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Can I Achieve Asset Protection After Lawsuit Is Filed?

One question we often encounter is related to the topic of asset protection after lawsuit is filed. We’ve all heard and understand the adage of timing being everything, and this certainly applies to the matter of asset protection after lawsuit is filed. In some cases, asset protection can be managed even when a creditor has already filed against you, but then you have to watch out for issues related to fraudulent transfers.

Asset Protection after Lawsuit is Filed Can be a Success

The whole idea behind how to protect assets from lawsuits is based on establishing legal structures that make it difficult, if not impossible, for creditors, plaintiffs, gold diggers, and assorted opportunists to come after your assets. These uncompromising legal strategies don’t eliminate the risk of fraudulent transfers even when you seek asset protection after lawsuit is filed. These strategies become even more effective when in place for at least four years. If you feel that a lawsuit could be brewing because there is already friction and conflict with creditors, individuals, or business entities that could become plaintiffs, the time to act is now. Solid asset protection instruments need to be structured, written, executed, funded, and managed correctly in order to be effective. 

In the highly litigious and adversarial American legal system, it is too easy for just about anyone to file a lawsuit to claw at your assets these days. You can say many things to highlight the shortcomings of the legal system in the United States, but you cannot accuse it of being unfriendly to prospective plaintiffs; this is why it is important to learn how to protect assets from lawsuits. As to whether it is possible to establish asset protection after lawsuit is filed, the answer is yes, but that is full of caveats.

The Problem With Asset Protection After Lawsuit is Filed: The Anderson Case

You may have heard about legal strategies that involve setting up trusts in offshore jurisdictions for the purpose of safeguarding assets. Law firms that offer these services often mention jurisdictional advantages such as privacy, flexibility, and a conservative judicial system that favors offshore trusts; all this is true, but it will not necessarily provide asset protection after lawsuit is filed. Let’s explain why. If you have been served with lawsuit papers and attempt to set up an offshore trust, you may be entering the treacherous territory of fraudulent transfers. You cannot just give away your assets without getting paid market value for them and expect to be protected – even if you give it to an offshore entity.

Attorneys whose advice to set up offshore trusts in a late-stage situation after a lawsuit has been filed are doing their clients a disservice by putting them at high risk if they don’t include a solution for fraudulent transfers. What these lawyers fail to mention is: beyond the fact that offshore trusts are expensive to create, you must rely on a trustee you will never meet in person, and are expensive to maintain (costs average $5-10,000 to maintain every year due to the new patriot act and subsequent banking acts requirements to help the IRS get those tax evaders), there are bigger problems with going offshore and most attorneys miss the big issues right here in the United States: Fraudulent Transfers.

For example, Federal Trade Commission v. Affordable Media, LLC 179 F.3d 1228 (9th Cir. 1999), which in legal circles is known as the Anderson case. Denyse and Michael Anderson were determined to be in contempt of civil court in a case whereby U.S. prosecutors sought to repatriate assets stashed in a trust in the Cook Islands that were given away without full payment (fraudulent conveyance). Due to these fraudulent transfers, Mr. and Mrs. Anderson were thrown in jail and were only released after they agreed to cooperate with the FTC for the purpose of unveiling the offshore trust. The FTC argued that the couple had engaged in fraudulent transfer practices, thus the court found them to be in contempt, resulting in jail time.

When formulating how to protect assets from lawsuits, the issue of fraudulent transfers cannot be ignored or glossed over; 80% of the time asset protection strategies get unwound due to the fraudulent transfers issue. Under certain conditions, fraudulent transfers can even make a civil lawsuit turn into a criminal investigation. Conveying your assets to an offshore trust is not an illegal action by itself per se; however, it does not do much in terms of absolving you from a potential determination that fraudulent transfers may have taken place as part of your asset protection efforts.

Let’s say you own California real estate that you want to pass onto an offshore trust. If a creditor files a lawsuit that mentions the California properties were transferred without proper consideration (i.e. payment at market value), the court will very likely consider this to be a textbook example of fraudulent transfers. A California judge will, in fact, have jurisdiction over the properties in California and if you didn’t get a fair price within 4 years of the lawsuit, will unwind the gift to the offshore trust.

Giving gifts to a Trust are fraudulent transfers

You have to admit that conveying a California home into a trust formed in the Cayman Islands makes no sense when you give it away for free and are facing legal action, and this is part of the complexity related to asset protection after lawsuit is filed. Don’t let the geographic location of the trust trick you into a false sense of security; while the trustee’s office may be in a tropical paradise, the property remains in California and the transaction can still get clawed back (unwound) by the court if you did not receive fair market value for the property and 4 years did not pass.

What the Law Says About Fraudulent Transfers: The Fink Bridge Trust Case

You may think that fraudulent transfers can only be detected when trying to achieve asset protection after lawsuit is filed, but this is not the case. When evaluating fraudulent transfers, American judges refer to the Uniform Fraudulent Transfer Act, which establishes what can be considered a fraudulent conveyance.

Fraudulent transfers can happen before or after creditors take legal action. If the court determines intent to defraud, delay, hinder, a potential judgment, you could be facing more than just civil liability. As previously mentioned, there is even a risk of having to deal with criminal liability because some fraudulent transfers may qualify as misdemeanor or felony offenses.

Some law firms have attempted to get creative with so-called “bridge trusts” that begin with establishing a domestic trust in American jurisdiction followed by a transfer of assets to an offshore trust. Such was the case in Indiana Investors v. Victor Fink, No. 12-CH-02253, where the domestic trust was formed in Illinois and its offshore counterpart was in the Cook Islands, the same jurisdiction in the Anderson case. In this particular case, the plaintiffs prevailed to the point of freezing Fink’s bank accounts, and they even convinced the court to block asset transfers to the offshore entity because such an action would be tantamount to fraud.

When you attempt to establish asset protection after lawsuit is filed, you will typically find a hard time trying to retain a law firm to represent you. Attorneys who are familiar with how to protect assets from lawsuits will rarely take on clients whose cases look like they are headed towards negative outcomes such as judgments. We are talking about scrupulous attorneys who think about raising defenses against fraudulent conveyance claims; they know that courts look at the “badges of fraud” legal doctrine, which is comprised of the circumstances surrounding suspicious transactions.

Even though jail time was not ordered in the Fink case, it stands as a solid defeat of the bridge or passage trust mostly due to fraudulent transfers. You can find offshore trust defeats by the dozen in U.S. case law; some examples involve high-profile respondent such as corporate raider Paul Bilzerian, whose life reads like the script of the 1987 film “Wall Street” directed by Oliver Stone. In SEC v. Bilzerian, 131 F. Supp. 2d 10 (D.C. 2001), the debtor refused to cooperate with the government’s motion to repatriate assets held in a trust also formed in the Cook Islands. Bilzerian’s status changed from civil case respondent to criminal defendant, and he was ultimately ordered to spend 48 months in a federal prison.

Once again, if you walk into the offices of a law firm that promises asset protection after lawsuit is filed, there is a good chance that they will try to steer you towards offshore trusts. As previously explained, this does little to avoid falling into fraudulent transfers problems. Such law firms may just bill you for their lectures about offshore trusts and will draw the line at actually handling the process for you because they do not want to break the law with the actual transfers.

How to protect assets from lawsuits doesn’t necessarily mean electronically transferring to the Cook Islands

Filing for bankruptcy may appear to grant some level of asset protection after lawsuit is filed, but not too much; the only advantage is that bankruptcies are perfectly legal court proceedings that unfold in the public eye, and they do not fall into the badges of fraud category. While bankruptcies are one option to consider when asset protection after lawsuit is filed, they are also harsh remedies; they are not a good example of how to protect assets from lawsuits, and they are subject to court approval. You also have to be careful with bankruptcy proceedings as lawsuit remedies. In SEC v. Brennan, 230 F.3d 65, 2000, a case involving an offshore trust in Gibraltar, the debtor was ultimately convicted of bankruptcy fraud.

