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Kinetic Asset Protection: Moving To Red Alert (Part One)

By Rob Lambert - Email Editor

Date: 18-Aug-2005

Last week's newsletter (which you can review by clicking here) dealt with the initial stages of implementing a plan: funding. I pointed out that plans should only be implemented when the financial seas are calm (thus avoiding a future fraudulent conveyance claim), and that Asset Protection Plans are not static. Plans change shape in response to the external threats faced by the creator of a plan.

I also pointed out that it was perfectly appropriate for the client to remain in control of the protected assets when the financial seas are calm. This flies in the face of a keystone of all conventional “Static” Asset Protection Plans, which is the belief that the settlor/creator of a plan should always abrogate ownership and control of protected assets to some foreign trust company. The earlier newsletter made it clear that this outdated approach is wrong and dangerous.

In this newsletter, I am going to deal with some of the issues which allow a settlor/creator of a plan to safely move to red alert status. I must say that I do agree with the proponents of Static Asset Protection who maintain that the settlor/creator of an Asset Protection Trust should not have control. They are right if they are focusing on the period during which the settlor/creator of the trust is under attack. At that time, and no other, the settlor/creator is only safe if he/she does not have any control. The only problem with Static Asset Protection Plans are that they abrogate control at an early stage when this is unnecessary and unwise.

A properly configured Kinetic Asset Protection Plan is drafted so that the machinery to remove the settlor/creator from control is in place when the financial seas are calm, and when there is no possibility that a legitimate fraudulent conveyance claim can me made. The machinery requires the protector to fire the U.S. Trustee, who is also normally the settlor/creator. Note that the settlor/creator does not resign. A properly configured plan has the settlor/creator doing nothing to move to red alert status. The only step which sometimes needs to be taken is that the settlor/creator needs to be careful to make sure that a solid protector is in place. This person should not be a resident of the U.S. and ideally will be a lawyer or trusted foreign fiduciary. This foreign protector should be in place well before any hint of creditor attack comes. Many clients start with a foreign person in place as the protector (by far the safest approach), and some decide to wait until they see storm clouds brewing to appoint a foreign protector. I always advise my clients that they should never wait till the last minute to appoint a foreign protector as this can expose them to a fraudulent conveyance claim.

Remember, a solid Kinetic Asset Protection Trust is a machine which removes assets from the reach of creditors without the involvement of the settlor/creator of the trust. Logic would lead to the conclusion that the settlor/creator would be exposed to the danger of theft in this situation. Well, this is not true. Next week's newsletter will deal with these issues and how we keep the settlor/creator out of harm's way and insulated from any theft risk. Remember, one of my key rules is to “never trust a foreign trust company” because you never need to. Next week will begin the process of explaining how this can be accomplished.

Have a healthy and protected week.

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