How to Break Through an
Asset Protection Plan
TOOLS FOR RECOVERING ASSETS
Paul Brown, Karr TuDle Campbell
• Victim should rush to file suit/obtain judgment
• Pre-judgment discovery is unlikely/unavailable
• Focus should be on tracing assets
• Can only freeze and seize assets aOer judgment
• Judgments easily cross borders
• Laws of each country offer the same amount of protection
• Criminal proceedings and restitution orders will help a victim to
recover its loss
• Bankruptcy will enable a victim to more efficiently recover its loss
• RICO claims are a forceful way to achieve a recovery
Legal – procedural obstacle: Asset recovery involves working across borders, which is
tough at best of times. Legal disharmony and restrictions can make accessing
documents difficult. Individuals have rights and amongst them, in most societies, are
rights to privacy, due process, protection of private property and equal and fair
treatment under the law.
The informal and financial obstacle: Investigators are trying to find money that has
been deliberately concealed by a disciplined, well-funded, well-informed individual with
access to state power, global banks and smart lawyers. And money can be moved very
rapidly. It is becoming harder to hide money because of changes in the way secrecy
jurisdictions are regarded, because of the spread of due diligence, and because of the
trend towards greater transparency, but many challenges still remain. The vast majority
of asset recoveries involve overseas accounts, trusts and companies. In particular,
offshore jurisdictions frequently have regulatory set-ups that are perfect to obscure
links to money, with shell companies, nominee directors, and secrecy.
The political obstacle: In countries where assets have been transferred, there will also
be politics. Some country’s governments are more supportive of private action than
others. Depending upon the targets of the investigation, the political process could be a
difficult barrier to overcome.
• Thorough understanding of asset protection schemes
• Appreciation of legal restrictions
• Judicial and investigative devices available in relevant
• Time, experience, and flexibility to handle changing facts
• Well-conceived plan including asset freeze/asset recovery,
carried out in three phases
Phase I: Investigating
Phase II: Discovery -
Starting the Process
and Locating the Assets
Freezing the Assets
Seizing the Assets
Repatriating the Assets
Determine who, where, jurisdictions and amount.
Inves,gators trace assets via documents, electronic data,
informants, accounting, and information from banks and other third
parties. Some may be available locally or via open sources; much will
require help from foreign courts.
Once the assets have been located, they must be frozen in place by a
court. Different jurisdictions have different rules. Again, it will be
critical to maintain confidentiality until the freeze is in place.
The assets must now be taken through a confiscation or seizure
order. There are different routes depending on jurisdiction and
circumstance. Again, requires working with other jurisdictions to get
orders and to enforce them.
Assets must be transferred back to where they came from. This
raises a number of issues, like costs to other jurisdictions,
compensating those who may have lost out in other ways, and
ensuring that the proceeds go to the right place (and don’t get
Phase I – Investigation and Scheme
1. Evaluate strengths/weaknesses of case for damages and misappropriated
2. Develop profile of fraudsters
3. Analyze jurisdictions involved. Determine if they are favorable for recovery.
4. Evaluate issues of legal reciprocity and mutual assistance between
jurisdictions. Decide most suitable forum(s) for recovery.
5. Identify location of accessible assets. Determine what evidence will be
necessary for access and seizure.
6. Identify concealment techniques utilized
• Laundering money through local and international banks
• Transfers to corporations, family members or friendly nominees
• Transfers to discretionary trusts guarded by protectors
• Payments into insurance policies held by captive insurance companies
• Mortgage pay downs on assets held by family members
• Purchases of cashiers or travelers checks
• Purchases of art or jewelry
Phase I – Investigation and Scheme
7. Multiple related parties – individuals and entities
8. Multiple accounts and financial instruments to hold and move assets
9. Variety of asset holdings, both as to the kind of assets and where and
10. Understand tiered holdings
11. Understand the function of knowing parties-facilitators
12. To constitute fraudulent transfer, many bank secrecy and tax havens
require that you must prove beyond reasonable doubt that:
- Trust was established with principal intent to defraud
- SeDler insolvent or without assets to satisfy creditor’s claim
Where does the money go?
• Belize: Caribbean nation; eight banks, one insurance company, 23 trust
companies and 38,741 registered offshore corporations
• British Virgin Islands: United Kingdom territory; 500,000+ registered
• Cayman Islands: United Kingdom territory; 500+ banks and trust
companies, 7,100 mutual and hedge funds
• Isle of Man: Crown dependency of U.K.; 171 offshore service providers
• Switzerland: Bank secrecy, stable currency and political system, recipient
of most flight assets
• Panama: Central American nation; 34 offshore banks, 350,000+ offshore
These jurisdictions require a high
burden of proof to establish fraudulent intent.
• Discovery Action
- Used to iden,fy poten,al defendants and theories of liability
- Cannot be a fishing expedition
• LeTers Rogatory
- 28 USC §1782(a), allows interested persons access to discovery orders to
obtain evidence in the U.S. for use in foreign litigation
- Party must be physically present in jurisdiction
- Does not require pending proceeding
- Judicial request to foreign tribunal, narrow in scope, cumbersome and slow
English Common Law
• Norwich Pharmacal: Seeks informa,on from innocent third party holding
information to assist victim to identify wrongdoers
• Mareva Injunction: Allows complimentary discovery and enables seizure of
assets to preserve for benefit of creditor until subsequent adjudication.
