Asset Protection Law Journal

What is Asset Protection Planning?

Ken Laino — Tue, 23 Feb 2010 09:12:27 -0500

There is an increasing interest in asset protection among both individuals and businesses. But many people are still not exactly sure what "asset protection planning" is.

Asset protection planning is simply the process of lawfully protecting your personal and/or business assets from creditors. It involves taking advantage of laws and legal doctrines that were actually designed to help you protect your assets.

"Asset protection" sometimes has a bad connotation due in part to illegal offshore tax haven schemes and other questionable planning techniques. Many asset protection strategies, however, are ethical and highly advisable. An analogy can be drawn to tax planning. Some schemes that are called "tax planning" are nothing more than illegal and fraudulent evasions of taxes. Legitimate tax planning, however, is essential for both businesses and individuals. Similarly, legitimate asset protection planning is important for businesses and individuals, especially in our litigious society.

Asset protection planning makes use of laws that were designed to enable organizations and individuals to protect their assets. There are numerous asset protection alternatives for individuals, including maximizing contributions to IRA's and qualified retirement plans; using various forms of trusts (including domestic asset protection trusts, irrevocable life insurance trusts, dynasty trusts, and qualified personal residence trusts); retitling various assets; utilizing limited liability companies to protect real estate and other investments; and using life insurance in certain instances. There are also a variety of strategies for lawfully protecting assets of your business, including using separate entities for certain business functions; using limited liability companies; using insurance as protection; and various other strategies. There are many alternatives that are perfectly lawful and appropriate. Fraudulent conveyance statutes and other laws are designed to prevent abuses, but there are a wide variety of asset protection strategies that can generally be employed to protect your personal and/or business assets. For a more in-depth discussion of asset protection strategies that might be appropriate for you or your business, you can refer to an article I wrote recently that outlines some of the options.

Current economic conditions, recent high profile business failures, the recent waive of foreclosures, rising bankruptcy filings, and the seemingly endless number of lawsuits filed in the United States each year all illustrate the need for reasonable asset protection strategies. In this environment, businesses and individuals should have no hesitation whatsoever in taking steps to lawfully protect their assets.

Business Succession Planning

Ken Laino — Tue, 23 Feb 2010 08:58:19 -0500

A business succession plan is a key component of any asset protection plan. In most cases, a family business constitutes a large percentage of the owners' assets. Yet a significant number of businesses have absolutely no succession plan in place.

In thirty years of representing family businesses, I have come to understand why succession planning is so difficult. There are many reasons for this but I believe three of the most significant are as follows:

It is simply difficult for many business owners to imagine that anyone else (including family members) will run their business as well as they do. And they are frequently correct about this! Unfortunately, this is not a good reason for having no succession plan in place. It reminds me of naming guardians for minor children in a Will. Most parents feel that no one would raise their children with the same care and attention that they would; and that is probably correct. It is nevertheless foolish to simply ignore what would happen if both parents died. The same is true in business. Lack of a succession plan can lead to confusion and needless controversy following the death, disabilty or retirement of the owner.
Many business owners have thought of succession planning, but simply do not know where to start. All that is really required to get started is to contact a professional...either an attorney or business consultant who specializes in this kind of planning. Business succession planning should be a team effort involving a number of professionals. But someone needs to spearhead the effort, and this is frequently the job of an attorney or consultant.
Finally, I find that in today's lightning-paced business environment, it is simply hard for business owners to find the time for succession planning. Business owners should realize that developing a succession plan can save huge amounts of time and money in the future. Speaking in business terms, there is generally a huge return on investment. This alone should be an incentive to do some planning.

Business owners today are rightfully concerned about catastrophic lawsuits and other creditor problems. I would guess, however, that more businesses are lost or severely damaged by the lack of a meaningful succession plan than by an unexpected, catastrophic lawsuit. Asset protection in today's business environment is abouletly critical. And a business succession plan is a key component of asset protection.

New York Times Article Puts Spotlight on Cook Island Trusts

Ken Laino — Tue, 26 Jan 2010 08:46:06 -0500

Offshore trusts are receiving far more media attention than they did in the past. And much of the media attention is negative. Floyd Norris, writing in the January 22, 2010 New York Times, shines the spotlight very brightly on the Cook Islands. The Cook Islands (in the South Pacific) have a population of about 20,000 (which, as Mr. Norris points out, is less than some apartment complexes in New York City). The islands are known mostly for tourism. They contract their national defense to New Zealand, which is four hours away by plane. Yet the Cook Islands have a thriving international trust business.

