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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
not in its own right. Types of trust There is a range of trusts: • discretionary trusts . A trust is not a separate legal entity in the same way that a company is. • hybrid trust .where the trustee has a discretion when distributing funds to the beneficiaries. 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.this is usually a company (it can be a person).this is a combination between a unit trust and a discretionary trust. Beneficiaries . Copyright Lance Spicer 2004 4 . Terminology Appointor . A trust is set up through a trust deed. The most common example is the family trust.this is a person (who is unrelated to the beneficiary or trustee) who provides an amount of money (eg $10) to establish the trust. borrowing money etc. Trustee . Which structure you use will really depend on your individual circumstances and what degree of protection you require. but as trustee of the trust. Settlor . • unit trust .were unit holders have a number of units in the trust.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. Here is a definition of what a trust is: Trusts are often used in connection with running a small business. Distribution from the trust is on the basis of the number of units held. which owns the assets of the trust. The trustee is responsible for the financial "health" of the trust and makes decisions about distributing income.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. Questions & Insights The most common structure used in asset protection is the Trust.
establishment and administration costs etc.The pros and cons Advantages of a trust include: • there may be taxation advantages . Questions & Insights Copyright Lance Spicer 2004 5 . • allows for income streaming. • distribution of tax losses. The disadvantages of a trust include: • possible implication for capital gains tax. • limited liability etc.although this depends on current tax laws.
an individual may be liable for corporate debts in certain circumstances. costs such as stamp duty and tax may be encountered when transferring assets. • or within a specified timeframe of insolvency occurring. but you should view it as a health check for your future financial security. There may not be a need to change the strategy. 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. Copyright Lance Spicer 2004 6 . • at a time when the business or individual was insolvent. and taxation exemptions and deductions may be lost (e.Common Traps.g. Numerous questions are to be considered when addressing the most appropriate strategy to adopt. Questions & Insights • • • • The above is not an exhaustive list and other issues may also need to be considered when formulating an appropriate asset protection strategy. These could include: • transfers of assets may be void if transferred for: • less than ”commercial” or fair consideration. The best time to consider and review your asset protection strategy is now. 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. Pitfalls and Mistakes Made in Structuring Asset Protection Whilst considering the options available. therefore limiting the amount of protected superannuation. and superannuation limits may be exceeded. if they accumulate purely as a result of physical or mental exertion of an individual. and to mitigate the potential pitfalls and the risks of asset protection strategies. • for the purpose of defeating creditors. principal place of residence exemption) as a consequence of restructuring ownership of assets. you are more likely to succeed in protecting your assets.
From time to time during her errand. Unfortunately. one would think. More importantly. the car is smashed. renovating them. in fact unsafe. 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. Questions & Insights Copyright Lance Spicer 2004 7 . as a result of their negligence. The employee pays more attention to the radio than to an upcoming stop sign. in not determining that this driver was. she drives at excessive speeds. this driver was on company business. All of the partners are sued. but unfortunately this is not the case. one of the remaining family. and a life is lost. These days it often acts as a target and will attempt.A Nasty Scenario That Will Frighten Many Property Investors A property investor working for himself acquiring properties. In this case. if it can to pass blame back to the “insured” and absolve itself from the claim. In many cases one of the prime financial elements that is being sought is insurance. Their homes. even their business are up for grabs. more wealth to be uncovered.Employee problems A group of business partners got together for an informal lunch to discuss their work. this employee has a poor driving record. climbs into their car. The secretary leaves the building. their holiday homes. their boats. Is it worth it? Case Study 2 . and the heirs of the woman who died now seek retribution from the remaining partners. and selling some and keeping others to add to his portfolio. A subsequent lawsuit. their investments. and proceeds to pick up lunch. One of the secretarial staff in the office is asked to go to a local restaurant to pick up an order for these partners. continues to expect more money to be found. this case is not settled because the main suing party. based on several accidents and many speeding fines. In days gone by. several hundred thousand dollars are spent in an attempt to defend this claim. finds himself the subject of a lawsuit. Unknown to the partners. would simply blame the employee for her negligence. The stop sign is missed. In the court case. insurance was a protector of the family and the business.Case Studies to Prove The Value Of Asset Protection Case Study 1 .
and he must defend himself in court against this squatter suit. No surgeon is 100% successful.000 out of his own pocket. These small children eat some the paint coming off the walls in this property. no water and none of the comforts most of us would expect in a home. have set up households. and the squatters are able to obtain free legal aid. they are squatting. and are living rent free in houses with no electricity. The doctor must make up the shortfall of $5. He is wiped out. 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. This squatting family now brings a lawsuit against the property owner. The days are gone when only the rich and powerful were the subjects of lawsuits. keep in mind these people have no right to be in this property. Unfortunately. Asset protection is one solution…… doing nothing in life and hiding under your bed is the other. These are people who have entered vacant property. How unfair can it be for someone to enter your property without your knowledge and without your permission. an amount greater than the policy limits for this procedure. Surgery leaves the patient crippled.000. The days are gone when right or wrong truly become the litmus test by which a lawsuit was either filed or dismissed. He must pay for his legal costs. It is imperative that families and businesses today understand that they are at risk and that problems can arise. their children become sick.000. Case Study 3 . The people who move in have small children. Now. He eventually settles out of court to avoid the whole “legal battle” thing. Questions & Insights Copyright Lance Spicer 2004 8 .Inadequate insurance A doctor works all his life to provide competent and effective care for his patients. the old paint contains lead and is very toxic and the children become very ill. but the jury in the malpractice suit awards the plaintiff $20.The lawsuit is brought by a group of “squatters”. and through their own negligence.000.