Offshore trusts are not looking good for other reasons. In recent years, the Panama Papers and Paradise Papers document leaks have cast a negative shadow on the use of tax havens for asset protection. There is also the fact the Trump administration has effectively pressured American technology giants such as Apple and Google to stop using offshore jurisdictions in order to reduce taxation.

Before we get into discussing how to protect assets from lawsuits, let’s get some perspective from a couple of high-profile civil cases currently unfolding in court:

Phil Collins v. Orianne Cevey

Pop music superstar Phil Collins is known for his numerous Billboard hits as well as for his drumming prowess with the legendary British rock band Genesis. Fans of Collins also know about his tumultuous relationship with Orianne Cevey, to whom he ended up ceding nearly $47 million as part of an acrimonious divorce finalized in 2008. In recent years Cevey and Collins after she divorced a Miami-based investment banker, and they moved into Collins’ opulent South Florida mansion.

In the midst of the coronavirus pandemic of 2020, Collins was busy arranging a Genesis reunion concert tour when he started going through serious relationship problems with Cevey. Things got really ugly when she told Collins that she was going on an August business trip to Las Vegas, when in reality she left to marry another man. It is not clear whether Cevey actually spent her honeymoon at Collins’ mansion; what has been reported, however, is that he ordered her to get out.

Instead of leaving, Cevey entrenched herself in the mansion and changed the security codes to lock Collins out. She threatened to leak salacious information about Collins to the tabloids, but the cherry on top was that she warned him a lawsuit was forthcoming. As of late October, Collins was going through the motions of an eviction complaint against Cevey.

While the above is certainly an unpleasantly scandalous ordeal for Collins, he does not have to worry about Cevey going after financial assets destined to his two children because they are the beneficiaries of an irrevocable trust dating back to the 1980s. Through this trust, Collins enjoys asset protection after lawsuit is filed, thus Cevey cannot touch any of the funds going to his children. Collins learned how to protect assets from lawsuits when he was living in Canada at a time when his multi-platinum solo albums were selling all over the world; he has faced a string of lawsuits ever since, but none of them have been able to claw at the benefits his children are entitled to through the irrevocable trust.

The Piet Mondrian Paintings

Pieter Cornelis Mondrian is considered to be one of the most influential artists of the 20th century. During World War II, the Third Reich went after Mondrian because they wanted to get their hands on his extremely valuable abstract paintings; this was part of a Nazi strategy to pillage masterpieces they could later sell or trade for substantial cash and influence through fraudulent transfers. Mondrian had a very good friend in Harry Holtzman, an American abstract painter who helped him collect as much of his work as possible and escape to New York City, where Mondrian passed away before the war came to an end.

Mondrian left his entire estate to his friend Holtzman, who in turn bequeathed everything to his children. Under the advice of attorneys who specialize in how to protect assets from lawsuits, the Elizabeth McManus Holtzman Irrevocable Trust was established, and this is where all of Mondrian’s paintings were legally transferred.

Fast-forward to October 2020: Four Mondrian paintings worth millions of dollars are part of the Kunstmuseen Krefeld collection, but the Holtzman heirs want them back, and they have filed a lawsuit to this effect. Mondrian loaned the four paintings in question to the German museum in 1929, four years before Hitler seized power. The paintings were supposed to be returned after a few exhibitions, but the museum director passed away. With the Nazis running Germany and making their nefarious plans, the paintings went through a series of fraudulent transfers, but clumsy SS officers lost track of them.

The Holtzman Irrevocable Trust has established ownership of the paintings and is now suing for the return because of wrongful possession. Legal analyst who follow the art world think that the Holtzman heirs have a pretty solid case because it is clear that the paintings were passed around through fraudulent transfers; moreover, they also believe that frivolous plaintiffs and legal predators will have no chance of trying to claim ownership of the paintings once they are returned. This is a perfect example of how to protect assets from lawsuits; in fact, depending how the Holtzan Trust is structured, we may never know what other masterpieces it holds. We will explain how this works towards the end of this article.

Irrevocable trusts are the common denominator in the two aforementioned cases; if you want to learn how to protect assets from lawsuits, this is where you should start, and it is always better to do it sooner than later. We can now discuss the matter of asset protection after lawsuit is filed, but this is a situation that you really want to avoid. Even the best attempts at securing asset protection after lawsuit is filed routinely fall into the issue of fraudulent transfers and their inherent problems.

How to Protect Assets From Lawsuits: The Right Way to Do It

There is more than just avoiding badges of fraud when talking about how to protect assets from lawsuits. Shielding your assets from legal predators, scammers, overzealous creditors, and other unpleasant characters is the ultimate goal. Similar to the actions taken by Phil Collins in the late 1980s, you should not wait to achieve asset protection after lawsuit is filed. The time to do it is always now. In the dysfunctional legal system of the U.S., lawsuits are always on the horizon, which is why you should protect your assets now instead of later when plaintiffs start coming out of the woodwork.

A solid derivative financial instrument combined with Ultra Trust® Irrevocable Trust accomplishes is the way to go when thinking about how to protect assets from lawsuits. You do not have to park your assets in the Caribbean and rely on someone you’re never going to see in person, nor pay $5000-$10,000 annually to maintain it. Ideally, you want to establish this structure as early as possible prior to being served with lawsuit papers, this is the smart approach on how to protect assets from lawsuits because you will have the benefit of running out the clock on the statute of limitations.

The burden of ownership is often mentioned when figuring out how to protect assets from lawsuits. Creditors and plaintiffs can only come after assets that you legally own; an irrevocable grantor trust provides relief against this burden, but only if it is structured properly. The Ultra Trust provides superb asset protection thanks to the fiduciary duty it creates, which in turn protects you from falling into a fraudulent transfers trap. When it comes to wealth protection and estate planning that remains effective through generations, what you really want is the peace of mind that only Ultra Trust Irrevocable Trust can provide.

Whereas offshore trusts have been defeated time and again in U.S. courts, a properly structured, managed, and funded irrevocable trusts enjoy a solid record of asset protection that spans 150 years, and this can be achieved through a three-stage process even after a lawsuit has been filed:

1 – The trust is properly written.

2 – An independent trustee is appointed.

3 – Assets are transferred into the trust in a manner that avoids fraudulent transfers altogether.

Finally, here’s one more thing to know about asset protection after lawsuit is filed: If a creditor is going after a tiny fraction of your assets, reaching a settlement agreement after putting yourself into a position to negotiate, could be your best bet.

If you find yourself in a difficult situation, and would like to consult an expert to see if your situation can be helped and if we can address all of the issues to keep your head above water, call now (508) 429-0011.

5 Biggest Myths About Asset Protection and Your Small Business

LLC Lawsuit Protection: 8 Case Studies

Many business owners believe that they can simply incorporate their businesses into an Limited Liability Company (aka LLC) and they’ll achieve LLC lawsuit protection for their personal assets. However, that is an extreme oversimplification of the law and at the core of misleading consumers by the “LLC farms” out there. Lawyers should know that if a corporation or LLC owes a client money, they are allowed to sue the owners, asking the judge to pierce the corporate veil. Studies have shown that American courts disregard the corporate entity to hold shareholders liable for corporate debts in nearly 50% of cases.

As one Illinois Court noted, piercing the corporate veil is both the number one issue that arises in business litigation lawsuits and one frequently misunderstood. If business owners are not meticulous in following corporate formalities, they could find himself forfeiting corporate protection.