Mr. Norris acknowledges that a Cook Islands trust can provide some significant asset protection. He notes that under Cook Islands law foreign court orders are frequently disregarded, which can be very helpful for someone trying to keep assets away from creditors. There must be a local trustee, so anyone setting up a Cook Islands trust for asset protection purposes must surrender at least some control over the assets in the trust.

Mr. Norris notes, however, that over the years a number of "less than upstanding Americans" have taken advantage of the protection offered by Cook Islands law. He explains that the latest among them is Jamie L. Solow. Mr. Solow was recently convicted by a jury in West Palm Beach, Florida of securities fraud. U.S. District Judge Donald M. Middlebrooks of the United States District Court for the Southern District of Florida has ordered Mr. Solow to prison for failing to turn over assets from a Cook Islands trust. This case is yet another reminder that offshore trusts will not automatically result in foolproof asset protection. Judge Middlebrooks is not the first federal judge to order a defendant incarcerated for failure to turn over funds from an offshore trust. It is important to note that nearly all of the asset-moving activities in this particular case came after the Securities and Exchange Commission notified Mr. Solow that it intended to file suit. Many of the asset transfers occurred after the jury rendered its verdict. As I have explained in other posts, moving assets after you have a problem with creditors will usually be considered a fraudulent transfer.

An offshore trust can be an appropriate part of an asset protection plan. But the use of such trusts by "less than upstanding Americans" is putting these trusts in an increasingly unfavorable spotlight.

Asset Protection Planning Requires a Lawyer

Ken Laino — Fri, 22 Jan 2010 14:02:21 -0500

A couple recent inquiries from readers of this blog (as well as some recent client questions) reminded me of the critical role of the attorney in the asset protection planning process.

You will frequently benefit by getting input from multiple advisors -- such as your investment advisor, accountant, tax preparer, maybe even certain friends and family members. Only an attorney, however, should ultimately render asset protection advice. This is because once you have retained an attorney, your discussions with the attorney will be privileged. The attorney-client privilege is a very strong one and is designed to facilitate open and honest discussions between you and your lawyer. Correspondence and discussions with your investment advisor and most other professionals will generally not be privileged. A reputable asset protection attorney will obviously not tolerate discussion about improper or unlawful activities. It is nevertheless extremely important that you be able to speak freely and openly with your attorney about your particular situation and goals. Again, input from other advisors is desirable. But engaging in asset protection planning without the benefit of a trusted attorney is a big mistake.

Another reason that an attorney is so critical to the asset protection process is that only an attorney can lawfully draft certain documents. For instance, while a financial advisor may have good advice with respect to certain provisions of a will or trust agreement, your financial advisor is not supposed to be drafting those documents. In fact, that kind of drafting may constitute unauthorized practice of law. Even putting aside the possible illegality of such action, it just does not make any sense. I have had a couple instances recently in which I was presented with trust agreement provisions that had been prepared without the help of an attorney. The poor drafting lead to all kinds of problems.

The failure of many individuals and organizations to engage in asset protection planning costs far more in the long run than the planning itself would have cost. A team approach to asset protection planning is frequently advisable as long as a lawyer is a key team member. Asset protection planning without the help of an attorney, however, is likely to be an accident waiting to happen.

Asset Protection Must be Holistic

Ken Laino — Tue, 24 Nov 2009 15:48:29 -0500

I am frequently asked isolated questions about asset protection planning. Should I consider forming a domestic asset protection trust? Do you think I should consolidate some of my real estate holdings in a limited liability company? Should my husband and I transfer joint interest in our residence to my name alone? Etc., etc.

None of these questions can be answered in isolation. They are like pieces of a puzzle that must ultimately be brought together in an overall asset protection strategy.

