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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,
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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
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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!
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Copyright Lance Spicer 2004
A trust is not a separate legal entity in the same way that a company is. 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. 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. A trust is set up through a trust deed.these are the people (can include a company) who are entitled to distributions from the trust.this is the person who has power under the trust deed to remove the trustee and appoint another trustee. borrowing money etc. • unit trust . not in its own right. Questions & Insights The most common structure used in asset protection is the Trust. Terminology Appointor . Settlor . Types of trust There is a range of trusts: • discretionary trusts . • hybrid trust . The trustee is responsible for the financial "health" of the trust and makes decisions about distributing income.were unit holders have a number of units in the trust. The most common example is the family trust.where the trustee has a discretion when distributing funds to the beneficiaries. 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. which owns the assets of the trust. Here is a definition of what a trust is: Trusts are often used in connection with running a small business.this is usually a company (it can be a person). Copyright Lance Spicer 2004 4 . Trustee .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. Which structure you use will really depend on your individual circumstances and what degree of protection you require. but as trustee of the trust.
establishment and administration costs etc. Questions & Insights Copyright Lance Spicer 2004 5 . • distribution of tax losses. • allows for income streaming. The disadvantages of a trust include: • possible implication for capital gains tax.although this depends on current tax laws.The pros and cons Advantages of a trust include: • there may be taxation advantages . • limited liability etc.
Numerous questions are to be considered when addressing the most appropriate strategy to adopt. There may not be a need to change the strategy. but you should view it as a health check for your future financial security. and superannuation limits may be exceeded. an individual may be liable for corporate debts in certain circumstances.Common Traps. Pitfalls and Mistakes Made in Structuring Asset Protection Whilst considering the options available. Addressing the pitfalls and risks that may impact on your strategy from the outset will ensure that if the need arises. and to mitigate the potential pitfalls and the risks of asset protection strategies. assets that accumulate in separate legal entities may not be protected. The best time to consider and review your asset protection strategy is now. therefore limiting the amount of protected superannuation.g. • or within a specified timeframe of insolvency occurring. principal place of residence exemption) as a consequence of restructuring ownership of assets. 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. • for the purpose of defeating creditors. Copyright Lance Spicer 2004 6 . if they accumulate purely as a result of physical or mental exertion of an individual. These could include: • transfers of assets may be void if transferred for: • less than ”commercial” or fair consideration. you are more likely to succeed in protecting your assets. costs such as stamp duty and tax may be encountered when transferring assets. • at a time when the business or individual was insolvent. 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. and taxation exemptions and deductions may be lost (e.
their investments. From time to time during her errand. this employee has a poor driving record. climbs into their car. one would think. Is it worth it? Case Study 2 . In days gone by. In many cases one of the prime financial elements that is being sought is insurance. the car is smashed.Employee problems A group of business partners got together for an informal lunch to discuss their work. one of the remaining family. this case is not settled because the main suing party. if it can to pass blame back to the “insured” and absolve itself from the claim. and the heirs of the woman who died now seek retribution from the remaining partners. based on several accidents and many speeding fines. Their homes. she drives at excessive speeds. Questions & Insights Copyright Lance Spicer 2004 7 .A Nasty Scenario That Will Frighten Many Property Investors A property investor working for himself acquiring properties. The secretary leaves the building. even their business are up for grabs. and a life is lost. Unfortunately. A subsequent lawsuit. in fact unsafe. The employee pays more attention to the radio than to an upcoming stop sign. continues to expect more money to be found. would simply blame the employee for her negligence. several hundred thousand dollars are spent in an attempt to defend this claim. and proceeds to pick up lunch. more wealth to be uncovered. All of the partners are sued. renovating them.Case Studies to Prove The Value Of Asset Protection Case Study 1 . and selling some and keeping others to add to his portfolio. as a result of their negligence. These days it often acts as a target and will attempt. finds himself the subject of a lawsuit. In this case. Unknown to the partners. their holiday homes. One of the secretarial staff in the office is asked to go to a local restaurant to pick up an order for these partners. 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. More importantly. but unfortunately this is not the case. their boats. In the court case. this driver was on company business. The stop sign is missed. in not determining that this driver was. insurance was a protector of the family and the business.
an amount greater than the policy limits for this procedure. Questions & Insights Copyright Lance Spicer 2004 8 . It is imperative that families and businesses today understand that they are at risk and that problems can arise. He is wiped out. The doctor must make up the shortfall of $5. Surgery leaves the patient crippled. have set up households.000. their children become sick. and the squatters are able to obtain free legal aid. keep in mind these people have no right to be in this property. No surgeon is 100% successful. no water and none of the comforts most of us would expect in a home. but the jury in the malpractice suit awards the plaintiff $20. Asset protection is one solution…… doing nothing in life and hiding under your bed is the other. Case Study 3 .The lawsuit is brought by a group of “squatters”. He eventually settles out of court to avoid the whole “legal battle” thing.000. He must pay for his legal costs. These small children eat some the paint coming off the walls in this property. Unfortunately. and through their own negligence. 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.000. they are squatting. The days are gone when only the rich and powerful were the subjects of lawsuits. and are living rent free in houses with no electricity. 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. This squatting family now brings a lawsuit against the property owner. These are people who have entered vacant property. The people who move in have small children.000 out of his own pocket. the old paint contains lead and is very toxic and the children become very ill. The days are gone when right or wrong truly become the litmus test by which a lawsuit was either filed or dismissed. Now.Inadequate insurance A doctor works all his life to provide competent and effective care for his patients.