Piercing the corporate veil means that a judge may reach beyond the protection provided by the corporate form to hold a business owner personally liable for the company’s debts. There are two common reasons that this happens: under-capitalization and commingling of corporate assets.

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If a person starts a business that is likely to incur a significant debts, such as a real estate company, but does not secure adequate insurance or provide funding to pay possible claims against the company, a judge may find that the corporate shareholders are personally liable on the debt resulting in the lack of LLC lawsuit protection. Under-capitalization will most likely lead to veil piercing when it is combined with the failure to observe corporate formalities. To receive protection, a company must hold shareholder meetings and keep minutes. It must have business bank accounts used for business purposes only. Shareholders must not use personal accounts to make business purchases or vice versa.

One of the reasons that piercing the corporate veil is so dangerous for owners is that it does not attach percentages of liability based on a person’s individual wrongdoing. If corporate formalities are not observed and the veil is pierced, the law treats the corporation or LLC like a partnership. That means all shareholders will be jointly and severally liable on the total debt, even a person who owns merely a single share. The plaintiff can choose to sue whichever shareholder has assets.

A cause of action to pierce the corporate veil is not a new lawsuit. The defendants do not have the ability to attack the underlying allegations in the case against the business, even if the business would have had a viable defense. Piercing the corporate veil is a way of imposing liability for an existing judgment against the business on the owners. Thus, an owner who chooses not to defend a case brought against the company because it is incorporated may come to regret that decision later.

The best way for an individual to ensure that his or her assets are protected is to maintain control rather than ownership. Assets that are owned may be seized by creditors, even a person believes they are protected through the formation of an LLC or corporation. Even funds in a revocable trust do not have protection: If the trust may be revoked by the individual who created it, the assets within may be taken by creditors. Only a properly drafted, executed, and funded irrevocable trust provides 100% asset protection.

When a Grantor establishes an irrevocable trust, he transfers ownership of the assets into the trust. A trustee will invest and distribute the assets in accordance with instructions provided by the trust documents. Income generated by irrevocable trusts may provide income to the Grantor, but the Grantor doesn’t own the assets. Subject to Medicare’s five year “look back” period, property held in an irrevocable trust may not be used to satisfy a judgment against the grantor or against the trust beneficiaries.

Below are actual court cases from all over the country highlighting these facts:

1) LLC Lawsuit Protection Case: Peetoom v. Swanson, 630 N.E.2d 1054 (Ill. Ct. App. 2000):

The Illinois Court of Appeals applied the concept of piercing the corporate veil to a personal injury case where the plaintiff, Peetom, fell and injured himself while walking on The Swanson Group’s parking lot. She filed a lawsuit for her hospital bills and pain and suffering, and her husband filed a loss of consortium claim arising out of the accident. The trial court judge entered a default judgment against The Swanson Group in 1997. Approximately one year later, the company was dissolved by the Secretary of State for failure to comply with taxation and annual report requirements. The plaintiffs later filed an action against The Swanson Group’s owners as individuals.

The defendants argued that the two year statute of limitations for bringing a personal injury action had expired and therefore, they could not be liable. The original injury occurred on January 20, 1993. The lawsuit against The Swanson Group was filed on January 11, 1995, shortly before the statute of limitations expired. However, the suit against the owners was not filed until September 2000. The trial court granted the defendants’ motion to dismiss, but the plaintiffs appealed.

The Court of Appeals explained that piercing the corporate veil is not a cause of action like negligence, and therefore is not subject to the same statute of limitations. Piercing the corporate veil is an equitable remedy, a way of imposing liability on corporate shareholders for fraud or injustice that the corporation allowed or caused. As such, the action could be brought within five years after the corporation was dissolved, as provided by Illinois law on shareholder liability for defunct corporations. Neither the corporate form nor the fact that the defendants were not named in the original lawsuit protected them, thus resulting a failure of LLC lawsuit protection.

2) LLC Lawsuit Protection Case: Las Palmas Assocs. v. Las Palmas Ctr. Assocs.

Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 1 Cal. Rptr. 2d 301(1991): A California Court of Appeals extended the concept of piercing the corporate veil to sister corporations owned by the same parent company. The case arose out of the sale of a large commercial shopping complex.

The contract stated that 84 percent of the complex would belong to Villa Pacific Business Company and the remaining 16 percent belonged to Gribble, president of Hahn Devcorp. Devcorp was a wholly owned subsidiary of Earnest W. Hahn, Inc. Several years later, both companies merged into subsidiaries of the same parent company. The same two individuals sat on the board of directors of both Hahn and Devcorp. By 1983, Hahn’s staff conducted business for Devcorp, leaving Devcorp a shell of a corporation. All of Devcorp’s assets had been liquidated, and all employees and directors fired. At trial, Hahn’s value was more than one hundred times that of Devcorp. The jury found that Devcorp was an alterego of Hahn and, as a result, Hahn should be liable for Devcorp’s debts.

The public policy behind allowing courts to pierce the corporate veil is that, in a situation where there is so much unity in ownership and interest between the company and the owner that the two are not really separate legal entities, it is not fair for the owner to avoid liability. These same principles apply when the owner of a corporation is another corporation. The court noted that there are many situations where a corporate entity is disregarded, and a corporation is treated as merely part of the parent corporation. In these cases, it is only equitable that veil piercing be allowed, thus resulting a failure of LLC lawsuit protection. The same line of thinking applies to two subsidiaries controlled by the same parent, if that parent company does not observe corporate formalities.

3) LLC Lawsuit Protection Case: Agai v Diontech Consulting

Agai v Diontech Consulting, Inc., 2013 NY Slip Op 51345(U): In this NY Supreme Court case, the defendants were not shareholders of the company in question, Diontech Consulting, Inc. However, they ran the company for their own gain, so it would not be fair to allow them to benefit from hiding behind the corporate form. The judge pierced the corporate veil and imposed liability.

The undisputed evidence showed that the defendants did not observe any corporate formalities in running Diontech. Two of the three, the Antoniou brothers, admitted being unaware of any records or books showing corporate operations. They could not produce any board meeting minutes, pay stubs, bank account statements, or other documentation showing the company’s existence as a separate entity. The brothers commingled business assets with personal funds and used the corporate bank accounts for personal expenses. Both brothers were paid for assisting in settling corporate affairs when Diontech was dissolved, yet both claimed no knowledge of what happened to the corporate assets, including vehicles, furniture, and computers. An accountant for the firm testified that all three defendants routinely took money from the corporate bank account and did not pay it back. No tax return was filed for Diontech because the defendants never provided the required documentation. The evidence suggested that Diontech was a sham corporation, created for the sole purpose of avoiding legal liability.

The standard in New York for piercing the corporate veil whether an individual hid behind a corporation to perpetuate an unjust or wrongful act against the plaintiff. The judge found that the defendants used Diontech to avoid paying creditors. The principals here used the plaintiff’s payments to Diontech and materials purchased for the plaintiff’s job to work on other projects. As a result, it would be unjust not to hold them liable, thus resulting a failure of LLC lawsuit protection.

4) Ted Harrison Oil Company v. Dokka

Ted Harrison Oil Company v. Dokka, 617 N.E.2d 898 (1993): An Illinois Court of Appeals found that incorporation did not protect the assets of a company owner who followed no corporate formalities and treated the company as an extension of himself. Ted Harrison Oil Company (“Harrison”) filed a lawsuit asking the judge to hold Dokka personally liable for a debt owed to him by Dokka’s company, Hess Tire. Dokka purchased all shares of Hess Tire in 1972. He later sold shares to two investors, but never created or printed stock certificates. The company was initially profitable but lost a significant amount of money between 1972 and 1981.