In order to give meaningful advice, an asset protection attorney must obtain information from you about a variety of matters, including the following:

Your net worth. While certainly not determinative, net worth affects asset protection planning. If your net worth is $200,000, an offshore trust is far less likely to be a meaningful strategy than if your net worth is $20 million.
Your specific assets and liabilities. Protecting real estate may involve different considerations than sheltering marketable securities. Your attorney must have at least a general idea of your specific holdings.
Risk. Are you in an occupation where you face an increased chance of lawsuits (such as a medical doctor or a small business owner)? While any individual of a business can potentially benefit from asset protection planning, some businesses and individuals need planning more than others.
Fees and expenses. Various asset protection alternatives have different costs. Offshore trusts are a lot more expensive to set up and maintain than most domestic asset protection alternatives. And more expensive alternatives are not always the best choice.
Family situation. Your marital status, whether or not you have any children, and other personal and family considerations can impact asset protection alternatives.
The area in which you live. Florida and Texas have great homestead exemptions. Ohio on the other hand has a very low homestead exemption. State laws definitely impact asset protection planning.
Whether you have any current creditor problems. Once there is a judgment against you, or even a lawsuit filed against you, your alternatives become far more limited. Fraudulent transfer statutes may prohibit moving assets to avoid paying known creditor claims.

While much of the foregoing may seem obvious, I find that many clients do not initially understand why I want to have a good overview of their personal and financial situation before making any specific asset protection recommendations. Various asset protection alternatives are like pieces of a puzzle -- they must fit together into an overall strategy in order to be effective.

IRS Recieved a Flood of Foreign Account Disclosures as Amnesty Deadline Approached

Ken Laino — Tue, 24 Nov 2009 08:35:05 -0500

I reported in a post earlier this month that as an IRS amnesty deadline approached, more than 7,500 U.S. taxpayers had voluntarily disclosed their secret offshore accounts. Lynnley Browning reports in a November 18, 2009 New York Times article that the IRS received a flood of additional disclosures just before the deadline expired. The final number of U.S. taxpayers disclosing secret offshore accounts almost doubled as the deadline approached-- from 7,500 to 14,700. IRS commissioner Douglas H. Shulman has indicated that billions of additional dollars will come into the U.S. treasury as a result of this IRS program.

It is important to realize that U.S. taxpayers who use legitimate asset protection techniques should have no concern whatsoever about the recent IRS actions. The IRS is simply aggresively going after U.S. taxpayers who are not reporting income as required by applicable law. Offshore accounts can have numerous advantages (both from a financial perspective and from an asset protection standpoint). You should not be afraid of using offshore accounts or offshort trusts, as long as they are being properly reported and administered.

A big lesson from the recent IRS actions is to carefully choose your financial and legal advisers. Americans who opened secret offshore accounts and then failed to report income taxes were foolish and/or got very poor advice. A reputable asset protection attorney would have never recommended the course of action that has now landed many Americans in deep trouble with the IRS.

IRS Likely to Continue its Assault on Offshore Accounts

Ken Laino — Mon, 09 Nov 2009 09:52:46 -0500

It seems that U.S. lawmakers are likely to give the IRS increasing support in its recent assault on offshore accounts.
More than 7,500 U.S. taxpayers have voluntarily disclosed secret offshore accounts to the Internal Revenue Service in connection with a recent amnesty program. The program did not provide any forgiveness for tax evasion. It simply provided possible leniency with respect to penalties for those who voluntarily came forward and disclosed secret offshore accounts. IRS Commissioner Doug Shulman says that the IRS will be scouring the 7,500 disclosures to identify financial institutions, advisors and others who helped taxpayers avoid obligations.
According to an article by Ryan J. Dommoyer of Bloomberg News (published in The Cleveland Plain Dealer), U.S. lawmakers have praised the recent developments and are calling for stronger laws to help the IRS. Senator Carl Levin heads the Permanent Subcommittee on Investigations. That Committee has held hearings on how UBS solicited Americans to put assets in Swiss banks. Senator Levin has stated that he will keep pushing legislation to give the IRS more tools to fight tax evasion through offshore accounts.
As I have repeatedly stated in posts on this blog, there is nothing inherently wrong with offshore accounts. When such accounts are maintained in a proper and lawful manner, account holders should have no significant concerns about increased IRS scrutiny.

Why Businesses Need to Focus on Asset Protection

Ken Laino — Fri, 06 Nov 2009 15:51:07 -0500

My law offices are in the Eaton Center Building in downtown Cleveland, Ohio. So a recent headline in The Cleveland Plain Dealer Business Section -- stating that Eaton might owe billions in damages in an antitrust case -- naturally caught my eye. A jury in federal court in Wilmington, Delaware found that Eaton Corp has monopolized the market for commercial truck transmissions. The company now faces paying billions of dollars in damages to a competitor.

