ASSET PROTECTION PLANNING WITH OFFSHORE TRUSTS

Transcription

1 ASSET PROTECTION PLANNING WITH OFFSHORE TRUSTS PRESENTED BY HOWARD ROSEN, ATTORNEY, CPA 2016, by DONLEVY-ROSEN & ROSEN, P.A. Coral Gables, Florida (305) WEB SITE: PROTECTYOU.COM

2 HOWARD ROSEN is an "AV Preeminent" rated Attorney and Certified Public Accountant practicing law in Miami, Florida, as a shareholder (partner) in the firm of Donlevy-Rosen & Rosen, P.A. (the "AV Preeminent" rating is the highest rating accorded by Martindale-Hubbell, an internationally recognized independent attorney rating organization). Donlevy-Rosen & Rosen, P.A. is listed in Martindale-Hubbell's Bar Register of Preeminent Lawyers. Mr. Rosen served as an Adjunct Professor and lecturer at law at the University of Miami School of Law for twenty years ( ), a guest lecturer at the University of Miami School of Business Administration, and is an internationally recognized authority and frequent lecturer on the subjects of asset protection, taxation, and estate planning. Mr. Rosen is the Chairman of the Asset Protection Committee of the American Association of Attorney - Certified Public Accountants ( Present). Mr. Rosen is the co-author of "ASSET PROTECTION: A GUIDE FOR PROFESSIONALS" (2014), a contributing author of the ABA Practical Guide To Estate Planning: Chapter Title: "ASSET PROTECTION TRUSTS - WHAT YOU SHOULD KNOW" (2011 American Bar Association), and was the co-author of BNA Tax Management Portfolio, U.S. TAXATION OF FOREIGN ESTATES, TRUSTS, and BENEFICIARIES (2008) and the founding author of "ASSET PROTECTION PLANNING" (1994; 2002), used by lawyers, CPA's, and estate planners nationwide in researching asset protection and offshore trust issues. Mr. Rosen is the co-author of ASSET PROTECTION (2007; 2008), ASSET PROTECTION IN FLORIDA (2005, 2006), ASSET PROTECTION IN VIRGINIA (2005), "ASSET PROTECTION IN TEXAS" (2004; 2005), and "ASSET PROTECTION IN GEORGIA" (2004), all published by Lorman Education Services. Mr. Rosen is also co-author of ASSET PROTECTION WITH OFFSHORE TRUSTS (2008), DEMYSTIFYING ASSET PROTECTION VEHICLES (2007), AN A TO Z GUIDE TO THE FUNDAMENTALS OF ASSET PROTECTION IN FLORIDA (2005), "UNRAVELING THE MYSTERY OF ASSET PROTECTION VEHICLES IN FLORIDA" (2004), "ASSET PROTECTION TECHNIQUES IN FLORIDA" (2001; 2003), and "ASSET PRESERVATION TECHNIQUES IN FLORIDA" (1996), all published by the National Business Institute. Mr. Rosen is the Editor/Publisher of THE ASSET PROTECTION NEWS, and has also published numerous articles in professional and academic journals such as the University of Miami Law Review, the Asset Protection Journal, Journal of Asset Protection, Taxes Magazine, Journal of Taxation of Investments, University of Miami Business Law Journal, Offshore Finance USA, CCH Financial and Estate Planning, Tax Management's Estates, Gifts and Trusts Journal, BNA Tax Management Portfolios, Estate Planning, Taxation for Lawyers, Taxation for Accountants, International Tax Report, Small Business Taxation, and others. Mr. Rosen is a member of BNA Tax Management's Advisory Board on Estates, Gifts and Trusts ( Present), the Board of Advisors of the Southpac Offshore Planning Institute (SOPI), the Asset Protection Planning Committee of the Real Property, Probate and Trust Law Section of the ABA, the Tax and International Law Sections of the Florida Bar, and the American Association of Attorney - Certified Public Accountants. Mr. Rosen served as a member of the Board of Advisors of Aspen Publishers Asset Protection Journal ( ), the Board of Advisors of Warren, Gorham & Lamont s Journal of Asset Protection ( ), the Board of Governors of the Florida Institute of CPA's ( ), as the President ( ) and as a Director ( ) of its South Dade Chapter, and has received the Outstanding Discussion Leader award from the Florida Institute of CPA's. Mr. Rosen also served as a charter member of the Planned Giving Advisory Council of the Baptist Hospital of Miami Foundation. Mr. Rosen's educational achievements include a Juris Doctor degree from the University of Miami (Summa Cum Laude - #2 in his class) where he was a Reid Scholar, and a Bachelor of Business Administration degree (in Accounting) from the University of Miami (Magna Cum Laude). Mr. Rosen concentrates his law practice in asset protection planning and related matters. Admitted to practice law in 1974, his experience includes estate planning, corporate and personal tax planning, foreign tax planning, and other tax related matters. His law offices are located at 2121 Ponce de Leon Boulevard - Suite 320, Coral Gables, Florida 33134; Telephone (direct): (305) ; Web Site:

