Professional Documents
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Asset Protection
What is Asset Protection? Different Types of Asset Protection Common Traps, Pitfalls and Mistakes Made in Structuring Asset Protection Case Studies to Prove The Value of Asset Protection Structures How to Inexpensively Set Up Onshore Asset Protection How to Inexpensively Set Up Offshore Asset Protection Advantages and Disadvantages of Each Type Of Asset Protection Frequently Asked Questions and Answers on Asset Protection Contacts to Help You Set Up Your Asset Protection One Question for You To Answer Daily Action Steps To Put Theory Into Practice
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 youll 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
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. Its 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 isnt 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, theyll drop it back in your lap. What you need to do is ensure that it doesnt get to court and that you have nothing worth taking in the first place.
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 youre 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!
The pros and cons Advantages of a trust include: there may be taxation advantages - although this depends on current tax laws; allows for income streaming; limited liability etc. The disadvantages of a trust include: possible implication for capital gains tax; distribution of tax losses; establishment and administration costs etc.
The above is not an exhaustive list and other issues may also need to be considered when formulating an appropriate asset protection strategy. Addressing the pitfalls and risks that may impact on your strategy from the outset will ensure that if the need arises, you are more likely to succeed in protecting your assets. Numerous questions are to be considered when addressing the most appropriate strategy to adopt, and to mitigate the potential pitfalls and the risks of asset protection strategies. The best time to consider and review your asset protection strategy is now. There may not be a need to change the strategy, but you should view it as a health check for your future financial security.
The lawsuit is brought by a group of squatters. These are people who have entered vacant property, have set up households, and are living rent free in houses with no electricity, no water and none of the comforts most of us would expect in a home. The people who move in have small children. These small children eat some the paint coming off the walls in this property. Unfortunately, the old paint contains lead and is very toxic and the children become very ill. Now, keep in mind these people have no right to be in this property, they are squatting. This squatting family now brings a lawsuit against the property owner, and he must defend himself in court against this squatter suit. He eventually settles out of court to avoid the whole legal battle thing. He must pay for his legal costs, and the squatters are able to obtain free legal aid. How unfair can it be for someone to enter your property without your knowledge and without your permission, and through their own negligence, their children become sick, 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. The days are gone when only the rich and powerful were the subjects of lawsuits. The days are gone when right or wrong truly become the litmus test by which a lawsuit was either filed or dismissed. It is imperative that families and businesses today understand that they are at risk and that problems can arise. Asset protection is one solution doing nothing in life and hiding under your bed is the other. Case Study 3 - Inadequate insurance A doctor works all his life to provide competent and effective care for his patients. Surgery leaves the patient crippled. No surgeon is 100% successful, but the jury in the malpractice suit awards the plaintiff $20,000,000, an amount greater than the policy limits for this procedure. The doctor must make up the shortfall of $5,000,000 out of his own pocket. He is wiped out.
How to Inexpensively Set Up Onshore Asset Protection Thats Right For You
For those people, not really wanting or requiring the added benefit of being able to go Offshore, there are Onshore ways and means to protect your assets. Methods to Protect Yourself #1 Simple Plan This simple method is for the average person who wants basic protection. You have a home and a few investments to protect You are in a risk category but your partner isnt Transfer the house and investments to her or him to reduce your exposure. 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. Have your solicitor or lawyer put together a post nuptial agreement stating that, on dissolution of the marriage, these assets are to be included equally in any property settlement. Generally they will be anyway, but this cant hurt and it gives you extra piece of mind. Methods to Protect Yourself #2 Company Plan This protection method should be employed by people, whom have their own company, (usually a family business), to ensure protection for the directors assets. It was believed that a company structure provided protection for the business directors, but this is no longer true, in many cases. The attackers will simply by-pass the company structure knowing full well there are very few assets to go after, and go after the assets of the director or directors. The assets of the shareholders are unclaimable, only the directors assets can be claimed. Decide which of you should bear the brunt of any claims. This person will remain (or become) the director. These days you only need one director. The other partner should resign as director immediately, if they already hold this position. 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. Ensure the shareholder cant sign cheques etc. This will strengthen your argument that this person has no authority over the business on a day-to-day basis.
The non-director / shareholder should also be the person that holds the familys personal assets etc. 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.