Eaton does not owe anything immediately. There will be a second trial to determine the amount of damages; and there will very likely be appeals. But the case illustrates how one single court judgment can have a catastrophic effect on even a very large company.

While the Eaton case involved an antitrust claim, a catastrophic judgment can result from even a simple contract case. For example, in the 1980s a Texas jury found Texaco liable to Pennzoil for tortiously interfering with a contract between Getty Oil and Pennzoil. The jury verdict was for $7.52 billion; and the jury added another $3 billion in punitive damages. Texaco Inc. v. Pennzoil Co. (1987), 729 S.W. 2d 768 (Tex. Ct. App.). Texaco of course appealed (all the way to the United States Supreme Court), but the ultimate resolution of the case involved Texaco paying $3 billion and filing bankruptcy. Texaco at the time was one of the largest corporations in the United States. This is another classic reminder that a single jury verdict can have an enormous impact on a company -- even a very large company.

My post of July 2, 2009 titled "Asset Protection for Your Business" outlines some of the simple strategies that an organization can use to protect at least some of its assets. Unfortunately, many small business owners tend to focus on asset protection only after some huge lawsuit is filed or some court judgment is entered, at which time it is generally too late to do anything.

Luxembourg Says Delaware and Wyoming are Tax Havens

Ken Laino — Wed, 14 Oct 2009 14:56:46 -0500

Brazil has been claiming that Delaware and Wyoming are tax havens -- because they have low costs and minimal disclosure requirements for business entities. The New York Times reports that Luxembourg's prime minister has now joined in this claim. He has called for both Delaware and Wyoming to be put on the tax black list of the Organization for Economic Cooperation and Development!

These kinds of allegations are likely the result of recent U.S. efforts to increase tax revenue from U.S. citizens who live, work or simply hold assets outside the United States. Some foreign jurisdictions resent the U.S. callng them "tax havens" when certain states in the United States seem to have "tax haven" characteristics.

The U.S. is unusual in that it taxes its citizens on income no matter where it is earned. Tax treaties may reduce the burden, but the general rule is that a United States citizen must pay tax on income earned anywhere in the world. And the U.S. is increasing its efforts to collect taxes on assets held abroad.

We could certainly debate whether Delaware or Wyoming (or any other U.S. jurisdiction) is a "tax haven." But it is true that disclosure requirements in many states for corporations and other business entities are less than they would be in many other countries. For example, a limited liability company can be formed in Delaware, Ohio and many other states without publicly disclosing the names of any of the owners or managers. This is not the case in many other countries. If nothing else, this is a good reminder to first consider asset protection strategies that are closer to home before considering offshore options.

Trouble In Paradise: A Leading Offshore Tax Haven Might Have to Increase Taxes

Ken Laino — Mon, 12 Oct 2009 10:24:00 -0500

One of the best known international tax havens -- the Cayman Islands -- is being forced to consider something that would have been unthinkable only a couple years ago: raising taxes. This may be yet another blow to Americans who hold assets in offshore accounts. As reported in a recent New York Times article by Landon Thomas, Jr., there is "no getting around the fact that the balmy days for exotic offshore financial centers like the Caymans could be coming to an end."

The Cayman Islands appear to be considering raising the $3,000 annual fee that hedge funds pay to register in this jurisdiction. The New York Times also reports that the Caymans are considering a small tax on the trillions of dollars that flow in and out of the island on a daily basis. Many financial firms (particularly hedge funds) are registered in the Cayman Islands because of favorable tax treatment.

I personally doubt that the Cayman Islands will suddenly cease to be a tax haven. But as noted in The New York Times article, there is a clear trend of greater scrutiny of offshore jurisdictions like the Cayman Islands. During his campaign, President Obama referred to Ugland House in George Town (where about 19,000 companies are registered) as "the biggest tax scam on record". Statements like this inevitably bring higher scrutiny.

Assets may be held by U.S. citizens and entities in offshore jurisdictions for a variety of reasons. Some jurisdictions provide asset protection advantages; some (like the Cayman Islands) provide tax advantages; some have simply provided stable financial banking and financial services; and some (including Switzerland) have provided varying degrees of confidentiality.

