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Jeffrey M. Verdon, Esq. Managing Partner

Jeffrey M. Verdon Law Group, LLP Newport Beach, CA

EPC Diablo Valley – September 21, 2016

ASSET PROTECTION PLANNING & STRATEGIES FOR LAWYERS

ACCOUNTANTS, FINANCIAL PLANNING AND INVESTMENT PROFESSIONALS

Presented by

95% of world’s lawsuits are filed in the U.S.

It’s Not What You Do, It’s What You Own!

Atty/CPA/Accountant Malpractice Liability – Goes Beyond Insurance Limits

•Liable for your negligent acts and those you supervise.

Successful Professional Practice?

It won’t matter if you lose it all to a malpractice lawsuit

When does your exposure expire?

Lawsuit Exposure & Privacy Test

TWO QUESTIONS FOR YOU….

Questions for You…

1. ARE YOU OR YOUR CLIENTS CONFIDENT THAT THEY WILL NEVER BE SUED?

2. ARE YOU OR YOUR CLIENTS CONFIDENT THAT IF THEY ARE SUED, OUR LEGAL SYSTEM WILL FAIRLY TREAT YOU?

Two Reasons Most Litigants Settle

1. Doubt as to Liability

2. Doubt as to Collectability

Does Asset Protection Work?

Depends on definition of “work.” Achieve an early and favorable settlement.

$58,000,000 Judgment successfully resolved for $7M

$34,000,000 Malpractice suit settled for less than $1M

$5,000,000 Judgment settled for $125,000

$32,000,000 Bank loan dispute settled for $2.5M

$2,000,000 Personal guarantee settled for $250,000

$75,000,000 Personal loan settled for $5M paid over 5 years

Best Asset Protection Plan No One Has Heard of –

The CA Private Retirement Trust –

CCP 704.115

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View video again at http://jmvlaw.com/private-retirement-plan/

• CCP § 704.115(b): fully exempts assets placed in trust to fund retirement

Any asset

Business profits, A/R, Bonds, Stocks, Savings, Gold, Real Estate, Notes and Private Business Interests

• CCP §704.115(d): fully exempts distributions from the PRT

• Non-ERISA Qualified: May set up just for owners

Best Asset Protection Plan No One Has Heard of –

CA Private Retirement Trust

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Asset Protection Trust

A TRUST WILL BE THE CORNERSTONE OF ANY EFFECTIVE ASSET & LIFESTYLE PROTECTION SOLUTION

Trusts Have Been Used Since the Crusades to Protect Assets…

WHY WOULDN’T I WANT TO SET UP MY TRUST IN THE U.S?

UNFORTUNATELY . . .

Retained Controls

Maximum Potential Property Interest – CPC 15304 (b)

Self-Settled Spendthrift Trusts – CPC Section 15304 (a)

OVER THE PAST SEVERAL HUNDRED YEARS LIMITATIONS ON THE PROTECTIVE USE OF TRUSTS FOR SELF-SETTLED TRUSTS (AS BENEFICIARIES) HAVE EVOLVED:

Comparisons

•Domestic Asset Protection Trust

•VS.

•Offshore Asset Protection Trust

Domestic APT Jurisdictions WEST VIRGINIA 2016

MISSISSIPPI 2014 OHIO 2013 VIRGINIA 2012 HAWAII 2010 NEW HAMPSHIRE 2009 TENNESSEE 2007 WYOMING 2007 MISSOURI 2005 SOUTH DAKOTA 2005 OKLAHOMA 2004 UTAH 2003 NEVADA 1999 RHODE ISLAND 1999 DELAWARE 1997 ALASKA 1997

Constitutional Issues:

Full Faith & Credit Clause Conflicts of Laws Contract Clause Supremacy Clause

Wait Until the U.S. Supreme Court Decides

Domestic Asset Protection Trust (Potential Problems)

What’s the Newest Problem?

2005 Bankruptcy Act’s [Sec. 548(e)(1)]

The Ten Year Set Aside Rule

• 548(e)(1) …the [bankruptcy] trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if -

(A) such transfer was made to a self-settled trust or similar device;

(B) such transfer was by the debtor;

(C) the debtor is a beneficiary of such trust or similar device; and

(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

SEE: In re: Mortensen, Debtor, Case No. A09-00565-DMD

In Re Huber, 201 B.R. 685 (Bankr. W.D. WA May 17, 2013).

10-Year Set Aside Rule

WHAT’S THE SOLUTION?

ESTABLISH THE TRUST IN A PLACE WHERE THE LAWS WILL NOT PERMIT A CREDITOR TO REACH TRUST ASSETS UNDER THE GENERAL RULES

- Forum Shopping

- Lack of Comity

Situs Selection Factors

• Legal System:

• Common law trusts date back 1000 years

• Protective Legislation (BIG3)

• Repudiation of Certain Rules

• Statute of Elizabeth (no SOL)

• No self settled trust protection for settlor

• Maximum potential interest rule (creditor can reach entire trust corpus)

• Favorable Fraudulent transfer rules

• Lack of Comity

• Economic Health

• Political /social stability

• Language

• Track Record

IN ORDER TO UNDERSTAND HOW A PROTECTIVE TRUST WORKS….

WE MUST FIRST UNDERSTAND HOW

CLAIMANTS NORMALLY REACH TRUST ASSETS

The claimant brings his/her case in a court which has:

JURISDICTION OVER THE TRUSTEE

OR

JURISDICTION OVER TRUST ASSETS

THERE ARE ONLY TWO WAYS...