• Anton Piller: Preserves evidence that could be destroyed. Needs to show
strong prima facie case and that respondent is in possession or control of
Phase II – Discovery (cont’d)
• Hague Convention
- Request to Central Authority that is transmiDed to foreign tribunal
- Court conducts evidentiary proceeding, sends results back to U.S. court
- Most member nations limit scope and extent of discovery
• Compelled Consent Directives
- Compel defendant to authorize third party to turn over documents and
financial informa,on that might exist
• Federal Rules
- Compel one in possession, custody or control of documents to produce
- Control means has legal right, authority and prac,cal ability to obtain
Statutory Freezing Orders
- Existence of threat to ability to recover
- Bailiff executes order
- Must bring action against debtor within one month of order
- Need proof of assets transferred to Panamanian party
- Requires lawsuit to recover filed within six days of freeze
- Criminal proceeding by public prosecutor
- Seizure of assets is immediate
Phase III – Freezing the Assets
Phase III – Freezing the Assets (cont’d)
U.S. Asset Seizure Devices
• Prejudgment ATachment
- Legal right where assets are conveyed, concealed or removed
to hinder, delay or defraud creditors
- Assets present in jurisdiction if jurisdiction over defendant,
can prohibit defendant from disposing of foreign assets and
for unconscionable conduct, order repatria,on of foreign
• Prejudgment Injunction
- Only applicable when asserting equitable claims
Asset Protection Rule #3 Never Trust Anyone
Today, we take on the third rule of asset protection. This is the one that I don’t need to convince my clients about because they’re all control freaks. Most of them built businesses and what does everyone know that has built a business? They know that you should trust nobody. Make people earn your trust at the very least. If you don’t have to trust somebody with your hard earned wealth then don’t. A properly done plan will never put you in a position where you’re vulnerable to theft. Not one of my clients has ever lost a penny. If you do an asset protection plan and trust the trustee, you’re taking a terrible risk.
In the long run you will experience theft & dishonesty. Maybe not from your trustee but by putting your money in someone else’s hands, you’ll find that you’re vulnerable to theft. Now, we’re going to go over the technology that allows you to protect your assets from theft later in the course. There are many techniques you can use, one is you should always be on the accounts. You should always know where your money is at. You should never give a trustee complete and total authority over your account unless there’s no other alternative and even then you can always have multiple trustees. I will be talking about that later. But for now we’re just talking the fundamental rules, never trust anybody with your hard earned wealth.
What is the normal asset protection plan? The normal asset protection plan is some lawyer or some promoter who doesn’t know his head from a hot rock asking you to give them some or all of your money. They convince you to let them put it with an offshore trustee or some other trustee type entity whether it’s a trust or a corporation. They tell you to trust them not steal your money. That is always a mistake. This started out mostly in the Cook Islands but now its become endemic where trustees come to the United States, send marketing representatives to go lawyer after lawyer, telling those lawyers that they can easily make $25,000 to $30,000 a trust, they’d hand them a form, say this fill in these 10 blanks, give it to your clients, bill them $25,000, $30,000 and we’ll give you some very significant referral fees from both the banks and the trust companies. You’ll basically make a load of money. We’ll end up with the money. But we won’t steal it. We’ll protect it. All that is taking a huge risk entrusting your money with people you don’t know.
The average trustee is somebody like me, an entrepreneur, maybe been in the financial, international world for 20-30 years, good reputation but, you know, a couple of million dollars, maybe that’s not a temptation but maybe it is. Ten million, maybe it is. Twenty million, maybe it is. Thirty million, 40 million, there’s a point where you shouldn’t trust trust companies with your money. Maybe Coutts & Company and some of the major trust companies are different than that. Coutts takes care of Queen Elizabeth for example. Problem is they’re going to charge you more money than you can afford to pay. They’re going to insist upon managing your money and most of my clients don’t want to have somebody else telling them how to invest their money. They want to stay in control. My clients build businesses. My clients are control freaks. They know the dangers of trusting other people. So, the bottom line is trust nobody with your money.
I will explain to you the techniques and technology available to keep your money always within your control even if you’re in trouble. Never ever stick with someone who says trust me because you know what, you’re just about to be hosed. Every year tens of millions of dollars is taken by small trust companies from people who were lulled into trusting them. Never trust anybody unless you have to.
The Case Of Marc M. Harris
You should never trust anybody with your hard-earned money. PERIOD. What I’m specifically referring to is any entity that says they need control over your assets in order to protect them. This causes more problems for people than anything else. There’s a point to what I’m saying. It’s not because people are dishonest, it’s just that it is not necessary to HAVE to trust someone. Many people, often with the advice of “experts,” simply put their funds into trust with a foreign trust company and think that they are protected. I think that this is foolish. It is almost never necessary to delegate control over your money to another person or entity, and certainly not when a plan is first implemented. Each year, hundreds of millions of dollars are lost to unscrupulous trust companies that simply walk away with your money. You have no alternative. Take these words to heart: Never delegate control of your money to anybody. Keep control and you cannot be cheated. And yes people are swindled all the time. Here’s an example of just such a swindler. Founder and CEO of The Harris Organization financial services group of Panama, which operates banks, insurance companies and a trust company and offers stock brokering, in-house mutual funds and other money management services – all without a single license! In March 1998, Offshore Alert published an article accusing The Harris Organization of being insolvent, stealing clients’ funds, operating a Ponzi scheme and money laundering.