3 I. INTRODUCTION ASSET PROTECTION PLANNING WITH OFFSHORE TRUSTS PRESENTED BY HOWARD ROSEN, ATTORNEY, CPA A. Who needs this type of planning? 2016, by DONLEVY-ROSEN & ROSEN, P.A. 1. Real Estate Developers / Investors. 2. Business owners; Businesses; Sellers of businesses. 3. Health care providers. 4. Accountants (see article in July 1991 Journal of Accountancy), auditors, and actuaries. 5. Architects, engineers, and appraisers. 6. Parents of teenage drivers. 7. Officers and Directors of public companies. 8. ANY HIGH INCOME/HIGH NET WORTH INDIVIDUAL B. Trust concept in our legal system. C. Use of trusts in asset protection planning - A proper use: 1. Since the time of the Crusades 2. Treas. Reg (a) provides: "... the term "trust" as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust under the Internal Revenue Code if it was created for the purpose of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the

4 discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit."(emphasis added). D. Limitations on the asset protection facilities of domestic trusts: 1. Settlor retained benefits and controls can result in determination that the trust is invalid, although the laws of some states do repudiate this common law trust principal to a limited extent. 2. In general, the ability of a domestic trust to provide effective asset protection depends upon the relationship to the trust of the person for whom protection is sought (i.e., settlor-beneficiary or nonsettlorbeneficiary), and the nature and extent of that person's interest in and/or controls over the trust. 3. If the trust is otherwise valid, public policy in the US (and in many other countries) permits a creditor of the settlor-beneficiary to reach the trust assets to the extent of the maximum property interest potentially available to the settlor-defendant under the instrument. EXAMPLE: X settles trust which provides that he is one of several discretionary income beneficiaries, remainder to Z. X's creditor can reach all of the income, but none of the principal of the trust. 4. Similarly, public policy in the US (and in many other countries) will not allow a self-settled spendthrift trust to afford protection for a settlorbeneficiary. 5. ALASKA, DELAWARE, ETC., TRUSTS: STATE LEGISLATION A. U.S. CONSTITUTIONAL ISSUES: a. Full Faith & Credit Clause b. Supremacy Clause c. Contract Clause B. PRACTICALITIES: A COMPARISON a. Enforcement of Judgments a. Location of Assets - 2 -

5 b. Statute of Limitations c. Standard of Proof e. invalidity Basis of Attack f. fees C BANKRUPTCY LEGISLATION - THE END? 6. In summary, in order to obtain complete protection for assets settled in a domestic trust, the settlor must retain no control over and no beneficial interest in the trust - essentially no different than an outright gift. E. Working Definitions: 1. ASSET PROTECTION PLANNING: The adoption of advance planning techniques which tend to place assets beyond the reach of future potential creditors. APP must not involve hiding assets or committing fraud or perjury. 2. OFFSHORE TRUST: A trust under which at least one trustee is resident outside of the United States (and its territories and possessions), and some aspects of which are construed, interpreted, and otherwise subject to the laws of a foreign country (usually, but not necessarily, the same country where the non-u.s. trustee is resident). The term "offshore trust", in this outline, unless indicated to the contrary, does not define or refer to the U.S. tax status of the trust. II. FACTORS IN SELECTING AN OFFSHORE JURISDICTION A. Legal System - Common Law vs. Civil Law B. Protective Legislation - What to look for: 1. First and Foremost: Lack of Comity 2. Repudiation of certain public policy based rules in US a. Retained Controls b. Spendthrift Trust - 3 -

6 3. Repealing the Statute of Elizabeth; Replaced With Specific Rules 4. Favorable tax laws - no tax on international trusts 5. No exchange controls on international trusts 6. Bankruptcy rule - absent a fraudulent transfer, the settlor's bankruptcy should not affect the validity of the trust or any transfers to it. C. Economic Health of Country D. Political and Social Stability E. Language - English? & Communications Facilities F. Track Record! III. PROTECTIVE ASPECTS A. General: 1. Jurisdiction over trust by US court 2. Implications of Lack of Comity a. Commence litigation de novo b. Utilize unfamiliar local lawyer c. Can't pay lawyer a contingency fee d. Bond usually required by court - "loser pays" rules usually applicable e. Sole basis of litigation: fraudulent transfer issues B. Comparison of Fraudulent Transfer Rules 1. Overview of Domestic Rules: a. Level of Proof in US: Preponderance of the evidence - does the - 4 -