Remember this structure must be setup at least two years before you have any problems, to ensure that its not possible for courts to clawback or reverse what you have done to protect yourself. Methods to Protect yourself #3 Home Equity Plan If you are concerned about your home getting claimed in some future litigation, there is a simple way to ensure theres not much to run off with and at the same time picking up some money to invest. Go along to your bank or financial institution and apply for a Home Equity Loan. Borrow as much as you can, within your comfort level of course. This will mean that, just say, your home is worth $400,000 and you have an existing mortgage of $100,000, that leaves you with equity of $300,000. This is the amount a litigant can take off you if successful. Now, if you borrow a further $250,000 (subject to your ability to make repayments), your equity will reduce to $50,000. This is all that is at risk. However, you now have $250,000 to do something with. You place this either onshore or into our offshore structure that I will discuss in the next section, and it will be isolated from any litigant that is after you. Simple!! Placing it offshore is a better idea simply because demonstrated returns are better. 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. 3) Your home is protected from litigation (to a great extent). However, things to keep in mind.. There are risks with any investment, so you must understand sometimes investments go down. Would you be able to cope with it? Interest rates on your home loan may go up, can you cope with this? If you find the whole thing unsettling or its not for you, you can always return all or part of the funds to you and pay off
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the loan. This would be the strategy to employ if rates start moving up quickly, however, this leaves you exposed again. Remember this structure must be setup at least two years before you have any problems to ensure that its not possible for courts to clawback or reverse what you have done to protect yourself.
Succession Issues:
When considering any asset protection, there should also be a plan for succession. Your death could quite literally cause chaos for those left behind if no plan is made. This is a simple matter, by giving your solicitor a letter of wishes and a will stating that upon your death that he or she be appointed trustee of any trust you have established until such time as a new one be appointed (probably, a beneficiary or relative). Your solicitor should be consulted on all the issues discussed in this module of the program, as everyones situation is very different and requires due consideration.
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How to Inexpensively Set Up Offshore Asset Protection Thats Right For You
Introduction Anyone with a reasonably substantial net worth could benefit from offshore asset protection, and this financial management strategy will be of particular interest to those working in professions where there is a high risk of litigation, for example doctors, lawyers, business owners, and financial planners, to name but a few. As discussed earlier, there are increasing numbers of lawsuits being brought, in which the defendant is being targeted not necessarily because of his culpability in the case, but because of his ability to pay. Individuals in the above high risk groups with savings or significant assets, could well fall in this 'deep pocket' category, and risk losing everything if there are not proper protection measures in place. Although professionals of many kinds are obliged to have liability insurance or professional indemnity insurance, this is becoming more and more expensive due to the increase in litigation (and of course the collapse of insurance companies like HIH). It is also becoming more expensive because of the rising level of damage awards. In many cases, whats worse, is that your insurance may not even cover the full size of an award. Therefore, it is increasingly important to consider putting in place, some additional asset protection measures. Asset protection strategies basically work by making the assets of an individual unavailable, or exceptionally difficult to recover, (and hence potentially more unattractive) in the event of legal proceedings being taken against them by employees, clients, patients, litigious family members or other creditors. Protection of assets can take a number of forms, and while there are many domestic alternatives, including family trusts, limited liability partnerships and companies, and family partnerships offshore vehicles, trusts and companies are usually more effective for this purpose, simply because not only are the structures straight forward, but your asset ownership lies outside your resident jurisdiction and therefore, out of sight and out of mind. Clawback attempts and litigation is made just that little bit more complicated and difficult. This is another great deterrent in the first place.