• Shares of the company should then be consolidated and held by the NON-Director person. 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. The assets of the shareholders are unclaimable. on dissolution of the marriage. • The other partner should resign as director immediately. The “shareholder” should hold no official capacity other than as a part-time worker. but this can’t hurt and it gives you extra piece of mind. if they already hold this position. Methods to Protect Yourself #1 – Simple Plan This simple method is for the average person who wants basic protection. to ensure protection for the director’s assets. Generally they will be anyway. Questions & Insights Copyright Lance Spicer 2004 9 . (usually a family business). This person will remain (or become) the director. It was believed that a company structure provided protection for the business’ directors. not really wanting or requiring the added benefit of being able to go Offshore. whom have their own company. These days you only need one director. these assets are to be included equally in any property settlement. • 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”. The “attackers” will simply by-pass the company structure knowing full well there are very few assets to go after. This will strengthen your argument that this person has no authority over the business on a day-to-day basis. only the director’s assets can be claimed. • Decide which of you should bear the brunt of any claims. • Ensure the shareholder can’t sign cheques etc. there are Onshore ways and means to protect your assets.How to Inexpensively Set Up Onshore Asset Protection That’s Right For You For those people. Methods to Protect Yourself #2 – Company Plan This protection method should be employed by people. in many cases. Have your solicitor or lawyer put together a “post nuptial” agreement stating that. but this is no longer true. and go after the assets of the director or directors.
Simple!! Placing it offshore is a better idea simply because demonstrated returns are better. that leaves you with equity of $300. Methods to Protect yourself #3 – Home Equity Plan If you are concerned about your home getting claimed in some future litigation. Questions & Insights Remember…… this structure must be setup at least two years before you have any problems. 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. However. You place this either onshore or into our offshore structure that I will discuss in the next section.000 to do something with. This is the amount a litigant can take off you if successful.000 (subject to your ability to make repayments). to ensure that it’s not possible for courts to “clawback” or reverse what you have done to protect yourself.000 and you have an existing mortgage of $100. your equity will reduce to $50. within your comfort level of course. you now have $250. just say. and it will be isolated from any litigant that is after you. if you borrow a further $250.000. can you cope with this? If you find the whole thing unsettling or it’s not for you.000. 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..• • • The non-director / shareholder should also be the person that holds the family’s personal assets etc. Now. However. This is all that is at risk. 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. • • Go along to your bank or financial institution and apply for a Home Equity Loan. Would you be able to cope with it? Interest rates on your home loan may go up. Borrow as much as you can. There are risks with any investment. you can always return all or part of the funds to you and pay off • • • • • • Copyright Lance Spicer 2004 10 . your home is worth $400. This will mean that. so you must understand sometimes investments go down. things to keep in mind…. 3) Your home is protected from litigation (to a great extent).
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. a beneficiary or relative). however. as everyone’s situation is very different and requires due consideration. This would be the strategy to employ if rates start moving up quickly. there should also be a plan for “succession”.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. Copyright Lance Spicer 2004 11 . Questions & Insights Succession Issues: When considering any asset protection. Your death could quite literally cause chaos for those left behind if no plan is made. this leaves you exposed again. Your solicitor should be consulted on all the issues discussed in this module of the program. This is a simple matter.
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. there are increasing numbers of lawsuits being brought. Asset protection strategies basically work by making the assets of an individual unavailable. what’s worse. and financial planners. could well fall in this 'deep pocket' category. but because of his ability to pay. but your asset ownership lies outside your resident jurisdiction and therefore. In many cases. to name but a few. Protection of assets can take a number of forms. litigious family members or other creditors. This is another great deterrent in the first place. and family partnerships offshore vehicles. simply because not only are the structures straight forward. business owners. It is also becoming more expensive because of the rising level of damage awards. for example doctors. in which the defendant is being targeted not necessarily because of his culpability in the case. Therefore. some additional asset protection measures. and this financial management strategy will be of particular interest to those working in professions where there is a high risk of litigation. Individuals in the above high risk groups with savings or significant assets. and while there are many domestic alternatives. As discussed earlier. is that your insurance may not even cover the full size of an award. ”Clawback” attempts and litigation is made just that little bit more complicated and difficult. or exceptionally difficult to recover. trusts and companies are usually more effective for this purpose. it is increasingly important to consider putting in place. lawyers. (and hence potentially more unattractive) in the event of legal proceedings being taken against them by employees. 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). Although professionals of many kinds are obliged to have liability insurance or professional indemnity insurance. out of sight and out of mind. and risk losing everything if there are not proper protection measures in place. limited liability partnerships and companies. including family trusts. clients. patients.
the trust has to be declared even if just formed.The trust is the lynch-pin of offshore asset protection. vary from country to country. Banking secrecy laws in offshore jurisdictions are usually significantly stricter than domestic laws. However. Unfortunately. If a person sets up an offshore company (usually an International Business Company or IBC) to hold his assets. the agent establishing an IBC (or indeed a trust) on behalf of an individual. who manages and controls them for the benefit of a beneficiary or beneficiaries (of which the settlor can be one). false information on your tax return can Questions & Insights Copyright Lance Spicer 2004 13 . this is less the case in recent times. the settlor (the person who transfers assets to the trust) legally gives over control of his assets to a trustee (or trustees). and distributed. is that you are obliged to disclose the existence of such assets to your local tax man. as high tax countries have had time to develop legislation forcing at least some degree of transparency into trust arrangements. Although the settlor will usually provide a letter of wishes. the trustees have legal control over the assets. your creditors first have to find your company before they can sue it. the whole world knows about it. in Australia. in many cases.after all. In a trust arrangement. you can expect that your details will not be made available to a third party. is not obliged to name the eventual beneficiary. he will normally be a shareholder in that company and vulnerable to Court action. although offshore bank accounts on their own can provide enhanced privacy and confidentiality. an offshore company can still go a long way towards providing privacy and asset protection . 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). in many offshore jurisdictions. So the trust survives. There is also plenty of pressure on offshore jurisdictions to change their rules by installing 'know-your-customer' and mandatory registration rules. Although trusts could once be used in order to “break the link” between an individual and his assets. and for this reason. they are usually an integral part of an asset protection strategy. However. and even prospers as the instrument of choice for asset protection. Banking secrecy legislation does however. so you will obviously have to check the situation in your preferred jurisdiction before taking action. The flaw in this line of reasoning. and unless criminal activity or money laundering is suspected. and once it's on your tax return. detailing how he would like the money to be managed.