7 greater weight of the evidence tend to show that a fraudulent transfer occurred? b. Creditor must prove: that a transfer was fraudulent as to any creditor. Thus, if a creditor can prove that a transfer was fraudulent as to another creditor, he can set aside the transfer, even though it may not have been fraudulent as to him. c. Limitations: Somewhat open-ended under the UFTA: a transfer can be set aside within four years after the transfer was made, or, if later, within one year after the transfer was or could reasonably have been discovered by the plaintiff. d. Elements of a fraudulent transfer under the UFTA: A transfer is fraudulent, as to present and subsequent creditors, if it is made with actual intent to hinder, delay or defraud any creditor of the debtor. The debtor's actual intent may be determined by a US court by giving consideration to the following factors, among others: i. The transfer or obligation was to an insider. ii. iii. iv. The debtor retained possession or control of the property transferred after the transfer. The transfer or obligation was disclosed or concealed. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. v. The transfer was of substantially all the debtor's assets. vi. vii. viii. ix. The debtor absconded. The debtor removed or concealed assets. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. x. The transfer occurred shortly before or shortly after a - 5 -

8 substantial debt was incurred. e. A transfer is also fraudulent under the UFTA (almost identical under the UFCA), regardless of the debtor's intent, if it was made: i. Without receiving a reasonably equivalent value for the transfer, and the debtor was engaged or was about to engage in a business or transaction for which the debtor's remaining assets were unreasonably small in relation to the business or transaction, or if the debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due, or ii. iii. As to present creditors, if the transfer was made while the debtor was insolvent or if it rendered him insolvent. These are sometimes referred to as "constructive" fraudulent transfers. f. What You Should Know About Solvency Under State Law 2. Overview of Cook Islands and Nevis Rules: a. Level of Proof Required: Beyond a reasonable doubt - the same standard utilized in this country to convict a person of a capital offense. b. Creditor must prove: that a transfer was fraudulent as to him - whether the transfer was fraudulent as to any other creditor is not relevant. c. Elements: The complaining creditor must prove beyond a reasonable doubt that establishment of the trust or the transfer of property to the trust was done with the principal intent to defraud that particular creditor and that the establishment or transfer rendered the settlor insolvent or without property by which the creditor's claim could be satisfied. i. If the settlor was solvent immediately after the establishment or transfer he is deemed not to have the requisite intent. ii. In addition, even if the settlor was rendered insolvent, the requisite intent cannot be imputed to him by reason of the fact that he: - 6 -

9 (A) (B) (C) established the trust or transferred property to it within two years from the date the creditor's cause of action arose, Retains significant powers over the trust (including powers to amend or revoke the trust), or Is a beneficiary of the trust. d. Limitations: i. The establishment of the trust or a transfer of property to it cannot be fraudulent if done more than two years after the creditor's cause of action accrued, or ii. iii. If same occurs within the two year period mentioned above, the creditor fails to commence an action within one year after such establishment or transfer, and Cannot be fraudulent as to subsequent creditor (i.e., where cause of action arose after the establishment or transfer). 3. When can a US planner ethically utilize the foreign fraudulent transfer laws? C. Comparison of Other Rules: Retained Controls/Benefits 1. Domestic: Extensive retained controls can result in a trust being declared invalid, and extensive retained benefits will the "property" a court can award to a creditor of the settlor-beneficiary because of public policy based rules. 2. Offshore: Certain offshore jurisdictions have enacted specific legislation which provides that a trust will not be rendered invalid by reason of extensive retained controls, and a self-settled spendthrift trust will be given effect as such - thereby authorizing asset protection trusts. In addition, the laws of several jurisdictions provide that a trust may establish the position of "trust protector", and the protector shall have (at a minimum, unless contravened in the instrument) the power to remove and replace trustees - a very significant control which might render a US trust invalid or a mere agent of the settlor. D. Protective Trust Clauses - 7 -

10 1. Trust Protector Clause: Enables a designated person to exercise certain powers over a trust, EXAMPLES: removal and replacement of trustees, veto of discretionary actions of trustees, consent to trust amendments. 2. Duress Clause: Should be drafted in a manner which will result in the nullification of the exercise of a power by any person acting under specified situations of duress. EXAMPLES: Trust protector's power to remove and replace a trustee is nullified if he is ordered by a court to do so; Trust protector's power to veto discretionary actions of trustees is nullified if acting under duress. 3. Flight Clause: Permits the trustee to change trust situs (can incorporate power to change applicable law of trust, as well) in order to protect the trust from a potential threat; especially useful if coupled with a power of attorney held by trust protector to effect title changes in such circumstances. 4. Discretionary Distribution/Allocation Provisions 5. Spendthrift Clause and progeny IV. PLANNING TECHNIQUES A. Utilizing Holding Entities - overcoming client's "loss of control" objections to offshore trusts B. Entity & Group Trust Planning Strategies V. US TAX CONSEQUENCES A. Income Tax B. Estate & Gift Taxes C. Is Tax Planning Possible With An Offshore Trust? VI. OTHER CONSIDERATIONS A. Risk and Nonrisk Assets B. Contempt of Court Issues - 8 -