whom have their own company. and go after the assets of the director or directors. not really wanting or requiring the added benefit of being able to go Offshore. on dissolution of the marriage. It was believed that a company structure provided protection for the business’ directors. Methods to Protect Yourself #1 – Simple Plan This simple method is for the average person who wants basic protection. Questions & Insights Copyright Lance Spicer 2004 9 . in many cases. but this can’t hurt and it gives you extra piece of mind. This will strengthen your argument that this person has no authority over the business on a day-to-day basis. to ensure protection for the director’s assets. The assets of the shareholders are unclaimable. The “attackers” will simply by-pass the company structure knowing full well there are very few assets to go after. but this is no longer true. • 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”. • Shares of the company should then be consolidated and held by the NON-Director person. The “shareholder” should hold no official capacity other than as a part-time worker. Methods to Protect Yourself #2 – Company Plan This protection method should be employed by people. only the director’s assets can be claimed. These days you only need one director. (usually a family business). • The other partner should resign as director immediately. Generally they will be anyway.How to Inexpensively Set Up Onshore Asset Protection That’s Right For You For those people. • Decide which of you should bear the brunt of any claims. • Ensure the shareholder can’t sign cheques etc. if they already hold this position. There will be stamp duty to pay but this will only be on half the value of the transfers assuming that they are also in your name initially. there are Onshore ways and means to protect your assets. This person will remain (or become) the director. these assets are to be included equally in any property settlement. Have your solicitor or lawyer put together a “post nuptial” agreement stating that.
your equity will reduce to $50. However.000 to do something with. Now. just say. you now have $250. Questions & Insights Remember…… this structure must be setup at least two years before you have any problems. • • Go along to your bank or financial institution and apply for a Home Equity Loan. within your comfort level of course. There are benefits!! 1) The amount you borrow could be tax deductible if used for investment purposes 2) Your returns could easily be higher than your mortgage interest rate and you could be in front overall.000. to ensure that it’s not possible for courts to “clawback” or reverse what you have done to protect yourself. Would you be able to cope with it? Interest rates on your home loan may go up. This is the amount a litigant can take off you if successful. Simple!! Placing it offshore is a better idea simply because demonstrated returns are better.000 (subject to your ability to make repayments). Borrow as much as you can.000. so you must understand sometimes investments go down. This will mean that. if you borrow a further $250. that leaves you with equity of $300.000. things to keep in mind….. There are risks with any investment. Methods to Protect yourself #3 – Home Equity Plan If you are concerned about your home getting claimed in some future litigation.• • • The non-director / shareholder should also be the person that holds the family’s personal assets etc. your home is worth $400. and it will be isolated from any litigant that is after you. 3) Your home is protected from litigation (to a great extent). However. 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.000 and you have an existing mortgage of $100. you can always return all or part of the funds to you and pay off • • • • • • Copyright Lance Spicer 2004 10 . 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. You place this either onshore or into our offshore structure that I will discuss in the next section. can you cope with this? If you find the whole thing unsettling or it’s not for you. This is all that is at risk.
Questions & Insights Succession Issues: When considering any asset protection. as everyone’s situation is very different and requires due consideration. Your solicitor should be consulted on all the issues discussed in this module of the program. 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.the loan. This would be the strategy to employ if rates start moving up quickly. there should also be a plan for “succession”. Copyright Lance Spicer 2004 11 . however. a beneficiary or relative). 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. Your death could quite literally cause chaos for those left behind if no plan is made. This is a simple matter.
clients. limited liability partnerships and companies. It is also becoming more expensive because of the rising level of damage awards. patients. for example doctors. In many cases. simply because not only are the structures straight forward. but your asset ownership lies outside your resident jurisdiction and therefore. or exceptionally difficult to recover. what’s worse. out of sight and out of mind. and this financial management strategy will be of particular interest to those working in professions where there is a high risk of litigation. and family partnerships offshore vehicles. litigious family members or other creditors. Protection of assets can take a number of forms. in which the defendant is being targeted not necessarily because of his culpability in the case. and risk losing everything if there are not proper protection measures in place. is that your insurance may not even cover the full size of an award. and while there are many domestic alternatives. lawyers. ”Clawback” attempts and litigation is made just that little bit more complicated and difficult.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. could well fall in this 'deep pocket' category. This is another great deterrent in the first place. this is becoming more and more expensive due to the increase in litigation (and of course the collapse of insurance companies like HIH). to name but a few. but because of his ability to pay. Although professionals of many kinds are obliged to have liability insurance or professional indemnity insurance. including family trusts. (and hence potentially more unattractive) in the event of legal proceedings being taken against them by employees. As discussed earlier. Copyright Lance Spicer 2004 Questions & Insights 12 . and financial planners. there are increasing numbers of lawsuits being brought. Asset protection strategies basically work by making the assets of an individual unavailable. Individuals in the above high risk groups with savings or significant assets. some additional asset protection measures. it is increasingly important to consider putting in place. Therefore. business owners. trusts and companies are usually more effective for this purpose.
an offshore company can still go a long way towards providing privacy and asset protection . Banking secrecy legislation does however. If a person sets up an offshore company (usually an International Business Company or IBC) to hold his assets. is that you are obliged to disclose the existence of such assets to your local tax man. he will normally be a shareholder in that company and vulnerable to Court action. The flaw in this line of reasoning. the whole world knows about it. this is less the case in recent times. in many offshore jurisdictions. your creditors first have to find your company before they can sue it. as high tax countries have had time to develop legislation forcing at least some degree of transparency into trust arrangements. Banking secrecy laws in offshore jurisdictions are usually significantly stricter than domestic laws. in many cases. detailing how he would like the money to be managed. Although trusts could once be used in order to “break the link” between an individual and his assets. and unless criminal activity or money laundering is suspected.after all. the trustees have legal control over the assets. is not obliged to name the eventual beneficiary. false information on your tax return can Questions & Insights Copyright Lance Spicer 2004 13 . However. in Australia. the settlor (the person who transfers assets to the trust) legally gives over control of his assets to a trustee (or trustees). who manages and controls them for the benefit of a beneficiary or beneficiaries (of which the settlor can be one). and for this reason. 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 the settlor will usually provide a letter of wishes. vary from country to country. So the trust survives. However. and distributed. In a trust arrangement. and even prospers as the instrument of choice for asset protection. so you will obviously have to check the situation in your preferred jurisdiction before taking action. although offshore bank accounts on their own can provide enhanced privacy and confidentiality. and once it's on your tax return. There is also plenty of pressure on offshore jurisdictions to change their rules by installing 'know-your-customer' and mandatory registration rules. they are usually an integral part of an asset protection strategy. Unfortunately. the agent establishing an IBC (or indeed a trust) on behalf of an individual.The trust is the lynch-pin of offshore asset protection. you can expect that your details will not be made available to a third party. the trust has to be declared even if just formed.