The Harris Organization sued for libel at Federal Court in Miami and after a bench trial in July 1999, then appealed and that too. Harris did not testify at the trial, his attorney, Ohio-based AC Strip, told the court that two Harris officers had been served with SEC subpoenas during the trial and that Harris was ‘‘concerned’’ about what might happen to him should he travel to the US. Harris not only refuses to honor made by his but he also generally refuses to take their irate telephone calls or see them when they turn up in Panama to demand the return of their money. Harris’ specialty is to fly easily impressed Americans to Panama, have them whisked through customs and transported in a chauffeur- driven Jaguar to Downtown Panama City, where they are wined and dined and parted from their money. He doesn’t tell them that his CPA license was suspended in Florida in 1990 for incompetence and negligence after he audited a Florida- based mutual fund without disclosing in the notes to the financial statements that he also owned and ran it, according to a complaint.
Additionally, the sum of the individual assets did not equal the number given for total assets, there was insufficient information on investments in operating affiliates and there was an absence of information on the aggregate cost and market value of marketable securities held by the company. Harris was also involved in illegally run Montserrat banks that were closed down by British police in 1989-90, buying offshore ‘shell’ banks from notorious bank charter broker Jerome Schneider.
In June 2002, Harris was evicted from his commercial premises in Panama for non-payment of $47,000 in rent, causing him to move what was left of his dwindling operations to Managua, Nicaragua. According to those who know him, Harris has an insufferable ego that his business and professional failures have done nothing to diminish. This is, perhaps, best illustrated by Harris once handing out signed copies of his self-published book ‘The Intellectual Spirit of Marc M. Harris’ to strippers who were performing at a Panama strip club, according to a former employee. You can still buy his books in the stores and online as well as find his website.
The Perfect Asset Protection Plan In 10 Minutes – Video Transcript
Today I want to talk about what a perfect plan looks like, I want to do it quickly and it’s something you should all watch; even if you don’t intend to do a plan now. I’m going to give you the characteristics of a typical plan, what you always need to consider no matter who does it and I’m going to do it quickly and in a way that hopefully that you can take with you and remember for the rest of your life. What’s a perfect asset protection plan?
Well a perfect asset protection plan has four characteristics.
I use this little tool, I use the word ‘STOP’ because I think of stopping creditors; and this isn’t everything but these are the four key characteristics for every plan no matter if you’re paying somebody $50,000 to do it for you, or you’re doing it yourself and spending $2,500. Almost every single good plan will have these characteristics.
First characteristic: it will allow you to stay in control. You always should stay in control. Sometimes you may have to share control if you’re really in trouble; meaning having a protector or an off shore lawyer on accounts with you. But, in a normal situation and you should always do plans when you’re not in trouble; normally when you’re not under the gun you will always be in a 100% control.
Second: you should trust nobody, assume every single person you deal with is a crook; they’re going to prove you right. You’re going to come across people who are crooked, who want to steal money and you’re going to want to avoid them if you can but you can’t be perfect so, never construct a plan where you’re forced to trust somebody unless you choose to trust them. That’s one of my rules and you need to follow it or you will get hurt. Third: off balance sheet; that’s just a way of saying own nothing. The first rule of asset protection is what you do not own cannot be taken from you. Almost all asset protection functions by taking protected assets of your balance sheet. Remember the Rockefeller’s rule, own nothing and control everything.
And the final characteristic is that most countries you’re going to for your trusts, maybe not for you accounts but for your trusts have protective legislation. You normally don’t need protective legislation, and sometimes we start in places that don’t have protective legislation to either save money or keep it simple. But when you are in trouble you will always want to be in one of the several jurisdictions that offer protective legislation.
Now, what are the four components of a perfect asset protection plan?
Well the first one is an asset protection trust. This site has over fifty articles on that right now but, trusts are a key element and they are a business entity that takes assets off of your balance sheet.
Most asset protection plans will also use a LLC; it’s not always necessary but it’s the easiest way to stay in control when you have an offshore trust run by an off shore trust company. I’ll soon show you why.
The third component will be an offshore account and the fourth component in some cases will be a domestic family loaded partnership. This is irrelevant for non-US citizens, non-US citizens will just do the first three but, for US citizens they will want in many cases, the fourth component. Now what do they look like?
Let’s start with the trust
This is a typical trust: it has a settlor, that’s you. Throughout these little diagrams the little red guy, that’s you, the client. You will almost always have an offshore trust company; the location of this trust company will determine the laws that will apply to you.
That’s not part of this lecture, but you’ll have an off shore trust company. You’ll almost always have a protector, that can be you or an offshore lawyer or an offshore protector.
There is companies that specialize in this. And it will have classes of beneficiaries this will always include you the client. Normally the beneficiaries will include the client and any other people that the client wants to benefit. Everything will be controlled by this trust company not the settlor.
