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


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

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

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

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

the old paint contains lead and is very toxic and the children become very ill. 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. Unfortunately. Now. He eventually settles out of court to avoid the whole “legal battle” thing. Surgery leaves the patient crippled. These small children eat some the paint coming off the walls in this property.000. no water and none of the comforts most of us would expect in a home. He is wiped out. have set up households. and through their own negligence. their children become sick. These are people who have entered vacant property.000 out of his own pocket. The days are gone when only the rich and powerful were the subjects of lawsuits. Asset protection is one solution…… doing nothing in life and hiding under your bed is the other. an amount greater than the policy limits for this procedure. This squatting family now brings a lawsuit against the property owner.The lawsuit is brought by a group of “squatters”. keep in mind these people have no right to be in this property. Case Study 3 . The people who move in have small children. He must pay for his legal costs.Inadequate insurance A doctor works all his life to provide competent and effective care for his patients. The days are gone when right or wrong truly become the litmus test by which a lawsuit was either filed or dismissed. and the squatters are able to obtain free legal aid. but the jury in the malpractice suit awards the plaintiff $20. and are living rent free in houses with no electricity. 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. No surgeon is 100% successful. It is imperative that families and businesses today understand that they are at risk and that problems can arise. The doctor must make up the shortfall of $5. they are squatting.000.000. Questions & Insights Copyright  Lance Spicer 2004 8 .

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

that leaves you with equity of $300. This is the amount a litigant can take off you if successful. Methods to Protect yourself #3 – Home Equity Plan If you are concerned about your home getting claimed in some future litigation. to ensure that it’s not possible for courts to “clawback” or reverse what you have done to protect yourself. This is all that is at risk. However. However. • • Go along to your bank or financial institution and apply for a Home Equity Loan.. Borrow as much as you can.000 and you have an existing mortgage of $100.000. so you must understand sometimes investments go down. your home is worth $400. if you borrow a further $250. 3) Your home is protected from litigation (to a great extent). within your comfort level of course.• • • The non-director / shareholder should also be the person that holds the family’s personal assets etc. just say. can you cope with this? If you find the whole thing unsettling or it’s not for you. you can always return all or part of the funds to you and pay off • • • • • • Copyright  Lance Spicer 2004 10 . This will mean that.000. You place this either onshore or into our offshore structure that I will discuss in the next section. 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. you now have $250. your equity will reduce to $50. and it will be isolated from any litigant that is after you. Would you be able to cope with it? Interest rates on your home loan may go up. 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. Simple!! Placing it offshore is a better idea simply because demonstrated returns are better. Questions & Insights Remember…… this structure must be setup at least two years before you have any problems.000 (subject to your ability to make repayments). 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.000.000 to do something with. There are risks with any investment. Now. things to keep in mind….

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. as everyone’s situation is very different and requires due consideration. a beneficiary or relative). Copyright  Lance Spicer 2004 11 . Your solicitor should be consulted on all the issues discussed in this module of the program. This would be the strategy to employ if rates start moving up quickly. Questions & Insights Succession Issues: When considering any asset protection. however. there should also be a plan for “succession”. This is a simple matter. 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.

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

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

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

you will act as the company’s director and shareholder. you and the company owns no assets. just controls them The Trust The Trust owns everything The trust owns all the assets i.e. investments etc and holds them on behalf of the beneficiaries. they can get nothing! The Company The Trustee The company manages the trustee and controls everything. your children.Finally. 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. 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. In the event that they come after you…. However. relatives your spouse Copyright  Lance Spicer 2004 15 .