The trust will hold all the assets in our structure. Asset protection. An example of this is using the “under $50. it will act as the “trustee”. you need to establish the structure in a jurisdiction with effective IBC privacy legislation. Beneficiaries. Questions & Insights Copyright Lance Spicer 2004 14 . is not something that should be attempted when legal proceedings are imminent. such as what it invests in and whom it provides distributions for i. as any attempt to transfer assets under these circumstances would be considered a fraudulent transfer. of not allowing you to participate in some investments. strong banking secrecy laws. it will own them. So. Shareholders in a company can remove the directors if they wish. you must “work with” the requirements of disclosure making sure you don’t qualify as someone who must disclose these requirements. or already underway. However. In order to ensure effective offshore asset protection. if you invest in offshore funds and shares. The beauty of this structure is that: • It can be easily set up onshore for asset protection purposes • When established offshore. What you will need: You will need a company to be established as well as a trust. Firstly. because the assets are located offshore.000 rule” where you don’t have disclose your interest if the amount offshore is less than $50. property. It has a director and shareholder or shareholders.virtually anything. set in place ahead of time could prove a very valuable strategy. beneficiaries have no say in the running of the trust.lead to serious problems. however. It is controlled by a “trustee”. whereas an onshore setup will still have the downside. and would provide no protection against creditors whatsoever.e. For example. The company is also a legal entity. These people are like the company’s shareholders. due to you residing in Australia. but unlike shareholders. it gives you the same asset protection and even possibly better. funds . It will own them on behalf of the “beneficiaries”.000. Also issues of “ownership and control” can be looked at. a well-structured asset protection strategy. who receive income or profits received by the trust. In our structure. It will also allow you to invest offshore. and modern trust legislation. a trust is a legal entity that can invest in shares. This applies to both the Offshore and Onshore versions of this Asset Protection Plan. The trustee makes all the decisions on behalf of the trust. This is illegal.
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. investments etc and holds them on behalf of the beneficiaries.e. you will act as the company’s director and shareholder. 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. your children. they can get nothing! The Company The Trustee The company manages the trustee and controls everything. As the director of company you have control over the trust ultimately. In the event that they come after you…. However.Finally. you and the company owns no assets. just controls them The Trust The Trust owns everything The trust owns all the assets i. relatives your spouse Copyright Lance Spicer 2004 15 .
So. then all the rest in the trust are at risk.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. This can only happen in certain circumstances and they are: 1) if the trust is trading or operating as a business. You can use a separate trust called a “service trust”. 2) if the trust owns a property that is rented and issues related to the property give rise to a dispute. The only chink in the armour is if someone sues the trust itself. it’s worth it. That way the only thing at risk is the one property. and one property goes wrong. 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 . as well as stamp duty. remember there are capital gains tax considerations. only need the one trustee company looking after all the different trusts. The reason for this is simple. it’s best to isolate each property in its own trust. however. which can use the same trustee company. not related to this one. Do not use it for business or run any personal business through it. and a little more expensive. • If you are using this trust setup for properties. You still. • Also. This brings us to second rule. So keep all your business operations in a separate entity. If you have multiple properties in a trust. While this may seem inconvenient. it may be advisable to leave property.
• Solicitors fees will be incurred (but usually no more than a simple property conveyance). • The assets of the business not protected at all. Copyright Lance Spicer 2004 17 . remains distanced from any activities that may attract litigation Disadvantages • The stamp duty can be very costly if the assets are already owned. trust in your partner is required. Transferring directorships also inexpensive. This attack will come against the business assets and in turn the director. • Effective asset protection where the potential target is going to the business or the company. or even some sort of postnuptial agreement. business assets and the family home. A power of attorney can be helpful. • 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. • It can make the person transferring the assets uncomfortable about giving up ownership. Otherwise. This should be thoroughly discussed with your solicitor to ensure rights are maintained. • Capital Gains Tax may be payable on the transfer of investments other than personal assets. Disadvantages • Only protects the personal assets of the non-director and shareholders.Advantages and Disadvantages of Each Type Of Asset Protection Onshore Protection Strategies The Simple Plan Advantages • This plan is very easy to put in place and can be done quickly by transferring the assets to a person out of “harms way”.
• A long term solution and an effective way of structuring your family’s estate planning. • Interest rates on your loan could go up. Disadvantages • Not as effective as the “Simple Plan” as it still leaves a degree of equity exposed (but far cheaper). • Allows offshore investment opportunities not available without a structure like this.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.Advantages • In taking a loan against your assets (probably property) it frees up cash to invest elsewhere. allowing future generations to use the plan. • Effective in reducing “exposed” assets by reduction in the net value. • Fees will be charged by the bank and of course repayments and interest will be incurred. stamp duty and Capital Gains Tax considerations. Offshore Protection Strategies Advantages • By far the most effective way to protect assets by removing the right out of reach and out of sight. • Provides financial privacy.) • The investments you use the equity for. There are also. Disadvantages • Cost. hopefully via an asset protected structure. It can cost up to $6. as with many of the other plans. this is the best way to remove your home as a target.000 per annum to maintain it. (This should be offset by investment income and gains in your asset protected investment structure. could fall in value creating a net asset value decrease overall. • No stamp duty or Capital Gains Tax considerations in transferring the house. For those on a budget. Questions & Insights Copyright Lance Spicer 2004 18 .
but professionals. In practice. lawyers. by using the some of the steps that have been outlined earlier. high net worth individual whose business.WHY SHOULD I BE INTERESTED IN ASSET PROTECTION? If you review your insurance policy. with the ongoing crisis in the insurance industry. you'll find that it does not cover you for punitive damages or intentional wrongdoing. I CARRY SIGNIFICANT LIABILITY INSURANCE COVERAGE . Clearly. are most susceptible to creditor lawsuits. Questions & Insights ARE MY ATTACK? ASSETS SUSCEPTIBLE TO CREDITOR Possibly. corporate directors. Depending on your profession and many other factors. financial consultants. it does not involve hiding assets. In addition. the financial stability of liability insurance companies is never certain. which place one's assets beyond the reach of future potential creditors.000 is a guideline point.Frequently Asked Questions and Answers WHO SHOULD CONSIDER ASSET PROTECTION PLANNING? Any high income. However. owners of closely held businesses. you may be vulnerable. nor is it based upon secret agreements or fraudulent transfers. many levels of asset protection planning are available. including frivolous litigation. and people in similar occupations are exposed. No one is judgment proof. accountants. accountants. investment. or other activities expose him or her to potential litigation. where the benefits of sophisticated asset protection planning begin to outweigh the costs. doctors. executives. It is based upon proven sophisticated combinations of business and financial planning techniques. A net worth of approximately $500. and some strategies are available to almost everyone. The methods employed vary from simply changing the ownership of assets to the sophisticated use of offshore trusts and companies. real estate developers. corporate executives and others with highly visible careers. and the Copyright Lance Spicer 2004 19 . or immune from lawsuits and creditor attack. especially doctors. WHAT DOES ASSET PROTECTION MEAN? Asset protection is the adoption of advance planning techniques.
