What we can learn from the Panama Papers

What we can learn from the Panama Papers

The Panama Papers is a global investigation into the sprawling, secretive industry of offshore that the world’s rich and powerful use to hide assets and skirt rules by setting up front companies in far-flung jurisdictions.

The more we learn about world leaders and politicians hiding potentially ill-gotten gains is a big deal. These leaders are using power to funnel public money into their own offshore companies at the expense of their constituents.

But for those of us who honestly build our assets and want to preserve our wealth, it should be clear that it is not the use of offshore companies that is illegal. What is problematic is using those companies to hide assets.

That’s why Sollertis is such a big advocate of an asset-protection vehicle known as a Bridge Trust. A Bridge Trust combines the protections of an international trust with the simplicity and transparency of a domestic trust.

I invite you to learn more about this valuable tool here: http://sollertis.com/financial-freedom/

An Introduction to Financial Freedom Feasability

An Introduction to Financial Freedom Feasability

We live in a country that prides itself on hard work and financial success. The people who have achieved those goals are getting smaller in numbers. Those successful enough to make $2 million, $5 million, $10 million or more should be among the happiest and most financially free people on the planet. Yet too often they aren’t.

Why is that? Because in today’s economic, political and social environment, financially successful people have become targets.

While they have achieved the American dream, trying to maintain and surpass their goals is no longer a fulfilling value proposition. Instead of feeling financially free, the successful feel financially trapped because of the ongoing risk that one little slip up will result in the disappearance of all they have worked to achieve.

As a lawyer, I’ve witnessed this scenario time and again with many of my most successful clients. The regulatory environment, the litigation landscape, taxes, and wealth transfer limitations leave high-achieving people frustrated by all that it takes to protect their assets and stressed that the government, a class action or a car accident victim will take it all way. That shouldn’t be the case.

I started Sollertis® because I wanted to help my clients protect their assets and quarterback their day-to-day business dealings to create true financial freedom. Freedom to enjoy their wealth. Freedom to focus on their family. Freedom to work on the aspects of their business where they derive the most pleasure.

Unlike many lawyers, when I talk about asset protection, I’m speaking about it from a holistic vantage point – a Master Asset Protection Plan®. Master asset protection planning is not a static activity. Rather it is something that must be planned, built and executed in a consistent and ongoing way throughout your life.

By rethinking what asset protection really means, you have the opportunity to create what far fewer than the one percent have been able to achieve – True Financial Freedom.

My new publication, “The Sollertis Financial Freedom Feasibility Report,” provides an overview of how you can best protect yourself, your family and the assets you’ve worked so hard to protect. Download the full report for free here.

Putting each asset in the right place

file cabinet

At the level of individual assets, you need to make sure each one is in the right place. By considering the type of asset, its risk potential, and how it can affect your other assets, you can lay the foundation for a solid asset protection structure. Your goal should be to achieve the following:

  • Protect business assets from personal liability
  • Protect personal assets from business liability
  • Protect assets from each other

A good analogy is a refrigerator. There are many types of food inside, but they don’t all go in the same spot. Some have their own compartment. Others have to be separated into individual containers. This way, if an item goes bad, it won’t contaminate the other food. The same is true for asset protection. Each asset needs to be in the right compartment or container to not only minimize risk to that asset, but also to protect other assets from contamination.

Personal assets

Personal assets should be kept separate from business assets. If not structured properly, business liabilities can threaten your personal assets. For example, let’s say someone owns a small business in his name, like a restaurant, and he is sued by an ex-employee over an employment dispute. If he loses the case or has to settle, and business assets are not enough to satisfy the judgment, then his personal assets are at risk to make up the difference.

What he should have done is formed a business entity to own the restaurant. If done properly, the judgment creditor would be limited to entity-owned assets, keeping the restaurant owner’s personal assets safe.

Additionally, if an asset is not used for business purposes, then a business entity is not the right place to put it. Using a business entity for non-business purposes means a court may disregard the entity altogether and allow creditors to access the assets as if you owned them personally. For personal assets like your home or cash accounts, a living trust is often a better choice.

Business and investment assets

Just as your personal assets should be shielded from your business liabilities, so too should your business assets be protected from your personal liabilities.

Continuing with the example of the restaurant owner above, let’s say this time he incurs personal liability. He forgets to put his parking brake on, and his car rolls out of the driveway and hits and injures his neighbor. If the neighbor obtains a personal injury judgment, and the restaurant owner’s insurance does not cover the whole amount, she can go after the restaurant to satisfy the judgment. Likewise, if the restaurant owner also owns an apartment building, that investment property could be at risk as well. (Incidentally, this is why a good umbrella insurance policy is a wise asset protection investment.)

Once again, forming a business entity for both the restaurant and the rental property can provide protection from personal liability. Of course, in this case, 2 separate entities should be formed, one for the restaurant and one for the rental property. Not only does that insulate them from each other, but depending on the circumstances, you may need two different types of business entity.

Separating risky assets

Safe assets, like a bank account, do not carry inherent risk. Safe assets can often be held individually (or in a living trust) or by the same entity, as they do not pose a danger to each other.

