For many of you reading this, you may already have an offshore bank account and possibly an offshore company in a place like Seychelles, Belize, Nevis, Cook Islands or Hong Kong.

However, there are clearly a large number of you still sitting on the fence and unsure of why you would ever want an offshore bank account.  There is also quite a few of you who aren’t even sure if it’s legal for Americans to set up an offshore company or offshore bank account.

To respond to the second question first, the answer is simply – yes.  There is a lot of fear propagated from big brother and the media intent on scaring you out of moving money offshore.

This is primarily for two reasons;

1. This is protectionism at its finest and big brother wants to control your money and forcibly take 30-50% of your income through taxation.  If your cash is held offshore, they fear you won’t pay and they won’t be able to collect.
2. With the fractional reserve banking system, for every $1 you take out of a US bank, that removes $10 from the money supply in the US economy.  No politician or central banker wants that.

To answer the first question, I will illustrate with two stories.  Both stories are factual with only the names and some details changed for privacy reasons.

Mike called me a few weeks ago to discuss his financial problems.  You see Mike is facing a $1.2M IRS tax lien.  This may or may not sound like a lot to many of you, but for him, this is a very big deal.

The trouble started over 10 years ago.  Mike was a good ole country boy.  He owned a small house on a couple of acres, a 50 acre farm left to him by his parents, and for income he owned and managed a small used car lot.  His wife worked as a school teacher and their combined income at the time was around $75,000 per year.

Mike and his wife were frugal people and never spent more than they earned, were debt free, yet lived a good comfortable life.

The problem arose from the operation of his used car lot.  Mike’s business was a typical used car lot selling clean, well maintained Japanese cars that were between 3-7 years old.  It was a good niche because the new car dealerships would take them on trade, but wouldn’t sell them on their own lots.  So they went to auction where Mike would pick them up at wholesale prices.

As with most ‘buy-here-pay-here’ used car lots, Mike offered his own financing to his ‘less than credit worthy’ buyers.  If properly managed this can be a pretty lucrative business as they charge exorbitant interest rates, require 30% down payments, and the buyer pays weekly.

If the buyer misses a payment, you shut the car down with a hidden electronic shut off switch and repo in the middle of the night only to resell the car again next week.

In this business it is typical for people like Mike to run into cash flow problems.  If tight on cash, they are unable to restock their lots, so they go to lenders who specialize in buying the book of notes from used car dealers.

This is where Mike’s troubles began.  The ‘businessman’, who agreed to buy Mike’s notes, also took it upon himself to start a new company using Mike’s personal information – social security number, date of birth, etc.

This scoundrel, Lester, was gracious enough to offer Mike a good deal buying these notes at a discount allowing Mike to increase cash flow for buying more cars.

Of course Lester also used this same company he created using Mike’s personal information to buy notes from many other used car lot owners.  After a couple of years, Lester was earning a very nice profit, but as you may imagine he was not reporting any of this to the IRS.

After a couple of years, Mike received a letter from the IRS saying he owed $500,000 in back taxes from his note buying business.  Good ole country boy Mike hadn’t earned enough to owe that kind of money in taxes over the past 10 years combined.

Knowing he was innocent and convinced this would be easy enough to prove to the court, Mike showed up defending himself against the IRS.  Long story short, Mike lost his temper in court and was sent to jail for 6 months for contempt.

During this time, Mike’s bank accounts were seized by the IRS and tax liens were placed on both his house and his farm.  The bank account seizure and property liens were completed before Mike was even found guilty and convicted of tax fraud.

At the direction of Mike’s lawyer, he plead guilty and was released from jail for time served and was required to submit himself to psychiatric evaluation which resulted in a permanent criminal record with an insanity plea.

This record along with the insanity plea prevents Mike from ever getting a US passport and makes it very difficult to find reasonable employment.  Ten years later, Mike is still fighting this battle.

My second story involves a friend of mine, Steve.  Like Mike, Steve was just a normal guy living a normal life.  He was married with 3 kids, nice house, nice cars, and good job in the IT sector with a good low 6 figure income.

Steve was also a frugal guy and had saved up a pretty decent nest egg.  Everything seemed to be going well for him.

Unfortunately Steve did not realize that his wife, Matilda, was not nearly as happy as he was with their normal suburban life.  Matilda was a nurse and happy with her career, but very unhappy with life at home.

We don’t really know what happened, but either she was bored with Steve or was just swooned by Sylvester, but either way she was receiving the majority of her affections from outside the boundaries of her white picket fence.

Sylvester was a sly cat.  He convinced Matilda that she deserved a better life and he was the one to provide that for her.  Together they devised a scheme to boost their own nest egg by depriving Steve of his lifetime of hard work.