whether that be domestic or offshore will run into much more money. a claim can always be made which will exceed your coverage. but for some high net worth individuals with high levels of exposure. in this case.000 to as much as $6. These costs could be prohibitive and must be evaluated whilst considering your needs when it comes to asset protection. However. Costs.scope of coverage seems to be decreasing all the time. Questions & Insights HOW MUCH WILL IT ALL COST? The costs will obviously vary depending on your needs. Finally. of course stamp duty liability and the possibility of Capital Gains Tax on the transfer of certain assets.000 for the offshore setup described in this section. Prudent planning might indicate a combination of asset protection strategies and liability insurance. transferring properties will attract some legal fees but mostly the costs will come in the form of Stamp Duty. Copyright Lance Spicer 2004 20 . Plus. could run from $2. Forming a trust. Simply rearranging directorships and share ownership in your company will cost very little and can be done yourself. it may be well worth it.
000 depending on how much work they will need to do for your particular circumstances.Contacts to Help You Set Up Your Asset Protection Contact . The cost will vary of course but expect $1.pt Questions & Insights Copyright Lance Spicer 2004 21 . 6E 1000 – 109 Lisboa Portugal + 351 21 314 2030 – Phone + 351 21 314 2031 – Fax E-mail: eilish. Contact .Offshore: Eilish Murphy ICSL Iberia Limited Av. effective tool in protecting both wealth and privacy. They know what they are doing and have an excellent record of honesty and integrity and they have been around for a long time.murphy@icsl.Onshore: Your accountant or solicitor. If you would like someone to help you establish an offshore asset protection scheme. these people are recommended.500 . Defensores de Chaves No 15. They should be able to do it for you.$5.
One Question for You To Answer Daily 1. Does “peace of mind” assist you in your goals? Questions & Insights Copyright Lance Spicer 2004 22 . Do you feel it is adequate? 4. 6. Do you think Asset Protection should be a priority in securing wealth? 3. Do you think there is some value in Asset Protection? 2. how confident would you be that your assets would be safe? 5. If your assets were “attacked”. 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. 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. After implementing the appropriate plan. “Do you have any assets? Next question. Describe the Asset Protection you already have in place.
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. 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. contact our agent in Portugal. Assess the Viability Now that you understand the full cost. just the “Trustee” (the company) and the beneficiaries. If you are interested in the Offshore solution and understand the benefits. you first must establish a company and secondly. Plan Your Strategy Of the Plans discussed. The trust will own all the assets. at the same time keeping costs to a minimum. Assess your risk. 3. no one is subject to having themselves sued for the assets of the trust. 4. One of the misconceptions of this type of arrangement is that the Trustee sort of owns the trust… it doesn’t. a trust. First calculate your net assets Identify the assets at risk Identify where an “attack” on your assets will come from 2. Establish your Plan Contact your solicitor to discuss the plans shown here and put things into place. one that while not providing you with absolute protection. 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. and as there is technically no owner of the trust. They will be able to guide you through the process.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. is it still a consideration? Or do you believe that the costs are prohibitive? Is there a cheaper solution. therefore making the assets secure. Questions & Insights Copyright Lance Spicer 2004 23 .
you can add further trusts for extra investments. can’t penetrate the trust and make a claim against the assets of the trust. 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. Make sense? This is just a simple way to protect your assets. Rest assured. However. this is how it works. but not own the trust. For example. You see how it works? You end up controlling the whole thing but have no ownership of anything and without ownership.So. you control the trust. You become the director and shareholder of the company. if your assets are in a trust like this. if one trust for whatever reason gets into trouble. which would be rare. As the trustee. they have no say in the running of the trust. as the assets would be insured for third party claims. However. and the only people who can benefit from these assets are the Beneficiaries. nobody will sue you for what you haven’t got. only the trustee does. As the company is the trustee for the trust. civil action against you personally. Questions & Insights Copyright Lance Spicer 2004 24 . add a trust for business. by simply adding more trusts under the control of the trustee. no one owns the trust or it’s assets other than the trust itself. it owns everything. not the trustee. As I said before. the company (you) will nominate who the beneficiaries are. There are several ways to improve this situation. this can only happen if someone has a claim on the assets of the trust. This structure can also be expanded. because you need to isolate assets so there can be no linkage of assets. However. This means you control the company and own the company as the shareholder. which would hold business assets and another one that could actually run the business. As all the assets are in the name of the trust. Doing things this way is essential.
there's a simple solution to this problem and a growing number of people are taking advantage of it. As Debby put it. they can change its terms. with both of them acting as trustees. when it came to probate. "I want everything to be as easy as possible for my kids if something happened to me. Because the trust is revocable. whopping legal fees. When her father died four years ago. 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. Surprisingly. Debby learned the value of a revocable living trust firsthand. The once-thriving business was pretty much ruined. the probate was over more than two years later but took a heavy financial and emotional toll on Debby. let's say. All of their assets were transferred to the trust. but you name yourself Copyright Lance Spicer 2004 25 . he left his business. After this experience. but paid a heavy price for it. a holiday home and other assets to her. In setting up the trust. When one of them dies. family residence. Although Debby. Fortunately. She was fairly familiar with her father's financial affairs but. he had left a will and at first it seemed everything would go smoothly. it did not take much to persuade Debby and her husband to set up a revocable living trust. I wouldn't want them to go through what I did with my father's estate. of agony in court. was named the executor and sole beneficiary of the estate. or even cancel it at any time. the surviving spouse will continue to act as trustee and control and manage their assets. hassles with court officials and emotional anxiety of waiting for their inheritances. But the problems started cropping up almost immediately. Finally. even years. It seemed like the court and solicitors were getting involved in every decision.The Living Trust Avoiding Financial Disaster with a Living Trust Using a little foresight. In the event of incapacity or incompetence. But this may be a false peace or mind. the living trust will allow them to avoid lengthy and costly court proceedings. you transfer legal ownership of the assets to the trust. she had to hire a solicitor to probate the will. You may be leaving for your children months.The Asset Protection Guide Special Reports Section Special Report 1 . there was very little she could do to expedite the process. an accountant by profession. The Revocable Living Trust -A Real Experience Like many people." The Flexibility of a Living Trust The beauty of a revocable living trust is its flexibility.