As I have mentioned before, there is nothing inherently wrong with U.S. citizens or entities holding assets outside of the United States. Almost all major U.S. corporations now operate internationally in one way or another, and they generally have some portion of their assets outside of the United States. But assets held outside of the U.S. are sometimes used as part of a scheme to unlawfully evade U.S. taxes. There is clearly an increased interest by U.S. authorities in reducing tax advantages for U.S. corporations and individuals who hold assets outside the United States.

IRS Extends Amnesty Program For Those Who Have Been Unlawfully Hiding Assets

Ken Laino — Wed, 23 Sep 2009 10:42:30 -0500

In March of 2009 the IRS began a six month amnesty program with reduced penalties for those who come forward and acknowledge they been have unlawfully hiding assets-- and failing to pay applicable taxes on those assets. The amnesty program is part of a broader effort by the IRS to crack down on U.S. citizens who are illegally hiding assets overseas. While the IRS has refused to say how many Americans have applied for the program, the number appears to be more than 3,000. Offenders still face penalties. But they can probably avoid jail time, and possibly avoid some penalties.

The IRS announced this week that it will extend the amnesty program until October 15. There will be no additional extensions.

If you are interested, you can read more about the amnesty program in an article by Stephen Ohlemacher (Associated Press) in the Tuesday, September 22 Cleveland Plain Dealer Business Section.

Creditors Have Many Options Once They Have a Judgment Against You

Ken Laino — Mon, 21 Sep 2009 09:07:03 -0500

An article in the September 20, 2009 Business section of the Cleveland Plain Dealer contains a good summary of the various remedies available to a creditor who has a judgment against you. Cleveland Plain Dealer columnist Sheryl Harris is discussing a $3,000 judgment obtained in a small claims court in Rocky River, Ohio; but the alternatives she outlines would be just as applicable to a $3 million judgment in Ohio and many other states.

Here are a few of the things a judgment creditor may be able to do:

Garnish your wages
Attach your bank accounts
File a lien against your home and/or other real estate that you own
Force a sale of your home and/or other real estate that you own
Attach your personal property

There are of course limits on these remedies. A creditor can garnish only a certain percentage of your wages. As I have discussed in other posts, a small portion of the equity in your home will be protected in Ohio pursuant to Ohio Revised Code Section 2329.66 (while states such as Florida and Texas protect almost all the equity in your home). It may be possible for the creditor to seize the full amount of your bank accounts, up to the amount of the judgment against you. Transferring assets after a judgment has been entered (or even after a lawsuit has started) will likely be a prohibited fraudulent conveyance under Ohio Revised Code Section 1336.04 and similar statutes in other states.

The situation that columnist Sheryl Harris is writing about sounds like one in which we would all be rooting for the creditor. The creditor is trying to collect on a judgment against a roofing company that failed to make proper repairs. In many cases, however, I am representing a potential debtor. And in those situations I want to lawfully protect the assets of that person or entity to the greatest extent reasonably possible under applicable law.

The Cleveland Plain Dealer article is a good reminder that while debtors have many rights, so do creditors. Asset protection attorneys must have a thorough understanding of the rights of creditors. When an attorney is working to protect your assets, he or she must be knowledgeable about the various techniques that can be used to seize those assets.

Disclosure of Secret Offshore Accounts May Have Caused Suicide of Prominent Philanthropist

Ken Laino — Fri, 18 Sep 2009 09:31:46 -0500

Finn M. W. Caspersen, heir to the Beneficial Corporation fortune, was a patron of Harvard and Princeton and gave away tens of millions of dollars to charity. He was active in New Jersey politics. Mr. Caspersen served on the Dean's Advisory Council at Harvard Law School. As Lynnley Browning wrote in the New York Times on September 16, 2009:

"He seemed, in many ways, like a man from another time, a Gatsbyesque figure who glided through a world of old money, private clubs and pedigree horses, his family name emblazoned on Ivy League halls."

Mr. Caspersen's life ended tragically on Labor Day when he shot himself in the head at Shelter Harbor Golf Club in Westerly, Rhode Island.

No one can be sure why Finn Caspersen ended his life. He had been suffering from kidney cancer. But the New York Times reports that at the time of his death, Mr. Caspersen may have been using secret offshore bank accounts to evade taxes. Investigators were apparently building a case against him. It is reported that he may have owed as much as $100 million in back taxes and penalties, and may have faced prison. The Caspersen case apparently involves accounts in Liechtenstein, a leading offshore tax haven. According to the New York Times, federal authorities recently placed liens on the personal trusts of Mr. Caspersen's four sons.

