiss law.

the insured individual. Note that a properly written Swiss annuity policy affords better protection than Swiss bank accounts. Switzerland telephone: +41 41 368 8233 fax: +41 41 368 8299 This adviser is highly regarded by those involved with Swiss Annuities. 3. Try contacting: JML Jurg M. Swiss life insurance policies also make great estate planning vehicles. corporation. the policy owner or policyholder. Lattmann AG Swiss Investment Counsellors Germaniastrasse 55. or a trust. or a trust. corporations. preferably your spouse and/or children. 2. If he is not the policy owner. He chooses the policy options and designates the beneficiaries who are paid upon the death of the insured person. These may be individuals. or Swiss securities accounts. However. the premium payer. CH-8033 Zurich. Copyright  Lance Spicer 2004 33 . a corporation. your beneficiaries should only be individuals.1. he does not have any rights. or trusts. 4. If you would like more information. regardless of the risk of bankruptcy or asset seizure. This may safely be an individual. the beneficiaries. there is one Swiss insurance broker dealing with Overseas clients. if asset protection under Swiss law is your concern. When he dies. The policyholder may be an individual. the contract matures and benefits are paid to the beneficiaries.

questerpress. out of the blue.Special Report 5 . Bankruptcy (A Division of Trident Press Pty Limited) You need to protect your assets. Unforeseen disaster You work hard all your life saving up for retirement and then one day. but my work is excellent and I can guarantee its quality. If only you could turn the clocks back a couple of years and hide your assets in such a scheme. you sit down and reach for your insurance policy to see if you are covered. the Copyright  Lance Spicer 2004 34 . Oh dear. For example. where your assets may simply be seized or nationalised? Self-employed Ah. one of our clients was a self-employed engineer working for a major US motor car manufacturer. Are you a professional or self-employed person who is legally responsible for the quality of his own work? Are you getting divorced or separated and likely to lose most of your wealth to your partner? Do you live in a politically unstable country. as is so usual. Suddenly. Creditors claims 3. You can lose your money in an endless variety of ways (everyone wants your money!): 1. it happens more often than people care to admit. If he makes a mistake in his designs. The taxman 7. if you make an error of judgement – believe me. God forbid. Blackmail! 8. Probate 6. the insurance policy contains a clause that exempts it from liability in this particular case. the expense of such schemes seems insignificant. Claims against errors in the commercial world can reach ridiculous levels. comes a third party claim against you for negligence. Third party legal claims for damages 2. You think back to all the times you came across asset protection schemes and suddenly you realise the value of such schemes. Divorce 4.Special Asset Protection Report by Eesh Aggarwal This report has been reproduced from The Q Newsletter produced by Quester Press www. In Do you have staff working for you? How can you guarantee the quality of their work? What can happen if a member of staff gives off-the-cuff advice that turns out to be incorrect? What happens.

‘ When I listen to one party. When I subsequently listen to the other party. he knows he can always access his funds. Trading as a limited company.’ As advisers. someone who was once your closest confidant becomes your worst enemy. This is a very good method of protection. I know who is right and who is wrong. this enemy is lethal as this enemy knows all your secrets and weaknesses. Clients approach us for advice on protection of their assets from their partner. All of a sudden. over the years not to take sides in such disputes and simply advise on the facts we are presented with. if he falls short of cash. He is now delighted that his assets are safe and does not worry about being penniless come retirement age. Our client was not satisfied and wanted an absolute foolproof method of protecting the vast majority of his wealth. However. whom do you believe? Invariably. there is always the risk that the claim may not be covered due to a small. In addition. b. Taking out negligence insurance (or professional indemnity) – unfortunately. In addition. A famous English king once said. sometimes painfully. you can always lose all the assets built up in the company. with the greatest Copyright  Lance Spicer 2004 35 . Indeed. we may appear amoral (as opposed to immoral) but again from a purely practical point of view. rather than as a sole trader. Divorce/ separation There is nothing more painful than a messy divorce or separation.potential loss to the manufacturer could run to tens of millions of dollars. Eventually our client set up such a trust. From a purely moral point of view. I have no idea who is right or wrong. we cannot talk to the other partner and thus we have to rely on the facts given to us by our client. We always advise that it is best to deal with financial matters amicably and to be fair to the other partner. insurance is not cheap and the premium is based on the amount insured.’ In such a situation. In addition. based on our client’s point of view. innocent exclusion in the policy wording. there is always the risk that courts will look through the company and make the director personally liable in certain circumstances in cases of negligence. when asked to arbitrate between two quarrelling parties. Not even our client could afford insurance cover for tens of millions of dollars. normally after a crisis has been triggered. Nine times out of ten we are told that ‘I am being fair but my partner is a #@#*&! I’m going to lose everything and I need your help. we have learnt. We advised that the client could protect himself by: a. Our client sought our advice on this matter. We then recommended he consider an asset protection trust.