A review of the corporate books showed no shareholder meeting minutes, although Dokka claimed the shareholders met and were involved in the business. Hess Tire operated in a building personally owned by Dokka and paid no rent. A corporate account paid property taxes for the building. Dokka even admitted that he did not follow corporate formalities. The company’s bookkeeper testified that another shareholder, Walden, had her write checks to herself on the business accounts, which Walden cashed, keeping the money. Dokka testified that there was no business purpose for these checks or other loans and bonuses paid to Walden. Walden moved tires from Hess Tire’s inventory into storage to avoid paying creditors. Although Dokka claimed no knowledge of Walden’s activities, the Appeals Court pointed out that the deception would have been uncovered sooner if corporate formalities had been followed. Since Dokka did not treat Hess Tire as a separate business entity, he was not entitled to the protection of incorporation laws. The court held Dokka responsible for Hess Tire’s debt to the plaintiff, thus resulting a failure of LLC lawsuit protection.

5) Buckley v. Abuzir

Buckley v. Abuzir, 2014 IL App (1st) 130469: Plaintiffs John Buckley and Mama Gramm’s Bakery, Inc. won a case against Silver Fox Pastries, Inc. for violation of The Illinois Trade Secrets Act. After they realized that they were not able to collect the judgment from Silver Fox, which had no assets, the plaintiffs asked a judge to pierce the corporate veil and enter a judgment against the owner, Haitham Abuzir. Although the trial court dismissed the Complaint, on appeal, the Illinois Court of Appeals reversed, finding that the plaintiffs had alleged sufficient facts to allow the trial court to pierce the corporate veil.

After incorporated, Silver Fox never filed an annual report with the Secretary of State. It had no directors, no officers, no corporate records, and no corporate books. The company never held a shareholder or director meeting. No stock was issued, and no dividends paid. Silver Fox never made any payments on loans granted to it, and at no time had assets exceeding its debts. No corporate formalities were ever observed. On the other hand, Abuzir ran Silver Fox, maintaining 100% control over the company. Abuzir did not dispute the plaintiffs’ allegation that he and Silver Fox were, in effect, the same entity. Instead, he claimed that the corporate veil could not be pierced because he was not an officer, director, employee, or shareholder of the corporation.

After reviewing the law in other states, the Court concluded that stock ownership was not required to pierce the corporate veil. A person who exercises considerable authority over a company may be legally considered the equitable owner and, therefore, a judge can pierce the corporate veil to hold that person liable for corporate debts. Abuzir could not avoid liability by refusing to appoint himself as director or officer and failing to issue himself stock, thus resulting a failure of LLC lawsuit protection.

6) Associated Vendors, Inc. v. Oakland Meat Co.

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal.App.2d 825 (1962): A California appellate court found that a person could be held personally liable for corporate debts when the corporation was merely the “alter ego” of the individual. The case arose out of a commercial lease between Associated Vendors, Inc. (“Associated”) and Oakland Meat Company (“Meat”). and Oakland Packing Company (“Packing”). After Meat leased the premises in question from Associated, the company turned around and leased it to Packing for only a portion of the rent they had agreed to pay Associated. Associated asked the judge to hold the owner of the companies responsible for the debt owed, based on the fact that the corporations were alter egos of the owner and not treated as separate legal entities.

The company’s owner, Zaharis, loaned personal funds to Packing without a first holding a corporate meeting or requesting a shareholder vote. When it was time for the loan to be repaid, Meat issued a loan to Packing, and the funds were transferred to Zaharis. Meat applied for and received business permits used by Packing. Zaharis and Meat’s two other officers worked for Packing without receiving compensation; however, Meat continued to pay their salaries. The lawyer who negotiated the commercial lease testified that he was unaware that Meat and Packing were separate companies. A butcher who delivered products to Packing was told to bill Meat instead. Invoices sent to Meat were paid by Packing and vice versa. Several other vendors that did business with both corporations testified they were unaware that Meat and Packing were two separate legal entities. Because the directors commingled assets, did not observe corporate formalities such as holding meetings and keeping minutes, and they treated the companies as one, the court held that the owners were personally liable for the corporations’ debts.

7) Kinney Shoe Corp. v. Polan

Kinney Shoe Corp. v. Polan, 939 F.2d 209 (4th Cir. 1991): The United States Fourth Circuit Court of Appeals found that the business owner, Polan, was responsible for paying a corporate lease entered into on behalf of his company.

In November 1984, Polan filed paperwork with the Secretary of State to create Polan Industries, Inc. He incorporated Industrial one month later. Neither corporation elected any officers, held organizational meetings, or issued a single share of stock. Both corporations were created for the same purpose.

Shortly after the first business was established, Polan began negotiations with Kinney Shoe Corp. to sublease a building owned by a third party. Although the parties signed the sublease in April 1985, their actual agreement started in December 1984. Ten days after the sublease with Kinney was signed, Industrial subleased half of the property to Polan Industries. Polan signed the sublease on behalf of both corporations.

Industrial owned no assets other than the sublease, not even a bank account. The corporation had no income, other than the payments Polan Industries owed under the sublease. When the first lease payment to Kinney became due, Polan issued a check on his personal bank account. This first payment was the only one Kinney received from either company. In 1987, after receiving no further payments, Kinney sued Industrial and obtained a judgment of more than $166,000. Kinney then sued Polan personally to collect its judgment. Despite the long-established rule that the stockholders are not responsible for corporate debts, the Court held that it was appropriate to reach beyond the corporate veil and hold Polan personally liable for the judgment against Industrial because Polan did not follow corporate formalities. Thus, the corporate veil did not protect Polan’s personal assets and the Court upheld the judgment against Polan, thus resulting a failure of LLC lawsuit protection.

8) Minnesota Mining & Manufacturing Co. v. Superior Court

Minnesota Mining & Manufacturing Co. v. Superior Court, 206 Cal. App. 3d 1027 (1988): The California Court of Appeals held a shareholder responsible for paying a corporate debt after they pierced the corporate veil, even though the company had other shareholders. The case also clarified that, when the corporate veil is pierced, a shareholder may be held liable for one hundred percent of the debt, not a percentage equal to his proportionate share in the company, even if he owns only one share of stock.

Maximum Technology (“MaxiTech”) sued several defendants, including Minnesota Mining and Robert Schwartz for more than $2 million. Schwartz and MaxiTech settled their claims for only $20,000, and Minnesota Mining filed a suit after the judge appealed the settlement. The settlement was based on the erroneous conclusion that Schwartz, as a 40 percent owner of one of the companies being sued, was only responsible for paying 40 percent of that company’s liability if the corporate veil was pierced. However, that is not how the law works. If a company forfeits the protection of the corporate veil by not observing corporate formalities, all owners become jointly and severally liable for corporate debts, as if the business had never incorporated. It is not relevant whether a shareholder owns one share of a company in that scenario or all but one. In this particular scenario where only two of the company’s three shareholders were sued, the two of them would have to bear the burden of the entire corporate debt. As a result, the settlement agreement was based on a faulty assumption of law and could not have been found to have been negotiated in good faith, and Schwartz not only lost the benefit of the corporate veil, but also the advantageous settlement he negotiated.

Protect your assets for yourself and your children and beneficiaries and avoid tax dollars. Assets can be protected from frivolous lawsuits while eliminating your estate taxes and probate, and also ensuring superior Medicaid asset protection for both parents and children with our Premium UltraTrust Irrevocable Trust. Call today at (508) 429-0011 for a no-cost, no obligation consultation and to learn more.

Rocco Beatrice, CPA, MST, MBA, CWPP, CAPP, MMB – Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an “AA” asset protection, Trust, and estate planning expert.

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15 Things to consider when creating a trust

In the realm of financial planning, creating a trust can be one of the most important steps in terms of achieving solid asset protection and designing an adequate estate plan. It doesn’t have to be a difficult process, but it does require thoughtful consideration and planning.