It will also allow you to invest offshore. it will own them. The trust will hold all the assets in our structure. Firstly. The trustee makes all the decisions on behalf of the trust. In our structure. you need to establish the structure in a jurisdiction with effective IBC privacy legislation. or already underway. It will own them on behalf of the “beneficiaries”. set in place ahead of time could prove a very valuable strategy. Beneficiaries. Questions & Insights Copyright Lance Spicer 2004 14 . because the assets are located offshore. Shareholders in a company can remove the directors if they wish. as any attempt to transfer assets under these circumstances would be considered a fraudulent transfer. Asset protection. but unlike shareholders. An example of this is using the “under $50.000 rule” where you don’t have disclose your interest if the amount offshore is less than $50. beneficiaries have no say in the running of the trust. a well-structured asset protection strategy. you must “work with” the requirements of disclosure making sure you don’t qualify as someone who must disclose these requirements. and modern trust legislation. For example. It has a director and shareholder or shareholders. it will act as the “trustee”.000. What you will need: You will need a company to be established as well as a trust. It is controlled by a “trustee”. Also issues of “ownership and control” can be looked at. In order to ensure effective offshore asset protection. it gives you the same asset protection and even possibly better. However. a trust is a legal entity that can invest in shares. This is illegal. due to you residing in Australia. funds . property. whereas an onshore setup will still have the downside.virtually anything.lead to serious problems. strong banking secrecy laws. such as what it invests in and whom it provides distributions for i. These people are like the company’s shareholders.e. The company is also a legal entity. The beauty of this structure is that: • It can be easily set up onshore for asset protection purposes • When established offshore. however. is not something that should be attempted when legal proceedings are imminent. So. This applies to both the Offshore and Onshore versions of this Asset Protection Plan. and would provide no protection against creditors whatsoever. of not allowing you to participate in some investments. if you invest in offshore funds and shares. who receive income or profits received by the trust.
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.e. investments etc and holds them on behalf of the beneficiaries. relatives your spouse Copyright Lance Spicer 2004 15 . you will act as the company’s director and shareholder. In the event that they come after you….Finally. However. they can get nothing! The Company The Trustee The company manages the trustee and controls everything. your children. 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. As the director of company you have control over the trust ultimately. you and the company owns no assets. just controls them The Trust The Trust owns everything The trust owns all the assets i.
it’s worth it. not related to this one. Do not use it for business or run any personal business through it. The reason for this is simple. The only chink in the armour is if someone sues the trust itself. which can use the same trustee company. So keep all your business operations in a separate entity. This brings us to second rule. That way the only thing at risk is the one property. remember there are capital gains tax considerations. • If you are using this trust setup for properties. then all the rest in the trust are at risk. You still. and one property goes wrong. While this may seem inconvenient.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. before you put the family home in a structure. however. This can only happen in certain circumstances and they are: 1) if the trust is trading or operating as a business. So. If you have multiple properties in a trust. 2) if the trust owns a property that is rented and issues related to the property give rise to a dispute. 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 . it may be advisable to leave property. • Also. it’s best to isolate each property in its own trust. only need the one trustee company looking after all the different trusts. and a little more expensive. as well as stamp duty. You can use a separate trust called a “service trust”.
Otherwise. This attack will come against the business assets and in turn the director. • 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. • 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. Questions & Insights The Company Plan Advantages • Very inexpensive to transfer ownership of the shares of a family company. Copyright Lance Spicer 2004 17 . • Effective asset protection where the potential target is going to the business or the company. This should be thoroughly discussed with your solicitor to ensure rights are maintained. trust in your partner is required. A power of attorney can be helpful.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”. remains distanced from any activities that may attract litigation Disadvantages • The stamp duty can be very costly if the assets are already owned. or even some sort of postnuptial agreement. Disadvantages • Only protects the personal assets of the non-director and shareholders. • The assets of the business not protected at all. Transferring directorships also inexpensive. • Solicitors fees will be incurred (but usually no more than a simple property conveyance). business assets and the family home.
000 per annum to maintain it. • No stamp duty or Capital Gains Tax considerations in transferring the house. could fall in value creating a net asset value decrease overall. Offshore Protection Strategies Advantages • By far the most effective way to protect assets by removing the right out of reach and out of sight.Advantages • In taking a loan against your assets (probably property) it frees up cash to invest elsewhere. as with many of the other plans.000 for a structure like this and will incur around a $1. This is a real plus and one of the main reasons for considering a structure like this. this is the best way to remove your home as a target. • Interest rates on your loan could go up. There are also. stamp duty and Capital Gains Tax considerations.) • The investments you use the equity for. • A long term solution and an effective way of structuring your family’s estate planning. • Provides financial privacy. Questions & Insights Copyright Lance Spicer 2004 18 . For those on a budget. • Allows offshore investment opportunities not available without a structure like this. • Fees will be charged by the bank and of course repayments and interest will be incurred. (This should be offset by investment income and gains in your asset protected investment structure. Disadvantages • Not as effective as the “Simple Plan” as it still leaves a degree of equity exposed (but far cheaper). Disadvantages • Cost. It can cost up to $6. • Effective in reducing “exposed” assets by reduction in the net value. allowing future generations to use the plan. hopefully via an asset protected structure.
financial consultants. WHAT DOES ASSET PROTECTION MEAN? Asset protection is the adoption of advance planning techniques. In addition. high net worth individual whose business. many levels of asset protection planning are available.WHY SHOULD I BE INTERESTED IN ASSET PROTECTION? If you review your insurance policy. accountants. the financial stability of liability insurance companies is never certain. Depending on your profession and many other factors. and people in similar occupations are exposed. corporate directors. Questions & Insights ARE MY ATTACK? ASSETS SUSCEPTIBLE TO CREDITOR Possibly. and the Copyright Lance Spicer 2004 19 . which place one's assets beyond the reach of future potential creditors. you may be vulnerable. owners of closely held businesses. or immune from lawsuits and creditor attack. In practice. with the ongoing crisis in the insurance industry. executives. No one is judgment proof. it does not involve hiding assets. you'll find that it does not cover you for punitive damages or intentional wrongdoing. However. nor is it based upon secret agreements or fraudulent transfers. are most susceptible to creditor lawsuits. corporate executives and others with highly visible careers. but professionals. or other activities expose him or her to potential litigation. A net worth of approximately $500. by using the some of the steps that have been outlined earlier. real estate developers.Frequently Asked Questions and Answers WHO SHOULD CONSIDER ASSET PROTECTION PLANNING? Any high income.000 is a guideline point. It is based upon proven sophisticated combinations of business and financial planning techniques. I CARRY SIGNIFICANT LIABILITY INSURANCE COVERAGE . and some strategies are available to almost everyone. especially doctors. including frivolous litigation. accountants. where the benefits of sophisticated asset protection planning begin to outweigh the costs. doctors. The methods employed vary from simply changing the ownership of assets to the sophisticated use of offshore trusts and companies. investment. lawyers. Clearly.