11 ASSET PROTECTION PLANNING WITH OFFSHORE TRUSTS 2016 DONLEVY-ROSEN & ROSEN, P.A.

12 HOWARD ROSEN, ESQ. DONLEVY-ROSEN & ROSEN, P.A. CORAL GABLES, FLORIDA

13 PROTECTYOU.COM

14 ASSET PROTECTION NEWS.

15 ASK YOUR QUESTIONS PLEASE!

16 BUT FIRST, TWO QUESTIONS FOR YOU.

17 ARE YOUR CLIENTS CONFIDENT THAT THEY WILL NEVER BE SUED?

18 ARE YOUR CLIENTS CONFIDENT THAT THEY WILL NEVER BE SUED? ARE YOUR CLIENTS CONFIDENT THAT IF THEY ARE SUED, THEY WILL BE TREATED FAIRLY BY OUR LEGAL SYSTEM?

19 OK, So Who Needs Asset Protection Planning? Real Estate Investors / Developers Business Owners, Sellers (& Businesses) Health Care Providers Accountants Attorneys Architects, Engineers, Appraisers Parents of Teen-Age Drivers ANY HIGH INCOME/HIGH NET WORTH INDIVIDUAL Rule of Thumb?

20

21

22 TWO REASONS MOST LITIGANTS...SETTLE THE SAME PRIMARY REASONS UPON WHICH THE IRS BASES ITS ACCEPTANCE OF AN OFFER IN COMPROMISE

23 TWO REASONS MOST LITIGANTS...SETTLE DOUBT AS TO LIABILITY

24 TWO REASONS MOST LITIGANTS...SETTLE DOUBT AS TO LIABILITY DOUBT AS TO COLLECTIBILITY

25 WHAT WE LL COVER IN THIS PRESENTATION:

26 WHAT WE LL COVER IN THIS PRESENTATION: SELECTING THE OFFSHORE JURISDICTION

27 WHAT WE LL COVER IN THIS PRESENTATION: SELECTING THE OFFSHORE JURISDICTION PROTECTIVE ASPECTS

28 WHAT WE LL COVER IN THIS PRESENTATION: SELECTING THE OFFSHORE JURISDICTION PROTECTIVE ASPECTS TYPICAL CLIENT CONCERNS

29 WHAT WE LL COVER IN THIS PRESENTATION: SELECTING THE OFFSHORE JURISDICTION PROTECTIVE ASPECTS TYPICAL CLIENT CONCERNS U.S. TAX COMPLIANCE

30 WHAT WE LL COVER IN THIS PRESENTATION: SELECTING THE OFFSHORE JURISDICTION PROTECTIVE ASPECTS TYPICAL CLIENT CONCERNS U.S. TAX COMPLIANCE OTHER STRATEGIES: Real Estate Special Strategies ENTITY TRUSTS; GROUP TRUSTS

31 Let s start with some background material.....

32 LET S START WITH SOME DEFINITIONS: ASSET PROTECTION PLANNING AN ESTATE PLANNING TOOL..

33 LET S START WITH SOME DEFINITIONS: ASSET PROTECTION PLANNING THE ARRANGEMENT OF ONE S FINANCIAL AFFAIRS IN A SUCH A WAY AS TO PLACE ASSETS BEYOND THE REACH OF FUTURE POTENTIAL CREDITORS, WHILE YOUR CLIENT CONTINUES TO ENJOY AND BENEFIT FROM THEM DOES NOT INVOLVE SECRET TRANSFERS, TAX EVASION, FRAUD OR SIMILAR SCHEMES

34 LET S START WITH SOME DEFINITIONS: OFFSHORE TRUST A TRUST WHICH: 1. HAS AT LEAST ONE TRUSTEE RESIDENT IN ANOTHER COUNTRY, AND 2. IS GOVERNED BY THE LAWS OF ANOTHER COUNTRY (NOT NECESSARILY A FOREIGN TRUST FOR U.S. INCOME TAX PURPOSES)

35 CONTINUING WITH DEFINITIONS: CREDITOR ANY PERSON WITH A CLAIM AGAINST YOUR CLIENT Could be Amex Could be spouse Could be a customer/patient Could be the EPA Could be ANYONE

36 A TRUST WILL BE THE CORNERSTONE OF ANY EFFECTIVE ASSET PROTECTION SOLUTION

37 BECAUSE TRUSTS HAVE BEEN USED SINCE THE CRUSADES TO PROTECT ASSETS...

38 EVEN THE IRS REGULATIONS DEFINE A TRUST BY RECOGNIZING THIS ANCIENT CORE PURPOSE: A TRUST IS AN ARRANGEMENT WHEREBY TRUSTEES TAKE TITLE TO PROPERTY FOR THE PURPOSE OF CONSERVING AND PROTECTING IT FOR THE BENEFIT OF THE BENEFICIARIES OF THE TRUST (WHO MAY BE THE PERSON(S) WHO CREATED THE TRUST)