So keep all your business operations in a separate entity. before you put the family home in a structure. not related to this one. You can use a separate trust called a “service trust”. then all the rest in the trust are at risk. it’s best to isolate each property in its own trust. The reason for this is simple. 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. While this may seem inconvenient. Do not use it for business or run any personal business through it. That way the only thing at risk is the one property. 2) if the trust owns a property that is rented and issues related to the property give rise to a dispute. and a little more expensive. • If you are using this trust setup for properties. remember there are capital gains tax considerations. it may be advisable to leave property. • Also. If you have multiple properties in a trust. So. as well as stamp duty. it’s worth it. The only chink in the armour is if someone sues the trust itself. 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 . only need the one trustee company looking after all the different trusts. You still. however.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. This brings us to second rule.

Otherwise. • The assets of the business not protected at all. • 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. Disadvantages • Only protects the personal assets of the non-director and shareholders. • It can make the person transferring the assets uncomfortable about giving up ownership. A power of attorney can be helpful. Transferring directorships also inexpensive. business assets and the family home. trust in your partner is required. Copyright  Lance Spicer 2004 17 . • Capital Gains Tax may be payable on the transfer of investments other than personal assets. • Effective asset protection where the potential target is going to the business or the company. remains distanced from any activities that may attract litigation Disadvantages • The stamp duty can be very costly if the assets are already owned. This should be thoroughly discussed with your solicitor to ensure rights are maintained.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”. or even some sort of postnuptial agreement. • 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. Questions & Insights The Company Plan Advantages • Very inexpensive to transfer ownership of the shares of a family company.

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

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

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

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

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

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

As the company is the trustee for the trust. add a trust for business. it owns everything. As all the assets are in the name of the trust. this is how it works. you control the trust. As the trustee. civil action against you personally. This means you control the company and own the company as the shareholder. because you need to isolate assets so there can be no linkage of assets. There are several ways to improve this situation. which would be rare. However. as the assets would be insured for third party claims. no one owns the trust or it’s assets other than the trust itself. However. this can only happen if someone has a claim on the assets of the trust. However. As I said before.So. but not own the trust. Doing things this way is essential. can’t penetrate the trust and make a claim against the assets of the trust. if your assets are in a trust like this. the company (you) will nominate who the beneficiaries are. by simply adding more trusts under the control of the trustee. This structure can also be expanded. and the only people who can benefit from these assets are the Beneficiaries. Make sense? This is just a simple way to protect your assets. only the trustee does. For example. You become the director and shareholder of the company. you can add further trusts for extra investments. nobody will sue you for what you haven’t got. not the trustee. Rest assured. Questions & Insights Copyright  Lance Spicer 2004 24 . if one trust for whatever reason gets into trouble. 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. such as having multiple trusts to further isolate litigants from making a claim on the assets of the trust. they have no say in the running of the trust. which would hold business assets and another one that could actually run the business.

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

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

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

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

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. As my friend’s father had a long standing business relationship in Egypt he had a good understanding of how things work there. the assets will be transferred to the beneficiary or a new Trustee will be appointed and no doubt another $1. ASIC. tax records. foreign cash and other “minor” assets. they’ll find you and them. On the death of my friend’s father. So. 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. shares in private companies and cars in your name and in the name of associated entities. motor transport records. 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. travelers cheques. They use council records. once the trust was established he simply found a beggar on the streets. Wherever you and your assets are. Let’s look at each of the categories. bonds. “Your assets have been seized!” It’s frightening just reading those words but it can happen – it does every day. art. right? Most people are in the same boat. 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. As my friend had not yet had any children. then the beneficiary didn’t exist yet. Medicare records. Quite often these will often only delay the process once it can be proved that these assets are beneficially held for you. banks.000 will be spent on the streets of Cairo. telephone accounts etc. Assets easily located and seized without notice Your home is the first thing that will go. the titles office. but it doesn’t have to be this way. credit reference organisations. electoral roles. Then shares. This can uncover those unlisted assets such as coins.the trustee was a kindly Egyptian man from the streets of Cairo. police records.000 for his name and two signatures on two pieces of paper. -Thomas Jefferson. offered him US$1. 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. US President Copyright  Lance Spicer 2004 29 . These may be assets held in a third party’s name such as a trust or company. bank accounts. There are basically 3 categories of assets. The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. They can also find assets by checking all of your financial records including bank and credit card statements and cheques drawn. but has full rights to use the money as he feels fit.