Once the timing was right, Matilda registered a complaint with the police department against Steve for spousal abuse (completely false charges) and shortly thereafter filed for divorce under those grounds.  Matilda was a great actress and the police took the bait – hook, line and sinker.

Steve was arrested and hauled off to county jail.  He was held without bond because Matilda convinced the court that if released he would unleash his violent urges in retaliation against her and the children.

During Steve’s ‘vacation’, Matilda maxed out each and every credit card they held jointly.  Most of them were just cards tied to Steve’s credit, with Matilda as a secondary card holder.  She also wiped out their joint bank accounts and in the divorce settlement, Matilda was awarded the house, the cars, and an alimony payment that was 75% of Steve’s previous income.

I say previous income, because as you can imagine once Steve was in county lock up, his old job fired him.  After all, who wants a wife-beating criminal on the payroll?

In just a matter of a few months, Steve went from a happy husband and father with a sizable savings account, great job and nice house to an unemployed, penniless criminal that cannot see his own children and more debt than he can ever possibly pay off.

I am certain many of you are saying to yourself, “Nice stories, but that kind of thing would never happen to me.”  I can tell you that Mike and Steve said the same thing right up until the time it was too late.

Back to the original questions, “Why would you ever want or need an offshore bank account?”  For Mike and Steve, an offshore bank account held in a private offshore company name would have been an excellent insurance policy against the problems that eventually befell them.

Mike could have set up an offshore Seychelles IBC and opened an offshore bank account in the company name to use for his savings account.

This offshore savings account could have been the nest egg he kept outside of the reach of the US court system allowing him a financial backdoor in the unlikely event that he is ever a victim of identity theft.

Steve could have done the same thing setting up a Cook Islands LLC and offshore bank account for his savings and investment portfolio.

This offshore bank and brokerage account could have been Steve’s “Global Escape Hatch” in the unlikely event that his wife went off the deep end with Sylvester the cat.

These are but just two stories I could give out of countless tales from people who thought, “This would never happen to me,” until it did in fact happen to them and they wished they had already set up an offshore company and offshore bank account as a means of financial insurance.

I wrote a recent article titled, “Svetlana Takes Victor to the Cleaners” that discusses a unique opportunity to set up an offshore Seychelles IBC and European bank account.  This is a very low cost way to begin setting up your own asset protection plan.

Call today for your free 30 minute asset protection consultation.  Until next week, live well.

This week I felt it would be important to address the topic, “What is Asset Protection?”  While you clearly have some idea what is involved in asset protection planning, I frequently get this question or some derivation thereof.

The quick and simple answer is that asset protection is a means of protecting your assets from future potential creditors or claimants.  From this perspective, a better definition may be that asset protection is a systemic approach to pre-litigation planning to deter lawsuits and encourage out-of-court settlements.

Another explanation may be that asset protection planning involves minimizing your personal and financial risks.  At Global Wealth Protection, we accomplish this with a 2 step process;

1. Create a veil of privacy for you and your assets
2. Create legal structures to segregate you from your assets while maintaining maximum control

By doing these 2 steps, we have accomplished the goal of making you appear unattractive to potential future creditors and claimants as well as provided you with the legal protections for those assets in the event that your veil of privacy is pierced.

Of course many people believe that they are not a target for litigation.  I have talked to enough people (read about  Susan and Frank – “Oh Good, the Government is Here to Help”), to know that lawsuits can come from nearly any source; tenants, credit card companies, friends, family, neighbors, contractors, coworkers, employers, employees, customers, and the list goes on and on.

There are many tools that can be used in asset protection planning.  One of the most basic tools is a Wyoming Limited Liability company (LLC).  A properly structured Wyoming LLC can offer you privacy (ownership is not disclosed to the state) and legal protections (Wyoming does not allow foreclosure of business assets) for your real estate, investment portfolios, private business interests, intellectual property, or nearly any other category of valuable asset.

Land trusts when combined with one or more Wyoming LLC’s can also be a very cost effective structure for protecting your real estate assets.  I work with many real estate investors who like this method as it offers them complete anonymity as well as legal asset protection from potential creditors.

I wrote a newsletter a couple of weeks ago titled, “Protect Your Assets Like the Uber-Rich” that addressed the specific topic of real estate asset protection.  After writing this article I had a couple of calls from friends of mine who are real estate investment professionals.  One has been in the business for over 10 years and another for over 30 years and both of them said this was the only method they use for protecting their real estate assets.

I am a firm believer in diversification of your assets among various investment categories as well as geographical diversification, or what I call ‘geo-arbitrage’.  This is effectively a ‘don’t put your eggs in one basket’ strategy from a global viewpoint.  I highly encourage clients to implement an offshore strategy as part of their asset protection planning.

