Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

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.

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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.

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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.

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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.

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