Nuts and Bolts of Asset Protection

This week I will take a break from the usual rants about government stupidity and my philosophical discussions about how people should act and the world should look. Instead, we will discuss some nuts and bolts of Asset Protection Planning.

For the purpose of discussion, I will share with you a couple recent client (names and details changed) strategies we have employed that may be relevant to your situation; or at least provoke some thought.

If you are reading this newsletter you clearly already know why you need to implement asset protection and possibly offshore asset protection into your financial strategy so we will leave that topic alone for now.

Before we begin with the case studies, understand that most asset protection consultants and lawyers have essentially the same tools in their toolbox. But just like with professional car and motorcycle race teams, the tools are useless in the wrong hands – you must have a creative mechanic.

Case Study 1 – Mike: Mike lives in Seattle, Washington with his wife and 3 children. He has a high paying job working for Microsoft and has been very intelligent with his money. He and his wife are in their mid-40s and have saved a nice nest egg.

They have combined retirement accounts in the mid-6 figures, a nice house on 20ac in the countryside, a taxable investment portfolio in the high-6 figure range, and have recently acquired 6 low-income rental houses.

Their total net worth is approximately $2.5M. At this point in their lives, they could retire if they wanted to, but Mike loves his job and earns a sizable annual income giving them excellent financial security.

But like many of you, they are seriously concerned about their financial future because of the economic crisis and the very real fears that politicians will not have the discipline to reign in spending thus creating a worsening situation in America with reduced living standards and higher taxes.

Mike and his wife have decided that if the economic situation worsens, people will become more and more desperate which can lead to increased frivolous litigation. Since they have a relatively sizable net worth, they feel they are at risk, especially since they are property owners.

For Mike the solution was to;

Get all real estate assets out of his personal name
Minimize equity in his real estate holdings
Begin an offshore strategy moving funds to a offshore private bank
Diversify investment assets in other countries

In order to accomplish this we set up land trusts for each of his properties. This provided Mike with a veil of privacy around his assets. As a matter of public record, the only recorded owner of each of his properties is now the land trust. For example; Property 1 at 123 Main St is no longer deeded to Mike, but now deeded to 123 Main St Land Trust.

This makes it very difficult for any future potential creditor to locate his assets. A land trust alone is not an effective asset protection tool though. It is only good as a privacy tool. For real estate asset protection we created one Private Wyoming LLC as Land Trust Trustee, and another Private Wyoming LLC as Land Trust Beneficiary. This adds additional layers of privacy and provides legal protections from future potential creditors.

To minimize equity in his real estate holdings, we created friendly liens for each property. These liens are held by a new Cook Islands LLC we created for Mike. The LLC was capitalized by the real estate notes and Mike now pays off these liens to the Cook Islands LLC, which he owns.

By actually paying a monthly mortgage payment to his own company, he can reduce the equity in his properties making them unattractive to creditors and at the same time shift some of his cash into an offshore bank account held by his Cook Islands LLC. This allows him to build that offshore nest egg.

Using Mike’s new Cook Islands LLC, we then opened an offshore brokerage account allowing him to trade stocks, bonds, futures, options, forex, etc. on all major world markets. This offshore brokerage account is held in his company name in a numbered account giving Mike complete anonymity for his investment portfolio.

Last but not least, I introduced Mike to a friend of mine who has an interesting real estate project in Panama. Mike bought a pre-construction condo in Panama City, Panama that is managed by a well known global hotel brand. This condo was bought at approximately half the cost he would have paid if located some place like Miami. It offers considerable rental income and opportunity for capital appreciation. As an added bonus, this condo can be used as his own vacation spot or even a place to move if he chooses to leave the US.

For Mike, this was an ideal strategy. He now has assets held in 4 different countries – USA, Panama, Gibraltar, and Cook Islands – thus minimizes his geo-political risk. He also now has investment opportunities never previously available since his investment holdings were all in the US and denominated in US dollars. Not to mention the peace of mind he has knowing he has more options now than ever before.

Casey Study 2 – Susan. Susan has a simpler, but very unique situation. She received dual undergraduate degrees in political science and finance (BS) and then a juris doctorate (JD) from well-known US universities then went on to get her masters in law (LLM) from a well-known European university in international law and finance. Over the years she practiced corporate law in New York where she lived.

With her experience studying, living and working overseas she decided to close her law practice and move abroad. Of course prior to making this decision she had acquired numerous real estate assets that needed to be liquidated, but over a few months this was done allowing Susan to live the nomad lifestyle.

Also over the years with her business and finance knowledge, Susan became a very successful options trader, trading her own account. In addition to her income as a lawyer, she was earning a low 6 figure income each year from trading. This was part of her deciding factor to move overseas as she felt confident she could continue to successfully trade and work from anywhere in the world.

Susan’s problem was that while she knew she could live and work anywhere in the world, the logistics of operating her business and her investments were a complete unknown. Additionally, when she liquidated her real estate holdings in the US, she was left with approximately $2M and she didn’t want to leave it in cash at a US bank. She was concerned about future capital controls and the new FATCA laws as well as her desire to earn some income from that nest egg.

She was also concerned about estate planning. She had no kids, but has a niece and nephew she wanted to leave her estate to, and didn’t want them to be burdened with a huge tax bill upon her demise.
As previously mentioned, Susan’s case was relatively simple, but unique. For her operating business (she was continuing to provide legal consulting services), we set up a Seychelles Offshore Company (IBC). This Seychelles IBC coupled with her transactional bank account in St. Vincent was a simple solution that allows her to run her company from anywhere tax free.

Susan pays herself approximately $95K per year from this company keeping her below the threshold for the maximum earned income exclusion. This company pays all business expenses for her as well and her remaining profit is then deferred.

For her trading business, we did a similar structure as with Mike and created a Cook Islands LLC with the brokerage account in Gibraltar. Just like with Mike, this gave her a completely private numbered trading account in her company name.

For estate planning purposes Susan chose to wrap up ownership of both companies inside a Cook Islands Trust. So while the companies are now owned by the trust with her niece and nephew as beneficiaries, Susan remains manager of each company giving her full control over the assets.

She now travels the world working virtually from her laptop and tends to live from 3-6 months per location. Susan is now also considering a condo purchase in Panama at the same place as Mike.

For Susan, she has simplified her life, virtually eliminated her tax burden, and makes more money than ever before while leading a very interesting lifestyle.