At a minimum, clients should have an offshore bank account with some funds set aside for a rainy day.  You can grow your offshore presence with precious metals storage, brokerage accounts, or even managed accounts for the wealthier individuals.  The offshore world is the ideal scenario for web-based entrepreneurs.

For our online entrepreneur clients, we typically help them establish a Seychelles or Belize offshore company, offshore bank account, and offshore merchant account.  This gives online entrepreneurs an excellent opportunity to diversify geographically as well as lower his cost of doing business.

For those of you not up to date on US news, the FATCA requirements that are part of the HIRE act will make it much more difficult to set up and maintain offshore bank accounts and investments after 2013.  You have a very short window of opportunity to escape the draconian reporting and withholding requirements and establish your own offshore asset protection plan.

For those of you interested in developing your own private offshore asset protection plan, I can work with you one-on-one to formulate a strategy that works for your specific situation.

I will summarize by saying the 2 biggest mistakes people make are; 1- assuming they aren’t wealthy enough to need asset protection planning, and 2- waiting until it’s too late.

If you have a level of wealth that you cannot afford to lose, you need to minimize your risk.  And you need to do it before you have already been sued.  It will be much easier and cheaper to do it before it becomes necessary.

Call today to schedule your free 30 minute asset protection consultation.  Until next week, live well.

Regardless, I have several things to discuss with you so here goes.

The past week has been one of the busiest weeks of my life. We launched our new asset protection product, the Wealth Fortress Trust©, and haven’t even had time to put it up on the website. To be honest, I’m not sure I even want to list it on the site, due to privacy concerns.

It’s a very interesting hybrid product that I have never seen anywhere else. Due to the weaknesses of various other entities like FLP’s, LLC’s, corporations and trusts, we created this structure that combines the best attributes of all of the above without the weaknesses.

I have been completely overwhelmed by the number of emails and calls received since discussing this last week. If you have sent me an email or left a message, I will get back to you. Please be patient.

To answer some questions and summarize the highlights of the Wealth Fortress Trust©, here are a few of the details;
• It is a US based structure
• Offers complete anonymity
• Your name is not registered in any public record
• You retain complete control of the underlying asset
• Provides bulletproof asset protection from potential future creditors
• Low cost structure with minimal annual maintenance requirements
This product is perfect for;
• Investment real estate
• Segregation of your operating business from the real estate (if you own your building)
• Investment or trading accounts
• Large cash, or cash equivalent accounts
• Owing shares or membership interest of privately held companies
• Private investment partnerships
• High value business assets like equipment and machinery
If this appeals to you, please forward me an email with your name, number and your availability and we can schedule a call to discuss your asset protection needs.

In addition to this, I have been working diligently on producing the July issue of our EscapeWealth Ezine. We have partnered with EscapeArtist as the premiere portal for asset protection and financial information for expats or would-be expats.

We are very excited about this development and our new media partners involved. EscapeArtist has been around since the mid-90s and the site attracts over 15 million unique visits per year. We also have a subscriber database of 400,000 readers who receive our monthly Ezine.

If any of you work in the asset protection or financial arena and would like to tap into this very specific niche, please drop me an email and we can schedule a call to discuss options.

As a side note here, please do not contact me if you are only interested in blasting sales copy out to our 400,000 subscribers. I will only accept partners who are willing to provide real value to our readers. None of us need any more spam in our email box.

In the news today (July 13), Bernanke announced he may launch a new round of stimulus. Is anyone really surprised by this? I know I am not. It is only a matter of time.

The supply of dollars has more than doubled over the past 3 years and yet unemployment is still climbing. Interest rates are at all time lows, yet new and existing home sales are in the gutter. None of these attempts to control a market economy will ever work in the long run.

It seems the only ones benefiting from this stimulus measures are big business, aka friends of government. I would advise you to tread lightly with your investments and keep in mind who it is that’s pulling the puppet strings when you are allocating funds.

The US policymakers are still playing by the Keynesian rulebook of economics. Ironically Keynes was a big supporter of communist ideals like central planning. Keynes even praised Lenin for his 5 year plan.

Communism has proven over and over again that it just doesn’t work. Yet our policymakers still continue to play by his rulebook. As Einstein noted, “the definition of insanity is doing the same thing over and over again expecting different results”.

Who are the insane ones now? The politicians or the ones that keep voting them in office…

On a lighter note, I have been reading an amazing book I would encourage each of you to check out. It is Beyond Wealth: The Road Map to a Rich Life by Alexander Green.

I don’t recommend books often, but this one certainly deserves a look. Alexander is the investment director of The Oxford Club. He has been writing investment research for many years and has a tremendous track record.