Plus. but for some high net worth individuals with high levels of exposure. could run from $2. These costs could be prohibitive and must be evaluated whilst considering your needs when it comes to asset protection. Forming a trust. in this case. Questions & Insights HOW MUCH WILL IT ALL COST? The costs will obviously vary depending on your needs.000 to as much as $6. Simply rearranging directorships and share ownership in your company will cost very little and can be done yourself. Copyright Lance Spicer 2004 20 .000 for the offshore setup described in this section. a claim can always be made which will exceed your coverage. Prudent planning might indicate a combination of asset protection strategies and liability insurance.scope of coverage seems to be decreasing all the time. it may be well worth it. However. whether that be domestic or offshore will run into much more money. Finally. of course stamp duty liability and the possibility of Capital Gains Tax on the transfer of certain assets. Costs. transferring properties will attract some legal fees but mostly the costs will come in the form of Stamp Duty.
Onshore: Your accountant or solicitor.Contacts to Help You Set Up Your Asset Protection Contact . They know what they are doing and have an excellent record of honesty and integrity and they have been around for a long time. Contact . The cost will vary of course but expect $1. these people are recommended.pt Questions & Insights Copyright Lance Spicer 2004 21 .Offshore: Eilish Murphy ICSL Iberia Limited Av. If you would like someone to help you establish an offshore asset protection scheme. effective tool in protecting both wealth and privacy.000 depending on how much work they will need to do for your particular circumstances.murphy@icsl. Defensores de Chaves No 15.$5.500 . 6E 1000 – 109 Lisboa Portugal + 351 21 314 2030 – Phone + 351 21 314 2031 – Fax E-mail: eilish. They should be able to do it for you.
Does “peace of mind” assist you in your goals? Questions & Insights Copyright Lance Spicer 2004 22 . how “safe” will you feel? Will it give you peace of mind? 7. Do you think there is some value in Asset Protection? 2. Describe the Asset Protection you already have in place. After implementing the appropriate plan. how confident would you be that your assets would be safe? 5. Do you think Asset Protection should be a priority in securing wealth? 3. 6. “Do you have any assets? Next question.One Question for You To Answer Daily 1. “Do you care if you lose everything you own? If you answered YES to both questions. 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 feel it is adequate? 4. If your assets were “attacked”.
They will be able to guide you through the process. The company can be a simple $2 company and it will act as the Trustee for the trust that will be established under it. is better than nothing? Ask yourself how much do you have to lose? 5. you first must establish a company and secondly. 4. Plan Your Strategy Of the Plans discussed. Assess your risk.Action Steps To Put Theory Into Practice 1. Calculate the Costs Having determined the best plan for your needs. assess (with the help of a solicitor) which plan would provide you with the protection you need. 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. Assess the Viability Now that you understand the full cost. a trust. First calculate your net assets Identify the assets at risk Identify where an “attack” on your assets will come from 2. at the same time keeping costs to a minimum. is it still a consideration? Or do you believe that the costs are prohibitive? Is there a cheaper solution. 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. One of the misconceptions of this type of arrangement is that the Trustee sort of owns the trust… it doesn’t. If you are interested in the Offshore solution and understand the benefits. contact our agent in Portugal. one that while not providing you with absolute protection. just the “Trustee” (the company) and the beneficiaries. 3. and as there is technically no owner of the trust. Questions & Insights Copyright Lance Spicer 2004 23 . Establish your Plan Contact your solicitor to discuss the plans shown here and put things into place. no one is subject to having themselves sued for the assets of the trust. The trust will own all the assets. therefore making the assets secure. Additional Note for The Offshore Plan: To start off with.
you can add further trusts for extra investments. This means you control the company and own the company as the shareholder. Doing things this way is essential. as the assets would be insured for third party claims. you control the trust. it owns everything. not the trustee. However. the company (you) will nominate who the beneficiaries are. As I said before. As the trustee. nobody will sue you for what you haven’t got. which would be rare. As the company is the trustee for the trust. However. this is how it works. because you need to isolate assets so there can be no linkage of assets. civil action against you personally. add a trust for business.So. can’t penetrate the trust and make a claim against the assets of the trust. You become the director and shareholder of the company. by simply adding more trusts under the control of the trustee. such as having multiple trusts to further isolate litigants from making a claim on the assets of the trust. but not own the trust. Make sense? This is just a simple way to protect your assets. they have no say in the running of the trust. if one trust for whatever reason gets into trouble. you only need one trustee company to control any number of trusts. However. There are several ways to improve this situation. As all the assets are in the name of the trust. only the trustee does. You see how it works? You end up controlling the whole thing but have no ownership of anything and without ownership. which would hold business assets and another one that could actually run the business. this can only happen if someone has a claim on the assets of the trust. and the only people who can benefit from these assets are the Beneficiaries. For example. no one owns the trust or it’s assets other than the trust itself. if your assets are in a trust like this. Questions & Insights Copyright Lance Spicer 2004 24 . Rest assured. This structure can also be expanded.