Most trusts are relatively simple to prepare. you can do so quite easily. joint tenancy may be a wise decision. you've been administering the trust for several years. brokers. It would be difficult to challenge your competency to set up the trust under these circumstances. joint tenancy spells major disadvantages. Most estate planners advise against joint tenancy for a variety of reasons. or even revoke it in entirety. without the intervention of a probate court. the trust estate is distributed to the named beneficiaries almost immediately. etc. Upon your death. you can manage. Placing Assets in “Joint Tenancy” is Not a Solution Most married couples (and often. For instance. revocable living trusts have few disadvantages. There are Few Disadvantages with a Living Trust According to most estate planners. Thus. that property will be subjected to the vagaries of a will. mortgage or give away your assets as you please and the trust won't interfere. but this is a once off and will ultimately be worth it. after they've received the assets. This requires some paperwork and you'd need to contact your banks. although you've relinquished the nominal ownership of the assets. Remember. you'd Copyright Lance Spicer 2004 26 . but you would need to formally transfer the title of various assets to the trust. however you continue to be the beneficial owner. But when the second spouse dies. If at some point in time you wish to change terms of the trust. sell. A living trust is set up during your lifetime and. Upon the death of one joint tenant. This precludes disgruntled heirs from using the threat of a court battle to tie up the estate in years of litigation. in certain situations. including designation of beneficiaries. If the son gets into an accident. presumably. say you own your home and care in joint tenancy with your son. The biggest downside being the stamp duty involved in property transferral that can run into thousands. needs to know the contents of the instrument. insurance agents.as trustee of the trust. the trust is an entirely private affair and no one. Anyone wishing to contest the trust would have to sue each and every beneficiary. For some persons. Trusts are Difficult to Contest when Compared to a Will Living trusts are extremely hard to penetrate. unless he or she has placed the property in joint tenancy with someone else. A living trust is one sure way to avoid that problem. However. other that the beneficiaries. a parent and a child) hold title to a property in joint tenancy with the right of survivorship. in a vast majority of cases. the surviving joint tenant inherits the assets. and the injured person files a lawsuit. ruling out the possibility of blackmail. So far so good.
You can do whatever you wish to do with them -. If an adverse judgment is Or take this scenario.be named a defendant along with your son. the successor trustee takes over the estate immediately without going through probate and terminates the trust. You can also abolish the trust or alter its terms or change the beneficiaries at any time you wish. You and your wife own all assets in joint tenancy with a view to avoid probate when one of you dies. The trust does not become effective till you die or become incapacitated. or give them away. The person you would designate as beneficiary of the trust (your husband or wife or children) is called "successor trustee." Upon your death. Control and Flexibility Living Trust is set up by you while you're alive. You name yourself as "trustee" and you maintain full control over your assets just as before. But your wife has to be put into a nursing home due to Alzheimer's disease. your personal assets are at risk. joint tenancy actually turned out to be a curse. Now you would need to go to court before being able to do anything with the jointly-owned assets. Copyright Lance Spicer 2004 27 . The Essence of a Living Trust is its Simplicity. In this case. 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.manage them. It's that simple. It provides you with the maximum amount of flexibility. sell them. rendered.
Hiding & Safeguarding Your Assets Making things disappear from view has been a sport of rich people for years. there is an old solicitors trick that works quite nicely if you are concerned about your asset assailant being work related. business partner etc. The best place to have assets is offshore and not in your name if possible. Also. property and other investments. 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. 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. The beneficiaries were the unborn children of his son and Copyright Lance Spicer 2004 28 . Assets such as shares. get your solicitor to issue you with a power of attorney so you can still use and sell the assets if you wish to. so don’t even think about doing that.Special Report 2 . they will find there are few if any assets to sue you for and will probably give up. In the unlikely event that your spouse and you dissolve your relationship. properties and bank accounts. or your spouse’s. your home remains capital gains tax free as long as it’s in your name. before we start if you transfer assets after some legal action has commenced you could be guilty of a crime. Before I get right into it. Now. assets located in your home country are easy to find for any investigator worth his salt. Of course there will be the need to have some assets “onshore”. let’s focus on the more likely scenario whereby. The courts don’t really care who owns what. such as being a director etc (shareholder is ok though) and transfer all the assets into their name. Forward planning is the key. 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. bonds. all in all worth many millions of dollars. One thing that should be made perfectly clear. This solution is simple. In this way. This could and should include shares. If this in fact was the case. Get in early before your assets are attacked. keep in mind. They make these things disappear for many reasons. like property or shares etc. He had a trust established and had all his assets placed in this trust. if someone has a shot at you. neighbour. we’re all in serious trouble and “viva la revolution!” Instead. quick and easy for most people and is a cheaper alternative. greedy governments and of course the most hated of all asset thieves – the vicious lawyer under the employ of an ex-employee. 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. However. customer. passer by. and this should be placed in an offshore entity if at all possible. malevolent ex-spouses. costing only stamp duty and some minor legal costs. They are more concerned about the sum total of assets between the partners.
