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Kinetic Asset Protection: Moving To Red Alert - Part Three

By Rob Lambert - Email Editor

Date: 01-Sep-2005

In last week's newletter, I addressed the tax impact of going to Red Alert Status.

As I explained, during the period when the financial seas are calm, the settlor/creator of the Kinetic Asset Protection Trust will normally remain in charge of the protected assets by virtue of holding the position of U.S. Trustee. When trouble arises, it is common for the protector to fire the U.S. Trustee.

When the protector fires the U.S. Trustee, this does one good thing: It removes the U.S. Trustee from any position of power and control over the Trust assets. As I explained last week, this act of moving to Red Alert should be done well in advance of any serious threat. In addition, I pointed out that it was even more important that the Kinetic Asset Protection Trust be funded when the financial seas are calm, well in advance of any serious claim from any creditor.

One of my cardinal rules is: NEVER EVER TRUST ANYONE WITH YOUR HARD EARNED MONEY—ESPECIALLY A FOREIGN TRUST COMPANY. With that said, how then is the U.S. Trustee removed from power without breaking this rule? Well, my simple rule has a gotcha. It really should be: NEVER TRUST ANYONE WITH YOUR HARD EARNED MONEY—UNLESS YOU HAVE NO OTHER ALTERNATIVE.

When the financial seas are calm, the settlor/creator of the Trust has no reason or necessity of trusting anyone with his or her protected assets. Once removed from the position of being the U.S. Trustee, which is also the position of power, this changes. Sometimes, it is necessary that the U.S. Trustee give up power.

When the U.S. Trustee relinquishes power, it does not mean that all checks and balances need to be removed. Nothing could be farther from the truth. It is very typical that the individual who used to be the U.S. Trustee will remain on bank accounts with an additional person or persons added as a co-signatory. For example, if the trust has a foreign lawyer as the protector, and that person is added to foreign bank accounts, the protected funds are still not liable to theft. Why? Because the signature of the former U.S. Trustee is required to move the money.

Sometimes the original bank accounts are replaced by new bank accounts set up after moving to Red Alert status. Typically, these accounts are set up by the Foreign Trust Company in conjunction with the protector. Typically, these accounts require both the signature of the Foreign Trust Company and the protector. Often, there will be co-protectors who can be lawyers from different jurisdictions, and the signature card will require signatures from each protector and the Foreign Trust Company to move money. When the settlor/creator is forced out of power and forced into the terrible position of having to trust someone, I at least can give them some cold comfort that it takes at least two and often three solid professionals to conspire together to abandon their ethics before the protected assets are exposed to theft. I don't like this, of course; however, it is better than simply seeing a creditor grab the funds. Fortunately, this is temporary. Once the Red Alert is over, it is typical for the Foreign Trust Company to put the settlor/creator back into the position of being the U.S. Trustee.

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