Risky assets are those that, by their very nature, create the potential for liability. Some examples are planes, rental properties, or industrial equipment. A boat, for instance, is a risky asset because you could hurt someone or damage property with it, thereby creating liability.

Risky assets should be kept separate from safe assets, but they also need to be kept separate from each other. For instance, your rental property will most likely be owned by a limited liability company (LLC). If you purchase a second rental property, you will need to form a separate LLC for the new property. The LLC structure serves to contain the liability of each property, preventing contamination of other assets.

Accumulating wealth involves acquiring assets, but not all assets are the same. Some are for personal use while others are for business use. Some generate income while others just sit there. And some are riskier than others. Asset protection planning involves a careful consideration of your assets and making sure each one is put in the right place.

Sollertis can help with asset protection

The Sollertis Master Asset Protection Plan™ is the framework for protecting all of the individual assets that contribute to financial success.  Based on an analysis of your needs, each plan is a customized blueprint outlining the types and mix of legal structures needed to best meet your specific goals and objectives.

Once a MAPP™ is designed, you have a plan in place to protect your assets and to guide business, personal and investment decisions. Unlike traditional asset protection plans that take a “one-size-fits-all” approach, a MAPP™ adapts to changing circumstances. Whether implemented all at once or over time, you will create greater financial freedom knowing you’ve legally protected the wealth you have earned.

Contact us today to learn more about the Sollertis MAPP™ and our unique approach to managing all of your legal needs.

How effective is a domestic asset protection trust when used alone?

cardboard box

A domestic asset protection trust (DAPT) is a self-settled spendthrift trust (SSST) created in one of the U.S. states that allow for their creation. There is some question as to how effective they are as stand-alone asset protection tools, especially when a dispute crosses state lines. Though DAPT’s are relatively new, here are 3 recent cases that provide some insight.

Battley v. Mortensen (2011)

Facts: Suffering numerous financial difficulties, Thomas Mortensen racked up tens of thousands of dollars in credit card debt. In 2005, he established an Alaska DAPT and transferred a 1.25 acre property into the trust. In 2009, he became ill and was unable to work for a long period as a result. With thousands of dollars in medical bills, and credit card debt now up to $250,000, he filed for Chapter 7 bankruptcy.

Issue: At issue was whether the transfer of the property into the trust was a fraudulent conveyance (a transfer made with the “actual intent to hinder, delay, or defraud” a creditor).

Result: The transfer was found to be fraudulent. In determining this, the court considered Mortensen’s circumstances at the time the trust was created, as well as the express purpose of the trust (“to maximize the protection of the trust estate or estates from creditors’ claims of the Grantor or any beneficiary and to minimize all wealth transfer taxes”).

Importance: The bankruptcy court used federal law, rather than the more favorable (to Mortensen) Alaska law. This meant, among other things, that the Bankruptcy Code’s 10-year statute of limitations would apply, rather than Alaska’s much shorter 4-year period.

In re Huber (2013)

Facts: In 2008, Donald Huber, a real estate investor living in Washington State, was having business troubles as a result of the declining real estate market. He created an Alaska DAPT and subsequently transferred the majority of his assets into it. By 2011, with multiple creditors knocking at the door, he filed a Chapter 11 bankruptcy reorganization, which was then converted to a Chapter 7 bankruptcy.

Issue: The bankruptcy court had to decide whether to apply the law of Washington State or that of Alaska (where the trust was set up).

Result: The court determined the law of Washington State should apply. In addition to Huber’s limited contacts with Alaska, Washington State has a strong public policy against SSST’s. In fact, Washington State law specifically voids transfers to a SSST against existing or future creditors.

Importance: Even though the trust was set up in Alaska, under Alaska law, the court applied Washington State law, causing the DAPT protections to crumble. Deference was given to Alaska’s strong public policy against SSST’s.

Dahl v. Dahl (2015)

Facts: This decision arises out of a long and dramatic divorce case in Utah (called a “train wreck” by the district court). Dr. Charles Dahl filed for divorce from his wife, Kim Dahl, in 2006 after many years of marriage. In 2002, while still married and using marital property, Dr. Dahl set up a domestic asset protection trust (or what he thought was one) in Nevada, called The Dahl Family Irrevocable Trust.

Issue: Kim Dahl asked the court to grant her a share of the trust’s assets, claiming that it was actually a revocable trust. (Even though it was otherwise drafted as a DAPT, the following language was for some reason included in the trust: “Settlor reserves any power whatsoever to alter or amend any of the terms or provisions hereof.”)

Result: Ultimately, the Utah Supreme Court sided with her and declared the trust was not, in fact, a DAPT, but a revocable trust. The court reached this result by applying Utah law, despite a choice-of-law provision (choosing Nevada) in the trust. This was done so as to not “undermine a strong public policy of the state of Utah,” in this case, the equitable distribution of marital assets during divorce.

Importance: Once again, the choice of law issue did not work out in favor of the trust creator. This happened even though the trust itself dictated the use of Nevada law, and even though Utah is also a DAPT state. In fact, it was done for reasons unrelated to SSST’s altogether.