The problem is that this trust company has control of this trust. Sometimes I do kinetic trusts where I keep the client as a co-trustee with the offshore trustee here but that is beyond the scope of what any of you should consider a perfect trust.
That’s unique, that’s a unique situation that requires much more specialization then you need for a rock solid trust; it’s probably over kill for 95% of you out there. This is the first component; this is going to get you started. This is enough for many people; you can actually use this asset protection piece to hold things like gold; if you had a bunch of dinar you wouldn’t need anything else because you’d have physical protection of the dinar, it’s off your balance sheet.
But this alone is normally not good enough because this trust company up here has control of the assets in the trust, therefore this person, the settlor is vulnerable to this trust company and this trust company can steal these assets. How do you avoid that?
Well simple, you put an offshore LLC in place. The offshore LLC can either be in the same jurisdiction as the trust or any place that has offshore LLCs or IBCs function as LLCs.
Every jurisdiction is different, this entity can be passed through, it’s normally a disregarded entity when it’s a single person but; you can also have it treated as a corporation. You can opt to have it treated as a partnership, you have great deal of flexibility, and indeed under this LLC you can put hundreds of other entities. You can have corporations, which might be controlled for in corporations, you can have partnerships; you can have any offshore entity that you want all owned under this offshore LLC or under this trust.
It’s a great way to do what?
To keep you, this little red guy, in control of the assets because when you put the LLC in place you no longer use the asset protection trust to protect these assets. Assets are held down here, owned by the APT but where are the asset’s controls?
Control happens to be with this little red guy who happens to be you. This little red guy is the manager of the offshore LLC.
And this is the best way to keep you completely in control of an offshore investment; including an offshore bank account because what you normally do with this offshore LLC is simple.
BOOM! You add and offshore bank account, you go get an offshore bank account; it does not have to be in the jurisdiction of the APT or the jurisdiction of offshore LLC. And as many of you know, or those of you who have been listening to me have had it drummed into your head.
Many banks or most banks are stopping accepting accounts from US citizens. Hong Kong-Shanghai bank in Singapore last week said they are simply just not going to take them. There are many banks: Barkley’s… just almost any bank you name is no longer wanting US citizens and it’s in large part because of the legislation that becomes effective in 2013 forcing these banks to be transparent to the IRS and basically account to the IRS for your deposits and if the bank is not transparent there is a 30% tax, that may be challenged and that may be thrown out.
But by putting this LLC in place we really overcome a lot of those objections. You’ll find that the same banks who won’t take you when you’re trying to go there as a single human being or if you’re a trustee of your own trust going there; they won’t take you.
But when you have an offshore asset protection trust, owned in an LLC, the banks somehow seem to be able to be comfortable that, that’s enough removal that they will accept the account; at least right now, it’s working well. Now that’s all most people need. The only thing they could ever need more is…
BOOM! A domestic family limited partnership. Notice this partnership, this little green thing right here is in the United States. This little yellow line is the line between safe, which is offshore and dangerous which is on shore; the US is less protected then anything offshore. Why?
Because no country in the world recognizes US judgments and anything over here is virtually impossible for a US creditor to without spending a huge amount of money and even then it’s doubtful that they could be successful. This is a typical situation and note with the assets held in the domestic family limited partnership we still keep you the settlor over here in control of this, you’re just functioning as the general partner.
The general partner has 100% control over this partnership; and look the asset protection trust has 99% to 100% ownership with zero control. So what does this partnership really do? It separates ownership which is in the trust and control which is with you the general partner. This structure really holds up, it is tax neutral; it won’t increase your taxes, it won’t decrease your taxes.
You can make numerous tax selections to change your tax treatment. Basically you have all the flexibility and freedom as a normal human being investing offshore; you can do insurance type investing you can even form and insurance company and eliminate tax on your interest and dividends and capital gains. All legally and with full disclosure of the government, all that can be done in a simple little structure and this little structure will work from 95 to 98% of the human beings who need asset protection.
I don’t care if you’re spending $50,000 or $2,500; these are the keys that you need to look for. Now, you can see the four parts of a perfect asset protection plan; remember this and just remember it doesn’t have to be complicated, it doesn’t have to be a life changing event. This is a process and a choice for you to sleep well at night and no longer be vulnerable to people who want to take you apart.
Now remember, just remember because a lot of you aren’t going to do plans but just remember ten years from now when you’re spouse tells you they’re going to divorce you or your business partner comes in and says he’s about ready to tear you apart because he thinks you cheated him or you were bad to him.
Remember these four STOP characteristics. Stay in control, trust no one, make sure everything that’s protected is off your balance sheet so that you no longer own it and make sure that if you’re really getting in trouble that you’re availing yourself of with numerous countries that have protective legislation.
I believe that these are key elements for anybody that wants to protect themselves in the long run. Do this and you will sleep well at night, you will no longer be vulnerable, you can take control of your own life and you can stop the professional takers from being able to abuse you and not be around. You never have to take it anymore and that’s what I’m trying to give you; is the tools to stop being beat up and to take control of your own destiny.Thank you very much see you soon.
