This article is somewhat sensational (like most lay-articles on the subject of Asset Protection) in that it focuses on the “bad users” but the science is still sound.
There are likely more people abusing tax deductions and self-directed IRAs than the kind of well timed and tax neutral offshore trust planning which we’ve helped 1000′s put in place legally.
I’m still a big believer in the Offshore Asset Protection Trust when done right. This means:
1. Fully disclosed and with no abusive tax plan involved;
2. Done by a professional; and
3. Done with no pending creditor issues.
SEE THE NEW YORK TIMES ARTICLE HERE:
Asset-protection strategies for physicians take many forms and range from sound policies and procedures that seek to minimize risk and liability to crisis-management plans, the right kinds insurance, and, finally, specific legal tools.
All of these strategies can be valid and effective parts of a true asset protection and risk management system and the key to the success of most plans is having many effective layers instead of seeking a single solution cure.
In previous discussions we’ve addressed the use of specific tools like limited partnerships and captive insurance companies by doctors, to name just two specific examples of tools that can be effective when used and drafted the right way. This week examine the Asset Protection Trust (APT) and address some of the most basic questions and misconceptions we’ve helped thousands of physicians investigate on a consistent basis.
When can I do it?
As with any asset-protection strategy, the key element is timing. This is preventative or defensive medicine but terribly ineffective against a pending or existing exposure. Implementing this against something that has already happened is called “fraud”.
What is it?
The Asset Protection Trust or APT is typically an irrevocable trust that becomes the owner of the assets being put into it, typically referred to as “gifting” or “funding.”
Why is it irrevocable?
In order for the property to truly be outside the reach of a judgment creditor by law it must go into a vehicle that is granted permanent, irrevocable title. If you, the “grantor” can easily pull it back at will, it is generally not protected from others either. It must truly be the property of the trust.
Is it the same as my estate-planning trust?
Typically no, but some estate planning vehicles do provide asset protection. The estate planning trust most doctors have or have seen is generally referred to as a Revocable Living Trust, a.k.a. “family trust” or RLT. This structure is often correctly funded with your home, investment account, and other assets. This is so those assets follow a specific chain of custody at your death and avoid the probate process. Unfortunately because this vehicle is revocable by you at will it offers ZERO creditor protection during your lifetime. A simple way to keep this straight is this: Estate planning is death planning and concentrates of giving your property away as you desire at your death. Asset protection on the other hand is life planning and preserves the assets you have, use, and would like to pass on so that they actually get to the estate plan.
I paid a great deal for my trust, does that mean it does more?
Usually not. Fees can vary widely based on the local legal market and the skill and experience of the drafter and what their expertise demands. Unfortunately, paying more does not it automatically make it better or give it extra features.
Can any lawyer do it?
Like any area of the law asset protection is an increasingly complex and specialized practice and as such it should be ventured into with an attorney with some very specific experience, just as you’d select a divorce, tax, bankruptcy, or other focused practitioner. While it shares similarities with other areas of law including corporate law and estate planning, there are a variety of considerations that must be accounted for with every move including timing, the liquidity needs of the doctor, the most defensible choice of legal entity, the jurisdiction that controls and legitimate business purpose. As asset protection has grown increasingly popular with consumers the number of attorneys and non-attorney promoters that have entered the field has grown exponentially. Furthermore, the leading sellers of form legal documents have recently increased their marketing of documents structured for the this purpose. In some cases, those documents are adequate; in others they are hopelessly inappropriate or drafted with fatal errors. Either way, even assuming the form is perfect, the application must be learned and apply to your very specific asset structure and fact pattern. Buying the best laser in the world will not make me a surgeon.
This simple introduction just scratches the surface of the features and issues physicians should understand when considering an APT. We will continue the conversation over the next few weeks and cover issues like jurisdiction, selecting counsel and the appropriate use of the tool as part of a system. As always, this information is general in nature and never fact specific legal advice. This article originally appeared at www.PhysiciansPractice.com, where Attorney Ike Devji is a regular contributor.