The US government froze aid and loans to Pakistan and. if the same assets were to be controlled by us as trustees under an asset protection trust. This was routed back to our client such that it appeared as a receipt from an independent third party. However. Of course. we never make judgements (as we have only heard one point of view) and we simply advise objectively based on the position presented to us by our clients. we are not social counsellors. if the commission were to be earned by the trust in the first instance rather than earned by our client. it is possible (though unlikely) some countries could ask for all foreign holdings to be repatriated by their nationals and then subsequently seize the assets in exchange for some government promises or even subject these to penal rates of tax. in 1998 he transferred a large sum of money to a local bank in Pakistan as it was offering higher interest rates than in the western world. In this case. the assets would be safe in all circumstances! Politically unstable countries One of our clients is an expatriate Pakistani. Although our client was not injured by the radiation from the blast. Pakistan froze all foreign currency bank accounts. Our client was thus unable to access his funds. as a result. A simple solution was implemented. the funds would be totally safe from attack (depending on local matrimonial laws.respect for our clients. your government will not be able to gets its hands on those funds. You could even include a clause in the trust stating that if the government tried to claim against the funds that the whole nature of the trust be changed automatically such that the government could never legally make such a claim! Copyright  Lance Spicer 2004 36 . The money was paid to a Swiss bank account and kept there. The last time we spoke to our client. he did suffer as a result of the politically nuclear fallout. merely the interest (which was a substantial sum per annum). if you have already gifted your money away to an asset protection trust. it is always easy to be wise after the event. Our client did not need the capital. Indeed. we were advised that the Pakistani government was thinking of seizing all foreign currency accounts and giving government bonds denominated in local rupees in exchange. our client controls his own funds. For foolproof protection. One of our clients recently earned a commission of a few million dollars. Last year. He asked for asset protection advice such that the asset should not be visible to his partner. of course). Pakistan then decided to detonate a nuclear bomb. had our client kept his money overseas. Our client is very happy with this arrangement. Thus. that in itself would have been a form of asset protection! In extreme cases. In such instances.

Isn’t that great? Copyright  Lance Spicer 2004 37 . Who can create an APT? Basically. bankruptcy creditors and commercial disputes. say. you will defeat the negligence claim. You discuss this with your friends and you are advised that if you gift your assets away before any legal action commences. $300. as you are now unable to repay your debts in full. we find most clients normally transfer 40-60% of their assets into a trust. Your particular jurisdiction may not allow such trusts. In practice. In other words. This type of trust was pioneered in the USA to try to defeat the claims made against professionals including doctors. our firm normally requires this affidavit to be witnessed by a lawyer. The most common types of creditor claims are those made by separated or divorced spouses. you will be technically insolvent. you can challenge this presumption by argument in the Courts – we wish you luck! Thus. surgeons. that will be fine as you will have enough assets left to repay your creditors.000 (as above) and you know that someone will soon sue you for negligence. Of course.001.000 of assets and $200.000 of debts.e. you can safeguard those assets from third party claims. it is normal practice for the trustees to require an affidavit of solvency from the person creating the trust. Indeed.000. etc. the Courts can require the transaction be reversed and the money returned to the person gifting the assets away as it is presumed in law that the intention was to defraud creditors by gifting away assets. architects. if you try to gift away. In such a situation. the settlor. However. US law allows APT’s. Potential claims Let us suppose that you have net assets of $200. anyone can provided he/she is not a minor (normally under 18 years old) or a lunatic! There are a few factors to bear in mind: Solvency Let us say you have $500.What is an Asset Protection Trust (APT)? Put simply an APT is a trust devised for the purposes of defeating creditors’ claims and is a trust that is not under the control of the person establishing the trust i. It is important to realise from the outset that the success of APT’s really depends on local law. If you gift away less than $300.Special Report 6 .

