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He Brought a Knife to a Gunfight.

By Tim Berry, JD - Email Editor

Date : October 22, 2009

So I was perusing some cases this morning . . . yes I know I lead an exciting life.

The individual said they had run into a “problem “in the transfer of the title.

The problem appears to be that the property is owned by a trust, and the individual resigned as the trustee of the trust and thus is claiming they do not have the power to make any conveyance of the property.

There is only one slight problem. The trust was revocable.

To use internet lingo, I’m ROFL. Seriously, I was grabbing my belly, rolling on the floor laughing when I read that. A purveyor of asset protection strategies believed their home was protected via the use of a revocable trust.

But wait, there’s more: The property had a lien for close to two million dollars on it. Upon further examination, the lien holder was a limited partnership. Now get this, while the individual and his wife were listed as the limited partners of the limited partnership, during depositions, the “Defendant and his wife generally profess little, if any, knowledge of [the partnership] and its alleged business activities.” The court goes on to say, “More importantly, there is little evidence (documentary or testimonial) of any consideration for the monies “loaned” to the trust by [the partnership] thereby creating this “lien.” Again, a suspect transaction involving the, property perpetrated by the defendant. “

Does it get any better than this? Their idea of protecting their home appears to be to transfer it into a revocable trust, and then slap a “friendly” lien on the property, and disclaim any knowledge about the lien holder. By the way, if someone approaches you about this friendly lien nonsense, run. Just this week the IRS hit someone with an injunction for marketing the friendly lien strategy.

So what is the end result? It appears the guy is going to be hit with some hefty fines and maybe even thrown into jail. Not only that, but more than likely the court is going to disregard the lien. If the individual and his wife can’t prove actual dollars were given in exchange for the lien, the lien is probably going to disappear. Keep in mind this planning came from a guy who sold a training program for asset protection.

What is the moral of the story?

Asset protection isn’t a do it yourself project.

On September 29th there was a court case in which a CPA tried to get an exemption from penalties on a tax transaction because he had “Googled” the subject and read up about it via internet postings.

That’s another tummy hugger.

If you want asset protection, you are not going to find the solutions on an internet site. Sure you might find some basic concepts and ideas, but that is all they are, basic, and many times just implementing those you are going to screw up.

Let’s use the creation of a trust as an example. Almost everyone has heard of making sure you have spendthrift language in your trust documents. However, in many cases that language by itself isn’t going to do much.

California has a law saying that 25 percent of a spendthrift trust is available to creditors. The feds just ignore spendthrift trusts, and they aren’t even a speed bump to our friends at the IRS. Yet the opening line for many phone consultations is someone expressing the desire to establish a spendthrift trust.

LLCs, where do I begin? LLCs are more popular today than “The Lindy” was in the 30s, and yet LLCs aren’t going to provide the asset protection expected. I always get a chuckle when I review the bankruptcy trustee sales and see LLCs for sale. Weren’t they supposed to be judgment proof? If you want to get rich quick, purchase these LLCs taken over by the bankruptcy trustees, then bring a lawsuit against the previous owners asking for all the money that was transferred out of LLC. Wait till you get hit with one of those lawsuits, you’ll definitely be scratching your head trying to figure that one out.

A recent article in the Wall Street Journal talked about the complexity of the laws and how easy it is to commit 3 felonies a day. Seriously. Let’s downgrade the acts from felonies to torts. If you own investment real estate, a business, or if you are the manager or a decision maker for a business there is no doubt you are generating multiple causes of action on a monthly basis. There is no doubt. What is in doubt is if you have an effective asset protection plan to protect your family’s assets.

Feel free to email us at info@trustmakers.com or call to discuss your options.

If you would like to discuss the use of trust for you, your family, or even as a marketing tool for your business, give us a call we would love to talk with you about it. Please contact us at info@trustmakers.com

By Tim Berry, JD
TrustMakers.com

 

 

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