Today, we start the 30-day journey from barely any asset protection knowledge, at least that’s what I’m assuming, to knowing what you need to know to carry out a asset protection plan for yourself, a client or supervise some high level genius implementing a plan for you.
This information will keep you from getting cheated and give you the tools to protect yourself if you’re in any of those positions.
You’re always better off being protected than being pushed away, because you are unable or incapable of implementing an asset protection plan. It’s my hope that within the next 30 days(or depending on your own pace) of this, you’ll have the skills and the tools to feel confident moving ahead in your life; sleeping well and knowing that you never ever have to be vulnerable to anybody again.
We’re not here to become your specific personal advisors. Most of us are willing to do that, but that’s not what we’re doing here. We’re giving you solid asset protection information like you would get at Stanford University. Every single faculty member here wants to teach you the right stuff and give you the tools to really protect yourself or evaluate the protection you’re receiving.
This is a typical asset protection plan structure. Sorry that the diagram is so crude, but I did it myself and it’s the best I can do. Maybe later I’ll hire designers, but I did this myself. Here we have an asset protection trust. That’s this brown thing that’s really just a bucket. A trust is nothing more than a bucket. It’s a bucket into which you put assets and you give the assets to the trustee. In this case up here, the foreign trust company is this yellow box.
You give the assets to a foreign trust company subject to some rules which is set forth in the asset protection trust. It’s just as if I gave you a gold pin and said, “Will you give this to my son Robbie when he graduates from UCLA”. He just did two year ago, so I guess I’m out-of-date, UCLA Law School, in fact. If you have that pin with an obligation to give it to my son when he graduates from law school, you become my trustee.
You’ve taken on this position of the yellow foreign trust company. This foreign trust company has a complete and total fiduciary duty to whom two people over here- the settlor, see the settlor right here, and over here the beneficiaries. The settlor is the person who makes the trust, who settles the trust. That’s why it’s called the settlor. A lot of people call the settlor a trust maker. The settlor is the only person in a typical asset protection trust that can’t be fired.
The settlor usually has a lot of power, normally the power to remove the trustee, the protector and the changed beneficiaries at any time. That’s why it’s called the grantor trust. All of these issues are covered in great detail later in the next 30 days. By being a grantor trust, this is disregarded. It actually uses the settlor’s Social Security Number; and in some cases, it can even be a domestic trust if it’s structured correctly so that there’s no additional filing requirements at all, except if you have an offshore bank account.
Here are the players: Offshore, safe; asset protection trust, bucket, run by a foreign trust company, somebody you don’t know. The only problem with the structure is you’re forced to trust the foreign trust company not to steal from you. I refuse to do it even though there are very good ways now to prevent vulnerability to the foreign trust company; and I will teach you those ways when we get into the forming or get into the funding of offshore bank accounts and the establishment of offshore bank accounts. For right now, just learn the above terms
You should always choose a foreign trust company that is affordable, should never cost more than $1,500 a year. Most charge closer to $3,000, but that’s crazy. You don’t need that. That’s a waste of money.
Over here is a protector. In three or four lessons from now, we’ll talk about protectors; but just to summarize it, a protector has no power to steal from you, but a protector has the power to say no. The protector is just the naysayer, the person that makes sure that your wishes are being taken care of. Most asset protection trusts provide that the trustee, that’s the foreign trust company up here, can’t do anything without the written consent of the protector.
That’s usually a friend of yours, although you’ll soon find out if you get in trouble- your protector should be an offshore lawyer or somebody skilled in international litigation. In addition to you the settlor, the foreign trust company and the protector, the third player is the beneficiaries; and as I mentioned, you retain the power to change beneficiaries at any time.
That makes the asset protection trust a basically invisible pass through entity, almost a disregarded entity. It is not a taxable entity. But you know what, for debtor/creditor purposes, it’s treated as a separate person. It is not responsible for your debts. That’s a ridiculous arbitrage but it’s true. That’s one of the strengths of a good solid asset protection planning. Your trust is not obligated for your debts.
Now, this is a typical way you structure an asset protection plan. You’ll have your trust. This asset protection trust will have a number of entities under it. I didn’t draw them. But see down here, this should have a few more lines for offshore investments, another line for an LLC that might have an offshore bank account; and in most banks now you can actually open a bank account in the name of your trust, but not all of them, so sometimes there’s entities under here.