i. For example. (6) The trust must be discretionary. the settlor must not retain the right to force the trustees to return the assets to him/her. the trustees will be obliged to return the assets to the settlor. Thus. If he had any notion whatsoever that he could be sued. this means that the timing and decision of deciding when to return the assets held by the trust to the beneficiary rests solely with the trustees. Thus the settlor is also the beneficiary. That alone will put off many creditors! (5) The trust must be irrevocable. in the event of bankruptcy of the settlor. the law is unlikely to be on your side. should the settlor (who is also the beneficiary) become bankrupt. the court will appoint a trustee in bankruptcy to act on behalf of the settlor. How do I know they won’t run off with my hard earned money? How can I force the trustees to release the funds when I need them? Copyright  Lance Spicer 2004 38 . many people think say ‘Aha.e. (4) The trust must be located overseas in a jurisdiction that does not automatically recognise creditor judgements of other countries. This is because. (2) The settlor gifts the assets to an overseas irrevocable discretionary trust. In a normal trust. that will be enough for the Courts to reverse the gift. the trustees physically control the assets and related bank accounts. a creditor judgement won in Australia will not be automatically recognised by Cypriot courts. Step by step guide to setting up an Asset Protection Trust (1) The person giving away the assets is called the settlor. (3) The assets are held for the benefit of the settlor i. Most countries have legislation which will reverse transactions entered into prior to commencement of third party claims. which is run by persons called the trustees. This trustee in bankruptcy can then simply force the return of assets for onward distribution to creditors. in due course. Thus. The onus of proof is normally on the person being sued for a fixed period of time prior to being bankrupted (say three years. a beneficiary can make this decision and force the trustees to release all assets. This is dangerous because. In other words. I’m giving my assets away to some overseas trustees. our firm will normally require a statement confirming that the settlor is unaware of any potential claims against him/her. depending on the country concerned) to prove that he gifted the assets away when he had no idea whatsoever that he may be sued in the future. then all his affairs will be dealt with by the trustee in bankruptcy – this person could then force the trustees of a normal trust to release the assets held in the trust. the creditor will have to incur great expense in retrying the legal case in Cyprus. At this point. Put simply. The release of assets cannot be forced upon the trustees of a discretionary trust.Unfortunately.e.

common-sense would indicate that he is not accountable to the beneficiaries (the trustees are accountable). Note that the protector is not a trustee i. it would be a criminal offence and thus the trustees would always be on the run from the police. he cannot force the trustees to accept his suggestion. you now have added protection for your assets. Copyright  Lance Spicer 2004 39 . Here is the good news and the bad! The bad news is that you really do have to trust someone to look after your assets. they can! Another person can be appointed to look after the trust assets. in our view. if someone acts as a protector. then the beneficiaries can sue him for breach of duty if he fails to carry out his duties in accordance with the trust deed. if the duties of the protector are detailed in the trust document. who basically has a veto over some powers of the trustees or whose consent or permission is otherwise required by the trustees. the trustees may wish to sell a particular freehold property. Let us now assume that you have found trustees you trust! Even at this stage. Thus. As the protector is not a trustee. However. it has held in Court cases that if the protector is paid. you should not proceed with implementation. in addition to the trustees. the trustees can take him to Court if he withholds consent for certain transactions unreasonably. On the other hand. The last thing you should do is trust someone because you discovered him or her on a website or an advertisement! If ever in doubt. For example. For example. you may require all cheques to be countersigned by this other person. The protector may stop this sale if he feels it is not in the best interests of the trust. In addition. In addition. Thus the key is ‘choose trustees you trust’. who is acting to protect your assets. If you retain control of the funds. if the protector feels he has discovered a good investment property. If you have doubts about someone. he/she is taking on certain responsibilities.Good questions. a protector is a person. some people will still have an element of doubt about the safety of their assets. This person is referred to as a protector. Thus. Is there anything they can do at this stage to further safeguard their assets? The good news is – yes. asset protection will not exist. Thus. The best approach is personal recommendation from your friends and relatives.e. do not go ahead with the structure. The good news is that most trustees are very honourable and their professional fees are set at such a level that they have no need to run off with the settlor’s funds. his powers are limited such that he may block certain transactions decided upon by the trustees but he cannot initiate transactions.