How Does an Offshore Trust Work?

FIRST: AT THE CRITICAL TIME: …AND WE DEFINE THAT TO BE WHEN SOMEONE IS TRYING TO “GET AT” THE TRUST ASSETS…

FIRST: AT THE CRITICAL TIME:

THERE WILL BE A COMPLETE LACK OF US COURT JURISDICTION OVER THE TRUSTEE & THE TRUST ASSETS

How Does an Offshore Trust Work? (Cont’d)

…CAN’T FORCE THE TRUSTEE TO DO ANYTHING

THE U.S. COURT:

…CAN’T SEIZE TRUST ASSETS

THAT MEANS THERE WILL BE NO POWER IN ANY U.S. COURT TO REACH THE TRUST

How Does an Offshore Trust Work? (Cont’d)

SO WHERE DOES THAT LEAVE THE JUDGMENT CREDITOR?

TRYING TO HAVE THE JUDGMENT ENFORCED IN THE TRUST SITUS JURISDICTION…

HOW WELL IS THAT GOING TO WORK?

REMEMBER “LACK OF COMITY”???

How Does an Offshore Trust Work? (Cont’d)

• WHAT ARE THE IMPLICATIONS OF LACK OF COMITY?

• Commence litigation De Novo • Utilize unfamiliar lawyer

• Most local law firms are conflicted “out” • No “Contingency Fee” • Bond & “Loser Pays” Rules • Basis of Litigation?

• A FRAUDULENT TRANSFER ASSERTION…

How Does an Offshore Trust Work? (Cont’d)

How Does an Offshore Trust Work? (Cont’d)

LET’S COMPARE THE TWO MAJOR FACTORS OF THE FRAUDULENT TRANSFER RULES – U.S. vs. OFFSHORE

1. 4yrs/10yrs vs. ZERO to 2yrs…

2. CIVIL “PREPONDERANCE” STD vs. “BEYOND REASONABLE DOUBT”

WE’VE SEEN HOW THE LAWS OF AN APPROPRIATE OFFSHORE JURISDICTION PROVIDES PROTECTION FOR OUR CLIENTS’ TRUSTS

WE ENHANCE THAT PROTECTION WITH DRAFTING TECHNIQUES

How Does an Offshore Trust Work? (Cont’d)

TYPICAL PROTECTIVE CLAUSES: • Trust Protector

• Flight Clause

• Duress Clause

• Jones Clause

• What about contempt?

• Legal Impossibility: complete defense to contempt

• Unites States v. Grant (2008): No contempt of court for a US person who lawfully establishes a foreign trust and could not

• Branch Banking & Trust Co. v. Hamilton Greens, LLC, 2014 WL 1493086 (S.D. Fla. Mar. 24, 2014)

How Does an Offshore Trust Work? (Cont’d)

“I DON’T WANT TO LOSE CONTROL”...

WHAT CONCERN DO CLIENTS MOST OFTEN EXPRESS?

SO HOW DO WE ADDRESS THAT CONCERN?

• WE USE HOLDING ENTITIES: FOR PROTECTION OF LIQUID ASSETS (CASH

AND PUBLICLY TRADED SECURITIES) • SETTLOR MAY SERVE AS “INVESTMENT

ADVISOR”

“Loss of Control” Concerns

YOU = LLC MANAGER =

DIRECT SIGNATURE CONTROL

OFFSHORE OR US

BANK

YOUR BROKER

Stocks & Bonds

VAULT

INVESTMENTS

YOU FAMILY OTHERS DISCRETIONARY BENEFICIARIES

TRUST = LLC MEMBER 100%

(May Be Co-Manager)

OFFSHORE ASSET

PROTECTION TRUST

ASSETS TYPICALLY

HELD:

LLC MEMBER

INTEREST; S-

CORPORATION

STOCK; OFFSHORE

ACCOUNTS

OFFSHORE TRUST / LLC COMBINATION STRUCTURE

OFFSHORE LIMITED LIABILITY COMPANY

TRUST PROTECTOR

(INDEPENDENT COMPANY)

CONTROL

OVER

TRUSTEE

IMPLEMENTATION

OPERATION

CRISIS US TRUSTEE

FOREIGN

TRUSTEE

THE ASSETS ARE STILL IN THE U.S…..

WHAT HAPPENS?

(INDEPENDENT COMPANY)

© 2009 Jeffrey M. Verdon Law Group, LLP

GREAT! THE ASSETS ARE PROTECTED, BUT MY CLIENT NEEDS THE INCOME AND/OR PRINCIPAL TO LIVE ON…

YOU FAMILY OTHERS DISCRETIONARY BENEFICIARIES

TRUST = LLC MEMBER 100%

(May Be Co-Manager)

OFFSHORE ASSET

PROTECTION TRUST

ASSETS TYPICALLY

HELD:

LLC MEMBER

INTEREST; S-

CORPORATION

STOCK; OFFSHORE

ACCOUNTS

OFFSHORE TRUST – OFFSHORE LLC COMBINATION STRUCTURE

TRUST PROTECTOR

(INDEPENDENT COMPANY)

CONTROL

OVER

TRUSTEE

Client emails or faxes

bills and other

expenses to offshore

trustee for payment =

lifestyle protection

Questions?

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