More importantly, he has found balance in his life and understands what is truly important. The book is a compilation of essays he has written over the years and pulls wisdom from great minds throughout history.

I’ve even had my 11 year old son read this book (of course he has also read The Fountainhead and Atlas Shrugged by Ayn Rand). If you are a reader (and everyone should be), give it a look.

This subject is near and dear to my heart because this was the catalyst that got me into this business. As a lifelong entrepreneur, I have started, bought and sold several businesses over the years in several niches.

In my opinion, two of the most dangerous industries from a litigation perspective are real estate and restaurants. I have done both. Actually, I have done both simultaneously which is what prompted my interest in asset protection planning.

About 10 or so years ago I owned 2 separate, but related businesses. One company was a service company that provided home installation of products like fitness equipment, indoor game equipment, and outdoor play equipment. The company had service providers in about 18,000 zip codes (there are about 27,000 zip codes in the US).

The other company owned and rented real estate. Like many other small business owners, this started because I wanted to own the property where my other business was housed, so I bought the building. Then I bought another. And another. And so on.

Like every other self respecting 20 something business mogul, I also wanted to realize the ultimate dream of owning a bar.

So I bought one. It was actually a bar and grill across the street from a college campus so we did serve food, but ultimately, it was a bar.

As many of you may already be aware, running a restaurant is hard. And very time consuming. I had a partner, but he also had another business so the both of us were not able to devote the time it takes to be successful at this venture.

We did ok, made a few bucks and sold it a year later for 50% more than what we paid. In the process of selling, I began to think about shielding my other assets from any potential litigation that may arise from the risky endeavor of owning a bar.

During this time, I learned a lot about asset protection planning. While this stuff is intuitive to me now, at the time it was a revelation to learn what you can do to create a veil of privacy around your assets while keeping them legally disconnected from the rest of your business interests.
• I learned that you never, ever want to own any significant asset in your own name.
• I learned that you always want to segregate valuable assets into separate entities to limit the liability to that one asset.
• I learned how to legally eliminate equity in my real estate holdings to make them appear unattractive to creditors while still retaining that equity position through other entities.
• I learned how to limit my liability for each asset to a nominal value thus keeping my other assets safe from any predatory creditor.
• I learned how to make my assets invisible to prying eyes.
It’s a good thing I took the time to learn this stuff and implement my own asset protection plan too.

One year after we sold the restaurant, we were served papers by the local sheriff. We were being sued by the landlord of the property for failure to pay rent.

It seems that the landlord kept us on the personal guarantee for the commercial lease for the remaining 4 years and the party that bought our business defaulted on their lease just a few months after taking over.

We were being sued for about 3.5 years of monthly lease payments plus interest and penalties.

We were also being sued by the girls that bought the restaurant for misrepresentation of the business. They claim we lied about the revenue and the potential for the business.

Of course this was complete bullshit, but it didn’t stop them from finding a parasitic lawyer willing to take their case. They were suing us for the purchase price of the business, all of their monthly rents and expenses during their ownership, their loss of income based on what they thought they were worth professionally, and legal fees, plus interest.

Ultimately, we were being sued because we were perceived to be wealthy. Plain and simple. The landlord saw that we were the deeper pockets and the parasitic lawyers thought they had a payday.

Luckily for me, the asset protection plan I had developed worked like magic.

In the due diligence phase, the landlord’s attorneys could not find any assets that we legally owned so they offered a settlement. The settlement was negotiated down to about 10% of the original amount.

The lawyer for the girls who bought our business couldn’t find any assets either so he went back to his client and told them that he was not willing to take the case on contingency (commission) as originally offered and would need a large retainer (I don’t know the amount) to take the case. Since the girls had no money, they were forced to drop the case.

Restaurants are risky business. Potential creditors can come in many forms;
• Landlord
• Anyone who is on the premises either inside the building or in the parking lot
• Anyone who drinks alcohol at your establishment can have a claim based on your decision to potentially over serve
• Injuries from fights at the bar
• ABC board (agency that regulates alcohol purchases in some states)
• And the list goes on and on
These are just ‘inside creditors’, or potential liabilities that arise from the activity of your business.

There are also ‘outside creditors’, or potential liabilities making claims to the profits of your business from your personal activities. Most people think that by placing their restaurant inside a corporation, they are completely shielded.

This is incorrect. The shares of your company are an easy target for outside creditors just as like your shares of public companies like Walmart or GE. With your company shares at risk, a creditor can end up as your business partner or even owning your company outright giving him or her the right to liquidate the business to satisfy their claim.

There are many options when creating an asset protection plan for your restaurant business. There is no one size fits all approach.

In the past year we have seen silver go from $16/oz to $36/oz. We have seen gold go from $1084/oz up to $1431/oz.