There can be many entities. Everything on the right-hand side of this page is safe from U.S. creditors, not absolutely safe but very close to being safe, safe as you can get, a whole lot safer than on the left-hand side of that line. Why? Because no country in the world automatically enforces U.S. judgments.
On the left-hand side this line over here, we have a vehicle and I always use a family-limited partnership. We have a vehicle that enables you to keep your assets or keep protected assets in the United States without subjecting your asset protection trust, this brown bucket, to lawsuits in the United States.
Why? Because if you structure this correctly, you’re asset protection trust will not have sufficient contacts with the United States to be brought into a lawsuit, to be subject to, even subject to service or process here.
We’ll talk about that later again, but that’s an important issue. I love to have my asset protection trust own 99% or even 100% which you can do on Delaware, 99% is more typical and safer than the rest States.
The way to do it is have your asset protection trust own part of a partnership, a limited partnership. We call it a family limited partnership because it makes it fancier and more expensive, but it’s still the same thing as a limited partnership.
This type of partnership allows the trust to be the 99% limited partner and under the terms of all the statutes, all of the rules that regulate partnerships in every single state, the limited partner has virtually no say so in the management of the partnership.
That’s why when the partnership gets involved in a lawsuit or commits a tort. The asset protection trust should ideally not be responsible, should not be a proper party in a lawsuit.
So, we use this partnership over here and we’re going to go through this word by word by reviewing partnership agreements. This partnership is not subject to – or the limited partners of this partnership should not be subject to suit because they have no power, and it’s hard to be sued when you have no power to do something, that’s what the statutes require.
But look over here, see this little GP, general partner circle? The circles are human beings. This little circle here is normally the same person as a settlor. The settlor is normally also the general partner of the partnership. This keeps the settlor in charge of all the assets in the partnership, 100% of control is right here with this 1% owner. So, what’s the purpose of the partnership? To separate ownership from control. We’ll go over that in much more detail later.
If you put money into this partnership, it is no longer on your balance sheet. It is taken off of your balance sheet. It’s not available to your creditors because what’s the rule? Rule #1 What you don’t own can’t be taken from you.
Anything put into this blue partnership or this brown asset protection trust are off your balance sheet and no longer available to your creditors. The only thing different between assets sitting here in the family-limited partnership with an account -say at Bank of America with a million dollars in it and the asset protection trust with an account at Credit Suisse with a million dollars in it- is that with respect to the blue assets, the family-limited partnership assets, all you’re relying upon is the first rule ,what you don’t own can’t be taken from you.
When the assets hit the brown bucket, the second rule which is, no country in the world automatically enforces you as judgment is triggered. Look who’s in control, at the partnership level. It’s this general partner right here. I’m circling, this general partner right here is in control.
At the trust level, right up here, the settlor, that’s you, controls the trust company or chooses the trust company but control is right here. This is the part I don’t like about this type of structure, because the foreign trust company retains a significant control and there’s been some real bad cases of theft in the last 15 years. We’ll talk about them, but Mark Harris is the most notable one. I think he got 19 or 20 million dollars of some of my colleagues money in the last couple of years. You can’t trust trust companies, and since you never need to trust them, you should not.
So, this is a typical asset protection structure. I’m going to just pop up a typical kinetic plan structure. It’s very much the same. What’s the difference? Here it is. The difference is, see this second yellow circle, a typical kinetic asset protection trust has a U.S. co-trustee, and I structure mine in most cases so that the U.S. co-trustee has power over this.
So, we’ve disenfranchised the foreign trust company. We’re basically just renting their jurisdiction. This keeps you from ever being vulnerable to the foreign trust company; and I think you should always assume that foreign trust companies are crooks and you should never trust them with your money.
That’s why I always prefer the kinetic structure, although it’s more complicated and can cause you a lot of headaches if you’re not fully aware of the issues and able to drive this 800-horsepower Ferrari I mentioned in my lesson yesterday. You know, this is a very powerful tool, but you need to be aware of it. Now, that’s it for this part of the course. Download the book through the link below
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