Copyright Lance Spicer 2004
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The trust is the lynch-pin of offshore asset protection; although offshore bank accounts on their own can provide enhanced privacy and confidentiality, they are usually an integral part of an asset protection strategy. Banking secrecy laws in offshore jurisdictions are usually significantly stricter than domestic laws, and unless criminal activity or money laundering is suspected, you can expect that your details will not be made available to a third party. Banking secrecy legislation does however, vary from country to country, so you will obviously have to check the situation in your preferred jurisdiction before taking action. Offshore trusts and companies can be used separately or together (better together though) for asset protection purposes (usually in conjunction with an offshore bank account). In a trust arrangement, 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). Although the settlor will usually provide a letter of wishes, detailing how he would like the money to be managed, and distributed, the trustees have legal control over the assets. Although trusts could once be used in order to break the link between an individual and his assets, this is less the case in recent times, as high tax countries have had time to develop legislation forcing at least some degree of transparency into trust arrangements. If a person sets up an offshore company (usually an International Business Company or IBC) to hold his assets, he will normally be a shareholder in that company and vulnerable to Court action. However, in many offshore jurisdictions, the agent establishing an IBC (or indeed a trust) on behalf of an individual, is not obliged to name the eventual beneficiary, and for this reason, an offshore company can still go a long way towards providing privacy and asset protection - after all, your creditors first have to find your company before they can sue it. The flaw in this line of reasoning, in many cases, is that you are obliged to disclose the existence of such assets to your local tax man, and once it's on your tax return, the whole world knows about it. There is also plenty of pressure on offshore jurisdictions to change their rules by installing 'know-your-customer' and mandatory registration rules. So the trust survives, and even prospers as the instrument of choice for asset protection. However, in Australia, the trust has to be declared even if just formed. Unfortunately, false information on your tax return can
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lead to serious problems. So, you must work with the requirements of disclosure making sure you dont qualify as someone who must disclose these requirements. An example of this is using the under $50,000 rule where you dont have disclose your interest if the amount offshore is less than $50,000. Also issues of ownership and control can be looked at. In order to ensure effective offshore asset protection, you need to establish the structure in a jurisdiction with effective IBC privacy legislation, strong banking secrecy laws, and modern trust legislation. Asset protection, however, is not something that should be attempted when legal proceedings are imminent, or already underway, as any attempt to transfer assets under these circumstances would be considered a fraudulent transfer. This is illegal, and would provide no protection against creditors whatsoever. However, a well-structured asset protection strategy, set in place ahead of time could prove a very valuable strategy. The beauty of this structure is that: It can be easily set up onshore for asset protection purposes When established offshore, it gives you the same asset protection and even possibly better, because the assets are located offshore. It will also allow you to invest offshore, whereas an onshore setup will still have the downside, of not allowing you to participate in some investments, due to you residing in Australia. What you will need: You will need a company to be established as well as a trust. This applies to both the Offshore and Onshore versions of this Asset Protection Plan. Firstly, a trust is a legal entity that can invest in shares, property, funds - virtually anything. It is controlled by a trustee. The trustee makes all the decisions on behalf of the trust, such as what it invests in and whom it provides distributions for i.e. Beneficiaries. The trust will hold all the assets in our structure. For example, if you invest in offshore funds and shares, it will own them. It will own them on behalf of the beneficiaries, who receive income or profits received by the trust. These people are like the companys shareholders, but unlike shareholders, beneficiaries have no say in the running of the trust. Shareholders in a company can remove the directors if they wish. The company is also a legal entity. It has a director and shareholder or shareholders. In our structure, it will act as the trustee.
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Finally, you will act as the companys director and shareholder. The structure will look like this:
The Company
The Trustee The company manages the trustee and controls everything. As the director of company you have control over the trust ultimately. However, you and the company owns no assets, just controls them
The Trust
The Trust owns everything The trust owns all the assets i.e. investments etc and holds them on behalf of the beneficiaries. 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, your children, relatives your spouse
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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. Do not use it for business or run any personal business through it. You can use a separate trust called a service trust, which can use the same trustee company. The reason for this is simple. The only chink in the armour is if someone sues the trust itself. This can only happen in certain circumstances and they are: 1) if the trust is trading or operating as a business. So keep all your business operations in a separate entity, not related to this one. 2) if the trust owns a property that is rented and issues related to the property give rise to a dispute. This brings us to second rule. If you are using this trust setup for properties, its best to isolate each property in its own trust. That way the only thing at risk is the one property. If you have multiple properties in a trust, and one property goes wrong, then all the rest in the trust are at risk. While this may seem inconvenient, and a little more expensive, its worth it. You still, however, only need the one trustee company looking after all the different trusts. Also, before you put the family home in a structure, remember there are capital gains tax considerations, as well as stamp duty. So, it may be advisable to leave property, particularly your home out of these structures and employ: Methods to Protect yourself #3 Home Equity Plan shown a couple of pages ago
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Advantages In taking a loan against your assets (probably property) it frees up cash to invest elsewhere, hopefully via an asset protected structure. Effective in reducing exposed assets by reduction in the net value. No stamp duty or Capital Gains Tax considerations in transferring the house. For those on a budget, this is the best way to remove your home as a target. Disadvantages Not as effective as the Simple Plan as it still leaves a degree of equity exposed (but far cheaper). Fees will be charged by the bank and of course repayments and interest will be incurred. (This should be offset by investment income and gains in your asset protected investment structure.) The investments you use the equity for, could fall in value creating a net asset value decrease overall. Interest rates on your loan could go up. Offshore Protection Strategies Advantages By far the most effective way to protect assets by removing the right out of reach and out of sight. A long term solution and an effective way of structuring your familys estate planning, allowing future generations to use the plan. Allows offshore investment opportunities not available without a structure like this. This is a real plus and one of the main reasons for considering a structure like this. Provides financial privacy. Disadvantages Cost. It can cost up to $6,000 for a structure like this and will incur around a $1,000 per annum to maintain it. There are also, as with many of the other plans, stamp duty and Capital Gains Tax considerations.