Remove and appoint new trustees 7. your creditors would push for the appointment of more sympathetic trustees who would be willing to release the funds to the beneficiary. we find most people do not bother with protectors as they trust their advisers absolutely. That may be very well in theory as the protector cannot initiate any action but in practice it is dangerous as. The choice is entirely that of the client. Addition of new beneficiaries 3. Here’s a list of some good providers of Trust advice. London. and know that they all provide excellent services. inter-alia. Right to be consulted or have veto powers over sales of particular shareholdings or other trust property. Professionals. Right to obtain trust accounts and/or arrange an audit 5. Graeme Aarons: Suite 219.The normal powers of a “protector” include. In practice. SW3 1PY. 163-169 Brompton Road. there are hundreds more. Use a protector where the funds are substantial. or a professional from an independent firm to the trustees. state that in our view the most practical method would be to: 1. of course. but we have knowledge of each of these people. Obviously. not use a protector if the trust funds are small in value – the definition of small depends on the client 2. Collier House. We would. Initiate the migration of a trust to another country. the trustee in bankruptcy would become the protector. as the cost of having a protector will probably equate to that of an insurance policy! Aggressive APT practitioners often suggest that the settlor can also act as a protector. in the event of the client being made bankrupt. the following: 1. Copyright  Lance Spicer 2004 40 . Tel: + 44 171 581 2524 (UK 0171 581 2524). In this situation. Or contact his Swiss office in Neuchatel: Tel + 41 32 722 1841. The main danger here is that a normal power of the protector is that he has the right to appoint new trustees. Veto over payment of capital to beneficiary 2. The best protector really would be a very close personal friend or family member. Conduct periodic reviews of the administration of the trust by the trustees 6. or decide whether certain events have occurred that will result in the automatic migration of the trust overseas (discussed later) 8. Agree trustee fees 4. cost a lot more than friends and relatives but this has to be weighed against the emotional problems that may be encountered when dealing with people you know socially. however.

# 320. SW1X 7HH. Fax: + 1 843 937 4310.Fax: + 41 32 722 1842. Fax: +1 619 456 6099. CA 920037. ON M5P 1R6. Tel: +1 416 488 7918. UK. Tel + 1 408 374 1462. JD. Fax: +1 905 877 7751. Charleston. Toronto. (Specialist in Australian & UK Trust Law.) Howard Stamer. Tel: + 1 843 937 0110. Email: mgchatzky@aol. Pearce Trust: 12 Grosvenor Place. #103. LLM. Sunnyoaks Avenue. Campbell. QC: 350 Lonsdale Road. Tel: + 1 619 456 6085. CA Kurt Johnson. Email: dm1976cp@ntcom. SC Timothy Copyright  Lance Spicer 2004 41 . JD: 180 East Bay St. Canada. Fax + 1 408 374 1534. Tel: +44 171 259 5992 (0171 259 5992) Fax: +44 171 259 5985 (UK 0171 259 5985) Email: info@pearce-trust. Email: tenstate@aol.. England. Michael David Melnik. USA. Suite 311. London. Scranton. Universal Trust Services: 125 E. Chatzky & Associates: 888 Prospect Street. USA. USA. La Jolla.

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