Barry Engel, David Lockwood and Mark Merric: 'The Asset Protection Trust Question Revisited'
Picking the Proper Path to Protection
By: Matt Blackman
The topic of asset protection trusts is not covered often in the financial Magazines. Part of the reason for this hiatus is the fact that the Anderson and Lawrence cases resulted in a plethora of articles and ad nauseum discussion on the merits or lack thereof in using an asset protection trust. By the end of it all, it is safe to say that many a reader is tired of the topic. The other reason is due to the fact that the onslaught of anti-money laundering legislation, creation of blacklists and resultant battles between high-tax and low tax jurisdictions have kept the offshore financial community quite busy. That being said, the topic of asset protection should still be as much front and center in the minds of all high-net worth individuals and companies with any dealings in or through the United States as it was 2 year ago, if not more so.
One only has to visit web sites such as the http://www.cala.com/ to realize that frivolous lawsuits are still very much alive and well in the U.S. One favorite is the case in which a law student, who was the subject of a class illustration on personal injury, decided to sue after her professor pulled a chair out from under her to demonstrate a point. She obviously took the lesson very much to heart and proceeded with a $5 million suit against the teacher and university for "severe pain, mental anguish and emotional distress." It appears that even law professors aren’t immune!
When a contestant on a show who failed to win the $1million prize takes the host television network to court as happened in the case of Survivor, it is all too clear that a serious problem exists. While it may seem funny to those not directly involved, the situation has continued to worsen in the last 24 months and there are scant signs that it will get better any time soon. No longer about righting a wrong, litigation has become a popular pastime in which the have-nots take what they can from the haves and the courts are eager participants in the perverted game of wealth re-distribution. Basically, the legal system has been transformed into a means for inflicting a random and devastating tax on unsuspecting victims with unprotected assets, whether they are visible or supposedly hidden.
Most disturbing of all, for each high profile story that we hear about in the news, there are literally thousands of others impacting the lives of those unfortunate enough to fall into the sights of lawsuit-happy plaintiffs and equally willing attorneys. It happens every day in courtrooms across America.
We all appreciate how endemic the problem has become; the question is what can you do about it? Waiting for the legal papers to arrive at your door is not the answer.
Before embarking down that road, there is a book you may want to read first. Somewhat euphemistically entitled 'Asset Protection Planning Guide – A State-of-the-Art Approach to Integrated Estate Planning', the 604-page treatise (plus index) is written by asset protection specialists Barry Engel, David Lockwood and Mark Merric. Among his many credentials, Mr. Engel was responsible for helping the Cook Islands draft their asset protection trust law, which has served as a model for other offshore jurisdictions to follow. But to say that the book is only about trusts is like saying that John Grisham’s books are just about lawyers – they are part of the story.
One quick read through the table of contents is enough to convince the majority of readers that the answer to any asset protection question they might possibly dream up as well as others never before considered will be found within. In fact it is rather heartwarming to realize than one can explore legal discussions representing hundreds, if not thousands of hours of exhaustive research on the topic by three experts for a fraction of the price of an hour’s advice from just one of them, or any other knowledgeable APT attorney for that matter.
The books gets off to a rousing start (as far as legal books go anyway) by giving the reader a crash course on the topic at hand in a chapter entitled “What is Integrated Estate Planning and Asset Protection Planning?” As if reading the minds of those still concerned about the Anderson and Lawrence case outcomes, the book asks the question, “Does Asset Protection Really Work?” It then sets out to address this concern.
Barry S. Engel, in a 1993 article, predicted that over the course of time, claimants would attack a certain number of offshore asset protection plans and that a certain percentage of these attacks would produce less than favorable results for the planning structures involved. These results would come about because of the way in which the asset protection plan was designed and implemented.
It continues by saying that while there is no guarantee that even the most painstakingly constructed asset protection structure will shield assets, having a plan is far more satisfactory than nothing at all. In the authors’ opinions, the ultimate goal of integrated estate planning (IEP) is realized if the client weathers a legal storm at least moderately better than he or she otherwise would have in the absence of any planning at all.
The premise is that by following the advice and techniques presented and by relying on the skills of a thoroughly knowledgeable practitioner, an ethical client can still depend on the foreign asset protection (or foreign integrated estate planning) trust to keep his or her nest egg intact. Implied in the discussion is the fact that there is no absolute protection against a ‘judge gone mad’ or an overly plaintiff-sympathetic jury, no matter what structure you might employ.