Choose the right legal or financial professional to Protect your Wealth for your family

 

Most individuals, and even most estate planning attorney’s unfortunately, are not familiar with estate law and how statutes can affect estate planning across different jurisdictions. It is unreasonable to expect someone who is not a legal or financial professional to be able to easily understand everything; however, certain key aspects of it can be sufficiently learned so that a do-it-yourself option becomes available.

 

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The following 15 key points are of the essence when creating a trust. Once this information is fully understood, potential grantors will understand how to the point that they can begin the process of setting one up themselves.

1 – The Need and Purpose

They were originally created when the Renaissance period reached the nascent common law system of the English royal court. These legal instruments were born out of an important necessity: when English knights marched across Europe as Crusaders, they conveyed property ownership to trustworthy individuals to handle affairs such as managing land, paying feudal dues, etc. If the knight did not return to England after a battle, the terms of the entity would establish that the estate would transfer to beneficiaries, who were usually the spouse and children. In the absence of a structure, the Crown would simply claim royal rights over the deceased knight’s property, often leaving his surviving spouse and family penniless.

Good asset protection is like a puzzle placing together the right pieces in the right place

The historic needs of legal structures have not changed. They are still legal documents that establish a fiduciary relationship whereby personal ownership of assets is relinquished and the property is transferred so that it can be managed by a trustee for the benefit of others.

 

The modern purposes of these entities are: asset protection, wealth management, avoiding probate, Medicaid planning, and estate planning. Individuals and couples whose assets including real estate are worth more than $100,000 should consider creating a trust for their own benefit and to protect the financial futures of their loved ones.  Please note, that only an irrevocable version protects assets from anything other than probate.

2 – The Laws and Rules Governing

In the United States, these entities fall under the laws of property, which can be different from one state to another. The most important aspects of them that can differ from one state to another are: validity, construction and administration. Validity deals with state-specific laws and rules that may render it invalid from one jurisdiction to another. For example, at one point many states adopted a rule against perpetuity, which is intended to prevent legal instruments from placing restrictions on property for too long; however, states such as Florida allows property interest that is non-vested to remain for 360 years instead of the suggested uniformity of 21 to 90 years.

 

Although there seems a fair amount of uniformity in terms of the laws that govern most estate planning across all states, it is imperative that individuals who set one up in one state to draft new documents when they move to another state or make sure that it’s amendable to change the situs. Once someone learns how to create one, the second time around will be substantially easier.

3 – Parties Involved

This structure create legal relationships that require at least three parties: grantor (also known as settlor), trustee and beneficiary. Each of these parties can be represented in plurality, which means that there can be more than one grantor, trustee, and beneficiary.

 

When learning about how to create one, the grantor must assume a decision-making role that includes certain responsibilities such as choosing the type, appointing the trustee, naming the beneficiaries, relinquishing property, and transferring the assets. Depending on the type and the way the assets are transferred, the grantor may incur into gift taxes; nonetheless, skilled advisors can come up with a strategy that can alleviate this financial burden even if your estate exceeds the federal limits for a gift exemption. The role of the grantor is pretty much completed after the assets are transferred and the paperwork is properly filed and settled.

 

The trustee is the party that takes over the management and oversight. The duties and responsibilities of the trustees are defined by the grantor during the construction. In some cases, grantors initially serve as trustees until they appoint someone else; some individual grantors set it up in a way that will appoint a trustee only when they become unable to assume management.

 

The beneficiaries are the parties who are named to eventually receive the benefits of the assets contingent on a trigger event – usually the death of the grantor(s). Beneficiaries also have duties and responsibilities: they may have to pay taxes based on the assets they receive as benefits, and they are also responsible for requesting an audit the work of the trustee to ensure that it’s being managed in accordance to the law and to the wishes of the grantor.

4 – How It Can Help a Family

With every created structure, there is an implied desire of keeping property and assets safe for the benefit of families. This implied desire is the historic factor that prompted the creation in the first place.

Structure your structure properly so conditions can be placed on distribution of assets when someone passes away

 

These things can be structured in ways that serve the interests of individuals who can be grantors, serve as trustees and also become beneficiaries; notwithstanding this asset protection strategy, creating an irrevocable trust (IT) is something that is more commonly associated with effective financial planning and protection for families.

 

With a properly structured entity, conditions can be placed on the distribution of assets when someone passes away. Gift and estate taxation can be reduced or eliminated, and family affairs can be kept away from public scrutiny by means of skipping probate court proceedings. Family fortunes can be protected from lawsuits and overzealous creditors, and trustees can be appointed with the understanding that they must adhere to the terms of the contract and help to make it grow.

5 – Do-It-Yourself (DIY) Platform

Asset protection and wealth preservation are part of an industry that generates billions of dollars in administration fees each year. Attorneys and CPA firms that offer services often charge hefty fees their planning expertise. As a result, many individuals and families shy away from setting up structures to protect wealth that they have worked hard to accumulate over several decades.

 

Although there is a certain amount of complexity involved,  there are several DIY approaches that take each step into account making it easy that prospective grantors can take advantage of.

 

DIY structures are the result of advances in software and database technology and are so sophisticated and accurate today, that even most attorneys use them for their clients. Using an online platform that presents grantors with questionnaires about their finances, civil status and estate planning goals. The questions are related to the 15 key points discussed herein; once all the answers have been provided and the questionnaire is completed, two reviews take place. One review is automatically conducted by the software; the other review is conducted by seasoned professionals with years of experience. Once the correct documents are drafted, they are sent to the grantor for execution accompanied with instructions and guidance.

 

Once prospective grantors become familiar with the 15 key points presented in this article, going through the DIY process of creating an irrevocable version becomes a task that is not only easy to manage, but also beneficial in terms of avoiding considerable legal fees. 

6 – Choosing the Trustee

Proper selection of a trustee is crucial. Some individuals who choose a living trust as an instrument primarily for asset protection and not so much for estate planning may be tempted to serve as grantors, trustees and beneficiaries, but there some caveats in this regard. A similar situation arises in family structures, whereby parents may want to automatically choose their oldest child to serve as trustee.

 

The choice of trustee should take into account a few factors: knowledge, experience, potential conflict of interest, access to the assets, management abilities, cost, and relationship. Grantors are likely to immediately think about appointing relatives as trustees because they feel that they have confidence in to manage their assets and handle their financial affairs, but this could be a problem insofar as creating a burden for a trustee who has his own family and work responsibilities.

Independent trustees should always be preferred because they fulfill the aforementioned factors and they create a fiduciary duty which is golden in the eyes of a court. Fiduciary duty is synonymous with a legal obligation to protect the assets. A CPA, for example, is a professional under the oversight of a state regulator. Appointing a CPA to handle trustee duties is the best course of action for grantors who believe that appointing multiple trustees is a wise choice. While there are no limits with regard to whom you choose or the number of trustees who may be appointed, the conflict of interest factor is amplified with the presence of more individuals acting in a fiduciary capacity.

 

If for some reason the grantor feels that he or she must appoint various trustees, a protector provision may be included to ensure that potential conflicts between trustees can be quickly resolved.

7 – Including a Protector

Grantors who choose to appoint an independent trustee such as a CPA, friend, in-law, or lawyer do not have to worry about completely and permanently ceding all control of the assets and property transferred to the entity. Within the agreement document, a protector provision can assign powers to an individual or an entity for the purpose of replacing the trustee as needed.

 

The protector strategy began being used by asset protection lawyers that operate in offshore financial havens such as the Cayman Islands, Cook Islands, and other jurisdictions and has since been implemented into the better domestic trusts. 