The S&P 500 is up about 30% off of its lows of last summer and trading at around 24x earnings. Corporate America balance sheets are still holding record amounts of cash.

The Fed is about halfway through with the $900B QE2, and most likely will follow that up with QE3, 4, 5….16.

Ironically, Bill Gross, co-CIO of Pimco, was in the news today discussing how he has dumped ALL of his US government debt holdings in the PIMCO Total Return Fund.

Let’s recap:

• Gold at all time highs
• Silver at all time highs
• Stocks expensive
• Soon to have runaway inflation
• The biggest bond investor in the world no longer wants US debt

In addition to the difficulty in finding a decent place to store cash, we are seeing a surge in litigation putting your hard earned wealth at risk.

Today I will share with you the basics of structuring a portfolio that allows for growth while nearly eliminating your downside risk. I will also give you a basic asset protection plan on how to shield your investment assets from the many parasites that want to feed off of your productivity.

Step 1 – Diversification and asset allocation.

Many people know this, but very few actually put this into practice. I am going to specifically talk about individual stocks because for me, this is much easier and safer to manage than a basket of mutual
funds. In essence, you are creating your own mutual fund.

Hold 20-25 stocks (I won’t go into stock selection because this is beyond the scope of this article) and never allow any one holding to constitute more than 5% of your investment capital.

Spread your stock holdings out into several different industries. Don’t just buy 10 retailers and 10 tech companies.

Keep 10-20% (sometimes more, depending on market conditions) of your investment capital in cash or cash equivalent. This allows you to take advantage of opportunities when they arise. As the saying goes, “keep your powder dry.”

Step 2 – Stops.

Keep trailing stop loss orders on all of your equity positions. For those of you that don’t know, a trailing stop is a stop loss order that ‘trails’ up as your stock price increases.

For example, if you buy XYZ at $20/share with a 25% trailing stop, then your initial stop loss order is set at $15. If XYZ moves up to $30/share, then your stop loss order moves up to $22.50. This allows you to limit your downside risk while allowing your stock to run up continuously.

I usually start all equity positions with a 25% trailing stop. If my account value is $100,000 and I have followed my asset allocation rules, then my maximum investment in any one stock is $5000. With a 25% trailing stop, I would sell this stock if it fell to $3750, realizing a $1250 loss. This limits my portfolio loss to 1.25% per position.

As my equity positions run up in price, I usually lower my trailing stops to 10-15% depending on the volatility of the stock. This allows me to lock in profits while still giving the stock room to run.

When I use trailing stops, I am allowing the winners to run and cutting the losers early. By combining my asset allocation rule with my trailing stop rule, I have severely limited my downside risk. Most inexperienced investors are only concerned with making money. I focus on limiting risk.

This is truly one of the greatest hidden secrets of intelligent investing. Most people want to sell their stocks when they see a hint of profit, but ride the losers to the grave to protect their ego from a loss. “It will come back up” should be eliminated from your vocabulary. It’s an emotional reaction and has nothing to do with making money.

I spent time recently in Chicago with a friend of mine who is a very successful trader at the CME. He said, “Money is money. I can make up my losses anywhere; it doesn’t have to be in the same investment where I lost the money.” The market is without emotion, follow its lead.

Step 3 – Reinvest dividends.

The vast majority of my equity positions are dividend payers. Historically dividend payers generate superior returns with less volatility than companies that do not pay dividends. Nearly every company out there that pays dividends has a dividend reinvestment plan (DRIP). Take advantage of it.

Whenever the company issues a dividend, if you are enrolled in its DRIP, you don’t get the cash. Instead, you get shares of the company stock. These companies will issue partial shares as well.

This is truly the power of compounding at work.

If you buy 100 shares of a stock at $20/share that pays a $.50 quarterly dividend, you will receive a $50 dividend in the first quarter. Your initial equity value is $2000. After the first dividend is paid, you will receive an additional 2.5 shares of stock (for simplicity sake, we assume the share price is flat).

At the beginning of the 2nd quarter, you now have 102.5 shares. When the next dividend is paid, you will receive $51.25, or 2.56/shares of stock. While this may not seem like much, after a few years, you can easily earn huge amounts of dividends from your initial
investment.

In the example above, if you buy 100 shares of XYZ at $20/share, you have invested $2000. Assuming the share price remains constant and the dividend stays at $.50/share, without reinvesting dividends after 10 years you still have $2000 in stock and $2000 in dividends, or $4000.

If you had reinvested those dividends through the company’s DRIP, you would have $5239.15. That’s a 31% difference! This is the power of compounding interest.

Step 4 – Insurance.