Offshore bank accounts also available. USA Phone: 0011 1 781 239 8103 Fax: 0015 1 781 239 8095 Email: offsure@aol. and beneficial interests in irrevocable Website: www. The bottom line is you should have at least some of your assets offshore tucked away in a secret company or trust. Gibraltar Ph: 0011 346 108 04378 Fax: 0015 49 30690 88244 Email: privacyservices@yahoo.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. trusts. These could include bank accounts. Copyright  Lance Spicer 2004 30 . Wellesley MA These people can help with a wide range of services including offshore banks.psi. superannuation. Other assets that can’t be seized because they are out of your control include annuities. Privacy Services International 24 College Lane. offshore accounts. IBC. properties and the contents of safety deposit boxes in Privacy Services do it all. driving permits and maildrops. they can’t be seized. Contacts: Azaria Financial Services LLC 70 Walnut St. In the case of a company it’s all pretty simple. companies and asset protection. 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. passports. Suite 326.

Special Report 3 . 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. Examining telephone (home.How hidden assets are found …. Cayman Islands. It sounds drastic. And use a maildrop.. giving investigators a place to start looking for your assets. ex-friends. fax and mobile phone records to identify undisclosed business connections and contacts. If you must receive important mail at your residence or business address. use a maildrop for mail. and other relevant material useful in tracking your affairs. and many leads can be found there. business and hotel). invoices. but what you throw away says a lot about you. use cash for purchases. This technique can disclose friends. use phone cards for telephone calls. All withdrawals and deposits of AUD$10. litigants. • • • • • • The solution is to destroy or hide these records or better still. Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail.) for delivery of special or important letters and packages. cheque or electronic transfer. destroy unwanted records and possibly get a second passport. Keep your transactions under AUD$10. Isle of Man. Federal Express.000.000 cash or more must be reported by your bank to the federal government. For example. By just about everyone! I can’t count the number of people who have written to me asking how to hide their assets. These records leave a paper trail a mile long.. whether made by cash. Use a high quality paper shredder. the list goes on. Travel to these types of areas will surely throw up a red flag. Netherlands Antilles. be sure to ask your correspondents to stop using a return address. Garbage is often sifted through for information such as statements. creditors…. • Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland. greedy relatives. business partners. correspondence. ex-husbands. where you travel (domestic & foreign). and what products and services you use. Copyright  Lance Spicer 2004 31 . and other known banking and tax havens. discard your garbage at another location. DHL. associates and partners. keep as much off these records as you possibly can. Checking private courier's logs (UPS. The Bahamas. Reviewing credit card statements to determine who you do business with. etc. They fear being put upon by ex-wives. Looking into banking transactions. or burn and crush it.

Note that an annuity or life insurance policy can involve up to four parties. if your beneficiary is a third party (that is. a bankruptcy settlement. it could easily cost you your life savings.Special Report 4 . or six months before some other collection action.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. such an annuity will be protected under Swiss law. or the designation of the beneficiaries. Beneficiaries may be named on a revocable or irrevocable basis. Of course. 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. Another item that can make an important difference in the amount of asset protection a Swiss policy provides is the designation of beneficiaries. In either case. it doesn't matter whether he or she is named on a revocable or irrevocable basis. each of which can be in a different country or jurisdiction. Nor can it be proven if your policy is not written for an excessively large sum. Switzerland.happy society such as the United States is the increasing danger of being sued. Swiss annuities can even be used to shield assets from a bankruptcy proceeding. If not. the policy can be seized by a creditor. 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. or orders that they be included in. is found to be a fraudulent conveyance under Swiss law. that is. Even if a court specifically orders the seizure of assets in a Swiss annuity. The only way a creditor can seize such an annuity is if the purchase of the policy. 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. And if you should have the misfortune to wind up on the receiving end of some courtroom debacle. or (2) if the insurance policy was bought or the beneficiaries chosen with the clear intent of damaging creditors. relative to the insurance needs of your family. However. The four parties are: Copyright  Lance Spicer 2004 32 . One such vehicle is a Swiss annuity. your asset protection remains intact. say. As long as your beneficiary is your spouse. the designation must be made on a irrevocable basis. neither a spouse nor a descendent). 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.