39 GREAT! I LL SET UP MY TRUST RIGHT HERE! UNFORTUNATELY....

40 OVER THE PAST SEVERAL HUNDRED YEARS LIMITATIONS ON THE PROTECTIVE USE OF TRUSTS FOR SETTLORS (AS BENEFICIARIES) HAVE EVOLVED: Retained Controls Maximum Potential Property Interest Self-Settled Spendthrift Trusts

41 WHAT S THE SOLUTION? ESTABLISH THE TRUST IN A PLACE WHERE THE LAWS WILL NOT PERMIT A CREDITOR TO REACH TRUST ASSETS UNDER THE GENERAL RULES

42 WHAT S THE SOLUTION? WHERE WOULD THAT BE? WOULD IT BE A DOMESTIC (US) JURISDICTION OR WOULD IT BE AN OFFSHORE JURISDICTION?

43 DOMESTIC JURISDICTIONS: ALASKA DELAWARE RHODE ISLAND NEVADA MISSOURI UTAH OKLAHOMA SOUTH DAKOTA TENNESSEE WYOMING HAWAII OHIO

44 DOMESTIC JURISDICTIONS: DO THEY ACCOMPLISH OUR GOAL? THERE ARE PROBLEMS..

45 DOMESTIC JURISDICTIONS: CONSTITUTIONAL ISSUES: FULL FAITH & CREDIT CLAUSE SUPREMACY CLAUSE CONTRACT CLAUSE PRACTICAL CONSIDERATIONS: ENFORCEMENT OF JUDGMENTS ASSET PRESENCE RETAINED POWERS/CONTROLS ISSUES STANDARD OF PROOF/ STATUTE OF LIM FEES

46 WHAT S A MAJOR PROBLEM? 2005 BANKRUPTCY ACT s 10 YEAR SET ASIDE RULE:

47 548(e)(1) the [bankruptcy] trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if- (A) such transfer was made to a self-settled trust or similar device; (B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; and (D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

48 WHY DOESN T THIS RULE APPLY TO THE OFFSHORE TRUST?

49 A SIMPLE EXAMPLE WILL ILLUSTRATE WHY..

50 SUPPOSE I MAKE A GIFT TO SOMEONE IN A COUNTRY WHICH DOESN T RECOGNIZE US COURT JUDGMENTS

51 AND THE US COURT ORDERS ME TO GET IT BACK HOW CAN I GET IT BACK?

52 WHAT S THE BIGGEST PROBLEM WITH U.S. BASED TRUSTS? THEY ARE ALL STILL PART OF THE UNITED STATES!

53 A BETTER APPROACH: USE AN APPROPRIATE OFFSHORE JURISDICTION AS THE TRUST SITUS TO BE CERTAIN THAT YOUR PLANNING WILL BE EFFECTIVE

54 AND HOW WOULD WE SELECT THE APPROPRIATE JURISDICTION?

55

56 SITUS SELECTION FACTORS: LEGAL SYSTEM: COMMON LAW or???

57 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION

58 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION (BIG 3) REPUDIATION OF CERTAIN RULES FAVORABLE FRAUDULENT TRANSFER RULES LACK OF COMITY

59 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION ECONOMIC HEALTH

60 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION ECONOMIC HEALTH POLITICAL/SOCIAL STABILITY

61 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION ECONOMIC HEALTH POLITICAL/SOCIAL STABILITY LANGUAGE

62 SITUS SELECTION FACTORS: LEGAL SYSTEM PROTECTIVE LEGISLATION ECONOMIC HEALTH POLITICAL/SOCIAL STABILITY LANGUAGE TRACK RECORD

63 IN ORDER TO UNDERSTAND HOW A PROTECTIVE TRUST WORKS. WE MUST FIRST UNDERSTAND HOW CLAIMANTS NORMALLY REACH TRUST ASSETS

64 THERE ARE ONLY TWO WAYS...

65 THE CLAIMANT BRINGS HIS/HER CASE IN A COURT WHICH HAS: JURISDICTION OVER THE TRUSTEE OR JURISDICTION OVER TRUST ASSETS

66 HOW DOES AN OFFSHORE TRUST WORK? FIRST: AT THE CRITICAL TIME: THERE WILL BE A COMPLETE LACK OF US COURT JURISDICTION OVER THE TRUSTEE & THE TRUST ASSETS...

67 HOW DOES AN OFFSHORE TRUST WORK? THAT MEANS THERE WILL BE NO POWER IN ANY US COURT TO REACH THE TRUST THE US COURT: CAN T FORCE THE TRUSTEE TO DO ANYTHING CAN T SEIZE TRUST ASSETS

68 HOW DOES AN OFFSHORE TRUST WORK? SO WHERE DOES THAT LEAVE THE JUDGMENT CREDITOR? TRYING TO HAVE THE JUDGMENT ENFORCED IN THE TRUST SITUS JURISDICTION.. HOW WELL IS THAT GOING TO WORK?