Next, cost thresholds are discussed.
Generally clients with a net worth of less than $1 million should use the simpler less, protective asset protection vehicles [while] most clients with a net worth greater than $1 million should use the more sophisticated forms of asset planning, such as a foreign integrated estate planning trust (IEPT).
Chapter One then provides the reader with an overview of what to expect and where to look for specific answers to any question. It includes Engel’s Ladder of Asset Protection Tools that serves the dual purpose of giving the reader a list of potential options as well as serving as a loose topical framework around which the book is constructed. They are, for the most part, presented in order of increasing cost and complexity:
Gifting
Joint Ownership
Exemption Planning
Swiss Annuities or Swiss Insurance Products
Insurance
Family Limited Partnerships
Domestic Trust
Hybrid Company
Stiftung or Civil Foundation
Foreign Integrated Estate Planning Trust (FIEPT)
Expatriation
Also noteworthy are Engel’s Ten Maxims that provide an excellent starting point for anyone considering asset planning. Some points may seem obvious; others aren’t unless you’re a lawyer.
Better To Look Ahead And Plan Than To Look Behind And Regret – After legal trouble has begun to brew, the best planning options are normally rendered null and void without extreme risk of falling into the fraudulent transfer trap.
Asset Protection Planning Should Be a Way of Life, Not a Reaction to a Problem – Set up a cost effective plan early that suits your lifestyle and stick with it.
Asset Protection Planning is a Vaccine, Not a Cure
Don’t Sweat the Last Three Percent – Protecting assets down to the last penny is too expensive. Shield the majority of your net worth but leave a little for the creditor’s lawyers to fight over.
Hope the Asset Protection Plan Will Prove to Be a Waste of Time and Money – Like installing a lifeboat on your sailboat, you’ll be very glad you made the effort if it’s ever needed but pray its not.
There is No Such Thing as the Perfect Offshore Financial Center – There are more than 60 OFCs each with its own strengths and weaknesses. Any one will not provide the complete answer for most people. In some cases your plan might encompass three or more jurisdictions.
There is No One “Right” Way to Design an Asset Protection Plan – No two plans will be identical and there is no one right plan for anyone. Choose the options and commensurate costs that best suit your situation and budget.
If You Can Reach Your Assets, So Can Your Creditors – This is a biggie and where many go wrong. If you absolutely must control your assets, your plan is fatally flawed from the outset.
Once You’ve Been Sued, You’re Lost (if your plan is not already well in place).
The Golden Rule – It’s no longer “He who has the gold, makes the rules.” Today you must replace the word ‘rules’ with ‘best target.’ The more gold you have, the greater the chance of having it taken from you if its not properly shielded. As many have found out the hard way, relying on hiding them away is a poor substitute to proper planning.
The Asset Protection Planning Guide is not a do-it yourself guide to asset protection. Paraphrasing another well-known aphorism, “he who sets up his own asset protection plan has a fool for a client.” However, due to the complexity of options available today and the penalties for ‘getting it wrong’ on your financial health, it is imperative that one fully understand the asset protection choices available the risks involved.
The book includes plenty of case examples to demonstrate the various plans and options in detail and thus lifts the book from pedantic legal text to one that is actually interesting to the layman with a vested interest in learning the message. However, it is a text that most will not read from cover to cover but rather use as a reference to find the answers to questions and perhaps bring up others that you never even considered but should when setting up your plan.
At the very least, the Asset Protection Planning Guide will help save you countless hours and perhaps thousands of dollars in face-to-face mind-numbing discussions with your very expensive asset protection specialist. It will also insure that once you have a plan in place that you understand, you can sleep more soundly at night knowing that you have done all you can to protect what you have worked so hard to build – a financial-health insurance program if you will.
One last note. Those who followed both the Anderson and Lawrence trust cases and who were disturbed by their apparent ‘structural failure’ will be interested to note that the assets to be handed over to the courts in both cases are still safely ensconced in their respective trusts offshore from what we understand. As we have heard no news to the contrary, the obvious question comes to mind. Even with all their problems, did these supposedly flawed foreign asset protection trusts really fail after all?
The Asset Protection Planning Guide book sells for $99.00 and is published and available through CCH and can be ordered online (follow this link). You can also call them at: + 1 800 248 3248.
For info contact: Matt Blackman (info@goldhaven.com)
or visit: http://www.goldhaven.com