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

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

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

Pakistan froze all foreign currency bank accounts. Our client did not need the capital. 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. However. The US government froze aid and loans to Pakistan and. that in itself would have been a form of asset protection! In extreme cases. your government will not be able to gets its hands on those funds. He asked for asset protection advice such that the asset should not be visible to his partner. if the commission were to be earned by the trust in the first instance rather than earned by our client. One of our clients recently earned a commission of a few million dollars. if you have already gifted your money away to an asset protection trust. Although our client was not injured by the radiation from the blast.respect for our clients. our client controls his own funds. Thus. Last year. 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 . 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. In this case. 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. The last time we spoke to our client. had our client kept his money overseas. it is always easy to be wise after the event. For foolproof protection. we are not social counsellors. Our client was thus unable to access his funds. This was routed back to our client such that it appeared as a receipt from an independent third party. Of course. A simple solution was implemented. merely the interest (which was a substantial sum per annum). Indeed. the assets would be safe in all circumstances! Politically unstable countries One of our clients is an expatriate Pakistani. Our client is very happy with this arrangement. 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 such instances. the funds would be totally safe from attack (depending on local matrimonial laws. he did suffer as a result of the politically nuclear fallout. Pakistan then decided to detonate a nuclear bomb. of course). as a result. The money was paid to a Swiss bank account and kept there. if the same assets were to be controlled by us as trustees under an asset protection trust.

the settlor. it is normal practice for the trustees to require an affidavit of solvency from the person creating the trust. $300.000 (as above) and you know that someone will soon sue you for negligence. Potential claims Let us suppose that you have net assets of $200. US law allows APT’s. This type of trust was pioneered in the USA to try to defeat the claims made against professionals including doctors.e.000 of assets and $200.001.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. However. 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. Your particular jurisdiction may not allow such trusts. you will be technically insolvent. etc. In such a situation. Indeed. 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. Of course. bankruptcy creditors and commercial disputes. If you gift away less than $300. that will be fine as you will have enough assets left to repay your creditors. Who can create an APT? Basically. In practice. surgeons. You discuss this with your friends and you are advised that if you gift your assets away before any legal action commences. you can challenge this presumption by argument in the Courts – we wish you luck! Thus. Isn’t that great? Copyright  Lance Spicer 2004 37 . 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. we find most clients normally transfer 40-60% of their assets into a trust. It is important to realise from the outset that the success of APT’s really depends on local law. if you try to gift away. In other words.000 of debts. architects. you can safeguard those assets from third party claims. say.000. as you are now unable to repay your debts in full.Special Report 6 . you will defeat the negligence claim.