family residence. it did not take much to persuade Debby and her husband to set up a revocable living trust. but you name yourself Copyright Lance Spicer 2004 25 . I wouldn't want them to go through what I did with my father's estate. In the event of incapacity or incompetence. All of their assets were transferred to the trust. with both of them acting as trustees. 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 probate was over more than two years later but took a heavy financial and emotional toll on Debby.The Living Trust Avoiding Financial Disaster with a Living Trust Using a little foresight. the living trust will allow them to avoid lengthy and costly court proceedings. It seemed like the court and solicitors were getting involved in every decision. there's a simple solution to this problem and a growing number of people are taking advantage of it. In setting up the trust. an accountant by profession. But the problems started cropping up almost immediately. She was fairly familiar with her father's financial affairs but. when it came to probate. even years. When one of them dies. 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. there was very little she could do to expedite the process. you transfer legal ownership of the assets to the trust. let's say. Debby learned the value of a revocable living trust firsthand." The Flexibility of a Living Trust The beauty of a revocable living trust is its flexibility. After this experience. or even cancel it at any time. The once-thriving business was pretty much ruined. hassles with court officials and emotional anxiety of waiting for their inheritances. "I want everything to be as easy as possible for my kids if something happened to me. of agony in court. You may be leaving for your children months. The Revocable Living Trust -A Real Experience Like many people. When her father died four years ago. As Debby put it. he had left a will and at first it seemed everything would go smoothly. Finally. Because the trust is revocable. was named the executor and sole beneficiary of the estate. Fortunately. he left his business. the surviving spouse will continue to act as trustee and control and manage their assets. Surprisingly. But this may be a false peace or mind. a holiday home and other assets to her. but paid a heavy price for it. whopping legal fees. Although Debby.
joint tenancy spells major disadvantages. presumably. For some persons. A living trust is set up during your lifetime and. mortgage or give away your assets as you please and the trust won't interfere. or even revoke it in entirety. the surviving joint tenant inherits the assets. the trust estate is distributed to the named beneficiaries almost immediately. etc. a parent and a child) hold title to a property in joint tenancy with the right of survivorship. So far so good. although you've relinquished the nominal ownership of the assets. Thus. and the injured person files a lawsuit. Trusts are Difficult to Contest when Compared to a Will Living trusts are extremely hard to penetrate. A living trust is one sure way to avoid that problem. This requires some paperwork and you'd need to contact your banks. however you continue to be the beneficial owner. However. If at some point in time you wish to change terms of the trust. including designation of beneficiaries. you've been administering the trust for several years. the trust is an entirely private affair and no one. without the intervention of a probate court. It would be difficult to challenge your competency to set up the trust under these circumstances. you'd Copyright Lance Spicer 2004 26 . This precludes disgruntled heirs from using the threat of a court battle to tie up the estate in years of litigation. you can manage. revocable living trusts have few disadvantages. Most estate planners advise against joint tenancy for a variety of reasons. There are Few Disadvantages with a Living Trust According to most estate planners. you can do so quite easily. Upon your death. Remember. needs to know the contents of the instrument. in certain situations. that property will be subjected to the vagaries of a will. Placing Assets in “Joint Tenancy” is Not a Solution Most married couples (and often. Upon the death of one joint tenant. insurance agents. but you would need to formally transfer the title of various assets to the trust. Most trusts are relatively simple to prepare. but this is a once off and will ultimately be worth it. other that the beneficiaries. Anyone wishing to contest the trust would have to sue each and every beneficiary. brokers. joint tenancy may be a wise decision. The biggest downside being the stamp duty involved in property transferral that can run into thousands. in a vast majority of cases. say you own your home and care in joint tenancy with your son. unless he or she has placed the property in joint tenancy with someone else. But when the second spouse dies. ruling out the possibility of blackmail. For instance. sell. after they've received the assets.as trustee of the trust. If the son gets into an accident.
It provides you with the maximum amount of flexibility." Upon your death. The person you would designate as beneficiary of the trust (your husband or wife or children) is called "successor trustee. rendered. Control and Flexibility Living Trust is set up by you while you're alive. or give them away. joint tenancy actually turned out to be a curse. the successor trustee takes over the estate immediately without going through probate and terminates the trust. your personal assets are at risk. 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 do whatever you wish to do with them -. The Essence of a Living Trust is its Simplicity. You name yourself as "trustee" and you maintain full control over your assets just as before. If an adverse judgment is Or take this scenario. You and your wife own all assets in joint tenancy with a view to avoid probate when one of you dies. But your wife has to be put into a nursing home due to Alzheimer's disease. Copyright Lance Spicer 2004 27 .be named a defendant along with your son.manage them. The trust does not become effective till you die or become incapacitated. sell them. In this case. Now you would need to go to court before being able to do anything with the jointly-owned assets. You can also abolish the trust or alter its terms or change the beneficiaries at any time you wish. It's that simple.
properties and bank accounts. Ensure your spouse has nothing to do with the business. assets located in your home country are easy to find for any investigator worth his salt. customer. greedy governments and of course the most hated of all asset thieves – the vicious lawyer under the employ of an ex-employee. quick and easy for most people and is a cheaper alternative. like property or shares etc. Also. 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. This could and should include shares. neighbour.Special Report 2 . Get in early before your assets are attacked. bonds. let’s focus on the more likely scenario whereby. malevolent ex-spouses. This solution is simple. 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. In this way. The beneficiaries were the unborn children of his son and Copyright Lance Spicer 2004 28 . get your solicitor to issue you with a power of attorney so you can still use and sell the assets if you wish to. 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. and this should be placed in an offshore entity if at all possible. They are more concerned about the sum total of assets between the partners. In the unlikely event that your spouse and you dissolve your relationship. If this in fact was the case. He had a trust established and had all his assets placed in this trust.Hiding & Safeguarding Your Assets Making things disappear from view has been a sport of rich people for years. your home remains capital gains tax free as long as it’s in your name. we’re all in serious trouble and “viva la revolution!” Instead. keep in mind. They make these things disappear for many reasons. so don’t even think about doing that. Forward planning is the key. Before I get right into it. The courts don’t really care who owns what. Assets such as shares. such as being a director etc (shareholder is ok though) and transfer all the assets into their name. costing only stamp duty and some minor legal costs. they will find there are few if any assets to sue you for and will probably give up. or your spouse’s. all in all worth many millions of dollars. property and other investments. Of course there will be the need to have some assets “onshore”. if someone has a shot at you. One thing that should be made perfectly clear. passer by. Now. However. The best place to have assets is offshore and not in your name if possible. 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. before we start if you transfer assets after some legal action has commenced you could be guilty of a crime. there is an old solicitors trick that works quite nicely if you are concerned about your asset assailant being work related. business partner etc.