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ARE MY ATTACK?
ASSETS
SUSCEPTIBLE
TO
CREDITOR
Possibly. Depending on your profession and many other factors, you may be vulnerable. No one is judgment proof, or immune from lawsuits and creditor attack, but professionals, especially doctors, accountants, financial consultants, owners of closely held businesses, corporate executives and others with highly visible careers, are most susceptible to creditor lawsuits, including frivolous litigation.
I CARRY SIGNIFICANT LIABILITY INSURANCE COVERAGE - WHY SHOULD I BE INTERESTED IN ASSET PROTECTION?
If you review your insurance policy, you'll find that it does not cover you for punitive damages or intentional wrongdoing. In addition, with the ongoing crisis in the insurance industry, the financial stability of liability insurance companies is never certain, and the
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scope of coverage seems to be decreasing all the time. Finally, a claim can always be made which will exceed your coverage. Prudent planning might indicate a combination of asset protection strategies and liability insurance.
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So, this is how it works. You become the director and shareholder of the company. This means you control the company and own the company as the shareholder. As the company is the trustee for the trust, you control the trust, but not own the trust. As I said before, no one owns the trust or its assets other than the trust itself. As all the assets are in the name of the trust, it owns everything, and the only people who can benefit from these assets are the Beneficiaries, not the trustee. As the trustee, the company (you) will nominate who the beneficiaries are. However, they have no say in the running of the trust, only the trustee does. You see how it works? You end up controlling the whole thing but have no ownership of anything and without ownership, nobody will sue you for what you havent got. Make sense? This is just a simple way to protect your assets. There are several ways to improve this situation, such as having multiple trusts to further isolate litigants from making a claim on the assets of the trust. However, this can only happen if someone has a claim on the assets of the trust, which would be rare, as the assets would be insured for third party claims. Rest assured, if your assets are in a trust like this, civil action against you personally, cant penetrate the trust and make a claim against the assets of the trust. This structure can also be expanded, by simply adding more trusts under the control of the trustee. For example, you can add further trusts for extra investments, add a trust for business, which would hold business assets and another one that could actually run the business. Doing things this way is essential, because you need to isolate assets so there can be no linkage of assets, if one trust for whatever reason gets into trouble. However, you only need one trustee company to control any number of trusts.
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as trustee of the trust. Thus, although you've relinquished the nominal ownership of the assets, however you continue to be the beneficial owner; you can manage, sell, mortgage or give away your assets as you please and the trust won't interfere. If at some point in time you wish to change terms of the trust, including designation of beneficiaries, or even revoke it in entirety, you can do so quite easily. There are Few Disadvantages with a Living Trust According to most estate planners, revocable living trusts have few disadvantages. Most trusts are relatively simple to prepare, but you would need to formally transfer the title of various assets to the trust. This requires some paperwork and you'd need to contact your banks, brokers, insurance agents, etc. The biggest downside being the stamp duty involved in property transferral that can run into thousands, but this is a once off and will ultimately be worth it. Trusts are Difficult to Contest when Compared to a Will Living trusts are extremely hard to penetrate. A living trust is set up during your lifetime and, presumably, you've been administering the trust for several years. It would be difficult to challenge your competency to set up the trust under these circumstances. Upon your death, the trust estate is distributed to the named beneficiaries almost immediately, without the intervention of a probate court. Anyone wishing to contest the trust would have to sue each and every beneficiary, after they've received the assets, ruling out the possibility of blackmail. Remember, the trust is an entirely private affair and no one, other that the beneficiaries, needs to know the contents of the instrument. This precludes disgruntled heirs from using the threat of a court battle to tie up the estate in years of litigation. Placing Assets in Joint Tenancy is Not a Solution Most married couples (and often, a parent and a child) hold title to a property in joint tenancy with the right of survivorship. Upon the death of one joint tenant, the surviving joint tenant inherits the assets. So far so good. But when the second spouse dies, unless he or she has placed the property in joint tenancy with someone else, that property will be subjected to the vagaries of a will. A living trust is one sure way to avoid that problem. Most estate planners advise against joint tenancy for a variety of reasons. For some persons, in certain situations, joint tenancy may be a wise decision. However, in a vast majority of cases, joint tenancy spells major disadvantages. For instance, say you own your home and care in joint tenancy with your son. If the son gets into an accident, and the injured person files a lawsuit, you'd
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be named a defendant along with your son. rendered, your personal assets are at risk.
