Portable Offshore Asset Protection Trusts

This article is a little one sided and reminds me of articles written by agents selling life insurance investment vehicles. There are plenty of examples of people being held in contempt for not repatriating foreign assets. No one can make you bring the money back, but how much is your money in foreign accounts worth to you in prison? The author (who sells legal advice and tools for setting up these accounts) says those cases are rare, but multimillion dollar lawsuits are also rare. That’s why umbrella insurance is so cheap. Just like insurance as an investment vehicle, this may be a good option for some people, but make sure you do your own research.

“Make no mistake Jay uses offshore trusts as part of his planning. The difference: He uses a bunch of additional offshore business entities (such as IBCs and foreign LLCs), which are very expensive and don’t add a ton of value, in my opinion.”

Where does this come from? The truth is that my firm rarely uses offshore trusts for clients, less than one a year, mostly restricting them to circumstances where the client has a true “international family” or some other very unique circumstances where the offshore trust makes sense. Even then, we do not load the client up with a bunch of IBCs or anything else — that is simply false.

Otherwise, the case law has amply demonstrated that offshore trusts simply do not work, unless one wants to be like Stephen Jay Lawrence who remained in jail for 6.5 years until finally released of contempt (even then, he continued to be pursued on his judgment, which has kept him from anything like a normal life). An article that I published last month on the Arline Grant case illustrates the problem with offshore trusts — https://goo.gl/0JZOg

If a physician thinks that they can set up an offshore trust (including one that starts out domestic and migrates offshore), and then if they get into financial trouble or suffer an excess verdict that they can just sit back and hide behind their asset protection trust, they are suffering from a misconception of about the same level as those folks who think that if they take ginseng every day they will not get cancer.

Physicians should first rely on their insurance, but they must also take a proactive approach to their life and their practice, by updating all their insurance coverages, making sure that they are insured against things such as employee practices, HIPPA violations, etc., hire good attorneys to review their partnership agreements of their practice group, don’t make investments where personal guarantees are required, and numerous other things.

Then, to the extent that physicians need asset protection planning, they should first try to take advantage to the greatest degree possible of the exemptions in their state, whether homestead, qualified plans, or even for life insurance or annuities, depending on the state, and then see what their particular state offers that might be advantageous — California, for example, gives a complete exemption to “private retirement plans” formed under CCP 704.114(a)(1), which is an excellent asset protection tool for physicians there. Other states often have their own quirks that allow somebody to legally protect a substantial chunk of their wealth without having to do something complex.

This also illustrates a very important point — clients should hire an asset protection planner who is licensed in their state. We don’t practice outside the states were we are licensed and familiar with the laws, and a physician should stick to somebody who knows their state’s particular laws.

Finally, a physician who is looking at asset protection planning should not hesitate to get a second opinion. There have been so many hucksters in the asset protection field that one is more likely to get a bad planner than a good one. I can’t tell you how many of these hucksters that I have met during my career: Marc Harris, Terry Neal, Peter Double, Jerome Schneider, the entire Merrill Scott law firm from Utah, Troy Titus, Bill Reed, etc. — all held themselves out to be gurus, and all were huge flameouts who all went to jail, often after embezzling their client’s moneys, but always leaving their clients in a huge mess. This is particularly true today, when so many estate planners have been effectively put out of work by the “fiscal cliff” deal that raised the estate tax exemption and thus wiped out their business, and so became (you guessed it) asset protection planners overnight, but without any real knowledge of creditor-debtor law.

This isn’t to say that a few estate planners will not eventually become decent asset protection planners, but it will be after years of hard work to re-educate themselves, including taking some collection cases themselves to really see how the judgment enforcement process works in their state.

Apologies for the long post, but I was chagrined to see things imputed to me which were simply untrue. Thanks also to those out there who e-mailed me requesting a response.

Well, offshore trusts *sometimes* work in the sense that they settle for a low number, but they *sometimes* don’t work in the sense that they either fail outright, as in the reported cases, or they result in a high settlement. The easiest settlement that I ever won from the creditor’s side was against an offshore trust that paid most of the judgment, when the wife (who was also a debtor) decided that she wasn’t going to be dragged through the contempt proceedings that I threatened.

Again, offshore trusts work for folks with international families or who can leave the contempt jurisdiction of the U.S. courts — but offshore trusts are probably not a good solution for anybody else. If a creditor decides not to settle, and nobody can force a creditor to settle, then it gets grim — no reported cases has been anything like a victory for offshore trusts.

As to the anecdotal evidence of offshore trust successes and failures, that is a lot like trying to measure virga — rain that never hits the grounds. How much fell? Nobody really knows. But the uncertainty is not something that somebody should put their faith in.

What I have long objected to is the portrayal of certain things as being without flaws for marketing purposes; clients deserve full and fair disclosure of the risks of any strategy, and somehow the advertising of offshore trusts seems to always exclude the numerous cases where offshore trusts have resulted in contempt findings, or that there is now a 10-year clawback period in bankruptcy for transfers to offshore trusts under 548(e).

Of course, the 548(e) limitation is just as to fraudulent transfers. The assets of a self-settled trust are property of the bankruptcy estate regardless of when transferred into the trust if the debtor is in a state where the spendthrift provisions of self-settled trusts are not respected, i.e., the trust could be 50 years old and if the debtor was not a resident of a state that allowed self-settled trusts, the trust assets would be part of the bankruptcy estate.

The Lawrence case is just one example of a purely civil creditor — Lawrence was being chased by Bear Stearns on a margin call, which is about as an innocuous a type of liability that one could imagine. Lawrence was not a fraudster or criminal, yet spent 6.5 years in jail with his offshore trust.

I guess we’ll have to agree to disagree. I wouldn’t even normally respond to threads like these except that I received e-mails asking whether I use “a bunch of additional offshore business entities (such as IBCs and foreign LLCs), which are very expensive”, which was statement was simply false.

Great article in the New England Journal of Medicine on Malpractice Risk According to Physician Specialty.

https://www.nejm.org/doi/full/10.1056/NEJMsa1012370#t=article