 

Prospective grantors in the United States do not have to go offshore for the purpose of strong asset protection. States recognize that trustees and protectors can coexist within a fiduciary agreement. One such state is Delaware, where an individual or entity serving in this capacity is called an adviser under section 3313 of the Delaware Code.

 

The powers that can be assigned to a protector may include: the ability to replace trustees as needed, the right to control spending, the power to veto distributions, and the ability to step in whenever a conflict between trustees arises.

8 – Revocable vs. Irrevocable

Of all the legal strategies that can be applied when creating one, the most important to understand is the difference between revocable and irrevocable.

Watch the video on revocable vs irrevocable 

 

RT’s are designed to give grantors an opportunity to easily undo the terms of the agreement so that they can retain control and ownership over their assets. RTs can also be modified at will by grantors.

Irrevocable versions are designed to give grantors maximum benefits in terms of asset protection, estate planning, tax advantages, Medicaid planning, and others. Unlike RTs, grantors do not retain ownership or control of assets held in irrevocable structure, and the terms cannot be modified as easily.

 

Generally speaking, irrevocable versions are the better choice for individuals and for families.

9 – Married Couples 

Couples who are either legally married or who live together under the terms of a common law marriage or civil union can draft agreements that reflect their lifestyle and their financial goals. To this effect, a joint irrevocable structure can be created to meet the needs of most couples. In such case, one or both spouses act as the grantor, but each spouse can designate beneficiaries who can receive a share of property owned in common.

 

The terms that govern the property held in a joint structure can be dictated by both spouses. The estate planning benefit, when one spouse dies, the assets and property remain in the structure for the enjoyment of the benefits. A provision can be included for the purpose of a final distribution to take place once both spouses pass away.

You can preplan a marriage with a prenuptial agreement

 

Individual structures can also be created by married couples who wish to keep their property separate. Reasons for doing this include: second marriages and the desire to not cede control of assets and property to a spouse. Couples who are engaged and wish to keep their property separate throughout their union can also set up individual an irrevocable structure vs a Prenup which work 100% of the time in divorce situation whereas a prenup usually creates more problems than it solves; there is nothing more romantic than asking your wife to preplan a divorce with a prenup before you commit to spending the rest of your life together.

10 – Naming Beneficiaries and Distributing Benefits

This is something that is done for the benefit of others, who are usually spouses, children, and relatives; these are the beneficiaries. By creating a one, grantors have certain advantages and can even create incentives with regard to financial planning for children and minor beneficiaries.

 

One common concern among grantors as they grow older is whether their children and grandchildren could be negatively affected when they inherit a substantial amount of money. When it comes to beneficiaries who are minors, it allows grantors to specify those incentives and conditions that must be met before the trustee can make a distribution. Age is an example of a broad condition; in these cases, a minor must reach certain ages before distributions are made. An incentive would be a specific condition, which could be graduating from high school or from college to encourage that beneficiaries pursue education or careers.

 

Avoiding lump sum inheritances that may be squandered by potentially not-yet-mature beneficiaries is a popular and wise provision among grantors in the United States.

 

Guardians can also be nominated for minor beneficiaries when creating an irrevocable structure, and this is a designation that should also be made in a will.

11 – Exclusions

When learning how to create a trust, prospective grantors must think about every angle that could apply in terms of estate planning and distribution of wealth over the next 50 years. One particular angle that certainly merits careful thought is not so much who will be the beneficiaries; it is important to think about who must be specifically left out of distributions.

 

Similar to leaving people out of a will or disinheriting someone, it can be set up in a discretionary manner so as to designate who should really benefit from the estate and who shouldn’t. Exclusions can be specified in DIY versions, but they must not run afoul of provisions against disinheritance in certain states.

12 – Depositing Assets

Transferring assets into a structure is known as “funding the structure.” Just about any type of asset or property can be transferred, and this includes personal and business assets. Cash, life insurance policies, investment accounts, precious metals, and even companies can be transferred, but grantors should keep in mind that they are ceding ownership to the entity, which means that business and investment decisions will be made by the trustee after consulting with their financial advisor, you.

It can have a home even though a mortgage is charged against it

 

With regard to real estate, if the property is shared with a business partner in what is known as a tenancy-in-common agreement, your equity share can be added. Personal checking accounts, everyday vehicles that have no luxury or collectible value, 401(k) and retirement accounts, and assets that are not really valuable typically are left out.

 

If your home has a mortgage, it can still be added and, due to the St. Germain Act of 1982, the bank cannot call your loan due or accelerate your payment schedule with them. If you stop paying your mortgage, however, they can still foreclose on the home because they are still the first lien-holder. What they cannot do is go after other real estate or assets that are properly added.

13 – Jurisdiction and Venue

When choosing the state where the entity will be created, it is important to know about the applicable statutory provisions; this is known as the situs. The significance of choosing the situs cannot be ignored, and this was something that was partially discussed in the second point of this article with regard to the rule against perpetuities. Some states offer stronger asset protection than others; however, when real estate property will be transferred into the entity, the situs should be the same state where the real estate assets are located.

 

This means people with a summer home in Michigan or a winter home in Florida and Colorado, will likely need to set up more than one structure.

14 – Reasons for it

Protect your assets before entering into a nursing home with an irrevocable structure

 

Learning how to create an irrevocable structure is mostly a matter of function; understanding the reasons for creating an irrevocable structure and how financial goals will be achieved takes more thought and consideration. When the goals are clearly defined, drafting the agreement is easier.

 

The most common goals chosen by grantors include: passing wealth efficiently by avoiding the probate process, reducing estate taxation, preserving assets for charities, retaining control over wealth distribution, and protecting assets by keeping them within the family instead of a creditor or nursing home.

15 – Building a Legacy 

An irrevocable structure asset protection diagram of the different types of relationships involved. (Click the above diagram to enlarge)

 

At some point in life, prospective grantors shift their focus from wealth creation to wealth preservation. These structures are not merely for estate planning; they can be used in life to structure distributions to minors as they grow older and start building their lives, or they can also be used to alleviate tax burdens so that gifting to charities can be conducted for maximum benefit.

 

A properly managed entity can help to build a legacy by providing business continuity over a family fortune across generations. This is how a legacy can be built; financial success does not have to always live in the present, it can also be preserved and protected so that a family can always enjoy its benefits.

We look forward to our visit with you and your professional representatives to assist you with the advancement of your estate planning.

 

Cordially,

Rocco Beatrice, CPA (Certified Public Accountant), MST (Master of Science in Taxation), MBA (Master of Business Administration), CWPP (Certified Wealth Protection Planner), CAPP (Certified Asset Protection Planner), CMP (Certified Medicaid Planner), MMB (Master Mortgage Broker)

Managing Director, Estate Street Partners, LLC

Riverside Center Building II, Suite 400, Newton, MA 02466

tel: (508) 429.0011

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This statement is required by IRS regulations (31 CFR Part 10, 10.35): Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Top 10 Things to Do When Being Sued

Revocable vs. Irrevocable Trust Advantages

Can a Trust Be Sued – Land Trusts Myths for Asset Protection

Watch the video on 'Can a Trust Be Sued – Land Trusts Myths for Asset Protection'
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The response to “Can a Trust Be Sued?” question has to be answered with reply of, anyone can sue anyone or anything at anytime, but the real question should be, if it gets sued will it hold up in a court.  The right kind of trust, with the right trustee, written the right way, and with assets that are transferred properly will hold up. However, simply put, a land trust is a “revocable” living trust with unique features when it comes to “hiding” the true owner of property in the trust. (*Land trusts can also be irrevocable trusts which could provide terrific asset protection due to the fact that the client no longer owns the property. Clients use land trusts to keep the property in their possession and hide them not to give assets irrevocably out of their estate (which may have gift and income tax consequences)).