Non Kinetic Saint Lucian Asset Protection Trust – PDF Table of Contents
- Interpretationpage 4
- Governing law and power to change it page 5
- Power to add and remove Beneficiaries;Settlors’ testamentary powers; page 6
- Power to add Excluded Person page 6
- Power to change the Vesting Day page 7
- Trust for sale page 7
- Power to receive additions to the Trust Fund page 7
- Discretionary power of appointment page 7
- Power to apply capital page 8
- Applications and accumulation of incomepage 8
- Trusts on Vesting Day page 8
- Events of duress page 9
- Payment to minors page 9
- Trustees’ powers of investment page 10
- Trustees’ general powers page 10
- Trustees’ powers in relation to land and buildings page 16
- Apportionment of income page 16
- Trustees’ dealings with third parties page 16
- Trustees’ charges page 16
- Trustees interested in companies page 17
- Trustees’ indemnity page 17
- Trustees’ involvement in managing subsidiary companies page 17
- Trustees not required to give security page 18
- Trustees’ discretion uncontrolled page 18
- Power to release and to add powers page 18
- How Corporate Trustees may act page 19
- Delegation by Trustees page 19
- Appointment, retirement and removal of Trustees page 19
- Protector’s powers page 20
- No benefit for Excluded Persons page 21
- Settlement irrevocable page 21
Hello, Rob Lambert here with Asset Protection Training. Today, we’re taking the second segment of the nuts and bolts training and today we’re going to meet the players. We’re going to meet them a little bit closer than yesterday. I’m going to start with a simple overview of the same materials I gave you last night. And I hope you were all were able to read the book I gave you.
If you didn’t read Chapters 1 and 3, you should stop this video right now, go take the 30 minutes it takes to read it and then come back otherwise you’re cheating yourself and you’re not going to get the vocabulary or get the understanding necessary to do justice to yourself and to me and, you know, to your family. So, go read that then make sure you settle in and enjoy this.
How does an Asset Protection trust work? Who’s involved?
Now, you saw this diagram yesterday’s class and, again, it has a settlor, a foreign trust company, a protector and beneficiaries. You’re going to get to know them a little bit better by the end of this short session. This is for a non-kinetic plan. This is a plan in which we do not have a U.S. trustee.
This is a plan where the typical settlor/U.S. trustee, they are usually the same person, is not kept in control. This is a much safer and much more traditional way to do asset protection planning and if you decide that you want to do asset protection planning yourself, this is the type of planning you should do and I’ll explain why later on. But the fundamental reason is that there’s a lot less that can go wrong with the type of trust I’m about to show you. Anyway, you’ve got the settlor, a foreign trust company, protector and beneficiaries. Let’s go meet them in greater detail.
This is a typical asset protection trust that’s – this one’s done for Thames Trust in Saint Lucia. It’s a good trust company. It’s a great trust company. In fact, it’s run by Nicolas John. He’s got, you know, several law degrees. He’s trained in London like everybody in these little countries and is somebody I’ve dealt with for 20 years. I give him a lot of work and I just pulled one of his trust agreements out to use as an example through the link above.
And this would be where you would start if you were doing a typical, a non-kinetic asset protection trust which is what you should do if you need asset protection for yourself. All decent trusts have good tables of content. This is a simple table of content but it’s a simple trust.
It’s not 100 pages long. It doesn’t have a lot of complex provisions and that’s why it’s a perfect place for you to start. Tonight when you’re finished with this lecture, you should read this entire trust. Force yourself to read it. Even read through the paragraphs you don’t understand because by the end of this course you will understand them and if I haven’t done a good enough job to cram it down into your brain by the end of this course then you need to ask questions and make sure I do because every word in this trust should be very very comprehensible to you once you’ve finished your training.
What does the settlor do?
Okay. Here is where they all start. They all start with a settlement provision. This one starts with paragraph 1, the settlor. Now, you all remember who the settlor is. The settlor is the trust maker. The settlor is the grantor. The settlor retains a lot of power but in this case less power than a typical kinetic plan and you’ll soon see it. But let me just show you – I put some little red notes on the right so when you go through this you can actually take special notice of the people being introduced.
Paragraph 1, we introduced the settlor and that’s, that will be you. That will be the typical client. Paragraph 2, we introduce the trust company. And why did I pick this one for this example, only because I use them a lot. Why do I use them a lot?
Because they’re affordable, because they’re honest even though I tell you you should always assume the trusties are crooked, these guys aren’t and it’s good to have a trustee in a safe, secure jurisdiction. Saint Lucia, I like a lot because it doesn’t have any trouble. It doesn’t have a lot of crazy laws.
It doesn’t have a lot of people that have come there after stealing, you know, $7 or $8 million from Bear Stearns or cheating little old ladies out of money like the Andersons did. It doesn’t have that. It doesn’t have a history of money laundering and hiding dope money. It’s a little banana republic that is just in the last 20 years, 25 years developed their financial services industry.
So, you might actually consider it as a place to start because you’ll soon see if the rubber really meets the road and it gets tough, you’re probably going to move your trust company from where it started to another country, some country with a greater and more meaningful laws I just don’t like to start in the trust companies with the tough laws because they have a taint to them. I think you should always remove any taint of unseemly protection.
What we’re really doing is protecting your family and we’re doing a state planning and we’re providing for future generations and you never really want to make your State planning look like asset protection is the primary motivation. It often is and it’s a perfectly good legal legitimate motivation. But I like you’re taking the less visible, less outlandish approach and being a little bit under the radar. Anyway, in the first paragraph, you can see paragraph number1 at the top, we introduce the settlor.
