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A Bridge Too Far

By John Dietz - Email Editor

Date : June 23, 2009

Dear Valued Reader,

There isn’t a day that goes by without someone calling me about a strategy whereby the client asks us to move all their assets into an entity without an owner. Sure, that’s a cumbersome sentence, but it’s an even more cumbersome thought: “move all your hard earned assets into an entity without an owner.”

Sure, the Beneficial Owner of any Asset Protection structure can be obscured purposely to gain maximum security and privacy. The concept is fairly straight forward. Take any asset you own and re-title it in the name of a trust or company, and via privacy you are essentially shielding it from future creditors. Even though you have a new title, you still maintain a degree, directly or indirectly, as the beneficial owner.

Ask yourself this question: Do I have money in stocks, bonds, mutual funds, hedge funds or whatever, in my family name?

If you were served papers for a lawsuit tomorrow, and heaven forbid, lose that lawsuit, it is as simple as entering your name in a database to get a list of all of your assets.

The challenge to a solid Asset Protection Plan is deciding the proper timing and titling of assets. Changing title to an asset can be confusing; the right choices depend on the facts and circumstances of your situation. To further add to the confusion, changing title does not necessarily mean you are asset protected.

Beneficial Owner And Beyond

In some parts of the world, there are still jurisdictions that offer bearer shares for companies and structures. As most readers of this newsletter already know, bearer shares are just like the money in your wallet. Whoever has possession of that money is the owner and therefore the benefactor of the notes they are holding. Most places, and I dare say Nevada, have outlawed bearer shares for a multitude of reasons. I am sure you can think of a few.

Legally obscuring beneficial ownership can be prudent Asset Protection Planning and should be looked at the same way you would view trade secrets, proprietary formulas, secret sauces and the formula for Coke. You can gain a competitive advantage from using these types of Asset Protection Strategies. In this vein, beneficial ownership is a very important topic and needs thoughful consideration.

"Clients call daily asking for privacy and security in their financial affairs. The question becomes how much is too much? Is there such a thing as too much protection?"

Undoubtedly there is balance between lunatic fringe planning and real world planning. Going offshore, for example, fits certain clients but not others. Insurance can be part of a solution and so can a trust. There is balance that must be attained between planning and realistic client goals.

Take your garden-variety foundation. The structure I am referring to is the private interest foundation. You may know it as the highly marketed Panamanian Foundation. This structure can be set up in any number of ways, a host of options, and, in theory, can be set up to completely remove the beneficial owner. Nevertheless, theory must meet reality. Is there reality to a structure that has no beneficial owner? Why was it established in the first place? Is there any economic reality to such an entity?

Creating stealth by building fortified walls around your assets is a must in our litigious society. However, to what degree and to what end? The question again is, how far do you go? Without disrespecting one entity for another, and giving the fact that they all have their place; let’s focus on removing the beneficial owner.

Ask yourself these questions.

- If I set up a structure that clearly makes someone else the beneficial owner will my assets remain mine?

- Will I trust someone or some firm with my hard-earned money?

- If I gave up ownership of my assets to a structure in which I have no interest in; have I created a gift that gives rise to a gift tax?

Asset Protection Planning can get so opaque as to the ultimate goal, you may even start to think that since you may not be the beneficial owner anymore, you probably do not owe any tax. Maybe you invoke the 16th Amendment. Yikes, and double Yikes--need I say more! (The 16th Amendment allows Congress to levy an income tax without apportioning it among the states or basing it on census basis). We have many real horror stories of clients in this scenario. To quote Lieutenant General Frederick Browning speaking to Field Marshal Montgomery (World War II battle of Arnhem), “But Sir, I think we might be going a bridge too far.”

If Service Providers were to be honest they would share stories of how clients lost money long before Bernie Madoff showed up on the scene. The past is riddled with schemes and scams, from tax protestors to dishonest people stealing money straight out of the till.

A carefully crafted Asset Protection Plan encompasses privacy, tax considerations, inheritance planning, government agency considerations, and most importantly never puts your money in harm’s way.

Any plan that goes beyond these parameters starts looking like “a bridge too far” and an exercise in gluttony.

Until next time,

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