In any event, it never ceases to amaze me how many super-wealthy Americans have tried to unlawfully evade U.S. income taxes by using "secret" offshore accounts. Recent IRS actions are making these accounts less and less secret. As I have said in a number of other posts, there is nothing inherently wrong with offshore accounts. They can be valuable for a variety of reasons. But they cannot be used for tax evasion. Failing to report income and paying the appropriate tax can have disastrous consequences -- both professionally and personally.

I highly recommend the full article by Lynnley Browning in the Business section of the September 16, 2009 New York Times. It is a fascinating story about a real tragedy.

Personal Asset Protection for Physicians

Ken Laino — Tue, 01 Sep 2009 14:18:11 -0500

Whether you are a physician in private practice or working for a hospital or other health care organization, you should consider some basic steps to protect your assets. Here are a few suggestions:

Maximize contributions to IRA's and other qualified plans. Assets in IRA's and qualified employee benefit plans are generally awarded special protection from creditors. Many plans (including 401(k)'s) are also protected in bankruptcy because they are not considered part of a bankruptcy estate. The Bankruptcy Abuse and Protection Act of 2005 limits the IRA exemption in bankruptcy to $1,000,000 adjusted for inflation.
Consider some life insurance strategies. In many states death benefits from life insurance, as well as the cash value of a life insurance policy, are exempt in whole or in part from claims of creditors of the insured. In Ohio, for example, under Ohio Revised Code Section 3911.10, insurance death proceeds are exempt by statute if paid to the spouse, children or certain other designated beneficiaries.
Consider various trust arrangements. Not all trusts provide asset protection, but some do. For example, irrevocable life insurance trusts (ILITs) can be a great estate planning tool and can also provide significant asset protection. If the ILIT is formed properly creditors of both the person who set up the ILIT and the beneficiary should have no rights in either the cash value or the death benefits of the insurance.
Split assets between spouses. Simply dividing assets between spouses may offer some protection. As I have explained in another post, holding property as joint tenants is generally not the best strategy from an asset protection standpoint.
Focus on your principal residence. Some states (Florida and Texas in particular) provide special protection for your principal residence against claims of creditors. Ohio, however, provides a so-called homestead exemption of only $20,200 pursuant to Ohio Revised Code Section 2329.66. Strategies for protecting your home from creditor claims therefore vary from state to state.

Many of these considerations are applicable to anyone who has accumulated assets that are worth protecting. Since physicians (especially those in certain specialties) are far more at risk than many other people, they generally have a greater need to focus on asset protection.

Asset Protection Strategies for a Private Medical Practice

Ken Laino — Mon, 31 Aug 2009 16:04:12 -0500

A couple weeks ago I posted some general observations about asset protection planning for physicians. While a doctor should be taking steps to protect his or her own personal assets, physicians in a private medical practice should be taking additional steps to protect the private practice itself. Here are some items worth thinking about:

1. Consider using multiple entities to reduce liability and possibly gain some tax benefits.

· Use one entity for the medical practice itself.

· Use a separate entity to hold real estate and then lease the real estate to the practice group.

· Use another entity to hold and lease medical equipment to the practice group.

· Depending on the size of the practice, a management holding company might be advisable in connection with the various entities.

· Patents and any other intellectual property should also never be owned directly by the medical practice.

· Separate entities should generally be limited liability companies because they generally provide the best asset protection and they provide flow-through tax treatment.

Formation of additional entities can obviously involve start up costs, as well as some additional costs for on-going operations. The size of a medical practice (both in terms of the number of physicians and in terms of revenue) will influence how many separate entities may be appropriate.

2. Consider different alternatives with respect to your accounts receivable.

· Some private medical practices (and other health care organizations) use a separate billing company.

· It is sometimes advisable to pledge accounts receivable in connection with a bank loan, since a judgment creditor will be in a second (and less appealing) position to the bank.

3. Make sure that an agreement is in place among members of the medical group covering what happens if a physician dies, becomes disabled, retires, or otherwise leaves the practice. Despite all the concerns about malpractice liability, more physician groups experience problems in this area than with a malpractice claim that exceeds insurance limits.