Then we introduced the trust company. We talked – we do the whereas provisions. They’re almost all the same. Every little trust is different but it doesn’t matter. Keep going down. You see here paragraph 1 in the settlement. In this settlement, the following expression shall unless the context otherwise requires have the following meaning. Well, here we are, we’re introducing beneficiaries.
What does the beneficiary do?
Paragraph (a): The beneficiaries and now you’ll soon see paragraph 3.2 and you’ll understand this. I want you to actually follow this through, follow this through when you print this out but here we have beneficiaries. It’s always important that the asset protection trust have beneficiaries in addition to the settlor. It is very traditional for the settlor to be a beneficiary.
Some so-called self-proclaimed gurus claim that that’s unwise but that doesn’t work with real people. Real people when they set up one of these trusts want to access to the money and they want to have access to the money when the financial seas are calm without asking anybody and without amending any trust. So, a 9, probably 9.5 out of 10 cases, the settlor will also be a beneficiary. But you need something other than just the settlor, a wife, kids, somebody in the future generation, even a charity always have beneficiaries other than the settlor.
What does the exlcuded person do with my trust?
Now, see paragraph 1(b), excluded person? We’re meeting a new player. Excluded persons are not common to American Domestic Trust. Excluded persons are very common in asset protection trust and often if you have an enemy or you have some entity or some human being with a judgment against you, they will actually be specifically excluded.
I can’t tell you how many parents exclude their daughter’s husbands and oftentimes their son’s wives at least for a certain number of years because they’re worried about having built up a family nest egg and some girl or some guy gets married and their love of their life ends up taking their family fortune from them. So, parents oftentimes protect their kids by making the children, the children’s spouses soon-to-be ex in the parents’ minds’ spouses excluded parties.
Here we go down and see in paragraph 1(c) the term protector is defined and you’re going to see that we’ll be meeting and looking at the protector in greater detail in this document. But the protector is normally – I’m going to – before I move on, the protector is normally there simply to police the trustee. You’ll soon see and I’ll read it to you in a minute that the protector has little or no power to make any overt action, to take any, any actions that affect the trust fund at all but the protector has a lot of power to stop the trustee in his tracks.
Who is the trustee?
And you’ll see in number (d) he introduced the trustee and it’s just, you know that the trustees are the ones that operate the trust. They have all the power really once the settlor has appointed a trustee, you’re basically in this trust delegating the power to run that trust and control your money to your trust company.
And, you know, I always say you should never trust the trust company but I’m going to take some of that mystery out of it as long as the settlor or my client is on the account with the trustee, a signatory on the account then my client is never vulnerable to theft. So, I don’t really have any problem with this type of trust as long as when the trust is set up and when the banking accounts are set up, it requires the okay of the client/settlor to make a withdrawal and that can be a simple agreement with the bank that the bank is going to verify major withdrawals you can even say above a certain amount. That’s a very common provision, very common way to keep people safe although most people don’t do it and I don’t know why. They just don’t worry about – they don’t worry about the protection of their clients. They assume that the trust company has been in business for a long time, it’s got to be safe. I just won’t make that assumption.
How does the trust work?
Now, here’s another concept. See paragraph (e). Let me move this a little bit to get it more centered. Here we have the trust fund. This is the stuff that’s put into the trust. The trust fund normally requires that the assets that become part of the trust fund are actually accepted by the trustee. Every trust is different but the trust fund is what the trust company has what the trust is funded with and we have another concept, you noticed my little boy is just here helping you. 0:12:26.3 [I have a kitty that’s helping.] This trust uses the concept of “Vesting Day” and it’s really a provision designed to make the trust last for 120 years like a dynasty trust. And the reason I’m pointing this out is there is a concept called the rule against perpetuities. It’s an old English concept and you’re going to see it in tons and tons of trust. They’ll usually say that the trust can only last for a life in being plus 21 years and they usually will define the royal family in England as the family that has it.
In paragraph (f), you see the concept of “Vesting Day.” This is important for two reasons. This is normally called the trust period and trust period is a big deal in many parts of the world because trusts are traditionally limited by something called the rule against perpetuities and you’re going to see the reason I’m taking some time on this is in almost every trust you see you will see some provision making reference to the royal family in England and it will talk about all the members of the royal family and it will say that under any circumstances trust is going to last for at least a life in being plus 21 years and they measure the life and being by the royal family in England. It’s just traditionally done that way.
Basically, it means you get – if the youngest person in the royal family lives to be 90, you can go 90 plus 21 years, your trust is good for 110 years. Many States and many countries now provide that trust can be much longer, in some places unlimited duration but you’ll almost always see a concept such as “Vesting Day” or the rule against perpetuities. You’ll also normally see a provision that allows the trust to be shortened under certain circumstances after the passage of a number of years. That’s not part of this trust. It’s not necessary in this trust. This trust is a simple wonderful understandable lovely agreement. So, anyway, that’s the concept of “Vesting Day” or trust period.