If an adverse judgment is
Or take this scenario. You and your wife own all assets in joint tenancy with a view to avoid probate when one of you dies. But your wife has to be put into a nursing home due to Alzheimer's disease. Now you would need to go to court before being able to do anything with the jointly-owned assets. In this case, joint tenancy actually turned out to be a curse. The Essence of a Living Trust is its Simplicity, 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. You can do whatever you wish to do with them -- manage them, sell them, or give them away. The trust does not become effective till you die or become incapacitated. The person you would designate as beneficiary of the trust (your husband or wife or children) is called "successor trustee." Upon your death, the successor trustee takes over the estate immediately without going through probate and terminates the trust. It's that simple. You can also abolish the trust or alter its terms or change the beneficiaries at any time you wish. It provides you with the maximum amount of flexibility. 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.
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the trustee was a kindly Egyptian man from the streets of Cairo. As my friends father had a long standing business relationship in Egypt he had a good understanding of how things work there. So, once the trust was established he simply found a beggar on the streets, offered him US$1,000 for his name and two signatures on two pieces of paper. The first was the trust deed agreeing to act as trustee and the second was an enduring power of attorney appointing my friends father to act in all things regarding the trust. As my friend had not yet had any children, then the beneficiary didnt exist yet, the Egyptian man had no idea what was going on and even if he did he couldnt read English and didnt know the name of the trust anyway or what it was all about. My friends father never saw the Egyptian man again and to this day remains the trustee even though the man holding the power of attorney (my friends father in actual fact) controls the trust without fear of being held to account for any matter arising from the trust, but has full rights to use the money as he feels fit. On the death of my friends father, the assets will be transferred to the beneficiary or a new Trustee will be appointed and no doubt another $1,000 will be spent on the streets of Cairo. Your assets have been seized! Its frightening just reading those words but it can happen it does every day. There are basically 3 categories of assets. 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, right? Most people are in the same boat, but it doesnt have to be this way. Lets look at each of the categories. Assets easily located and seized without notice Your home is the first thing that will go. Then shares, bonds, bank accounts, shares in private companies and cars in your name and in the name of associated entities. They use council records, tax records, the titles office, motor transport records, banks, ASIC, credit reference organisations, police records, electoral roles, Medicare records, telephone accounts etc. Wherever you and your assets are, theyll find you and them. 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. These may be assets held in a third partys name such as a trust or company. Quite often these will often only delay the process once it can be proved that these assets are beneficially held for you. They can also find assets by checking all of your financial records including bank and credit card statements and cheques drawn. This can uncover those unlisted assets such as coins, art, travelers cheques, 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. -Thomas Jefferson, US President
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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 dont hold shares or office. These could include bank accounts, shares, properties and the contents of safety deposit boxes in banks. In the case of a company its all pretty simple, you dont hold shares and dont 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, they cant be seized. Other assets that cant be seized because they are out of your control include annuities, superannuation, and beneficial interests in irrevocable trusts. The bottom line is you should have at least some of your assets offshore tucked away in a secret company or trust. Contacts: Azaria Financial Services LLC 70 Walnut St, Suite 326, Wellesley MA 02181, USA Phone: 0011 1 781 239 8103 Fax: 0015 1 781 239 8095 Email: offsure@aol.com These people can help with a wide range of services including offshore banks, trusts, companies and asset protection. Offshore bank accounts also available. Privacy Services International 24 College Lane, Gibraltar Ph: 0011 346 108 04378 Fax: 0015 49 30690 88244 Email: privacyservices@yahoo.com.au Website: www.psi.gi Privacy Services do it all, offshore accounts, IBC, passports, driving permits and maildrops.
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Special Report 3 - How hidden assets are found .. By just about everyone!
