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An article in the Wall Street Journal claimed that 60% of America's millionaires have considered engaging in asset protection planning. When a creditor has the legal ability to challenge the protection of a foreign trust, the costs and difficulties of the challenge are usually insurmountable. The identity of the creditor refers to how aggressively the creditor will pursue the debtor's assets, and how knowledgeable the creditor is about debt collection laws. Practitioners should keep in mind not only the underlying substantive law, but the obstacles presented to the creditor by the practical implications of asset protection planning. The term "foreign trust" usually means an irrevocable trust domiciled in and governed by the laws of a foreign jurisdiction. A creditor's sole remedy would be to bring a fraudulent transfer action against the trustee of the foreign trust, and attempt to show that the settlement of the trust by the debtor constituted a fraudulent transfer.
The three most important factors are: (i) the identity of the creditor pursuing the client, (ii) the nature of the assets that will be pursued by the creditor, and (iii) the extent to which the debtor is willing to go to protect his assets. The nature of the assets refers to the specific assets owned by the debtor. The more aggressive and knowledgeable the creditor, the more obstacles we need to erect in his path. As a practical matter, LLCs and limited partnerships create a formidable obstacle to the creditor's collection efforts and usually force the creditor to drop his collection efforts or to settle. Jurisdictions like the Cook Islands (in the South Pacific), Saint Vincent, and Nevis (both in the West Indies) are among the best currently available foreign trust jurisdictions. Although there have been a few successful challenges by creditors against foreign trust structures, they represent a fraction of all foreign trust structures.
Over the years, numerous legal structures have been developed to split up legal title to assets from control and beneficial enjoyment. One way to strip out the equity is by obtaining a bank loan. Having a legal right to do something does not mean having the actual ability to do so, and does not mean that the pursuit of the transferred assets would be cost effective. There are different structures used in protection rental real estate, a personal residence, a bank account, a retirement plan, etc. Irrevocable trusts that are not grantor trusts are not the answer for income-producing assets because of adverse income tax results. The objective is to change the creditor's economic analysis, making the pursuit so difficult and expensive, the creditor will either give up or be willing to negotiate on terms more favorable to the debtor.
All asset protection planning implicates income, transfer and property tax issues, and fraudulent transfer laws. Creditors do not want to play the waiting game, and would prefer to settle for a sum certain today, than wait for a possible distribution from an LLC or a limited partnership. There is no "magic bullet" asset protection strategy; different structures are used to protect different types of assets. A creditor may petition the court for a turnover order, which would direct the debtor to withdraw the money from the foreign account and pay it over to the creditor. Asset protection that works must be very practical. Some debtors may be willing to do nothing more than shuffle paper agreements, whereas others may be willing to go through a divorce, move assets offshore or sell their home.
Category: InvestingAsset Protection was written by:Author:Peter NutterAdded: Mon, 15 Oct 2007 20:30:35 -0400 This Article Has Been Read 316 times View all Peter Nutter's articlesAbout the Author: To find out more about Asset Protection or Asset Management please visit http://www.asset-protection.onlineoffersforyou.com.com/ or http://www.asset-management.onlineoffersforyou.com.com/ |
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