69 HOW DOES AN OFFSHORE TRUST WORK? SO WHERE DOES THAT LEAVE THE JUDGMENT CREDITOR? TRYING TO HAVE THE JUDGMENT ENFORCED IN THE TRUST SITUS JURISDICTION.. REMEMBER LACK OF COMITY???

70 HOW DOES AN OFFSHORE TRUST WORK? WHAT ARE THE IMPLICATIONS OF LACK OF COMITY?

71 HOW DOES AN OFFSHORE TRUST WORK? IMPLICATIONS OF LACK OF COMITY COMMENCE LITIGATION DE NOVO

72 HOW DOES AN OFFSHORE TRUST WORK? IMPLICATIONS OF LACK OF COMITY COMMENCE LITIGATION DE NOVO UTILIZE UNFAMILIAR LAWYER

73 HOW DOES AN OFFSHORE TRUST WORK? IMPLICATIONS OF LACK OF COMITY COMMENCE LITIGATION DE NOVO UTILIZE UNFAMILIAR LAWYER CONTINGENCY FEE

74 HOW DOES AN OFFSHORE TRUST WORK? IMPLICATIONS OF LACK OF COMITY COMMENCE LITIGATION DE NOVO UTILIZE UNFAMILIAR LAWYER CONTINGENCY FEE BOND & LOSER PAYS RULES

75 HOW DOES AN OFFSHORE TRUST WORK? IMPLICATIONS OF LACK OF COMITY COMMENCE LITIGATION DE NOVO UTILIZE UNFAMILIAR LAWYER CONTINGENCY FEE BOND & LOSER PAYS RULES BASIS OF LITIGATION? A FRAUDULENT TRANSFER ASSERTION

76 HOW DOES AN OFFSHORE TRUST WORK? LET S COMPARE THE TWO MAJOR FACTORS OF THE FRAUDULENT TRANSFER RULES - US vs. OFFSHORE STATUTE OF LIMITATIONS LEVEL OF PROOF

77 HOW DOES AN OFFSHORE TRUST WORK? LET S COMPARE THE TWO MAJOR FACTORS OF THE FRAUDULENT TRANSFER RULES - US vs. OFFSHORE 4YRS+ vs. ZERO to 2yrs LEVEL OF PROOF

78 HOW DOES AN OFFSHORE TRUST WORK? LET S COMPARE THE TWO MAJOR FACTORS OF THE FRAUDULENT TRANSFER RULES - US vs. OFFSHORE 4YRS+ vs. ZERO to 2yrs CIVIL PREPONDERANCE STD vs. BEYOND REASONABLE DOUBT

79 HOW DOES AN OFFSHORE TRUST WORK? WE VE SEEN HOW THE LAWS OF AN APPROPRIATE OFFSHORE JURISDICTION CAN AFFORD FOUNDATION PROTECTION FOR OUR CLIENTS TRUSTS. LET S SEE HOW WE CAN ENHANCE THAT PROTECTION WITH PROTECTIVE TRUST PROVISIONS

80 HOW DOES AN OFFSHORE TRUST WORK? TYPICAL PROTECTIVE CLAUSES TRUST PROTECTOR DURESS CLAUSE FLIGHT CLAUSE

81 HOW DOES AN OFFSHORE TRUST WORK? TYPICAL PROTECTIVE CLAUSES TRUST PROTECTOR: AN INDEPENDENT COMPANY HAVING THE POWER TO: VETO ANY DISCRETIONARY ACT OF THE TRUSTEE, AND REMOVE AND REPLACE ANY TRUSTEE WITH OR WITHOUT CAUSE

82 HOW DOES AN OFFSHORE TRUST WORK? TYPICAL PROTECTIVE CLAUSES DURESS CLAUSE: NULIFIES THE ATTEMPTED EXERCISE OF ANY POWER UNLESS EXERCISED BY THE POWER HOLDER OF HIS/HER OWN FREE WILL (A MECHANISM BY WHICH THE TRUSTEE CAN BE CERTAIN THAT A POWER IS BEING FREELY EXERCISED IS ESSENTIAL)

83 HOW DOES AN OFFSHORE TRUST WORK? TYPICAL PROTECTIVE CLAUSES FLIGHT CLAUSE: ALLOWS THE TRUST TO MOVE TO ANOTHER JURISDICTION IF APPROPRIATE (WE MUST INCLUDE A MECHANISM TO BE CERTAIN THAT THE FLIGHT CLAUSE CAN BE EFFECTED UNDER ALL CIRCUMSTANCES WE LL SEE HOW LATER)