I cant count the number of people who have written to me asking how to hide their assets. They fear being put upon by ex-wives, ex-husbands, litigants, greedy relatives, ex-friends, business partners, creditors.. the list goes on. 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. Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland, Cayman Islands, The Bahamas, Isle of Man, Netherlands Antilles, and other known banking and tax havens. Travel to these types of areas will surely throw up a red flag, giving investigators a place to start looking for your assets. Examining telephone (home, business and hotel), fax and mobile phone records to identify undisclosed business connections and contacts. Reviewing credit card statements to determine who you do business with, where you travel (domestic & foreign), and what products and services you use. These records leave a paper trail a mile long. Garbage is often sifted through for information such as statements, invoices, correspondence, and other relevant material useful in tracking your affairs. Use a high quality paper shredder, discard your garbage at another location, or burn and crush it. It sounds drastic, but what you throw away says a lot about you, and many leads can be found there. Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail. This technique can disclose friends, associates and partners. If you must receive important mail at your residence or business address, be sure to ask your correspondents to stop using a return address. And use a maildrop. Looking into banking transactions. All withdrawals and deposits of AUD$10,000 cash or more must be reported by your bank to the federal government, whether made by cash, cheque or electronic transfer. Keep your transactions under AUD$10,000. Checking private courier's logs (UPS, DHL, Federal Express, etc.) for delivery of special or important letters and packages.
The solution is to destroy or hide these records or better still, keep as much off these records as you possibly can. For example, use cash for purchases, use phone cards for telephone calls, use a maildrop for mail, destroy unwanted records and possibly get a second passport.
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1. the insured individual. If he is not the policy owner, he does not have any rights. When he dies, the contract matures and benefits are paid to the beneficiaries. 2. the policy owner or policyholder. He chooses the policy options and designates the beneficiaries who are paid upon the death of the insured person. The policyholder may be an individual, a corporation, or a trust. 3. the beneficiaries. These may be individuals, corporations, or trusts. However, if asset protection under Swiss law is your concern, your beneficiaries should only be individuals, preferably your spouse and/or children. 4. the premium payer. This may safely be an individual, corporation, or a trust. Note that a properly written Swiss annuity policy affords better protection than Swiss bank accounts, or Swiss securities accounts. Swiss life insurance policies also make great estate planning vehicles, regardless of the risk of bankruptcy or asset seizure. If you would like more information, there is one Swiss insurance broker dealing with Overseas clients. Try contacting: JML Jurg M. Lattmann AG Swiss Investment Counsellors Germaniastrasse 55, CH-8033 Zurich, Switzerland telephone: +41 41 368 8233 fax: +41 41 368 8299 This adviser is highly regarded by those involved with Swiss Annuities.
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Self-employed
Ah, but my work is excellent and I can guarantee its quality. Do you have staff working for you? How can you guarantee the quality of their work? What can happen if a member of staff gives off-the-cuff advice that turns out to be incorrect? What happens, God forbid, if you make an error of judgement believe me, it happens more often than people care to admit. Claims against errors in the commercial world can reach ridiculous levels. For example, one of our clients was a self-employed engineer working for a major US motor car manufacturer. If he makes a mistake in his designs, the
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potential loss to the manufacturer could run to tens of millions of dollars. Our client sought our advice on this matter. We advised that the client could protect himself by: a. Taking out negligence insurance (or professional indemnity) unfortunately, insurance is not cheap and the premium is based on the amount insured. Not even our client could afford insurance cover for tens of millions of dollars. In addition, there is always the risk that the claim may not be covered due to a small, innocent exclusion in the policy wording. b. Trading as a limited company, rather than as a sole trader. This is a very good method of protection. However, you can always lose all the assets built up in the company. In addition, there is always the risk that courts will look through the company and make the director personally liable in certain circumstances in cases of negligence. Our client was not satisfied and wanted an absolute foolproof method of protecting the vast majority of his wealth. We then recommended he consider an asset protection trust. Eventually our client set up such a trust. He is now delighted that his assets are safe and does not worry about being penniless come retirement age. In addition, if he falls short of cash, he knows he can always access his funds.
