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Applying The 1% Rule.

By Rob Lambert - Email Editor - Editor Bio

Date : 04-Jan-2007

Dear Subscriber:

What is the 1% Rule and does it have any application to Asset Protection?

First, before I answer this question and the many others sparked by the newsletter of my colleague John Dietz, I want to wish you a Happy New Year. I look forward to being of assistance in your quest for security and wealth protection.

Now, what is the 1% Rule?

The 1% Rule is an emerging rule of thumb that suggests that if you get 100 people on-line, ONE-person will respond to the direct solicitation and 10 will interact in some way, the other 89 will just view the site.

The last newsletter titled The Way We Operate Our Businesses and the Business of Our Lives, spurred more then 1% of you to ask questions about Asset Protection. I am not here to congratulate John; I am here to congratulate the subscribers who engaged in critical thinking with the top percentile.

How is this relevant?

When your fears have diminished due to the answered questions and the information becomes pertinent, you will move through the ranks, to the top 1%. Our goal at TrustMakers is to help move you to the 1% based on your beliefs using our researched information.

Questions Answered!

QUESTION: How will the courts judge the intention and purpose of a person who is implementing an Asset Protection Plan?

ANSWER: This is a “trick” question, but nonetheless answerable. The purpose for which a person moves their assets will likely be the determining factor of “intention.” Only the mind of the “accused” really knows the true intention, therefore the courts must look to interpret the elements surrounding the situation.

In the state of Washington, a man named Bryce Townley, United States vs. Townley, (Bankruptcy Court) moved his assets to a Trust. (The details about the type of Trust are irrelevant to this point.) When challenged in court, Mr. Townley declared that he had moved his assets to avoid creditors and keep the “good boys” of the state off his back in the event of a judgment. This blatant declaration was definite proof of intent and the intent was to escape creditors.

The judge ruled that the moving of the assets was to prevent future creditors from achieving their judgments. All states except Washington rule that a debtor is not held responsible for future potential creditors, BUT it would seem to me that Mr. Townley announced his intent or gave doubt about his good intentions. Mr. Townley should have implacably stated that he had no debtor-creditor relationship at the time of his transfer. If he did have a debtor-creditor relationship, then his transfer was under fraudulent conveyance, too late! Let this serve as a lesson and warning.

Be careful what you say and what you sign, and remember that every paper, every email, and first hand conversation are potential evidence. Paperwork is subject to the opinion of the interpreter and intention is often misjudged.

Remember this simple rule, “pigs do get eaten.” Asset Protection does not protect your assets from known or predictable creditors and you cannot use this premise as your intention. An arrogant person with a big mouth is a target for the court when judging on “intention” and “character.”

QUESTION: Will the courts treat the moving of personal assets separately from the moving of business assets?

ANSWER: The first question almost everyone asks when they think that they are going to be sued is, “Can I move my assets into a business?” This is another example of “too late” and a desperate attempt to avoid the obvious. The courts will see right through this weak attempt at protection.

With that said, in the eyes of the law, a business is subject to different responsibilities and relationships than a common citizen. A business bestows the right to conduct bona fide business. Merely sticking personal assets into a business structure without any business relationship and responsibility or purpose is not a good idea and may not afford any protection. Deception of others often involves self-deceit.

Others think that a business is a shell from litigation. In the past, this is debatable. In this litigious society, there is no protection from exposure. Protection of wealth is purely the protection that you willingly apply to your assets in the end. Some try to justify the lack of protection by using excuses like, “I will settle out of court,” or “I will go to arbitration.” If you think that your business is safer from litigation and provides greater options for settlement keep your eye on cases like this,

-on Arbitration (claimants circumventing Arbitration) PacificCare, Inc. v. Book (U.S. Supreme Court):

Arguing that an Eleventh Circuit decision that allows claimants to circumvent arbitration agreements that preclude punitive damages by filing federal RICO claims will weaken many existing arbitration agreements and limit the ability of businesses to freely negotiate further arbitration settlements.

TrustMakers has technology that protects your personal assets without having to hide them in a glass house. You must plan for your defeat in an attack. Contracts are only temporary agreements and they remain in force only until challenged.

QUESTION: In terms of liability, how will the courts look upon the liabilities of Executory Managing Members versus Non-Executory Managing Members in LLC’s (those who participate and contribute to the business vs. those who sit on the sidelines)?

ANSWER: In Movitz vs. Fiesta Investments, LLC, the Bankruptcy Court (opinion by Randolph J. Haines) concluded that a membership interest that does not include any management rights or responsibilities is a non-Executory role or simply property interest. The claim contended that substantial assets and cash flowed to non-Executory members and was therefore subject to the attack from the other members of the LLC. This means that you cannot give Grandma a small stake in the company and expect that if a suit arises, Grandma can protect the business and the assets that she received from the LLC. In this case, the court looked to the specific Operating Agreement of the company to see that the debtor had removed assets to Grandma (using Movitz as analogy only) and that Grandma had no performance role. The court ordered the dissolution and liquidation of the LLC to satisfy the creditors.

The lesson told by the court was, “Utilizing a legitimate business structure for the sole purpose of shielding assets from creditors’ borders on fraud on creditors.”

QUESTION: How will the courts look upon the old days when a person could neatly tuck away their personal assets into business shells to shield these assets from creditors?

ANSWER: As in the case above, these days are gone! As you have seen in the last questions and answers, the system is not a safety net for your assets. The system is only a vehicle. The protection of your assets must methodically and legally be planned and disclosed. The days are over when you can hide anything; if the government wants it, they will find it. If the assets are unprotected, creditors will take them.

QUESTION: How will the courts treat offshore planning?

ANSWER: Do not believe that the days of offshore trusts are gone. Do believe that they are under rigid disclosure, just like any other account that you have and that the techniques you decide to use in your Asset Plan, must meet disclosure laws and must move legally to their destination.

1% of you will respond to this newsletter by protecting your assets in a proactive way, congratulations!

Now I leave you with a question,

What does a poor person have that a rich person needs?

Answer: Asset Protection

Have a healthy and protected week.

Rob Lambert

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ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

Full Bio - Email Rob