This is the step that provides the most confusion to the majority of retail investors. I am talking about put options. If you allocate 1% of your portfolio each year to buying put options, you have virtually eliminated all of your market risk for only a fraction of your investment capital.

Put options are insurance. It’s really no different than buying car insurance. You pay a premium to minimize your risk just as you would when you buy an auto insurance policy.

For example, if your account value is $100,000, you could buy $500 of SPY put options every six months. Today, you would probably buy options with expiration in September. As the market fluctuates, these put options will go up or down according to the movement of the S&P500 index reducing volatility in your account.

Martin Zweig wrote a book about 15 years ago called “Winning on Wall Street”. In this book he discusses how this technique actually made him money during the stock market crash of 1987.

On that day, his portfolio surged by 9%. Martin used trailing stops religiously and was stopped out of 90% of his equity positions as the market tumbled. Because he had allocated 1% of his portfolio to index put options, the value of these options skyrocketed as the market tanked giving him a nice profit for the day while the rest of Wall Street was looking for a high rise to jump from.

Step 5 – Create a veil of privacy.

In the February 10th, 2011 issue I discussed asset protection for the stock market investor. I won’t go into detail here (if you didn’t get it and want a copy, email me the request referencing the date), but will hit the highlights.

I recommend never, ever, ever owning your stock portfolio in your name personally. This makes it too easy for financial predators to find your assets. If you are ever sued, liquid assets are the easiest to attach.

At a minimum, you should have a properly structured LLC as the stock portfolio owner. As a side note here, nearly every LLC I have ever reviewed were done incorrectly. Not all LLC’s are created equal. Don’t put your financial future at risk here, do it right.

For those of you more inclined to create the ultimate asset protection plan, you could have your portfolio owned by an offshore LLC; which is then owned by an offshore trust. The LLC would be the account owner and could have multiple trading or bank accounts in various jurisdictions to further diversify geographically.

By using this, or a similar structure, you are abiding by JD Rockefeller’s 1st commandment, “Own nothing, but control everything.”

These are the same type of strategies that have been implemented in our private investment partnership over the years. This has given peace of mind by minimizing risks from market fluctuations as well as risk from parasitic predators.

I encourage you to take some of the same steps. I would love to hear from readers who are experienced investors about their techniques for minimizing risk and maximizing their own portfolios.

When it comes to asset protection the majority of attention is given to investment real estate with scant advice on how to protect a personal residence. If you are fortunate to live in a state that offers a larger or all-inclusive homestead exemption, this is not a concern. For everyone else the picture is less clear.

Most attorneys and insurance agents will advise you to carry an umbrella policy and not to worry. This thinking is naïve and not representative of how insurance companies view claims; deny, deny, deny, then, pay if forced.

Of course the assumption here is that the claim you now face is covered under your policy. For example, contract disputes, defaults, environmental claims and bankruptcy are just a few of the items insurance will not cover. What to do, you may ask…

Last week I received a call from a woman in California. Let’s call her Susan. Susan owned several rental properties in the Southern CA region and due to the housing crisis; she is upside down in all of her houses, except one – her residence.

To be clear here, I am not trying to justify her financial acumen or skill as an investor, only using this as an example for the sake of the rest of you who may want to consider asset protection planning as it relates to your home. Susan had refinanced her investment properties over the past 3 years to pull cash out to satisfy some unrelated debt leaving here with very little equity in the houses.

Of course as we are all well aware, housing prices plummeted over the past 3 years leaving her with negative equity in all properties, except her personal residence. Susan was trying to renegotiate with her lenders to reevaluate the terms of the mortgage and in some cases short sale the properties.

Once the lenders discovered through their own due diligence that Susan had significant equity in her personal residence, the banks shut the door on negotiations. They are pursuing her personally for deficiency judgments and seeking foreclosure of her home to satisfy them.

As you can imagine, the umbrella policy her attorney and insurance agent recommended offer no comfort at this time. Now Susan is looking at foreclosure of all properties, including her home.

I would love to say we solved her problem and found a way for her to keep her home, but alas, it was too late. She missed the boat. You don’t buy car insurance at the scene of the accident.

Susan’s problem could have easily been solved if she had taken any one of the following actions to protect the equity in her personal residence several years ago.

Home Equity Line of Credit -

Susan could have applied for a home equity line of credit with a bank different from those that held her investment loans. When taking out a line of credit the lender would secure the credit line against the equity in the residence via a deed of trust. She could have made her home appear encumbered making it unattractive to an aggressive creditor.