Divorce/ separation
There is nothing more painful than a messy divorce or separation. All of a sudden, someone who was once your closest confidant becomes your worst enemy. Indeed, this enemy is lethal as this enemy knows all your secrets and weaknesses. Clients approach us for advice on protection of their assets from their partner, normally after a crisis has been triggered. We always advise that it is best to deal with financial matters amicably and to be fair to the other partner. Nine times out of ten we are told that I am being fair but my partner is a #@#*&! Im going to lose everything and I need your help. In such a situation, whom do you believe? Invariably, we cannot talk to the other partner and thus we have to rely on the facts given to us by our client, based on our clients point of view. A famous English king once said, when asked to arbitrate between two quarrelling parties, When I listen to one party, I know who is right and who is wrong. When I subsequently listen to the other party, I have no idea who is right or wrong. As advisers, we have learnt, sometimes painfully, over the years not to take sides in such disputes and simply advise on the facts we are presented with. From a purely moral point of view, we may appear amoral (as opposed to immoral) but again from a purely practical point of view, with the greatest
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respect for our clients, we are not social counsellors. Thus, 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. One of our clients recently earned a commission of a few million dollars. He asked for asset protection advice such that the asset should not be visible to his partner. A simple solution was implemented. The money was paid to a Swiss bank account and kept there. Our client did not need the capital, merely the interest (which was a substantial sum per annum). This was routed back to our client such that it appeared as a receipt from an independent third party. Our client is very happy with this arrangement. In this case, our client controls his own funds. For foolproof protection, if the same assets were to be controlled by us as trustees under an asset protection trust, the funds would be totally safe from attack (depending on local matrimonial laws, of course). Indeed, if the commission were to be earned by the trust in the first instance rather than earned by our client, the assets would be safe in all circumstances!
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Solvency
Let us say you have $500,000 of assets and $200,000 of debts. If you gift away less than $300,000, that will be fine as you will have enough assets left to repay your creditors. However, if you try to gift away, say, $300,001, you will be technically insolvent, as you are now unable to repay your debts in full. In such a situation, the Courts can require the transaction be reversed and the money returned to the person gifting the assets away as it is presumed in law that the intention was to defraud creditors by gifting away assets. Of course, you can challenge this presumption by argument in the Courts we wish you luck! Thus, it is normal practice for the trustees to require an affidavit of solvency from the person creating the trust. Indeed, our firm normally requires this affidavit to be witnessed by a lawyer. In practice, we find most clients normally transfer 40-60% of their assets into a trust.
Potential claims
Let us suppose that you have net assets of $200,000 (as above) and you know that someone will soon sue you for negligence. You discuss this with your friends and you are advised that if you gift your assets away before any legal action commences, you can safeguard those assets from third party claims. In other words, you will defeat the negligence claim. Isnt that great?
Copyright Lance Spicer 2004
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Unfortunately, the law is unlikely to be on your side. Most countries have legislation which will reverse transactions entered into prior to commencement of third party claims. The onus of proof is normally on the person being sued for a fixed period of time prior to being bankrupted (say three years, 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. If he had any notion whatsoever that he could be sued, that will be enough for the Courts to reverse the gift. Thus, our firm will normally require a statement confirming that the settlor is unaware of any potential claims against him/her.
(4) The trust must be located overseas in a jurisdiction that does not automatically recognise creditor judgements of other countries. For example, a creditor judgement won in Australia will not be automatically recognised by Cypriot courts. Thus, the creditor will have to incur great expense in retrying the legal case in Cyprus. That alone will put off many creditors! (5) The trust must be irrevocable. In other words, the settlor must not retain the right to force the trustees to return the assets to him/her. This is because, in the event of bankruptcy of the settlor, the court will appoint a trustee in bankruptcy to act on behalf of the settlor. This trustee in bankruptcy can then simply force the return of assets for onward distribution to creditors. (6) The trust must be discretionary. Put simply, 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. In a normal trust, a beneficiary can make this decision and force the trustees to release all assets. This is dangerous because, should the settlor (who is also the beneficiary) become bankrupt, then all his affairs will be dealt with by the trustee in bankruptcy this person could then force the trustees of a normal trust to release the assets held in the trust. The release of assets cannot be forced upon the trustees of a discretionary trust. At this point, many people think say Aha, Im giving my assets away to some overseas trustees. How do I know they wont run off with my hard earned money? How can I force the trustees to release the funds when I need them?