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You’ll know that I get disgusted when I hear “asset protection” advisors tell clients that a good way to protect assets is by hiding them. There is NO legal way to “hide” assets. Having said that, land trusts are sold on this very concept.

Because asset protection is such an important topic today, marketers have picked up on this and are heavily marketing land trusts as asset protection tools. Why? To generate legal/administration fees. The problem is that a client or advisor reads that land trusts can be an affective asset protection tool and blindly jump in to use them not knowing that there is no real asset protection provided.

Can a Trust Be Sued: The Problem with The Land Trust?

As stated above, a land trust is a “revocable” trust. Asset protection 101 is that revocable trusts provide NO asset protection from creditors. For example: if Dr. Smith has a Christmas party at his house where he is serving alcohol and someone drinks too much and drives home and gets into a terrible car accident killing three people in another car, Dr. Smith is going to be sued. As a general statement, ANY assets in his own name or ANY assets in a “revocable” living trust will be at risk to the lawsuit that will ensue.

The Sale’s Pitch of the Land Trusts

The sale’s pitch with land trusts is that everyone should have their real estate in a land trust because when a plaintiff suing you (or thinking of suing you) does a search to find out what assets you own, they will not be able to “find” the assets you own in a land trust because they are affectively “hidden.”

I found one website which gave an example of a client getting in a car wreck where the client was sued for $3,000,000. The client had $1,000,000 of auto insurance and because the client had his house in a “land trust” the plaintiff’s lawyer was not able to find the house and therefore, settled for the $1,000,000 of insurance coverage instead of going after $3,000,000 in assets.

The above example is absolutely absurd and one of the reasons of the importance of this newsletter to inform you what is reality. Remember that I had several people e-mail me and basically tell me that they thought land trusts would “asset protect” their homes. Land trusts technically provide NO asset protection.

Can a Trust Be Sued: “Hiding Assets” with a Land Trust

Land trusts only temporarily hide your assets so that IF a personal injury attorney does a search to find your assets, the attorney will not be able to do so from an initial cursory search. In the car crash case, the client is going to be sued and the assets owned by the client will be found.

Isn’t a land trust better than nothing? I suppose. If having real estate in a land trust will help your clients sleep at night, than have them use us a land trust IF and ONLY IF they are coupled with other asset protection tools such as the UltraTrust®  irrevocable trust (the best asset protection tool in my opinion), Limited Liability Companies, Family Limited Partnerships, etc. The problem with the way land trusts are pitched is that they give the client a false sense of security that the land trust will “protect” the assets in the trust. Again, land trusts provide NO asset protection from creditors.

You need to understand that in the “real world” what will happen with a lawsuit is that a personal injury attorney will file suit and then take the deposition of the person being sued. At that deposition, the attorney will simply ask the client to list off their assets. While it may be premature and objectionable, in a deposition the question will be answered, the defendant will have to disclose assets in a land trust and the objection will be noted. Again, there is no legal way to hide assets.

Conclusion of the Asset Protection of Land Trust

In my opinion, land trusts are not very useful when it comes to “asset protection.” If you use one, make sure the asset(s) being transferred to the trust are already owned by a separate entity which provides “real” asset protection. The bottom line is that land trusts do not protect assets notwithstanding what the marketers of the topic will tell you.  Can a Trust Be Sued? Absolutely, and if it’s a land trust you choose to use, then don’t expect it to hold up in court.

Call Estate Street Partners 888-93-ULTRA (888-938-5872) for more information.

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Pros and Cons of an Offshore Asset Protection Trust: Is it the Best?

Pros & Cons Offshore Asset Protection Trust: When to use an Offshore Trust

Today many estate planning firms tout the benefits of Offshore Asset Protection Trusts as instant asset protection solution for every individual looking for the end-all, be-all. It feels to them like finding a the last raft on a ship that has a pin-sized hole in it. Their first instinct is to throw out the raft and jump off the boat immediately. Unfortunately, things since 9/11 and the global financial crisis of 2008 have changed in this country. Prior to 9/11 we recommended Offshore trusts for a much larger percentage of clients, but that is no longer the case.

The problem is that 99% of the time, jumping off the boat is not the best solution because the nearest land is thousands of miles away and the hole is not that large. What they actually need is for the captain to help them analyze all of their options, the safest and easiest of which is to simply plug the hole. Of course if someone is selling rafts, then it’s even more difficult to expect them to recommend a thoughtful and unbiased solution.

And this is the real challenge if you are considering an Offshore Asset Protection Trust. I am a big advocate of the Offshore Asset Protection Trust (just like I am an advocate of rafts) – but in both cases only when they are absolutely necessary and appropriate. In fact, offshore asset protection trusts are only recommended to a very small percentage of clients these days; those with at least $7-10M liquid assets.

Why an Offshore Asset Protection Trust is a Bad Idea for Most People

Because of the new regulations from the Patriot Act and subsequent banking acts, offshore asset protection trusts are very expensive to maintain.

Going offshore to establish asset protection trusts means going out-of-pocket for between $5,000 to $10,000 per year in maintenance fees. Because of these expenses, many of these offshore trusts will only last about three to four years for the average individual, particularly if they were created in a rush to thwart a perceived upcoming risk; for this reason, grantors often question whether their hasty decision was indeed the right one at the time.

Offshore Trust Maintenance Fees Explained

There are quite a few mandatory and compliance forms to file when going offshore. At a minimum, there’s Treasury Department form 90-22.1, Report of Foreign Bank and Financial Accounts to consider. There may also be a requirement to file a Foreign Bank Account Report (FBAR), which falls under the authority of the Financial Crimes Enforcement Network (FinCEN) form 114.

Aside from filing TD and FinCEN forms, offshore trust grantors may also have to respond to the Internal Revenue Service (IRS) by filing forms 3250 and 3250A. These forms, which require disclosure of trust assets, are handled by a foreign trustee and a CPA based in the United States. As of December 31st, 2012, the U.S. Foreign Account Tax Compliance Act (FATCA) is creating an additional burden on offshore trust grantors and trustees by requiring financial institutions abroad to report on the financial holdings and income of their clients.

With the new filing and compliance requirements also comes uncertainty as to how offshore trusts are managed. It calls for retaining the services of an attorney to work in conjunction with the foreign trustee. If you take into consideration all of the aforementioned factors, it is easy to see the $10,000 annual maintenance cost of an offshore trust.

Why $10,000 Offshore Trusts Are Not Always Sustainable

The mid and long-term costs of maintaining offshore trusts for asset protection simply do not add up for most individuals. With regard to offshore trusts being sustainable solutions, consider the following scenario:

An offshore trust with a $10,000 set-up fee and $5,000-$10,000 in annual maintenance costs will end up adding up to:

• Between $25,000 and $50,000 after five years and five IRS Form 3250 filings.
• Between $50,000 and $100,000 after 10 years and 10 IRS Form 3250 filings.
• Between $100,000 and $200,000 after 20 years and 20 IRS Form 3250 filings, assuming no inflation.

It’s not just the sizable amount of money required to keep offshore trusts active year after year that prompts most individuals to dissolve them after just three to four years; there’s also the experience and expertise of the firm to think about. Many financial planners rushing their clients through a $10,000 Offshore Trust lack the real-world experience of a firm that actually files and executes documents, disclosures and compliance forms.

As an alternative, some of our competitors propose a better plan that avoids much of the heavy compliance of the foreign trust because they use a foreign trust in combination with a domestic limited partnership structure for a $25,000 inception cost and “only” $1,500 per year maintenance cost (who knows how much these costs will rise each year once you are locked in). They justify the fee because they insert themselves into your trust as a trust protector. Essentially giving themselves the ultimate control over your assets. Their costs will work out to:

• $25,000 in the first year
• $32,500 by the 5th year
• $40,000 by the 10th year
• $55,000 by the 20th year

Prospective grantors looking for asset protection strategies should not throw caution into the wind. If anything, shielding assets in advance of a knowingly potential adverse situation should be approached with circumspection. Offshore trust structures are actually very good for grantors who fund their nest eggs with about $7M to $10M, and they can offer a enormous amount of asset protection if executed correctly; however, some plaintiffs have found cracks in the armor and some judges are beginning to formulate a dim view of these instruments.