banks. 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. The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. tax records. foreign cash and other “minor” assets.the trustee was a kindly Egyptian man from the streets of Cairo. 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. bank accounts. once the trust was established he simply found a beggar on the streets. They use council records. Wherever you and your assets are. bonds. 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. There are basically 3 categories of assets. They can also find assets by checking all of your financial records including bank and credit card statements and cheques drawn. art. the titles office. US President Copyright Lance Spicer 2004 29 . electoral roles. Then shares. As my friend had not yet had any children. On the death of my friend’s father. but it doesn’t have to be this way. So. then the beneficiary didn’t exist yet. they’ll find you and them.000 for his name and two signatures on two pieces of paper. This can uncover those unlisted assets such as coins. 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. right? Most people are in the same boat. 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. police records. motor transport records. Assets easily located and seized without notice Your home is the first thing that will go. Medicare records. “Your assets have been seized!” It’s frightening just reading those words but it can happen – it does every day. ASIC. credit reference organisations. Quite often these will often only delay the process once it can be proved that these assets are beneficially held for you. 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.000 will be spent on the streets of Cairo. -Thomas Jefferson. offered him US$1. 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. but has full rights to use the money as he feels fit. telephone accounts etc.
com These people can help with a wide range of services including offshore banks. properties and the contents of safety deposit boxes in banks. companies and asset protection. driving permits and maildrops. The bottom line is you should have at least some of your assets offshore tucked away in a secret company or trust.com. Offshore bank accounts also available. trusts. superannuation.psi. Wellesley MA 02181. Other assets that can’t be seized because they are out of your control include annuities.gi Privacy Services do it all. Copyright Lance Spicer 2004 30 . shares. Contacts: Azaria Financial Services LLC 70 Walnut St. Suite 326. Privacy Services International 24 College Lane. USA Phone: 0011 1 781 239 8103 Fax: 0015 1 781 239 8095 Email: offsure@aol. offshore accounts.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. In the case of a company it’s all pretty simple. passports. and beneficial interests in irrevocable trusts. These could include bank accounts.au Website: www. IBC. they can’t be seized. Gibraltar Ph: 0011 346 108 04378 Fax: 0015 49 30690 88244 Email: privacyservices@yahoo. 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.
discard your garbage at another location. use a maildrop for mail. business and hotel).How hidden assets are found …. keep as much off these records as you possibly can. giving investigators a place to start looking for your assets.) for delivery of special or important letters and packages.000 cash or more must be reported by your bank to the federal government. use cash for purchases. For example. litigants. DHL. the list goes on. correspondence. and many leads can be found there. associates and partners. It sounds drastic. Examining telephone (home.000. Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail. This technique can disclose friends. Isle of Man. where you travel (domestic & foreign). greedy relatives. All withdrawals and deposits of AUD$10. Cayman Islands.. business partners. Netherlands Antilles. 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. Travel to these types of areas will surely throw up a red flag. Reviewing credit card statements to determine who you do business with. Copyright Lance Spicer 2004 31 . • • • • • • The solution is to destroy or hide these records or better still. If you must receive important mail at your residence or business address. fax and mobile phone records to identify undisclosed business connections and contacts. creditors…. whether made by cash. And use a maildrop.. and other known banking and tax havens. Use a high quality paper shredder. Keep your transactions under AUD$10. ex-husbands. Looking into banking transactions. and what products and services you use. Garbage is often sifted through for information such as statements. or burn and crush it. By just about everyone! I can’t count the number of people who have written to me asking how to hide their assets. be sure to ask your correspondents to stop using a return address.Special Report 3 . Checking private courier's logs (UPS. destroy unwanted records and possibly get a second passport. These records leave a paper trail a mile long. The Bahamas. ex-friends. use phone cards for telephone calls. invoices. but what you throw away says a lot about you. Federal Express. • Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland. and other relevant material useful in tracking your affairs. cheque or electronic transfer. etc. They fear being put upon by ex-wives.
Nor can it be proven if your policy is not written for an excessively large sum. that is. Another item that can make an important difference in the amount of asset protection a Swiss policy provides is the designation of beneficiaries. your asset protection remains intact. Note that an annuity or life insurance policy can involve up to four parties. it could easily cost you your life savings. Switzerland. say.Special Report 4 . or the designation of the beneficiaries. And if you should have the misfortune to wind up on the receiving end of some courtroom debacle. if your beneficiary is a third party (that is. each of which can be in a different country or jurisdiction. The only way a creditor can seize such an annuity is if the purchase of the policy. or (2) if the insurance policy was bought or the beneficiaries chosen with the clear intent of damaging creditors. or orders that they be included in. Of course. However. the designation must be made on a irrevocable basis. is found to be a fraudulent conveyance under Swiss law. 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 doesn't matter whether he or she is named on a revocable or irrevocable basis. Swiss annuities can even be used to shield assets from a bankruptcy proceeding. such an annuity will be protected under Swiss law. relative to the insurance needs of your family.happy society such as the United States is the increasing danger of being sued. 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. In either case. the policy can be seized by a creditor. The four parties are: Copyright Lance Spicer 2004 32 . If not. a bankruptcy settlement. 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. or six months before some other collection action. As long as your beneficiary is your spouse. One such vehicle is a Swiss annuity.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. Even if a court specifically orders the seizure of assets in a Swiss annuity. Beneficiaries may be named on a revocable or irrevocable basis. 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. neither a spouse nor a descendent).