Now, go down to the bottom, paragraph 2, governing law and power to change it. This is a Cuba clause. We hide the fact that we’re basically saying to a U.S. judge that we’re going to change the ballgame but if you read paragraph 2, you’ll see it gives the trustee the power to change the rules that are applied to the trust assets and how do you do that? You move the trust.
Now that seems like an arduous terrible hard process. Oh my God, we’re going to move the trust and I’m going to show you some real Cuba clauses in about three more lessons. We’re going to be going through – we’re going to take a whole lesson on what a Cuba clause is, but for now I just want you to read it and get a little understanding of what it is. Sometimes you want to have a different set of laws apply like Belize. It specifically does not recognize divorce proceedings.
In Belize, an asset protection trust is always going to hold up when challenged in a divorce. It’s just it’s statutory. Well, in this case you might want to start in a place like Saint Lucia but move it to a place like Belize if a divorce was the issue that was, you know, that was causing any fear or desire to migrate and I want you to note in paragraph 2, see this little red note the word may, it has become very common to make Cuba clauses not mandatory.
It started out 25 years ago or 20 years ago that we always made them mandatory and that became awkward and it also started when the tax laws changed about seven years ago. If you had a mandatory Cuba clause, your trust was almost always considered a foreign trust and in many cases we can have this trust be treated as a domestic trust particularly if the assets remain in large part in the United States possibly in the family limited partnership I discussed yesterday and if the trust agreement submits itself to the law of a State, that’s not so in this case. This would be a foreign trust and if the assets are managed in the United States. But many times these are structured to keep them domestic for tax purposes.
It doesn’t change the amount of tax you pay. It just changes the manner of reporting you have to do. There is a simple little five-page, it takes 30 minutes of or 20 minutes for any CPA to fill out, it does not increase your tax liability that you need to file if you have a plain vanilla foreign trust like this one would normally be. That also is the simplest and easiest way to do.
I’m going to move on to paragraph 3, power to add and remove beneficiaries, settlor’s testamentary powers. Well, paragraph 3 is very traditional. It’s the trustee’s power to change or add or remove beneficiaries. The trustee, now this is important, the trustee will normally not do anything without the input and advice or direction of the settlor. But the trustee has the power to do it without asking but traditionally they won’t and in most of these countries that provide trustee services, the trust companies are very very very sensitive to watching out for their client, the settlor and in most cases they ask for a letter of wishes.
And this letter of wishes can be changed over time. But the letter of wishes gives guidance to the trustee and even though they’re not legally bound to follow it, you will find that they treat, they treat letters of wishes like the holy grail. They don’t depart from what’s really instructed in the letter of wishes. That’s something that I’ll be talking about more in the future and when you go to paragraph 3, look at the third paragraph.
What powers does the settlor have?
The settlor – this is the settlor’s power, this is your power if you’re setting this up, the settlor shall notwithstanding anything here into the contrary have the right to designate by will or testamentary document. That usually means something signed properly and often witnessed, just witness it with whatever, whatever type of formalities are required in whatever jurisdiction you’re going to. If you witness it as a will and in the United States, it will be almost always safe but it’s a simple matter to simply get on the phone, talk with your trustee, see what they need and then overdo it. Never underdo it, always overdo it. But the settlor has the right to designate by will or testamentary document the trust assets and/or the share of trust assets to or for the benefit of beneficiaries and to exclude a beneficiary.
So, the settlor has the power to make people beneficiaries and to exclude people. For instance, many trusts have contest provisions. They have lots of things designed to penalize anybody who tries to get in the way of the management of the trust. And it is very common for somebody who challenges the trust to be made an excluded party.
So, when your daughter turns 18 and runs off with the local Harley guy and wants her inheritance early and you tell her no and then threatens to sue you, with the right type of contest provision and the right type of structure, she’s likely to become an excluded party. Well, when she’s 25 she might have gotten her senses back and you probably don’t want her to be an excluded party. This gives you, the settlor the power at any time to remedy those types of problems. It’s pretty neat.
Now, paragraph 4 down or paragraph 3 down are what’s called powers provisions. And you’ll see that a majority, a large part of this trust is focused in on making the trustee, empowering the trustee with the same type of power that a human being has over his own assets and that’s important. If you don’t give the trustee tons and tons of power, you’re going to have trouble. And I’m really going to go through this fast and I expect you to read this tonight or tomorrow but you’ll see that there’s almost nothing that you can think of that the trustee doesn’t have the power to do.
Paragraph 12: We’re going to go over – we’re going to have a whole day on the duress provisions or they’re often called freedom from outside interference provisions because that’s a nicer way to tell a judge you’re disenfranchising him. Judges hate duress provisions.
Judges really really feel insulted by these so they’re often written with a little more obfuscation than this but I wanted to show you this one and then we’ll come back to this later. Rome isn’t built in a day. You’re not going to learn everything in one or two or three sessions but I want you to read this. I want you to force yourself through this and I want you to just let me read you the first part of the duress provision.
The trustee shall not respond to request, court orders or any other directive from any other source whatsoever which instruction, court order or directive is a result directly or indirectly of an Event of Duress. And it goes on to define events of duress and you’ll find that one of the definitions is a nasty lawsuit that’s about to tear you a new, tear you in two. So, you’ll love that. And we’re still on powers provisions. You know, we’re on page 9 of the trust and we’re talking about paragraph 14, trustee’s power to invest. I’m just going to keep flipping through. I’m flipping through powers provisions.