A Better and More Affordable Long-Term Asset Protection Strategy

A much more optimal alternative to offshore asset protection is the Ultra Trustâ„¢. It is designed to last 21 years beyond the death of the youngest heir and is easy and inexpensive to maintain. This domestic trust is supported by a firm that has 30 years of experience and a spotless record of asset protection in civil cases. A properly drafted, implemented, and funded domestic irrevocable trust has 150 years of success including challenges from the IRS and other sophisticated creditors. Click here for laws and actual cases.

Comparing the cost savings of the Ultra Trustâ„¢ versus offshore trusts is easy. The inception cost is $14,500 and there are no annual fees; also, there are no IRS Form 3520 filing requirements since this is a domestic instrument. To this effect, the long-term costs of an Ultra Trustâ„¢ are as follows:

• First year: $14,500 set up cost.
• After 5 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.
• After 10 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.
• After 20 years, the grantor has only paid $14,500 and avoided the IRS Form 3520 filings.

Ultra Trust® clients can reach the firm by telephone and in person without having to worry about billing hours. All client services are included in the setup cost. The Ultra Trustâ„¢ is supported by one of the top 3 experienced and respected asset protection firms in North America that takes pride in shielding the holdings of clients; this is the most important factor for prospective clients to consider since there they do not have to worry about what may happen to their assets in an offshore jurisdiction they are not familiar with.

The Ultra Trust® asset protection plan is perpetually effective and does not need to be created in a rush. As a matter of fact, the best time to create this domestic trust is when things are tranquil and before problems arise. With the Ultra Trustâ„¢, clients can rest easy in knowing that their assets enjoy true legal protection all the time.

It is your money. Spend it wisely.

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Asset Protection Strategy

Asset Protection Strategies

It happened!

Asset Protection: Part 1 of 4, by Rocco Beatrice, Sr.

And now, someone may be planning / plotting / threatening / bullying to sue you. “For everything you’ve got.”

A LAWSUIT IS ON THE HORIZON. You knew that you should have done something before a “lawsuit” was more than just an “idle warning” … You gave it some serious thought. You intended to do it, later… but, … it just never got done.

“Later” became a week, then a year, and now it has been at least three years. And, it just never got done. Sounds familiar?

OUR DYSFUNCTIONAL LEGAL SYSTEM. Contingent fee lawyers, and there’s more graduating from law school. It’s nothing new to you, you heard someone-else’s horror stories, divorce stories, victim stories. You just did not expect it – to become your story.

The internet is full of information. Every 3rd lawyer claims to be the “Asset Protection / Estate Planning” expert. Hundreds of books, thousands of articles. Who can you trust?

My 45 years of personal experience dealing with lawyers and lawsuits in business, right down to the “nuts and bolts.

ASSET PROTECTION is about giving your creditor two (2) options:

1. You dictate the terms of settlement to your creditor.

OR

2. You file for bankruptcy, and your creditor gets NOTHING.

Which is better, diarrhea or throwing-up?

Our Ultra Trust® locked to our Derivative Financial Instrument™

Our Asset Protection System

Our Ultra Trust®

Our Derivative Financial Instrument™

Read part 2 of 4: Asset Protection Strategy Consideration

Read part 3 of 4: Irrevocable Trust Structure

Read part 4 of 4: Avoiding Fraudulent Conveyance Derivative Financial Instrument

Asset Protection Strategy Consideration

Asset Protection Strategy Consideration

Our Asset Protection System

Asset Protection: Part 2 of 4, by Rocco Beatrice, Sr.

————————–

You see the writing on the wall.

You’re not certain if this litigation is going to begin in a month, six months, or year; but you definitely feel the stress related to it. The thought is consuming and dominating your daily life. If you have never gone through this nightmare, I can tell you: … IT’S EXHAUSTING.

Our Asset Protection System is financially engineered to protect</> your wealth against unscrupulous lawyers, internet prying eyes about you, your family, your finances, scam artists, identity thieves, and other con-artists, and “I’m from the Government and I’m here to help you.”

90% of the time asset protection gets dismantled due to fraudulent conveyance</>

Regardless of what structure that you use, whether it be a limited partnership (LP), a family limited partnership (FLP), a domestic Limited Liability Company (LLC), a domestic corporation, a domestic Sub S corporation, a domestic trust, or even an offshore trust, if the judge sees that your transfers were without fair market consideration</> (i.e. you never got paid a fair price for them when you gave them away), they can be clawed back by the court.

Something this stressful gets some people so overwhelmed with fear and anxiety that it causes them an inability to take action. They think that if they keep pushing it aside, and bury their head in the sand, that the problem is somehow going to go away on its own.

This is exactly what happened to someone that called us a last year, but it happens at least once every year. Mike originally reached out to us at a time that there was a high risk of a court battle coming, but nothing was set in stone yet. Because he hadn’t actually been served papers indicating that he’s been sued, he thought there might be a chance that there may never be a lawsuit, so he decided to hold off taking action to avoid the cost.

A few months later from our phone call he found out through a series of checks that bounced that his bank accounts were frozen. The creditor got a preliminary judgment and brought it to his bank, freezing the accounts without even his knowledge.

At that point, not only was there nothing that anyone could do, but he couldn’t even access funds to retain a defense attorney because all of his money was frozen.

You don’t have to go through what Mike went through.

BUT… I’m sure you’re thinking, “well, by using an offshore trust, the judge doesn’t have any jurisdiction, so a ‘judgment’ is not executable and It’ll be fine” and you’d be partially right… except for one small detail:

1. Offshore trusts typically cost $5-10,000 a year to maintain

2. If you have committed a fraudulent conveyance, most judges now put you in jail until you comply with a court order to bring the money back into the United States.

Offshore trusts for real estate work even less well:

Real estate that is physically located in a state that the court does have jurisdiction (even if the property is owned by an offshore trust), can be unwound if it is found that you gave up the asset without getting anything for it.

And while setting up a structure and transferring assets into it well before a problem arises is the best advice, the issue of “fraudulent conveyance” still will come up because there is a 4-5-year statute of limitations for any transfer if you do not get paid for it.

This means that, even if you take action before a lawsuit happens, but less than four – five years from the transfer of the assets, you could still be at risk of a fraudulent conveyance claim. So, if you take the wrong advice, you could lose more than “just money, you could be held civilly and criminally liable” taking advice from every 3rd lawyer who claims to be “the Asset Protection Expert.” Most lawyers use the “gifting method” to transfer assets. “GIFTING” is a Fraudulent Conveyance.

Under the Uniform Fraudulent Transfer Act you would be committing a crime, see Section 19.40.041

… (a) a transfer made or obligation incurred by a debtor is fraudulent as to a creditor whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay, or defraud any creditor of the debtor.”…

Your lawyer could also be held liable, and possibly lose his license under the theory for civil conspiracy:

The “civil conspiracy theory” has been defined by the courts as (1) an agreement (2) by two or more persons (3) to perform overt act(s) (4) in furtherance of the agreement or conspiracy (5) to accomplish an unlawful purpose or a lawful purpose by unlawful means (6) causing injury to another.

Read part 1 of 4: Asset Protection Strategy

Read part 3 of 4: Irrevocable Trust Structure

Read part 4 of 4: Avoiding Fraudulent Conveyance Derivative Financial Instrument