Asset Protection:Keeping Their Fingers Out of Your Pie
By Matt Blackman for Offshore Finance U.S.A. March/April 1999
(Note: This is the longer uncut version of the article.)
A well-known television show was conducting a story on the insurance industry in America and staged an intentional accident to demonstrate their point. A bus and a car were placed strategically to film the slow-motion crash. With television cameras rolling the bus was deliberately driven into the car. With cameras still rolling, surprised camera crews watched as bystanders who had witnessed the crash began piling on the bus. As word of the accident spread, the bus filled with more eager riders. Their sole purpose was to take part in the insurance windfall that would surely come their way. Most were not aware of the cameras that clearly documented the incident.
The unbridled increase of litigation in North America combined with growing complexity of tax codes has slowly but surely shifted the efforts of those with property. As a result less time is available for the pursuit of greater profits while more time and expense is required to keep what assets have been earned. With more than 100 million active lawsuits presently winding their way through the courts in the U.S. and more than 14 million new ones being launched every year, it is no wonder that those with property are getting apprehensive. Add the facts that half of all marriages end in divorce and 80% of all businesses fail within five years and one quickly realises the incredible challenge facing those with assets to protect.
In one recent survey conducted in the U.S., participants rated a lawsuit as the second best way to strike it rich behind winning a lottery and ahead of receiving an inheritance. It is a sad commentary on a system that once upon a time relied on risk- taking, initiative, ingenuity and plain hard work to get rich, slowly. Patience, it seems, has fallen out of favour. Let someone else take the risk, do the work and make the money - then sue them!
However, lest we slip into fainthearted despair, help is available. There are a growing number of options available to protect one's estate from the unrelenting onslaught of parasitic wannabe nouveau riche.
If you count yourself among those aspiring to own or haven't yet given any thought to protecting what you own, a new book entitled It's Mine and You Can't Have It by attorneys Robert V. Eberle and Frank Corcell should be at the top of your reading hit list. Written in plain English, it clearly presents a roadmap to follow and covers a variety of topics that will be of interest to the above groups.
The book begins with a "how to" on saving for retirement that explains how much money one needs to retire based on their earnings. It is a sobering reminder to the majority who are not putting away enough to retire in the style to which they have become accustomed. To begin with, retirement income should be 70% of working income. For example, if one earns $40,000 a year he or she will need a minimum $28,000 in yearly income to continue a similar lifestyle after leaving the work force. The average Social Security retirement benefit of $750 per month or just $9,000 a year isn't the answer unless the pre-retirement annual income was $12,850. This is prerequisite information for those in the early stages of a career but will prove shocking for the majority of Americans who are not adequately prepared for retirement. According to a Boston Globe survey, only 5 percent of American families with one spouse aged 70 years or greater are able to continue living the style to which they have become accustomed after they retire using Mr. Eberle's seventy-percent rule.
For this five percent, the challenge is keeping what they've got safe from the hoards that would scheme to take it from them. The book defines asset protection as "nothing more that the discipline of arranging the ownership of your assets or your property in such a way that your retain maximum control without any, or only minimal, direct ownership or your property." Why? Because whatever you own can be taken from you to satisfy a claim or judgement against you but if you own nothing, there is nothing to take.
As Mr. Eberle explains, giving up ownership is a frightening prospect for most of us. There are ways to satisfy this concern, however. "The key to asset protection is to arrange ownership in entities which permit you to control those assets without owning them directly." How that is accomplished while retaining peace of mind is the purpose the book.
Inside risk or that which emanates from the asset itself, and outside risk or that which results from simply owning the asset each require different types of protection. The first type can often be covered with insurance. Outside risk or the risk of lawsuit offers the greater challenge and requires a more complex strategy.
Trusts, a major tool in the battle against frivolous lawsuits, are explained in an easy to understand format. The differences between non-grantor and grantor, revocable and irrevocable, inter vivos (living) and testamentary (after death) trusts are all discussed in detail.
Offshore trusts and recent changes in legislation regarding offshore entities are covered along with some common dos and don'ts to prevent running afoul with the Internal Revenue Service. Offshore trusts should be irrevocable, discretionary, have a foreign trustee who limits the onshore trustee's control and should limit certain classes of persons from benefiting from the trust. This would include potential creditors or litigants of the grantor.
Various corporations, partnerships and other entities will be of interest to those who have wrestled with options on how best to conduct business while enjoying maximum asset protection. Mr. Eberle also discusses the advantages of different states to be used for incorporation when asset protection and tax minimisation are a prerequisite. The states of Nevada and Delaware are favourites for those individuals or corporations looking for the best of both worlds.
Other topics of interest include how to protect your real estate investments, privacy (or lack of it) and how to keep what you have left, pre-nuptial agreements, divorce, bankruptcy, and other aspects of estate planning and wealth management.
Chapter Seventeen entitled Combining Asset Protection with Tax Savings clarifies any misunderstanding about whether one should use a trust to reduce income taxes. Gift taxes and estate taxes are also discussed.
The section entitled Exhibits provides the reader with examples of a number of essential documents including the homestead exemption, as asset protection trust, a number of wills, the real estate trust, and the durable (springing) power of attorney.
As someone who constantly reads about asset protection and trusts, I found It's Mine and You Can't Have It an interesting and somewhat sobering read. The complicated topic of trusts was explained in a clear yet concise manner and cleared up any misunderstandings I had about them. Reading the book to set up one's own structures is not the purpose and certainly not recommended. Readers are invited to call Mr. Eberle in Massachusetts. The book may be ordered by calling 781-231-0044 or by visiting his web site at http://www.laptopone.com
* Rating 8/10 Reading Level - Novice to Advanced *
Disclaimer: The views expressed are independent and the sole opinion of Matt Blackman who has not and will not receive financial remuneration from the publisher or author for this review. Although great care was taken in writing this review, the author cannot and does not gaurantee the accuracy of information contained herein due to its complex nature. Readers are advised to obtain legal councel before making any investment or estate planning decision. Review copy of this publication was supplied by publisher.
Note: This column is dedicated to reviewing books on the subject of offshore investing and asset management. It is designed to provide an insight into the publications available to assist readers looking for the best information available for the money.
Matt Blackman is an offshore author and consultant who lives in North Vancouver, BC. He is host of www.goldhaven.com an offshore news, information and book review website. His new fax number is (604) 904-4283.
If you have a comment or question about a review or have read written a publication of interest that you'd like to discuss, please:Phone (604) 987-1609 or FAX (604) 904-4283
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