Friendly Line of Credit (also called Equity Stripping) -

The friendly line of credit is the same as the home equity line in principal with one exception – your entity will serve as the bank. In today’s lending environment lenders are reluctant to provide more than 75% on home equity lines if at all. So, a convenient workaround involves creating an LLC in Nevada that provides anonymity of control and ownership. After you create the anonymous entity, you direct your company to enter into an equity line with yourself whereupon you provide the equity in your personal residence as collateral, i.e., your entity will record a deed of trust against your residence for any amount you deem necessary to protect your equity.

The great thing about this strategy is you are in full control of the credit line so you can increase and/or release it at any time. From the aggressive creditor’s point of view you have borrowed money from a Nevada entity that holds an equity position in your home.

Qualified Personal Residence Trust – “QPRT”

Just as the name implies, this trust is set up to hold your personal residence. The QPRT is mainly thought of as an estate-planning tool. It works as follows: the owner of a personal residence transfers it to a trust, but retains the right to live in the residence for a specified period of years. At the end of that time period, the heirs become the owners of the residence. Thereafter, the residence will no longer be a part of the former owner’s taxable estate. An ancillary benefit missed by most attorneys is that by placing the residence in trust it is removed beyond the reach of the homeowner’s creditors.

These are just a few of the strategies I use to help my clients’ protect one of their most important investments from the threat of attachment. Like all planning, starting early before the hounds are at your doorstep is of utmost importance.

Call today for your free 30 minute consultation. Until next week, live well.

The Limited Liability Company, or LLC, traces its roots back to the German law of 1892 authorizing Gesellschaft mit beschrankter Haftung, or GmbH.  Once established in Germany, other countries from all around the world followed suit.  In 1977, Wyoming became the first US state to enact a true LLC act modeled closely after the 1892 German GmbH code.  Today, LLC’s, or the local variation thereof, are the most widely used form of business ownership around the world.  They are also the most widely misused.

Most entrepreneurs take great care in starting their company, but forget about the dual nature of asset protection and therefore neglect to properly structure their LLC.  Not only do you want to protect your personal assets from the activity of the business, you also want to protect the business, and thus your income, from your personal activities.

This is where a properly structured LLC comes into play.  If you are registering an LLC in the US to conduct business and/or to own assets there are the 3 main considerations;

• Register in a state that only allows creditors a charging order as the sole remedy by statute
• Register in a state that allows anonymous managers, or at least use a nominee manager
• Make sure you have a rock solid operating agreement

Step one is to register the LLC in a state where a charging order by statute is the sole remedy for a creditor to collect distributions from an LLC.   There are several states that only allow creditors a charging order as the sole remedy, but not all of those states are a good choice due to other factors like excise taxes or capital values tax.  Due to the nature of the charging order (in the proper state), creditors are only entitled to distributions, but cannot force a distribution, take ownership of assets, foreclose on business assets, or be granted membership interest in the LLC.  This means if your assets are held in a properly structured LLC, your creditor can only gain rights to your distributions, but as manager, you can elect to withhold distributions to member(s) leaving your creditor with a tax liability.  In some states, like CA, creditors can foreclose on business assets held in an LLC or even be granted a membership interest allowing them to gain control over the assets.  You don’t want to register in those states.

Step two should be to register your LLC in a state that allows anonymous managers, or at least utilize a nominee manager.  In most cases this veil of privacy is enough to keep the wolves at bay.  Imagine getting into a car crash.  Nowadays the first reaction of the ‘victim’ is the grab their neck or back and claim an injury.  Of course their attorney will run a public record search for your assets to determine his ‘payday’.  If there is no fat piggy bank to smash, in most cases he will not pursue you beyond the limits of your insurance.  By simply making your assets invisible to public record searches, this puts up a significant roadblock.

And step three is to make sure your operating agreement is rock solid.  Last week I discussed the operating agreement and what constitutes a good one (if you didn’t receive last week’s newsletter, feel free to send an email requesting the April 22 issue).  I can’t tell you how many entrepreneurs that cross my path who either have no operating agreement all, or the one they do have is so inadequate, they might as well not have one.  At least 90% of the operating agreements we review for clients are completely useless.  Most are 7-10 page boilerplate agreements that offer no asset protection whatsoever.  That is just not enough space to spell out a contractual obligation.  Ours is approximately 70 pages.  The operating agreement is the contract between you and your business and is the first thing the court requires for guidance in dealing with your assets.  In the absence of a good contract, you are at the mercy of the court should you find yourself to be a defendant.

With proper asset protection planning, the LLC can be a very useful tool in minimizing your risk.  There are many creative ways to use LLC’s for structuring your assets like using a Nevis LLC to own your domestic LLC thereby giving you an additional layer of protection and making your assets completely invisible.  You can also use a combination of LLC’s to segregate business assets or strip equity from real estate using liens that you control.  If you have any questions or would like to schedule your free 30 minute consultation, feel free to contact me either by email or phone.