However. regardless of the risk of bankruptcy or asset seizure. Copyright Lance Spicer 2004 33 . the insured individual. 3. He chooses the policy options and designates the beneficiaries who are paid upon the death of the insured person. CH-8033 Zurich. Try contacting: JML Jurg M. or a trust. the policy owner or policyholder. Note that a properly written Swiss annuity policy affords better protection than Swiss bank accounts. This may safely be an individual. When he dies. 2. he does not have any rights. Switzerland telephone: +41 41 368 8233 fax: +41 41 368 8299 This adviser is highly regarded by those involved with Swiss Annuities. preferably your spouse and/or children. If he is not the policy owner. The policyholder may be an individual. the beneficiaries. the premium payer. if asset protection under Swiss law is your concern. the contract matures and benefits are paid to the beneficiaries. corporations.1. Swiss life insurance policies also make great estate planning vehicles. or trusts. or Swiss securities accounts. your beneficiaries should only be individuals. Lattmann AG Swiss Investment Counsellors Germaniastrasse 55. These may be individuals. If you would like more information. 4. corporation. a corporation. there is one Swiss insurance broker dealing with Overseas clients. or a trust.
but my work is excellent and I can guarantee its quality. out of the blue. The taxman 7. 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. God forbid. Creditors claims 3.com.Special Report 5 . Oh dear. Suddenly. one of our clients was a self-employed engineer working for a major US motor car manufacturer. the Copyright Lance Spicer 2004 34 . as is so usual. Claims against errors in the commercial world can reach ridiculous levels. Unforeseen disaster You work hard all your life saving up for retirement and then one day. If only you could turn the clocks back a couple of years and hide your assets in such a scheme. You think back to all the times you came across asset protection schemes and suddenly you realise the value of such schemes. You can lose your money in an endless variety of ways (everyone wants your money!): 1. if you make an error of judgement – believe me. comes a third party claim against you for negligence. the insurance policy contains a clause that exempts it from liability in this particular case. it happens more often than people care to admit. Blackmail! 8.au (A Division of Trident Press Pty Limited) You need to protect your assets. the expense of such schemes seems insignificant.questerpress. If he makes a mistake in his designs. Third party legal claims for damages 2. In disbelief. Bankruptcy 5. Divorce 4. Probate 6.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. 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. For example. you sit down and reach for your insurance policy to see if you are covered.
We advised that the client could protect himself by: a. 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. A famous English king once said. sometimes painfully. ‘ When I listen to one party. Taking out negligence insurance (or professional indemnity) – unfortunately. From a purely moral point of view. I have no idea who is right or wrong. We then recommended he consider an asset protection trust. Our client sought our advice on this matter. Our client was not satisfied and wanted an absolute foolproof method of protecting the vast majority of his wealth. This is a very good method of protection. Eventually our client set up such a trust. However. Indeed. We always advise that it is best to deal with financial matters amicably and to be fair to the other partner. normally after a crisis has been triggered. we have learnt. this enemy is lethal as this enemy knows all your secrets and weaknesses. innocent exclusion in the policy wording. insurance is not cheap and the premium is based on the amount insured. When I subsequently listen to the other party. Divorce/ separation There is nothing more painful than a messy divorce or separation. he knows he can always access his funds. we cannot talk to the other partner and thus we have to rely on the facts given to us by our client. All of a sudden. b. based on our client’s point of view. over the years not to take sides in such disputes and simply advise on the facts we are presented with. Trading as a limited company.’ As advisers. I know who is right and who is wrong. when asked to arbitrate between two quarrelling parties. Clients approach us for advice on protection of their assets from their partner.’ In such a situation. In addition. In addition. 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. with the greatest Copyright Lance Spicer 2004 35 . you can always lose all the assets built up in the company. rather than as a sole trader. we may appear amoral (as opposed to immoral) but again from a purely practical point of view. whom do you believe? Invariably. Not even our client could afford insurance cover for tens of millions of dollars. if he falls short of cash. In addition.potential loss to the manufacturer could run to tens of millions of dollars. He is now delighted that his assets are safe and does not worry about being penniless come retirement age. 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.
if the commission were to be earned by the trust in the first instance rather than earned by our client. 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. Of course. 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. the funds would be totally safe from attack (depending on local matrimonial laws. Although our client was not injured by the radiation from the blast. A simple solution was implemented. For foolproof protection. One of our clients recently earned a commission of a few million dollars. the assets would be safe in all circumstances! Politically unstable countries One of our clients is an expatriate Pakistani. The last time we spoke to our client. 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. if the same assets were to be controlled by us as trustees under an asset protection trust. your government will not be able to gets its hands on those funds.respect for our clients. 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. He asked for asset protection advice such that the asset should not be visible to his partner. Our client was thus unable to access his funds. he did suffer as a result of the politically nuclear fallout. Our client did not need the capital. if you have already gifted your money away to an asset protection trust. 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 . merely the interest (which was a substantial sum per annum). it is always easy to be wise after the event. of course). Pakistan then decided to detonate a nuclear bomb. as a result. Indeed. However. The US government froze aid and loans to Pakistan and. In such instances. had our client kept his money overseas. that in itself would have been a form of asset protection! In extreme cases. Our client is very happy with this arrangement. our client controls his own funds. we are not social counsellors. Thus. This was routed back to our client such that it appeared as a receipt from an independent third party. Pakistan froze all foreign currency bank accounts. Last year. The money was paid to a Swiss bank account and kept there.
You discuss this with your friends and you are advised that if you gift your assets away before any legal action commences. In practice. If you gift away less than $300. you can challenge this presumption by argument in the Courts – we wish you luck! Thus. you will be technically insolvent. In such a situation. as you are now unable to repay your debts in full. Indeed. our firm normally requires this affidavit to be witnessed by a lawyer. Your particular jurisdiction may not allow such trusts.e. it is normal practice for the trustees to require an affidavit of solvency from the person creating the trust. Who can create an APT? Basically. we find most clients normally transfer 40-60% of their assets into a trust. the settlor.000 (as above) and you know that someone will soon sue you for negligence.000. However. Potential claims Let us suppose that you have net assets of $200. 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. bankruptcy creditors and commercial disputes. US law allows APT’s. In other words. architects. surgeons. It is important to realise from the outset that the success of APT’s really depends on local law. you can safeguard those assets from third party claims. if you try to gift away. etc.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. you will defeat the negligence claim.000 of assets and $200.001. 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 $500.000 of debts. say. Isn’t that great? Copyright Lance Spicer 2004 37 . This type of trust was pioneered in the USA to try to defeat the claims made against professionals including doctors. The most common types of creditor claims are those made by separated or divorced spouses. Of course. $300. that will be fine as you will have enough assets left to repay your creditors.Special Report 6 .