SEE THESE LINKS FOR MORE DETAILS:
Last week marked the second chapter of our discussion of asset protection trusts for doctors, with a look some basic issues of jurisdiction, that is, what geographic location’s set of laws control the trust. For those who want a potentially higher degree of security with a longer track record, offshore tools like international asset protection trusts (IAPTs) are often attractive.
Although painted in a negative light in recent popular lore because of issues with large numbers of tax evaders (many of who are American doctors) the defensive value of the IAPT remains intact. The simple mistake made by most of the people you read about having trouble with offshore accounts can be reduced to simply failing to report the accounts as the law requires. You do have a well-established right to have offshore bank accounts and trusts and the event of moving money to a foreign bank account owned by a trust or held personally as we covered in our previous article on offshore finance is typically not taxable in and of itself.
A large number of successful American doctors set up this kind of defensive planning in the first place because they lack full confidence in the often inconsistent and subjective nature of the American court system and are unwilling to remain exposed to any claim or lawsuit that may come along, regardless of its validity and amount. One of the questions that I’ve asked clients pondering the domestic vs. foreign asset protection trust question is this: If you feel you that ensuring your life’s efforts against the above mentioned exposures in the U.S. court system is a good idea, does it make sense to rely on that very same system’s laws and subjective judgment in the planning you implement against it? While opinions and tactics vary widely among planners not all of those strong opinions are backed by actual long-term experience; make sure the answers you are getting actually are.
There are many international jurisdictions to choose from when creating an IAPT ranging from familiar Caribbean islands to Belize, Jersey, The Isle of Mann and the Cook Islands, one of my personal favorites. Some jurisdictions (especially many of the romanticized Caribbean ones) are now too close and connected to the United States to provide the full value of an offshore trust structure and others may be too remote, politically unstable or under-developed to provide many westerners comfort. This author’s personal experience with several thousand of these structures has been to use a remote but well-established protective jurisdiction staffed by top international banks and trust companies that controls assets housed in first-world, European-state-owned and insured banks. These provide superior solvency risk and political stability. Banks such as these provide the many layers of protection and part of the system of checks and balances so important when moving your assets.
Once assets are moved, the “investment advisor” to the trust can allocate the trust’s assets to nearly any imaginable conventional investment and a few you can’t participate in directly as an individual U.S. citizen. In addition to the basic legitimate business purposes of wealth preservation and estate planning, the IAPT is also gaining popularity with those who have concerns about having their entire investment portfolio here in the United States. Currency stability as well as social political and economic variables have prompted more Americans than ever before to investigate these options over the last five years.
The costs and legal formalities, as well as the history and legal protection afforded, vary widely between jurisdictions, so it’s important to work with an experienced planner that has full range of required support resources like banks, trust companies, protectors, and investment advisors. As always, timing is key, so looking at these tools after an exposure has occurred dramatically reduces their effectiveness and legality. In this limited forum we can’t possibly cover every detail, so get personalized professional legal help when examining this important asset protection strategy or any other.
Due to the nature of our practice with thousands of Americans we have safely helped use a variety of tools including offshore trusts in a safe and legal way, we get lots of questions about expatriation.
Our position remains the same; the best of usage of these tools is tax neutral and provides surety while allowing you to maintain your life and family inside the U.S. Below are some recent articles that address issues faced by those seeking to flee taxation by abandoning their U.S. citizenship forever. – Ike Devji
FORBES: TEN FACTS ABOUT TAX EXPATRIATION:
SCHUMER, CASEY ANNOUNCE PLAN TO STOP FACEBOOK CO-FOUNDER FROM DODGING TAXES BY DROPPING U.S. CITIZENSHIP
Expats Face Steep Exit Tax Courtesy of Facebook
Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO
THIS IS A LINK TO SOME OF MY PREVIOUS ARTICLES ON OFFSHORE ISSUES INCLUDING THE RIGHT USE OF THE OFFSHORE TRUST AS A POWEREFUL TOOL IN LEGAL and TAX NEUTRAL WAY: http://www.proassetprotection.com/category/offshore/
There’s always a new “landmark” case that’s blown out of proportion, the Alaska case Battley v. Mortensen merely supports existing U.S. law on the 10 year look-back in bankruptcy, if it surprised your Asset Protection planner you need better help, it’s been on the books for years.