Conclusion

These cases are not without their critics. Some say the decisions are unique and would only apply to anomalous fact patterns (indeed, these cases highlight some good examples of bad asset protection planning). Others say the courts applied the wrong law, or just made bad decisions altogether. Nevertheless, what these cases illustrate is that DAPT’s, when used alone, are vulnerable to U.S. judicial scrutiny, especially when a non-DAPT state court gets involved.

However, this does not mean that domestic asset protection trusts should be discounted altogether. They still provide strong asset protection when used in conjunction with an international asset protection trust (as with the Bridge Trust™). Most importantly, these cases show that your asset protection plan needs to be crafted with precision. It is unique to you and your circumstances. Everything – where you live, where your assets are located, what your goals are – needs to be taken into account to give you the best protection possible.

Sollertis can help with asset protection

The Sollertis Master Asset Protection Plan™ is the framework for protecting all of the individual assets that contribute to financial success.  Based on an analysis of your needs, each plan is a customized blueprint outlining the types and mix of legal structures needed to best meet your specific goals and objectives.

Once a MAPP™ is designed, you have a plan in place to protect your assets and to guide business, personal and investment decisions. Unlike traditional asset protection plans that take a “one-size-fits-all” approach, a MAPP™ adapts to changing circumstances. Whether implemented all at once or over time, you will create greater financial freedom knowing you’ve legally protected the wealth you have earned.

Contact us today to learn more about the Sollertis MAPP™ and our unique approach to managing all of your legal needs.

Pieces of the puzzle: Revocable living trust

puzzle piece

In addition to safeguarding your wealth while you’re alive, you want to make sure it can be passed on to your loved ones after you’re gone. Many people accomplish this through the use of a revocable living trust as part of their estate plan. While a revocable living trust does not provide asset protection, it has other benefits and it still has a place within your overall asset protection plan (discussed below).

Like other trusts, a revocable living trust is an arrangement where you transfer property to a trustee to hold and manage for a beneficiary. It is “revocable” because it can be revoked prior to your death, and it is “living” because it takes effect while you are still alive. Typically, you are both the trustee and the beneficiary. This allows you to control and manage trust assets as you see fit.

If you die or become incapacitated, your successor trustee takes over the management of trust assets for you. Upon your death, it becomes an irrevocable trust (it cannot be changed). Your successor trustee would then distribute the remaining trust assets according to the terms of your trust.

Some of the benefits that come with a revocable living trust are the following:

  • Keeping your estate out of probate: Probate is the expensive and time consuming process where your affairs are wrapped up and your estate is administered through the probate court. Assets held in a living trust avoid probate altogether, sparing your loved ones a hassle during an already difficult time. Additionally, probate is part of the public record, so avoiding this process allows your family members to keep the administration of your estate private.
  • Flexible options for passing on your assets: If you die intestate or only have a will, you have far less control over how the assets are ultimately distributed. With a living trust, you can have your assets distributed over time, or even condition the distribution on meeting some milestone, such as getting married or graduating from college.
  • Preventing conservatorship: If you become incapacitated, you risk having a conservator appointed over your estate. This means someone else (maybe not the person you would choose) has control over your assets. However, if you have a living trust set up, your successor trustee can take over and manage your assets according to the terms of the trust.

A well drafted living trust is an important and flexible estate planning tool. It allows you to control your assets while you are alive, and gives you peace of mind that your loved ones will be able to enjoy the benefits when you’re gone.

Revocable living trusts and asset protection

As discussed above, a revocable living trust does not protect your assets. As trustee, you maintain control over the assets and can revoke or change the trust at any time. For this reason, the law treats the assets as owned by you and can therefore be reached by your creditors.

However, the living trust still has its place in an asset protection plan. For instance, if someone sets up a family limited partnership (i.e., the parents), they might have a living trust be the general partner. This way, if the parents die or become incapacitated, the successor trustee can easily take over management of the FLP with minimal disruption to the business.

Additionally, while a revocable living trust does not protect your assets, if drafted properly, it can help provide asset protection for your beneficiaries when it becomes irrevocable after your death.

An effective asset protection plan is a multilayered structure designed for your situation and goals, and flexible enough to adapt to changing life circumstances. Every tool should be considered, not only for its own strengths and weakness, but also for how it relates to other tools within the structure.

Sollertis can help with asset protection

The Sollertis Master Asset Protection Plan™ is the framework for protecting all of the individual assets that contribute to financial success.  Based on an analysis of your needs, each plan is a customized blueprint outlining the types and mix of legal structures needed to best meet your specific goals and objectives.

Once a MAPP™ is designed, you have a plan in place to protect your assets and to guide business, personal and investment decisions. Unlike traditional asset protection plans that take a “one-size-fits-all” approach, a MAPP™ adapts to changing circumstances. Whether implemented all at once or over time, you will create greater financial freedom knowing you’ve legally protected the wealth you have earned.

Contact us today to learn more about the Sollertis MAPP™ and our unique approach to managing all of your legal needs.