Joe runs a custom t-shirt company from California and sells his products all over the world through his website.  Joe has a very successful business and sells $2m per year in t-shirts with a 30% net profit margin earning $600k per year after his $100k per year salary.  After Joe takes advantage of his tax benefits, he pays 30% in tax or $180k.  That is a rather large check to write each year.

Today, Joe runs his business from Nevis.  He formed a Nevis LLC, rented a small office in Nevis to hire an administrative staff there to handle bookkeeping and customer service.  He sold his computer servers and has outsourced his server space to a firm in India.  He does all of his banking through Denmark and uses Paypal for website payments.  He has essentially severed all physical business ties in the US.  Granted, Joe still lives in California and still earns his $100k per year salary, for which he still pays his personal income tax. 

However, Joe no longer pays income tax on his $600k in net profit, saving his company $180k per year in taxes.  Joe now has reinvested his earnings into his business and expanded into a web based golf shop.  The golf shop operates on the same premise as the t-shirt shop and allows him to grow his business and his profits.

When Joe decides to repatriate some of his income from his offshore business he will certainly pay income tax on that amount.  But until that time, Joe can defer the taxation and invest his money as he sees fit in order to continue to grow his wealth. 

I understand this program doesn’t work for all of you.  In reality, it can only work for a few.  But for those few, it is a tremendous advantage.  For those of you that cannot take advantage of this, maybe it can’t be an option for your next business venture.  Certainly there are many variables to this situation and each must be individually evaluated. 

If you think this may work for you or if you have any other questions regarding your asset protection plan, contact me via email or at the number listed on our contact page.   Until next week, live well.

There is nothing illegal or immoral about offshore asset protection.  In reality, it is not even difficult or complex as many would have you believe.  In many cases it is as simple as establishing an offshore entity to own assets you already own like stocks, bonds, gold or private company stock.  In some cases it involves the use of trusts.

I have touched on the tax benefits and how that can be a significant benefit, so I won’t dive into that too deep here.  But if your business meets certain requirements, it is possible to move it offshore and defer taxation…indefinitely.  One of the biggest threats to your wealth is destruction through taxation and this tool can offer you the ultimate in offshore asset protection.

Aside from tax benefits, what are the other benefits?  The ‘what’s in it for me?’ question.  Another major threat to your wealth is litigation.  Litigation poses a huge threat and takes up an enormous amount of resources in the modern age.  In recent reports, litigation amounted to 2.3% of our GDP.  Think about that for a minute.  In 2009, the US GDP was approximately $14T, which means litigation cost US citizens and businesses about $322B.  To put that in perspective, Norway’s 2007 GDP was 391B. 

My point is, litigation is a very real threat to your wealth and a very large cost.  As your wealth grows, so does the size of the bulls-eye on your back.  This is why proper asset protection planning is critically important.  And an offshore strategy is not just for the super wealthy and criminals.  It can be for you as well.

Let me illustrate a simple example.  Fred owns a small business in rural Kansas.  Fred has owned it for many, many years and has accumulated about $2m that he has begun investing in the stock market.  Fred also owns a home with land in Kansas.  Fred has a nice life, a good income, and a fair amount of investments. 

If Fred is in a car accident and the other driver is injured, the plaintiff attorney, Lucifer, will want to find out what Fred is worth in order to determine if he is to pursue Fred beyond his insurance limits or just drop it there.  Lucifer finds out Fred owns a house, a business, and a $2m investment portfolio, all in Kansas.  Easy pickings.  Lucifer takes Fred to court, court issues judgment, and Fred is cleaned out.

Fred’s neighbor, Jacob, also owns a small business in Kansas.  Jacob also has amassed a $2m investment portfolio and a nice house in Kansas.  But Jacob has moved ownership of the shares of his business to his offshore entity.  His offshore entity also owns his investment account, which is held in a bank in Luxembourg.  Jacob’s house is owned by a NV LLC, and the NV LLC and the offshore entity are wrapped up into an Integrated Asset Protection Trust (IAPT). 

While Fred and Jacob are in similar positions, assuming Jacob also has a similar traffic accident, they are in much different situations after the accident.  First of all the plaintiff attorney, Lucifer, will likely find too many roadblocks in front of Jacob’s wealth to attempt to pursue.  Where does Lucifer file a lawsuit?  Kansas, where Jacob lives?  NV, where his LLC that owns his home is registered?  Belize, where his offshore entity is registered?  Luxembourg, where his investment portfolio is held?  or Cook Islands, where his trustee office is?  As you can see this is quite a dilemma and the roadblocks are many for poor Lucifer.  Meanwhile, Jacob is safe and sound at home, sleeping peacefully knowing his assets are well protected.

Don’t be Fred.