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. Let’s look at each of the categories. 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. offered him US$1. art. 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.the trustee was a kindly Egyptian man from the streets of Cairo. As my friend’s father had a long standing business relationship in Egypt he had a good understanding of how things work there. they’ll find you and them. This can uncover those unlisted assets such as coins. So. the assets will be transferred to the beneficiary or a new Trustee will be appointed and no doubt another $1. Assets easily located and seized without notice Your home is the first thing that will go. foreign cash and other “minor” 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. right? Most people are in the same boat. 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. electoral roles. As my friend had not yet had any children. -Thomas Jefferson. They use council records.000 will be spent on the streets of Cairo. Quite often these will often only delay the process once it can be proved that these assets are beneficially held for you. shares in private companies and cars in your name and in the name of associated entities. once the trust was established he simply found a beggar on the streets. tax records. the titles office. police records. but has full rights to use the money as he feels fit. They can also find assets by checking all of your financial records including bank and credit card statements and cheques drawn. Medicare records. then the beneficiary didn’t exist yet. US President Copyright Lance Spicer 2004 29 . Then shares. travelers cheques. bank accounts.000 for his name and two signatures on two pieces of paper. credit reference organisations. bonds. but it doesn’t have to be this way. On the death of my friend’s father. telephone accounts etc. “Your assets have been seized!” It’s frightening just reading those words but it can happen – it does every day. ASIC. There are basically 3 categories of assets. Wherever you and your assets are. These may be assets held in a third party’s name such as a trust or company. 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. banks. motor transport records.
com These people can help with a wide range of services including offshore banks.com. Offshore bank accounts also available. Contacts: Azaria Financial Services LLC 70 Walnut St. and beneficial interests in irrevocable trusts. trusts. Wellesley MA 02181. 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. Other assets that can’t be seized because they are out of your control include annuities. USA Phone: 0011 1 781 239 8103 Fax: 0015 1 781 239 8095 Email: offsure@aol. Gibraltar Ph: 0011 346 108 04378 Fax: 0015 49 30690 88244 Email: privacyservices@yahoo. Suite 326. These could include bank accounts.gi Privacy Services do it all. IBC. offshore accounts. passports.au Website: www. 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. superannuation.psi. shares. In the case of a company it’s all pretty simple. companies and asset protection.Assets that are hidden and immune from seizure These are assets that are offshore in the name of a company or trust in which you don’t hold shares or office. Privacy Services International 24 College Lane. they can’t be seized. Copyright Lance Spicer 2004 30 . properties and the contents of safety deposit boxes in banks.
All withdrawals and deposits of AUD$10.. whether made by cash. creditors…. Checking private courier's logs (UPS. destroy unwanted records and possibly get a second passport. invoices. Travel to these types of areas will surely throw up a red flag. If you must receive important mail at your residence or business address. By just about everyone! I can’t count the number of people who have written to me asking how to hide their assets. and other relevant material useful in tracking your affairs. business and hotel). and what products and services you use. This technique can disclose friends. use a maildrop for mail. Reviewing credit card statements to determine who you do business with. giving investigators a place to start looking for your assets. • • • • • • The solution is to destroy or hide these records or better still. use phone cards for telephone calls. Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail.How hidden assets are found …. discard your garbage at another location. litigants.. greedy relatives. These records leave a paper trail a mile long. Netherlands Antilles. keep as much off these records as you possibly can. be sure to ask your correspondents to stop using a return address. Cayman Islands.Special Report 3 . fax and mobile phone records to identify undisclosed business connections and contacts. They fear being put upon by ex-wives. business partners. the list goes on. Isle of Man. use cash for purchases. • Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland. but what you throw away says a lot about you. or burn and crush it. and other known banking and tax havens.) for delivery of special or important letters and packages. Copyright Lance Spicer 2004 31 . DHL. Looking into banking transactions. Use a high quality paper shredder. and many leads can be found there. And use a maildrop. For example. The Bahamas. It sounds drastic.000 cash or more must be reported by your bank to the federal government. Examining telephone (home. where you travel (domestic & foreign). correspondence. Federal Express.000. ex-husbands. ex-friends. etc. Keep your transactions under AUD$10. cheque or electronic transfer. associates and partners. 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. Garbage is often sifted through for information such as statements.
The four parties are: Copyright Lance Spicer 2004 32 . that is. or (2) if the insurance policy was bought or the beneficiaries chosen with the clear intent of damaging creditors. 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. 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. As long as your beneficiary is your spouse. it doesn't matter whether he or she is named on a revocable or irrevocable basis.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. Of course. if your beneficiary is a third party (that is. Switzerland. say. If not. neither a spouse nor a descendent). 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. 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. Swiss annuities can even be used to shield assets from a bankruptcy proceeding. However. is found to be a fraudulent conveyance under Swiss law. The only way a creditor can seize such an annuity is if the purchase of the policy. such an annuity will be protected under Swiss law. Even if a court specifically orders the seizure of assets in a Swiss annuity. relative to the insurance needs of your family. Note that an annuity or life insurance policy can involve up to four parties. the policy can be seized by a creditor. the designation must be made on a irrevocable basis. a bankruptcy settlement. And if you should have the misfortune to wind up on the receiving end of some courtroom debacle.Special Report 4 . it could easily cost you your life savings. or six months before some other collection action. Beneficiaries may be named on a revocable or irrevocable basis. In either case. each of which can be in a different country or jurisdiction. Another item that can make an important difference in the amount of asset protection a Swiss policy provides is the designation of beneficiaries. or the designation of the beneficiaries. your asset protection remains intact. One such vehicle is a Swiss annuity.happy society such as the United States is the increasing danger of being sued. or orders that they be included in. Nor can it be proven if your policy is not written for an excessively large sum.
If you would like more information. CH-8033 Zurich. or a trust. Note that a properly written Swiss annuity policy affords better protection than Swiss bank accounts. If he is not the policy owner. or trusts. However. he does not have any rights. your beneficiaries should only be individuals. the policy owner or policyholder. the beneficiaries. a corporation. Switzerland telephone: +41 41 368 8233 fax: +41 41 368 8299 This adviser is highly regarded by those involved with Swiss Annuities. regardless of the risk of bankruptcy or asset seizure. the premium payer. These may be individuals. The policyholder may be an individual. there is one Swiss insurance broker dealing with Overseas clients.1. corporation. When he dies. Swiss life insurance policies also make great estate planning vehicles. the contract matures and benefits are paid to the beneficiaries. preferably your spouse and/or children. Try contacting: JML Jurg M. Copyright Lance Spicer 2004 33 . 4. or a trust. 3. corporations. 2. the insured individual. if asset protection under Swiss law is your concern. This may safely be an individual. or Swiss securities accounts. He chooses the policy options and designates the beneficiaries who are paid upon the death of the insured person. Lattmann AG Swiss Investment Counsellors Germaniastrasse 55.