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Good questions. 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. If you retain control of the funds, asset protection will not exist. 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 settlors funds. In addition, it would be a criminal offence and thus the trustees would always be on the run from the police. Thus the key is choose trustees you trust. The best approach is personal recommendation from your friends and relatives. 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, do not go ahead with the structure. If you have doubts about someone, in our view, you should not proceed with implementation. Let us now assume that you have found trustees you trust! Even at this stage, some people will still have an element of doubt about the safety of their assets. Is there anything they can do at this stage to further safeguard their assets? The good news is yes, they can! Another person can be appointed to look after the trust assets, in addition to the trustees. Thus, you now have added protection for your assets. For example, you may require all cheques to be countersigned by this other person, who is acting to protect your assets. This person is referred to as a protector. Thus, a protector is a person, who basically has a veto over some powers of the trustees or whose consent or permission is otherwise required by the trustees. Note that the protector is not a trustee i.e. his powers are limited such that he may block certain transactions decided upon by the trustees but he cannot initiate transactions. For example, the trustees may wish to sell a particular freehold property. The protector may stop this sale if he feels it is not in the best interests of the trust. On the other hand, if the protector feels he has discovered a good investment property, he cannot force the trustees to accept his suggestion. As the protector is not a trustee, common-sense would indicate that he is not accountable to the beneficiaries (the trustees are accountable). However, it has held in Court cases that if the protector is paid, the trustees can take him to Court if he withholds consent for certain transactions unreasonably. In addition, if the duties of the protector are detailed in the trust document, then the beneficiaries can sue him for breach of duty if he fails to carry out his duties in accordance with the trust deed. Thus, if someone acts as a protector, he/she is taking on certain responsibilities.
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The normal powers of a protector include, inter-alia, the following: 1. Veto over payment of capital to beneficiary 2. Addition of new beneficiaries 3. Agree trustee fees 4. Right to obtain trust accounts and/or arrange an audit 5. Conduct periodic reviews of the administration of the trust by the trustees 6. Remove and appoint new trustees 7. Initiate the migration of a trust to another country, or decide whether certain events have occurred that will result in the automatic migration of the trust overseas (discussed later) 8. Right to be consulted or have veto powers over sales of particular shareholdings or other trust property. The best protector really would be a very close personal friend or family member, or a professional from an independent firm to the trustees. Professionals, of course, cost a lot more than friends and relatives but this has to be weighed against the emotional problems that may be encountered when dealing with people you know socially. The choice is entirely that of the client. In practice, we find most people do not bother with protectors as they trust their advisers absolutely. We would, however, state that in our view the most practical method would be to: 1. not use a protector if the trust funds are small in value the definition of small depends on the client 2. Use a protector where the funds are substantial, 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. That may be very well in theory as the protector cannot initiate any action but in practice it is dangerous as, in the event of the client being made bankrupt, the trustee in bankruptcy would become the protector. The main danger here is that a normal power of the protector is that he has the right to appoint new trustees. In this situation, your creditors would push for the appointment of more sympathetic trustees who would be willing to release the funds to the beneficiary. Heres a list of some good providers of Trust advice. Obviously, there are hundreds more, but we have knowledge of each of these people, and know that they all provide excellent services. Graeme Aarons: Suite 219, Collier House, 163-169 Brompton Road, London, SW3 1PY. Tel: + 44 171 581 2524 (UK 0171 581 2524). Or contact his Swiss office in Neuchatel: Tel + 41 32 722 1841.
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Fax: + 41 32 722 1842. (Specialist in Australian & UK Trust Law.) Howard Stamer, Pearce Trust: 12 Grosvenor Place, London, SW1X 7HH, England, UK. Tel: +44 171 259 5992 (0171 259 5992) Fax: +44 171 259 5985 (UK 0171 259 5985) Email: info@pearce-trust.ie Kurt Johnson, Universal Trust Services: 125 E. Sunnyoaks Avenue, #103, Campbell, CA 95008, USA. Tel + 1 408 374 1462. Fax + 1 408 374 1534. Michael Chatzky, JD, LLM, Chatzky & Associates: 888 Prospect Street, # 320, La Jolla, CA 920037, USA. Tel: + 1 619 456 6085. Fax: +1 619 456 6099. Email: mgchatzky@aol.com David Melnik, QC: 350 Lonsdale Road, Suite 311, Toronto, ON M5P 1R6, Canada. Tel: +1 416 488 7918. Fax: +1 905 877 7751. Email: dm1976cp@ntcom.ca Timothy D. Scranton, JD: 180 East Bay St., Charleston, SC 29401, USA. Tel: + 1 843 937 0110. Fax: + 1 843 937 4310. Email: tenstate@aol.com
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