84 WHAT CONCERN DO CLIENTS MOST OFTEN EXPRESS?

85 I DON T WANT TO LOSE CONTROL... SO HOW DO WE ADDRESS THAT CONCERN?

86 LOSS OF CONTROL CONCERNS... WE USE HOLDING ENTITIES: FOR PROTECTION OF LIQUID ASSETS (CASH AND PUBLICLY TRADED SECURITIES)

87 OFFSHORE TRUST OFFSHORE LLC COMBINATION STRUCTURE YOU = LLC MANAGER = DIRECT SIGNATURE CONTROL OFFSHORE LIMITED LIABILITY COMPANY INVESTMENTS OFFSHORE OR US BANK IMPLEMENTATION OPERATION CRISIS TRUST PROTECTOR (INDEPENDENT COMPANY) CONTROL OVER TRUSTEE OFFSHORE ASSET PROTECTION TRUST ASSETS TYPICALLY HELD: LLC MEMBER INTEREST; S- CORPORATION STOCK; OFFSHORE ACCOUNTS US TRUSTEE FOREIGN TRUSTEE YOUR BROKER Stocks & Bonds VAULT TRUST = LLC MEMBER 100% (May Be Co-Manager) DISCRETIONARY BENEFICIARIES YOU FAMILY OTHERS 1993 & 2001 DONLEVY-ROSEN & ROSEN, P.A.

88

89 (INDEPENDENT COMPANY)

90 GREAT. THE ASSETS ARE PROTECTED, BUT MY CLIENT NEEDS THE INCOME AND/OR PRINCIPAL TO LIVE ON

91 OFFSHORE TRUST OFFSHORE LLC COMBINATION STRUCTURE TRUST PROTECTOR (INDEPENDENT COMPANY) CONTROL OVER TRUSTEE OFFSHORE ASSET PROTECTION TRUST ASSETS TYPICALLY HELD: LLC MEMBER INTEREST; S- CORPORATION STOCK; OFFSHORE ACCOUNTS TRUST = LLC MEMBER 100% (May Be Co-Manager) DISCRETIONARY BENEFICIARIES YOU FAMILY OTHERS 1993 & 2001 DONLEVY-ROSEN & ROSEN, P.A.

92 CONTINUING WITH LOSS OF CONTROL CONCERNS... ADVISOR AGREEMENTS ACCOUNT SIGNATURES POWER OF ATTORNEY IRREVOCABLE DIRECTION TRUSTEE INSURANCE

93 OK. WE VE BEEN DISCUSSING HOW TO PROTECT FINANCIAL ASSETS (CASH & PUBLICLY TRADED SECURITIES). HOW DO WE PROTECT IMMOVABLE ASSETS: REAL ESTATE - WHICH CANNOT BE MOVED OFFSHORE???

94 PROTECTING IMMOVABLE ASSETS MAKE THE ASSET UNATTRACTIVE TO A CREDITOR HOW DO WE MAKE AN ASSET UNATTRACTIVE? WE REMOVE ITS VALUE

95 HOW DO WE REMOVE AN ASSET S VALUE? WE ENCUMBER IT WE USE THE ASSET AS COLLATERAL FOR A LOAN OK. WHAT DO WE DO WITH THE LOAN PROCEEDS? WE PROTECT THE LOAN PROCEEDS WITH THE OTHER FINANCIAL ASSETS.

96 PROTECTING FIXED ASSETS - PART ONE OFFSHORE LENDER UNRELATED TO SETTLOR LOAN TO CLIENT (INVESTED IN CD) PLEDGE OF COLLATERAL (MORTGAGE OR OTHER LIEN) CD TRANSFERRED TO TRUST CLIENT=S OFFSHORE TRUST DONLEVY-ROSEN & ROSEN, P.A.

97 PROTECTING FIXED ASSETS - PART TWO OFFSHORE LENDER UNRELATED TO SETTLOR INTEREST PAYMENTS FROM TRUST OFFSHORE BANK ISSUER OF CD CLIENT=S OFFSHORE TRUST INTEREST PAYMENTS TO TRUST DONLEVY-ROSEN & ROSEN, P.A.

98 SUMMARY OF LOAN STRUCTURE Interest earned on CD held in Trust is reportable. Interest paid on Loan by Trustee on behalf of Borrower is deductible as Investment Interest under Section 163. Other Loan Fees & Costs are deductible as Miscellaneous Itemized deductions under Section 212.