All of the foregoing are of course just general observations. Each situation must be analyzed on its own. But in any event, a medical practice should periodically review its structure and operations from an asset protection standpoint.

Justice Department Widens its Attack on Swiss Banking Secrecy

Ken Laino — Wed, 26 Aug 2009 10:02:33 -0500

Last week, the Swiss banking giant UBS agreed to turn over information on American clients suspected by the IRS of using Swiss accounts for tax evasion. On Wednesday, August 19, IRS Commissioner Douglas Shulman said that the agency is looking at other banks and intermediaries in Switzerland in addition to UBS.

The IRS Commissioner was not kidding. Last Thursday the Justice Department indicted a Swiss banking executive and a Swiss lawyer for selling tax evasion services to wealthy clients. The services allegedly involved the use of Swiss accounts as part of an unlawful scheme to disguise and hide assets. The indictment, filed in the United States District Court in Ft. Lauderdale, Florida, accuses a director of a Swiss bank as well as a Swiss lawyer with conspiracy to defraud the United States. The men are accused of helping clients hide assets by creating the appearance that certain assets of U.S. clients belong to Swiss citizens. The men were also accused of falsifying documents to disguise interests of United States citizens in certain offshore funds. It appears that the Justice Department established a special task force in 2007 to focus on Swiss banks that help Americans evade taxes. Recent actions seem to be the result of some of these investigations.

The message from the indictments is very clear: not only will the IRS and the Justice Department investigate large financial institutions like UBS -- but they will also be looking at smaller banks and financial institutions who may be helping U.S. citizens to unlawfully hide assets. Lawyers who facilitate these unlawful schemes may also become targets of the IRS and the Justice Department.

Only fools and criminals participate in offshore schemes that are designed to evade U.S. income tax obligations. Legitimate asset protection planning does not involve unlawful tax evasion. It involves keeping assets essentially in plain sight, while lawfully minimizing taxes and taking advantages of laws that allow you to make assets more difficult for creditors to reach.

You can read more about the recent indictments as well as the Justice Department's on-going attack on Swiss banking secrecy in an August 21, 2009 article in The New York Times.

Swiss Bank Accounts May Not Be Secret Anymore

Ken Laino — Mon, 24 Aug 2009 09:57:31 -0500

On Wednesday, August 19, UBS (one of Switzerland's largest banks) agreed to turn over information on more than 4,450 American clients suspected by the IRS of using Swiss accounts for tax evasion. Due to provisions of a new tax treaty between the U.S. and Switzerland, it could be more than a year before the IRS has all the information it wants. It is clear, however, that the IRS is stepping up its efforts against tax evaders who are using Swiss accounts in an attempt to hide assets. You can read more about these IRS efforts in an August 20, 2009 New York Times article.

In February of 2009, UBS paid $780 million and admitted to criminal wrongdoing in selling offshore banking services that contributed to tax evasion by U.S. citizens. And the U.S. Department of Justice has a number of criminal investigations pending against UBS clients. Swiss bank accounts are not going to remain as secret as they once were.

There are still valid reasons to have Swiss bank accounts. Switzerland has traditionally provided a very stable political and economic climate. Many of its banks have provided a very high level of personal client services and good money management. Swiss accounts (like other offshore accounts) can certainly be part of a legitimate, lawful asset protection plan. It may be more difficult for a creditor to reach assets in a Swiss account than in a U.S. bank account.

Recent enforcement actions by the IRS, however, are a clear reminder that you cannot use Swiss accounts (or any other offshore accounts) in order to evade U.S. tax obligations. United States citizens are required to pay tax on income whether that income is received in the United States or abroad. As I have discussed in other posts -- and as I will continue to emphasize -- legitimate asset protection does not involve unlawfully hiding assets in order to evade taxes. In fact, the best asset protection plans essentially leave assets in relatively plain sight, and simply take advantage of applicable laws in order to make it more difficult for creditors to reach those assets.

Physician Asset Protection: An Overview

Ken Laino — Wed, 12 Aug 2009 09:23:15 -0500

Physicians should have no hesitation whatsoever in protecting their assets to the greatest extent allowed by applicable laws. Physicians have a greater need for asset protection planning than many other individuals simply because of the nature of their work.