You can lose your money in an endless variety of ways (everyone wants your money!): 1. Unforeseen disaster You work hard all your life saving up for retirement and then one day. Bankruptcy 5. if you make an error of judgement – believe me. Creditors claims 3. Divorce 4. the expense of such schemes seems insignificant. comes a third party claim against you for negligence. Oh dear. where your assets may simply be seized or nationalised? Self-employed Ah. Claims against errors in the commercial world can reach ridiculous levels. 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. God forbid. If only you could turn the clocks back a couple of years and hide your assets in such a scheme.com. Probate 6.Special Report 5 . Third party legal claims for damages 2. the insurance policy contains a clause that exempts it from liability in this particular case. Blackmail! 8. the Copyright Lance Spicer 2004 34 .Special Asset Protection Report by Eesh Aggarwal This report has been reproduced from The Q Newsletter produced by Quester Press www. The taxman 7. but my work is excellent and I can guarantee its quality. In disbelief. 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. out of the blue.questerpress. 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. one of our clients was a self-employed engineer working for a major US motor car manufacturer. as is so usual. If he makes a mistake in his designs. Suddenly. you sit down and reach for your insurance policy to see if you are covered. For example.au (A Division of Trident Press Pty Limited) You need to protect your assets.
Trading as a limited company. We then recommended he consider an asset protection trust. Taking out negligence insurance (or professional indemnity) – unfortunately. All of a sudden. normally after a crisis has been triggered. Not even our client could afford insurance cover for tens of millions of dollars. with the greatest Copyright Lance Spicer 2004 35 .’ In such a situation. This is a very good method of protection. 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.’ As advisers. Divorce/ separation There is nothing more painful than a messy divorce or separation. I know who is right and who is wrong. Clients approach us for advice on protection of their assets from their partner. b. We always advise that it is best to deal with financial matters amicably and to be fair to the other partner. he knows he can always access his funds. When I subsequently listen to the other party. this enemy is lethal as this enemy knows all your secrets and weaknesses. insurance is not cheap and the premium is based on the amount insured. we cannot talk to the other partner and thus we have to rely on the facts given to us by our client. However. if he falls short of cash. when asked to arbitrate between two quarrelling parties. 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. based on our client’s point of view. there is always the risk that the claim may not be covered due to a small. He is now delighted that his assets are safe and does not worry about being penniless come retirement age. sometimes painfully. In addition. From a purely moral point of view. We advised that the client could protect himself by: a. we have learnt. innocent exclusion in the policy wording. someone who was once your closest confidant becomes your worst enemy. Eventually our client set up such a trust. I have no idea who is right or wrong. In addition. we may appear amoral (as opposed to immoral) but again from a purely practical point of view.potential loss to the manufacturer could run to tens of millions of dollars. over the years not to take sides in such disputes and simply advise on the facts we are presented with. you can always lose all the assets built up in the company. Our client sought our advice on this matter. A famous English king once said. rather than as a sole trader. Our client was not satisfied and wanted an absolute foolproof method of protecting the vast majority of his wealth. Indeed. In addition. ‘ When I listen to one party. whom do you believe? Invariably.
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. Our client is very happy with this arrangement. our client controls his own funds. Of course. The last time we spoke to our client. of course). However. as a result. Indeed. A simple solution was implemented. The money was paid to a Swiss bank account and kept there. For foolproof protection.respect for our clients. Thus. Our client was thus unable to access his funds. Pakistan then decided to detonate a nuclear bomb. 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. He asked for asset protection advice such that the asset should not be visible to his partner. Last year. your government will not be able to gets its hands on those funds. Pakistan froze all foreign currency bank accounts. In this case. we are not social counsellors. he did suffer as a result of the politically nuclear fallout. merely the interest (which was a substantial sum per annum). that in itself would have been a form of asset protection! In extreme cases. Our client did not need the capital. 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. it is always easy to be wise after the event. the funds would be totally safe from attack (depending on local matrimonial laws. 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 . if the same assets were to be controlled by us as trustees under an asset protection trust. if you have already gifted your money away to an asset protection trust. had our client kept his money overseas. if the commission were to be earned by the trust in the first instance rather than earned by our client. it is possible (though unlikely) some countries could ask for all foreign holdings to be repatriated by their nationals and then subsequently seize the assets in exchange for some government promises or even subject these to penal rates of tax. 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. This was routed back to our client such that it appeared as a receipt from an independent third party. Although our client was not injured by the radiation from the blast. The US government froze aid and loans to Pakistan and. In such instances.
it is normal practice for the trustees to require an affidavit of solvency from the person creating the trust. $300. the settlor. Who can create an APT? Basically. In other words. You discuss this with your friends and you are advised that if you gift your assets away before any legal action commences. Of course. say. This type of trust was pioneered in the USA to try to defeat the claims made against professionals including doctors. In such a situation. you will be technically insolvent.000. we find most clients normally transfer 40-60% of their assets into a trust. In practice.000 of assets and $200. Potential claims Let us suppose that you have net assets of $200. architects. Isn’t that great? Copyright Lance Spicer 2004 37 . If you gift away less than $300. However.000 of debts.e. It is important to realise from the outset that the success of APT’s really depends on local law.001. you will defeat the negligence claim. as you are now unable to repay your debts in full. US law allows APT’s.Special Report 6 . our firm normally requires this affidavit to be witnessed by a lawyer. you can safeguard those assets from third party claims. The most common types of creditor claims are those made by separated or divorced spouses. 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. you can challenge this presumption by argument in the Courts – we wish you luck! Thus. if you try to gift away.000 (as above) and you know that someone will soon sue you for negligence. that will be fine as you will have enough assets left to repay your creditors. bankruptcy creditors and commercial disputes.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. 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. etc. Your particular jurisdiction may not allow such trusts. surgeons. Indeed.