If he had any notion whatsoever that he could be sued. 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. Step by step guide to setting up an Asset Protection Trust (1) The person giving away the assets is called the settlor. I’m giving my assets away to some overseas trustees. many people think say ‘Aha. Put simply. in the event of bankruptcy of the settlor. (4) The trust must be located overseas in a jurisdiction that does not automatically recognise creditor judgements of other countries. Most countries have legislation which will reverse transactions entered into prior to commencement of third party claims. should the settlor (who is also the beneficiary) become bankrupt.e. the law is unlikely to be on your side. Thus. At this point. (6) The trust must be discretionary. in due course. that will be enough for the Courts to reverse the gift. i. the trustees will be obliged to return the assets to the settlor.e. the settlor must not retain the right to force the trustees to return the assets to him/her.Unfortunately. In other words. (2) The settlor gifts the assets to an overseas irrevocable discretionary trust. Thus. which is run by persons called the trustees. The release of assets cannot be forced upon the trustees of a discretionary trust. a creditor judgement won in Australia will not be automatically recognised by Cypriot courts. (3) The assets are held for the benefit of the settlor i. the creditor will have to incur great expense in retrying the legal case in Cyprus. This is because. 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. 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 . 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. our firm will normally require a statement confirming that the settlor is unaware of any potential claims against him/her. This trustee in bankruptcy can then simply force the return of assets for onward distribution to creditors. That alone will put off many creditors! (5) The trust must be irrevocable. The onus of proof is normally on the person being sued for a fixed period of time prior to being bankrupted (say three years. This is dangerous because. the court will appoint a trustee in bankruptcy to act on behalf of the settlor. In a normal trust. the trustees physically control the assets and related bank accounts. For example. a beneficiary can make this decision and force the trustees to release all assets. Thus the settlor is also the beneficiary.

you may require all cheques to be countersigned by this other person. he/she is taking on certain responsibilities. who is acting to protect your assets. it has held in Court cases that if the protector is paid. you should not proceed with implementation. On the other hand. However. his powers are limited such that he may block certain transactions decided upon by the trustees but he cannot initiate transactions. the trustees may wish to sell a particular freehold property. he cannot force the trustees to accept his suggestion. In addition.Good questions. some people will still have an element of doubt about the safety of their assets. if someone acts as a protector. This person is referred to as a protector. As the protector is not a trustee. the trustees can take him to Court if he withholds consent for certain transactions unreasonably. Thus the key is ‘choose trustees you trust’. In addition. 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. in addition to the trustees. if the protector feels he has discovered a good investment property. 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. The protector may stop this sale if he feels it is not in the best interests of the trust. 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. Thus. For example. The best approach is personal recommendation from your friends and relatives. Copyright  Lance Spicer 2004 39 . Is there anything they can do at this stage to further safeguard their assets? The good news is – yes. a protector is a person. if the duties of the protector are detailed in the trust document. Let us now assume that you have found trustees you trust! Even at this stage. common-sense would indicate that he is not accountable to the beneficiaries (the trustees are accountable). you now have added protection for your assets. in our view. If you retain control of the funds. Thus. who basically has a veto over some powers of the trustees or whose consent or permission is otherwise required by the trustees. they can! Another person can be appointed to look after the trust assets. then the beneficiaries can sue him for breach of duty if he fails to carry out his duties in accordance with the trust deed. do not go ahead with the structure.e. For example. If you have doubts about someone. Thus. asset protection will not exist. 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.

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

#103. CA 95008. Email: Timothy D. England. Scranton. LLM. Chatzky & Associates: 888 Prospect Street. Fax + 1 408 374 1534. Charleston. Fax: +1 619 456 6099. Tel: +44 171 259 5992 (0171 259 5992) Fax: +44 171 259 5985 (UK 0171 259 5985) Email: info@pearce-trust. Email: mgchatzky@aol.Fax: + 41 32 722 1842. Tel: + 1 619 456 6085. Email: tenstate@aol. # 320. La Jolla. JD. JD: 180 East Bay St. QC: 350 Lonsdale Road. SC 29401. Fax: +1 905 877 7751. Tel + 1 408 374 1462. Canada. UK. USA. Campbell. Fax: + 1 843 937 4310. Universal Trust Services: 125 E. Sunnyoaks Avenue. SW1X 7HH.. USA. London. David Melnik. Pearce Trust: 12 Grosvenor Place. Tel: +1 416 488 7918.) Howard Stamer. (Specialist in Australian & UK Trust Law. Tel: + 1 843 937 0110. Michael Kurt Copyright  Lance Spicer 2004 41 . Suite 311. Toronto. ON M5P 1R6. CA 920037.

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