Characteristics of an Effective Asset Protection Plan: Important Details
© Copyright 2015 Wealth International, Ltd.
We emphasize two guiding principles for constructing an effective asset protection plan:
- Legal soundness.
- The separation of asset ownership from potential liability and judgement risk.
The first principle is self-explanatory. We would only add the suggestion that where the law is ambiguous, structure your plan under the assumption that any rulings in those areas will not be in your favor. In other words, be conservative. The second principle in real world practice is more nuanced. Ownership and control are not sharply defined concepts. What does it mean for the assets at risk to truly not be under your control? Here is our cut:
- No trust or other legal structure that you control can control the assets.
- No legal structure that you exercise back-door control over – for example, because you can fire the managers if they do not do your bidding – can control the assets.
- No legal structure where the technical legal asset owner miraculously finds it in his or her best interest to obey your every command can control the assets. (See our comments on the “Doctrine of Disbelief”.) Besides having the form of an alter-ego from the outset, what credibility would the party then have if he or she suddenly refused your request to convey the assets to you coincident with a legal order that you turn them over to an adversarial party?
- No legal structure where – wink wink nudge nudge – you exercise no formal front-door or back-door control but you have an “understanding” with the managers that they will basically accede to whatever requests you make, can control the assets. (This article clearly shows that offshore antagonistics are well aware of such arrangements. Note the proposal to allow “U.S. tax and securities law enforcement to presume that non-publicly traded, offshore corporations and trusts are controlled by the U.S. taxpayers who formed them or sent them assets, unless the taxpayer proves otherwise.”)
- The assets cannot fall under an arrangement or agreement that has the appearance that you exercise any control over its operations, even if you truly do not.
- No arrangement or agreement that lacks basic plausibility will be effective. For example, why would you just give away your assets to an apparently unrelated third party, whether it be a natural person or a legal entity, in exchange for ... nothing? Even an unbiased observer – which government agents and courts are not – would question whether there was more to the transaction than met the eye.
The 2-part notional test we would suggest is:
- 1.) If your asset protection plan was subject to a full legal forensic analysis by an adversarial party, would it receive a formal (if grudging) passing grade?
- 2.) Would it also pass an intuitive-level smell test?
Unless the answer to both questions is affirmative, then we would not use the plan.
The rest of this report, with discussion of additional desirable characteristics for any asset protection plan and how the W.I.L. approach incorporates those principles, is included as an appendix to our comprehensive introductory publication Introduction to International Asset Protection. To obtain complete access to that publication we invite you to go to this page and sign up.
NOTE: This report is presented with the understanding that the publisher is not engaged in rendering legal or accounting services. Questions relevant to the specific tax, legal, and accounting needs of the reader should be addressed to practicing members of those professions. This information was gathered from sources believed to be reliable but it cannot be guaranteed insofar as it applies to any particular taxpayer. Wealth International, Limited specifically disclaims any liability, loss, or risk, personal or otherwise, incurred as a consequence directly or indirectly of the use and application of any of the techniques or contents of this report. No copies of this material may be made or redistributed without the express written consent of Wealth International, Ltd.