As for Banruptcy protection in general I tell my clients that if there is any as a result of the planning we do, it’s incidental.
There are three things I warn all clients about Asset Protection planning not being effective against:
- Divorce from our EXISTING spouse that already has marital property rights vested;
We need to examine the rulings in all of these cases for general rules and guidelines that will be used against clients in the future but some basics remain;
1. Domestic APTs fail simple challenges like full faith and credit. We don’t use them because we can’t trust the very subjective results of the U.S. legal system to do what’s right or fair;
2. The best systems have LAYERS that are implemented with legitimate business purpose and usage appropriate for the client and specific asset being protected;
3. The APT is the last line of defense, not the first;
4. We don’t protect criminals and people who commit fraud and the cases that armchair quarterbacks love (i.e. Anderson, Lawrence, Thomas) all share certain similarities;
5. TIMING IS KING;
6. Proper formalities, foundations and maintenance are vital to success;
7. You can’t do this at home, with an amateur or using a kit, even if you are really, really smart;
8. There is no such thing as a guarantee in the law, any lawyer who makes such a promise is an IDIOT or LIAR – all we can do is follow best practices and look at what has worked historically in actual practice at the street level.
Foreign Trusts Gain Edge in Protecting Assets
A Doctor’s Guide to Navigating Offshore Waters Safely
By Ike Devji, J.D. | April 19, 2011
In the world of physicians’ legal and financial planning there is no term as simultaneously oversold, feared, and misunderstood as “offshore.” This is especially true at tax time, as all doctors and their practice managers have been bombarded by the promoters of various tax savings schemes that range in skill from “genius” to “criminal.” The legal jeopardy of using these tools the wrong way has been well illustrated by the recent crackdown on U.S. taxpayers including thousands of doctors who have been caught up and exposed by in the recent UBS scandal, as just one notable example among many.
As someone who has used these tools with doctors on a weekly basis for nearly a decade, I have seen a variety of approaches implemented with varying degrees of success. The following are core issues you must understand to use these powerful tools effectively and legally.
TAXES — All U.S. taxpayers have a duty to report any and all offshore accounts. The U.S. operates on a system of worldwide taxation, and while in certain limited cases money actually earned offshore may be tax exempt (see your CPA) it almost always carries a corresponding duty to report the income. If your primary motivation is to move money offshore and grow it free of taxes or at a lower tax rate, you are looking at the wrong strategy and creating a liability.
SECRECY — Secrecy is never part of any competently drafted offshore plan. Further, secrecy relies on the hope that you can open a “secret account” and no one will know about it and be able to reach it. It also relies on your willingness to lie about the existence of the account if you are ever asked about it in court or discovery proceedings, also known as perjury, which itself has substantial legal penalties.
TITLE — Who holds title to any offshore bank accounts is also crucial in effective use of the tool. If you hold title personally, including through a family member, or through a revocable trust in any form, assume the funds are accessible to a hostile party almost as easily as if they were located here in the U.S. From an asset protection perspective, using an irrevocable trust with an offshore third party trustee that is immune to U.S. court proceedings and a bank experienced in such matters in a protective jurisdiction is crucial.
THE BANK— Any serious offshore planning involves the use of a bank to be the custodian of funds. I advise that those seeking the protection these plans require use reputable first-world, (typically European) state-owned, and insured banks. New banking jurisdictions are emerging and there are reputable banks in most of the developed world, but few of them have experience in dealing with the issues you are likely concerned about. Further, international banks that have U.S. offices are not considered protective in any way; an experienced lawyer would simply move on the assets through a domestic branch. As an example, not only did the physicians that moved money to illegal unreported accounts through UBS commit tax fraud, they didn’t protect the money in any real way.