You’ll see powers, powers, powers. Most of these powers or many of these powers require the written consent of the protector and if they don’t, you oftentimes will put that in. Many clients – most of my clients in fact are control freaks. They have made their money. They have been screwed and tattooed 50 times before they decide to go spend money to protect themselves and they simply say I don’t want to be screwed and tattooed again. I’m not going to trust the trustee and I’m not going to trust anybody so I want my protector who’s oftentimes in my trust I let the protector be the client’s settlor in some cases. You make it so that the client’s settlor functioning as a protector has the power to block most actions by the trustee.
Why should the client not be a protector?
Now, it would considered bad form to make a client the protector and it’s only – you can only do it if you have a sincere understanding of what’s going on and you’re smart enough to know when and if you need to get out of that provision. That’s what happens with a kinetic plan.
This is not a kinetic plan. This is set up as if you’re in what’s called red alert status on day one. This trust will hold up or should hold up under almost any circumstances as long as when it was funded it was not funded with a fraudulent conveyance. Remember one of my earlier videos when I talked about the rules and I said a trust is a new baby and if you give the new baby some money that new baby gets to keep that money and that new baby is not responsible for your debts. But the only way to extract that money from your new baby is to claim that the act of giving that money to the new baby was a fraudulent conveyance.
That’s why this type of trust is best done when the financial seas are calm. If the financial seas are calm, you can be almost, you know, you can really be comfortable that your transfers are going to hold up. What you don’t want to do is just blithely shut your eyes and engage in a fraudulent conveyance and hope that they, hope that they hold up. That’s what gets, that’s what gets everybody who does asset protection incorrectly in trouble. You should never ever ever do that.
We’ll talk about that in great deal detailing where the lines are but, you know, again, this is great trust for just pulling out, reading. This trust will take care of 90% of you just the way it is without almost any changes. It’s not perfect but it’s damn good.
Oh, here we go. This is another concept. See paragraph 18. This is the trustee’s dealing with third parties. You’ll notice in all trusts and it gets much more aggressive than this trust, the trustees are protected. They’re usually indemnified. They’re usually held harmless if something bad happens. This really freaks people out. But the bottomline is you’ll never get a trustee, an institutional trustee without those provisions. It’s absolutely common in the rest of the world and you also need to remember that even though Rob Lambert, you know, holds his head up high and says don’t trust trustees, the people who are trustees are normally the, you know, leaders of their community. They’ve usually been there for a number of generations.
The trust companies have been there for many many years and they are usually the pillars of their community. So, they get kind of irritated with me when I say don’t trust them and I still say don’t trust them and you’ll note that some of them will be speaking to the, you know, us at this, at this site that, you know, that there are several that have asked if they can do videos introducing their countries. Well, they know that I say, assume they’re crooks but you know what, you better make sure when you choose them that you really think they’re not so always check references and just don’t be upset when you see provisions where the trust is required to indemnify, defend and not even go after the trustees for simple negligence. Usually the only times you can go after the trustees is if they really engage in reckless behavior.
So, paragraph 18, 19, 20, 21, 22, 23, 24, 25, these are, and even 26 and 27, are all provisions designed to make the institutional trustee relax and be willing to take your assignment because after all you’re asking them to take on a very substantial fiduciary responsibility without too much compensation at least the trust companies I’m going to refer you to. If you want a fancy trust company, there are Cox and Wilkerson in Bermuda, Coutts & Company, that’s Queen Elizabeth’s trust company. They’re a huge huge great trust company but they’re going to charge you a percent of your assets under management in tens of thousands of dollars in fees and most of my clients don’t want to trust somebody else to manage their money. So, you know, I guess I deal with different types of people.
Now, paragraph 29, this is great. This is the protector’s powers. I want you to all read this specifically. I want you to all read this tonight before the next class but look the protector can basically say no to anything. The protector can get out of anything. He can leave. He can be reimbursed. He’s not liable for anything. The protector is protected almost like the trustee.
Paragraph 30, no benefit for excluded parties. You know, it’s a new concept but don’t you like the fact that if you put Joblo, the guy who’s been suing you every time you get two nickels to rub together as an excluded party, he’s going to be SOL when he tries to go to Saint Lucia or Belize or some place to go after your money and by the way once he goes there, he’ll soon become dismayed because he will quickly find out that your money isn’t in those jurisdictions. One of my rules and you all I hope took my little course on rules, one of my rules is your money should not be in the same country where your trustee resides. This is basically the end of the trust.
You’re seeing it. You got the schedule where you have the trust fund. You put the assets there. What you’re putting into it in the second schedule the beneficiaries which you can change at any time. That is a simple plain vanilla, generic, non-kinetic asset protection plan asset protection trust. This thing is powerful enough to stop the largest creditors in their track and it’s all of 21 pages long.
Yeah, it’s a little crude. Yes, it’s a little simple but it does the trick and you know what, a human being can understand it. It’s written in English. So, this is a good one for you start with. Please read it tonight and get a good understanding. Next lesson is on common provisions and I look forward to that. In the meanwhile, do your homework, make sure you read the book and make sure you read this trust agreement before our next lesson.