in due course. At this point. If he had any notion whatsoever that he could be sued. (2) The settlor gifts the assets to an overseas irrevocable discretionary trust. in the event of bankruptcy of the settlor. This is dangerous because. For example. a creditor judgement won in Australia will not be automatically recognised by Cypriot courts. The release of assets cannot be forced upon the trustees of a discretionary trust. a beneficiary can make this decision and force the trustees to release all assets. Thus. This trustee in bankruptcy can then simply force the return of assets for onward distribution to creditors. i. In other words. This is because. Thus the settlor is also the beneficiary. Step by step guide to setting up an Asset Protection Trust (1) The person giving away the assets is called the settlor.e. (6) The trust must be discretionary. 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. the law is unlikely to be on your side. that will be enough for the Courts to reverse the gift. 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. (3) The assets are held for the benefit of the settlor i. That alone will put off many creditors! (5) The trust must be irrevocable. the settlor must not retain the right to force the trustees to return the assets to him/her. 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 . I’m giving my assets away to some overseas trustees. which is run by persons called the trustees. many people think say ‘Aha. the trustees physically control the assets and related bank accounts. the trustees will be obliged to return the assets to the settlor. Thus. Put simply. (4) The trust must be located overseas in a jurisdiction that does not automatically recognise creditor judgements of other countries. 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. should the settlor (who is also the beneficiary) become bankrupt.Unfortunately. the creditor will have to incur great expense in retrying the legal case in Cyprus. the court will appoint a trustee in bankruptcy to act on behalf of the settlor. Most countries have legislation which will reverse transactions entered into prior to commencement of third party claims.e. In a normal trust. The onus of proof is normally on the person being sued for a fixed period of time prior to being bankrupted (say three years. our firm will normally require a statement confirming that the settlor is unaware of any potential claims against him/her.
if someone acts as a protector.Good questions. The best approach is personal recommendation from your friends and relatives. who basically has a veto over some powers of the trustees or whose consent or permission is otherwise required by the trustees. some people will still have an element of doubt about the safety of their assets. you may require all cheques to be countersigned by this other person. the trustees may wish to sell a particular freehold property. the trustees can take him to Court if he withholds consent for certain transactions unreasonably. if the duties of the protector are detailed in the trust document. As the protector is not a trustee. he/she is taking on certain responsibilities. However. who is acting to protect your assets. asset protection will not exist. you now have added protection for your assets. it would be a criminal offence and thus the trustees would always be on the run from the police. they can! Another person can be appointed to look after the trust assets. it has held in Court cases that if the protector is paid. his powers are limited such that he may block certain transactions decided upon by the trustees but he cannot initiate transactions. The protector may stop this sale if he feels it is not in the best interests of the trust. then the beneficiaries can sue him for breach of duty if he fails to carry out his duties in accordance with the trust deed. in our view. Thus. In addition.e. 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. 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. Note that the protector is not a trustee i. If you have doubts about someone. If you retain control of the funds. For example. Is there anything they can do at this stage to further safeguard their assets? The good news is – yes. do not go ahead with the structure. if the protector feels he has discovered a good investment property. In addition. On the other hand. 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. Thus. Copyright Lance Spicer 2004 39 . he cannot force the trustees to accept his suggestion. in addition to the trustees. you should not proceed with implementation. This person is referred to as a protector. For example. a protector is a person. common-sense would indicate that he is not accountable to the beneficiaries (the trustees are accountable). Thus the key is ‘choose trustees you trust’. Let us now assume that you have found trustees you trust! Even at this stage. Thus.
state that in our view the most practical method would be to: 1. your creditors would push for the appointment of more sympathetic trustees who would be willing to release the funds to the beneficiary. 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. Remove and appoint new trustees 7. of course. Obviously. Professionals. That may be very well in theory as the protector cannot initiate any action but in practice it is dangerous as. Use a protector where the funds are substantial. the trustee in bankruptcy would become the protector. Or contact his Swiss office in Neuchatel: Tel + 41 32 722 1841. or decide whether certain events have occurred that will result in the automatic migration of the trust overseas (discussed later) 8. Graeme Aarons: Suite 219. not use a protector if the trust funds are small in value – the definition of small depends on the client 2. and know that they all provide excellent services. in the event of the client being made bankrupt. We would. inter-alia. The best protector really would be a very close personal friend or family member. 163-169 Brompton Road. Initiate the migration of a trust to another country. the following: 1. London. Tel: + 44 171 581 2524 (UK 0171 581 2524). 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 normal powers of a “protector” include. however. Addition of new beneficiaries 3. we find most people do not bother with protectors as they trust their advisers absolutely. Right to be consulted or have veto powers over sales of particular shareholdings or other trust property. or a professional from an independent firm to the trustees. SW3 1PY. Collier House. In this situation. The main danger here is that a normal power of the protector is that he has the right to appoint new trustees. there are hundreds more. Conduct periodic reviews of the administration of the trust by the trustees 6. Agree trustee fees 4. Copyright Lance Spicer 2004 40 . Right to obtain trust accounts and/or arrange an audit 5. but we have knowledge of each of these people. In practice. The choice is entirely that of the client. Veto over payment of capital to beneficiary 2. Here’s a list of some good providers of Trust advice.
Fax: + 1 843 937 4310. CA 920037. ON M5P 1R6.com David Melnik. Canada. SW1X 7HH.com Copyright Lance Spicer 2004 41 . LLM. JD. QC: 350 Lonsdale Road. Tel: +44 171 259 5992 (0171 259 5992) Fax: +44 171 259 5985 (UK 0171 259 5985) Email: email@example.com Kurt Johnson. Tel: + 1 843 937 0110. Pearce Trust: 12 Grosvenor Place. Charleston. Suite 311. #103. Tel + 1 408 374 1462. Fax + 1 408 374 1534. Tel: +1 416 488 7918. Campbell. Email: mgchatzky@aol. (Specialist in Australian & UK Trust Law. England. # 320. CA 95008. Tel: + 1 619 456 6085. UK.. Scranton.Fax: + 41 32 722 1842. Sunnyoaks Avenue. La Jolla. Toronto. USA. Email: tenstate@aol. Email: dm1976cp@ntcom. Fax: +1 905 877 7751. Universal Trust Services: 125 E. USA.ca Timothy D. USA. London.) Howard Stamer. JD: 180 East Bay St. Fax: +1 619 456 6099. SC 29401. Chatzky & Associates: 888 Prospect Street. Michael Chatzky.
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