JURSIDICTION — Another vital issue is the jurisdiction of the account and the entities you are relying on to mange and protect it. Some offshore jurisdictions have laws and decades of history and infrastructure that specifically support the use of offshore trusts and accounts for legitimate purposes. A whole new group of jurisdictions would like to play in this arena and are aggressively promoting their laws, banks, and trust companies. While only time can sort out which of these jurisdictions are truly safe and politically and economically stable enough to trust with your life savings, I can tell you that few of us that practice primarily in this area would ever let our clients be a part of this “test.”
If you are considering offshore planning, keep these issues in mind and make sure the organization you are working with is staffed by experienced legal and accounting professionals with the resources necessary to do more than sell you a bank account and the proven infrastructure to help you achieve legitimate goals.
This article originally appeared at www.PhysiciansPractice.com the nation’s leading practice management resource, where Ike Devji is regular contributor. It is reprinted here with permission.
Using the massive deterrence and proven level of protection available in offshore Asset Protection systems requires a team of experienced and knowledgeable professionals working to make sure that you are doing things safely, legally and effectively.
That team typically includes an Asset Protection attorney, a trustee, an offshore bank, a great CPA, and an investment advisor. As a team they watch over your family and assets.Financial Advisor Richard Arnold is one such experienced professional. We asked him to share some important basics below. -Ike Devji
By Richard L. Arnold
Physicians, business owners, real estate developers and others are increasingly concerned with protecting their assets/net worth in these difficult economic, political and litigious times. Those who have prepared in advance for potential lawsuits or negative economic events have considered establishing Asset Protection Trusts. These Trusts can have their assets held by a foreign bank, and managed by a financial advisor in the U.S. An Investment Policy Statement is prepared that defines the return objectives, risk tolerance and time horizon of the trust.
Here are a few answers to FAQ’s related to managing your investments in an offshore Asset Protection Trust:
• The foreign bank is the custodian for the investments in the Asset Protection Trust, therefore it is important to choose a bank that is financially solid as the investments will be in excess of insurance on deposits. Financial information on the banks can usually be obtained and evaluated.
• Generally, foreign banks can buy any U.S. individual stock, ETF or mutual fund. They can also buy foreign stocks, bonds and mutual funds, but contrary to typical wealth management in the U.S., money managers are normally not used due to the volume of transactions. If the trust is using a U.S. Advisor, purchase recommendations are sent by the Advisor to the Trustee, who then instructs the bank to make the purchase.
• The custodian bank charges transaction fees to buy and sell securities, which are about 1.8% for both a purchase and a sale. If the bank is managing the assets, additional fees run about 1.1% to 1.3% depending on the size of the account. This fee can be avoided by using a U.S. Advisor whose fees generally range from 70 to 90 basis points depending on the size of the trust. Be sure to choose an advisor who is experienced with offshore trusts.
• IRS rules require the preparation of various forms and there have been recent changes to the reporting requirements. Consult a knowledgeable tax specialist to be sure you are complying. The tax requirements are not onerous, but of course must be complied with. We work with tax advisors who have experience in reporting offshore investments.
We operate as a multi-family “family office”, managing approximately $1B in assets. Please call me if you are interested in discussing our services further, or contact Ike Devji.
Richard L. Arnold, Advisor and Operations Manager
CB&T Wealth Management and The Corundum Group
1 South Nevada Ave., Suite 200
Colorado Springs, CO 80903
Direct (719) 228-1083 Cell (719) 330-1226
Tougher Tax Law For Overseas Assets
(Dow Jones) A new U.S. law that is part of a crackdown on tax havens means that wealthy clients will be hit with stricter filing requirements next tax season.
New rules will result in duplicate reporting for some taxpayers and steep penalties for those who fail to comply. The law makes it more difficult to hide assets overseas, partly by taxing foreign banks that don’t share information about U.S. account holders.
The Foreign Account Tax Compliance Act of 2009 (Rangel-Baucus Bill)
Since 2007, numerous attempts have been made at passing targeted tax haven legislation. Although none of these initiatives has progressed in any meaningful way thus far, under the Obama Administration there is a much higher likelihood that this type of legislation will be promoted.
SEE THE WHOLE STORY HERE