If a professional baseball player consistently strikes out half of the time but gets a base hit the other half, he will likely end up in the Baseball Hall of Fame. Doing well every other time at bat would be outstanding. A professional basketball coach would be ecstatic if one of his players missed only one of twenty foul shots. The player will not lose his house to a creditor if he misses a foul shot every now and then. Things are very different, however, for a surgeon. A surgeon can perform flawlessly in thousands of operations over a thirty year period. Yet a single mistake in a single operation may result in a catastrophic judgment that could place at risk all the assets he or she has ever accumulated. Physicians therefore need to take full advantage of all reasonable, lawful asset protection opportunities.

A physician should carry a reasonable amount of malpractice insurance. Most judgments for medical malpractice will not exceed the insurance limits. To the extent that the physician can choose the insurance carrier, he or she should carefully investigate the alternatives.

Unfortunately malpractice insurance is the starting point but not the ending point for a solid asset protection plan. In subsequent posts over the next several weeks I will address some of the steps that every physician should be taking to lawfully protect his or her assets. These steps include a focus on how assets are titled; maximizing contributions to qualified retirement plans; trust arrangements; and various other alternatives.

Joint Tenancy Not Great For Asset Protection

Ken Laino — Mon, 27 Jul 2009 10:54:52 -0500

Holding property as joint tenants has numerous advantages. It can be convenient, and it can generally avoid probate of the jointly held assets. It is a big misconception, however, that joint tenancy provides very much asset protection.

A recent Ohio Court of Appeals Decision, White v. Parks is a perfect illustration of the drawbacks of joint tenancy from an asset protection standpoint. A creditor filed a judgment lien against Robert Parks. When Mr. Parks failed to pay the judgment, the creditor filed a foreclosure action against his residence, naming both him and his wife (the co-owners), even though the judgment was only against Robert Parks and not his wife. The trial court ruled that even though Mrs. Parks was not subject to the judgment, the residence nevertheless had to be sold. Mrs. Parks was to get half of the net equity after the sale and the creditor would receive the other half. The Ohio Court of Appeals, Ninth District, affirmed the ruling of the trial court.

From the Parks' standpoint it was a lot better that their house was in joint name than in Mr. Park's name alone. The joint tenancy provided some protection. However, even though title was held jointly, the couple was forced out of their house. In addition, the creditor got one half of the net equity. Not a great result for this couple.

Holding certain assets as joint tenants (such as a checking account with relatively limited funds) often makes great sense, simply for convenience. Advantages of joint tenancy may out-weigh the disadvantages for certain parties. When deciding whether to hold assets jointly, the assets cannot be looked at in isolation. How best to title your assets will depend on a wide variety of factors, including your occupation, marital status, income, net worth, asset mix and many other considerations. Titling an asset one way could be good for one purpose and not for another. You should not assume, however, that jointly held property will provide great protection from any of your creditors.

Lawyer Accused of Hiding Assets Serves 14 Years in Jail

Ken Laino — Thu, 23 Jul 2009 13:37:10 -0500

A lawyer accused of hiding assets was released from prison last week -- after serving 14 years in jail. H. Beatty Chadwick was sent to prison in 1995 for allegedly hiding $2.5 milion in assets in connection with his divorce. By the time he was released last week from a county prison in suburban Philadelphia, Chadwick had been in prison for 14 years.

The Chadwick case is an important reminder that judges throughout the United States have broad civil contempt powers. Judges can jail debtors who appear to be unlawfully hiding assets. You can read more about Chadwick's case in a number of recent articles including The Philadelphia Inquirer and the July 12, 2009 New York Times.

While the Chadwick case seems to have set a record, many other courts have imposed what asset protection attorneys call "Anderson relief". That term comes from Michael and Denyse Anderson, who were jailed in the 1990s for refusing to return funds from their Cook Islands trust (after they had been caught by the Federal Trade Commission in an apparent telemarketing scheme). A federal judge in Nevada imprisoned the Andersons for 6 months for contempt of court when they refused to take steps to return funds from their offshore trust. The United States Court of Appeals for the Ninth Circuit affirmed the finding of contempt and affirmed the jailing of the couple as an appropriate way to coerce certain debtors to turn over assets from offshore trusts. This has become known as "Anderson relief."

The Anderson case and the recent Chadwich case are important reminders that certain asset protection strategies can land you in jail. There are many reasonable, lawful asset protection alternatives; but crossing certain lines can have disastrous effects.