This is because. At this point. (6) The trust must be discretionary. a beneficiary can make this decision and force the trustees to release all assets. i. (4) The trust must be located overseas in a jurisdiction that does not automatically recognise creditor judgements of other countries. In a normal trust. This trustee in bankruptcy can then simply force the return of assets for onward distribution to creditors. which is run by persons called the trustees. This is dangerous because. Thus. That alone will put off many creditors! (5) The trust must be irrevocable. 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 trustees will be obliged to return the assets to the settlor. our firm will normally require a statement confirming that the settlor is unaware of any potential claims against him/her. (3) The assets are held for the benefit of the settlor i. Thus the settlor is also the beneficiary. in due course. 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. Put simply. that will be enough for the Courts to reverse the gift. the court will appoint a trustee in bankruptcy to act on behalf of the settlor. the trustees physically control the assets and related bank accounts. a creditor judgement won in Australia will not be automatically recognised by Cypriot courts. (2) The settlor gifts the assets to an overseas irrevocable discretionary trust. The release of assets cannot be forced upon the trustees of a discretionary trust. 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 .e.e. Step by step guide to setting up an Asset Protection Trust (1) The person giving away the assets is called the settlor. the creditor will have to incur great expense in retrying the legal case in Cyprus. in the event of bankruptcy of the settlor. Most countries have legislation which will reverse transactions entered into prior to commencement of third party claims. For example. the law is unlikely to be on your side. the settlor must not retain the right to force the trustees to return the assets to him/her. I’m giving my assets away to some overseas trustees. The onus of proof is normally on the person being sued for a fixed period of time prior to being bankrupted (say three years. many people think say ‘Aha.Unfortunately. In other words. Thus. If he had any notion whatsoever that he could be sued. should the settlor (who is also the beneficiary) become bankrupt.
his powers are limited such that he may block certain transactions decided upon by the trustees but he cannot initiate transactions. Thus the key is ‘choose trustees you trust’. Thus. On the other hand. it has held in Court cases that if the protector is paid. who is acting to protect your assets. As the protector is not a trustee. in our view. you now have added protection for your assets. 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. Let us now assume that you have found trustees you trust! Even at this stage. the trustees may wish to sell a particular freehold property. 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. a protector is a person. Thus. In addition. However.Good questions. The best approach is personal recommendation from your friends and relatives.e. they can! Another person can be appointed to look after the trust assets. do not go ahead with the structure. If you have doubts about someone. For example. he cannot force the trustees to accept his suggestion. if someone acts as a protector. you may require all cheques to be countersigned by this other person. if the duties of the protector are detailed in the trust document. This person is referred to as a protector. asset protection will not exist. Is there anything they can do at this stage to further safeguard their assets? The good news is – yes. In addition. some people will still have an element of doubt about the safety of their assets. Copyright Lance Spicer 2004 39 . you should not proceed with implementation. who basically has a veto over some powers of the trustees or whose consent or permission is otherwise required by the trustees. The protector may stop this sale if he feels it is not in the best interests of the trust. 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. If you retain control of the funds. Thus. 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 addition to the trustees. the trustees can take him to Court if he withholds consent for certain transactions unreasonably. For example. common-sense would indicate that he is not accountable to the beneficiaries (the trustees are accountable). if the protector feels he has discovered a good investment property. he/she is taking on certain responsibilities. it would be a criminal offence and thus the trustees would always be on the run from the police. Note that the protector is not a trustee i.
The normal powers of a “protector” include. Initiate the migration of a trust to another country. The choice is entirely that of the client. or a professional from an independent firm to the trustees. Graeme Aarons: Suite 219. the following: 1. Copyright Lance Spicer 2004 40 . Tel: + 44 171 581 2524 (UK 0171 581 2524). Use a protector where the funds are substantial. SW3 1PY. That may be very well in theory as the protector cannot initiate any action but in practice it is dangerous as. 163-169 Brompton Road. The best protector really would be a very close personal friend or family member. in the event of the client being made bankrupt. Right to be consulted or have veto powers over sales of particular shareholdings or other trust property. and know that they all provide excellent services. In practice. state that in our view the most practical method would be to: 1. Veto over payment of capital to beneficiary 2. we find most people do not bother with protectors as they trust their advisers absolutely. however. Or contact his Swiss office in Neuchatel: Tel + 41 32 722 1841. there are hundreds more. or decide whether certain events have occurred that will result in the automatic migration of the trust overseas (discussed later) 8. Conduct periodic reviews of the administration of the trust by the trustees 6. We would. your creditors would push for the appointment of more sympathetic trustees who would be willing to release the funds to the beneficiary. Professionals. Remove and appoint new trustees 7. Collier House. Agree trustee fees 4. Obviously. Addition of new beneficiaries 3. but we have knowledge of each of these people. inter-alia. London. In this situation. the trustee in bankruptcy would become the protector. 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. 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. not use a protector if the trust funds are small in value – the definition of small depends on the client 2. The main danger here is that a normal power of the protector is that he has the right to appoint new trustees. Right to obtain trust accounts and/or arrange an audit 5. of course. Here’s a list of some good providers of Trust advice.
Tel: +44 171 259 5992 (0171 259 5992) Fax: +44 171 259 5985 (UK 0171 259 5985) Email: info@pearce-trust. Email: mgchatzky@aol. USA.ca Timothy D. Charleston. Pearce Trust: 12 Grosvenor Place. Tel + 1 408 374 1462. Tel: + 1 843 937 0110. # 320. ON M5P 1R6. Scranton. USA. SW1X 7HH. Universal Trust Services: 125 E. Tel: + 1 619 456 6085. CA 920037. LLM. Campbell. SC 29401. England.ie Kurt Johnson. Fax: +1 619 456 6099. JD.com David Melnik.com Copyright Lance Spicer 2004 41 . USA. QC: 350 Lonsdale Road. Sunnyoaks Avenue. Tel: +1 416 488 7918. London.) Howard Stamer. CA 95008. #103. Toronto. Fax: +1 905 877 7751. Email: dm1976cp@ntcom. Email: tenstate@aol. Fax: + 1 843 937 4310. UK. Michael Chatzky..Fax: + 41 32 722 1842. Chatzky & Associates: 888 Prospect Street. JD: 180 East Bay St. Suite 311. Canada. (Specialist in Australian & UK Trust Law. Fax + 1 408 374 1534. La Jolla.
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