99 SUMMARY OF LOAN STRUCTURE LOAN AMOUNT: 95% OF ASSET VALUE (=SIGNIFICANT PROTECTION) PAYMENTS: QUARTERLY INTEREST ONLY PAYMENTS PAID BY TRUST FROM EARNINGS ON INVESTED LOAN PROCEEDS LOAN STRUCTURE COST (UNDER 10,000,000): ORIGINATION FEE IS 1.35% OF LOAN AMOUNT OR MINIMUM FEE (PLUS LOCAL RECORDING COSTS) NET-NET ANNUAL COST OF LOAN STRUCTURE IS 1.2% OF LOAN AMOUNT NO RISK

100 ENTITY PROTECTION

101 ENTITY TRUSTS

102 ENTITY TRUSTS Definition: A trust settled (created) by an entity or by an appropriate group of entities.

103 ENTITY TRUSTS What are the Typical Appropriate Uses? Business - commonly used to hold proceeds of borrowing against receivables and equipment Nonqualified deferred compensation (can be structured to avoid 409A) Entity owner being sued - make his ownership interest uninteresting by eliminating the availability of entity assets (equity) for litigation settlement Any entity with assets to protect

104 ENTITY TRUSTS Construction Who will be the Settlor? A single entity or A group of entities (similar to a group trust)

105 ENTITY TRUSTS Construction Dispositive provisions Discretionary Income Discretionary Principal Special Power in Governing Board

106 ENTITY TRUSTS Construction Who Will Be The DISCRETIONARY Beneficiaries? The Entity or Entities Settling the Trust The Owners of the Entity (ies) Officers, Directors, Managers, Etc. Any trust settled by any of the foregoing Any trust under which any of the foregoing is or may be a beneficiary to any extent Charitable organizations

107 ENTITY TRUST EXAMPLE: CPA FIRM A 65 PARTNER CPA FIRM HAD A LARGE FUND OF CASH AND SECURITIES TO BE HELD TO FUND THE RETIREMENT OF PARTNERS THEY WERE WELL AWARE OF THE LITIGATION ISSUES FACING CPA S TODAY

108 EXAMPLE: CPA FIRM THE FIRM ESTABLISHED AN ENTITY TRUST TO HOLD AND PROTECT THE RETIREMENT FUND AMONG THE DISCRETIONARY BENEFICIARIES WERE ANY TRUST ESTABLISHED BY ANY PARTNER

109 EXAMPLE: CPA FIRM ON RETIREMENT, A PARTNER WAS FACING LITIGATION; HIS RETIREMENT DISTRIBUTION WAS MADE DIRECTLY TO HIS ASSET PROTECTION TRUST NEVER BEING EXPOSED TO US COURT JURISDICTION TO SATISFY HIS CREDITOR S CLAIM

110 GROUP TRUST STRATEGIES WHAT IS A GROUP TRUST? A group trust is a trust created by 4 or more individuals (who typically know each other) under a single trust document. For this purpose (only), a married couple is counted as one individual

111 GROUP TRUST STRATEGIES Appropriate Uses: Business practice groups (typical) Other homogeneous groups

112 GROUP TRUST STRATEGIES Construction

113 GROUP TRUST STRATEGIES Standardized dispositive provisions, i.e., credit shelter, qtip, children s provisions Each settlor has his/her own separate subtrust Separate accounting is required; thus gains, losses, dividends and other income/expense items are strictly allocated to the settlor/contributor of the asset generating same - avoids investment company issues of IRC Subchapter K

114 GROUP TRUST STRATEGIES Single trustee; single protector Strict financial confidentiality maintained as between settlors Each subtrust unaffected by another s lawsuits/issues A settlor can upgrade to an individually designed plan, but no additional settlors can be added

115 GROUP TRUST STRATEGIES COMPARISON TO INDIVIDUALIZED PLANNING: 40% LOWER FEES/COSTS STANDARDIZED vs. INDIVIDUALIZED DISPOSITIVE PROVISIONS FIXED TRUSTEE & PROTECTOR vs. LIMITED SELECTION BY CLIENT PROTECTION: NO DIFFERENCE! LET S TAKE A LOOK.

116 GROUP TRUST STRATEGIES

117 REMEMBER.. ONE OF THE QUESTIONS I ASKED AT THE BEGINNING OF THIS PROGRAM: ARE YOUR CLIENTS CONFIDENT THAT IF THEY ARE SUED, THEY WILL BE TREATED FAIRLY BY OUR LEGAL SYSTEM?

118 UNDERSTAND: THE PROTECTION UNDER ANY U.S. BASED PLAN DEPENDS UPON A US COURT TREATING YOUR CLIENT FAIRLY: I.E., UPHOLDING THE PLANNING IN YOUR CLIENT S FAVOR..

119 UNDERSTAND: ANY U.S. BASED PLAN CAN BE SUCCESSFULLY ATTACKED WITH THE RESULT THAT THE ASSETS ARE LOST

120 THE QUESTION BECOMES: DO I LEAVE MY CLIENT AT THE MERCY OF A U.S. COURT WITH A DOMESTIC PLAN, OR DO WE SET UP A PLAN THAT A U.S. COURT CAN T DISRUPT?

121 ASSET PROTECTION NEWS.

122 PROTECTYOU.COM