Posts Tagged asset protection
Sign Up Now for Our Next Asset Protection Webinar
Posted by Scott Martin in Headlines on April 8, 2012
America has become the world’s most litigious society. The Trust Advisor’s upcoming webinar on asset protection strategies can help shield your clients from lawsuits — but participation is free to subscribers and spots are limited, so sign up now.
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Adopt Your Girlfriend as Your Daughter Asset Protection Plan Shocks Planning Community
Posted by Scott Martin in News on February 21, 2012
Estate planners call “Adopt Your Girlfriend as Your Daughter” strategy to shield John Goodman’s assets from creditors bizarre. His lawyers say they have lost confidence in Bessemer Trust’s ability to manage Goodman’s children’s money after the girlfriend-daughter was added as a trust beneficiary. Others say that relationship now legally amounts to incest.
Depending on who you talk to, Palm Beach air conditioner tycoon John Goodman was either brilliantly expanding the frontier of traditional estate planning or hastening the end of western civilization when he adopted his 42-year-old girlfriend as his daughter and heir.
A dig into the details shows that while the move was way outside the box, it represents a remarkable response to a difficult and arguably unique situation.
Goodman is already facing 2010 drunk driving manslaughter charges that could put him away for the next three decades, so in that respect he’s past trying to protect his public image.
But with the court talking about starting the trial in the immediate future, his lawyers shifted to locking down his more tangible interests, including support for his girlfriend and control of a family trust reportedly worth $300 million.
After all, if the trial goes badly, his time as a free man will be extremely limited.
“It should be obvious to everyone that at the present time Mr. Goodman’s continued availability to ensure that the trust’s assets grow and continue to provide benefits for his children is uncertain,” explains Daniel Bachi of West Palm Beach law firm Sellars, Marion & Bachi.
Cutting through the hype
When the media heard that the lawyers had decided to have Goodman adopt romantic companion Heather Hutchins — barely six years younger than he is — it unleashed a frenzy of misconceptions about how trusts actually work.
For one thing, Goodman is not trying to hide his money from the parents of the young man whose car he hit two years ago.
The assets in the trust were transferred in 1991, so the notion that Goodman was trying defraud a civil suit 20 years down the road is vanishingly remote.
In any event, while the trust is currently run under Delaware law, it’s not an “asset protection” trust in any way, shape or form. Goodman is not a beneficiary or the trustee, so he has neither ownership nor control.
He’s signed affidavits to that effect.
The bottom line here is that naming Hutchins as his third “child” doesn’t add a layer of protection from lawsuits — it’s not Goodman’s money any more and hasn’t been for a long time.
And Hutchins isn’t immediately going to get $100 million or even $70 million to play with. She’s now a beneficiary entitled to draw on the income, but not the trustee.
That income stream allows Goodman to provide for her and her two young children from a previous marriage, without antagonizing rich relatives who might balk at carving out a big piece of the family fortune for the girlfriend.
Under a separate agreement, Hutchins agreed that only $10 million of the trust’s principal would ever pass on to her children. Subsequent amendments whittled her interest down even further, to $5 million.
So adopting Hutchins takes care of her if Goodman goes to jail. But there’s an even bigger game afoot here waiting to play out.
Fighting the trustee, not the plaintiffs
Goodman’s lawyers frame the decision to adopt Hutchins as a way to give her official status in the eyes of Bessemer Trust, which has been running the trust since 2009.
As far as they’re concerned, Bessemer failed to live up to its promises to accept Goodman’s direction on how the “special” holdings in the trust — including his house and the $14 million polo club that turned him into a pillar of Florida society — should be managed.
“Bessemer agreed to keep the management team that had grown and protected these holdings in place for many years,” lawyer Bachi explains.
“Instead, Bessemer took steps to change management of these holdings, which have significant financial and intangible value to the children.”
Goodman named himself and two business associates as obvious choices with “experience with the management of such special assets.”
However, ex-wife Carroll objected to the appointment, leaving Bessemer with the headache that many trust companies that accept “alternative” assets like private equity and real estate know so well.
While the trustee tries to maintain an iron curtain between the grantor and the operations of the trust itself, the fact remains that the grantor is often uniquely qualified to manage the assets to their best potential.
As it is, Goodman’s ongoing relationship with the polo club is now being used in arguments that he’s been secretly running the trust to his own enrichment all along, no matter what the trust documents say.
If that were the case, those assets may be exposed to legal action no matter how many children he adopts.
That’s where adopting his girlfriend as a legal child-beneficiary may give him a chance to keep his polo club and run it too — even if he ends up in jail.
Hutchins apparently knows how Goodman wants the club to operate. As beneficiary, Bessemer has to take her interests and informed opinions seriously.
And in return for her input, she gets at least $500,000 a year from the trust.
“The contract provides funds to take care of Ms. Hutchins and her family and to compensate her for the large undertaking of overseeing such a complex and closely held family business,” Bachi explains.
As for the incest argument, it only legally applies to blood relatives.
Besides, if Goodman goes to jail, it will only matter on occasional conjugal visits anyway.
Scott Martin, senior editor, The Trust Advisor. Jerry Cooper and Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/adoptedgirlfriend
Trust Firm Launches “Why Pay More for Trust Services” Marketing Campaign
Posted by Scott Martin in News on September 10, 2011
Alaska Trust says frugal fees are better for both clients and advisors alike. New low fixed fees and advisor controlled directed trust program makes Alaska Trust a top choice for trust services.
Best known as a provider of full-service managed trusts at made-to-measure prices, Alaska Trust has started turning heads for offering its directed trusts at a flat fee.
As part of the company’s push into the advisory market, it has eliminated basis point pricing and is simply charging a fixed, flat fee, typically $3,500 a year, for all directed trusts — large or small. Read the rest of this entry »
Hawaii Amends New Asset Protection Law in Bid to Grab Trusts from Other States
Posted by Scott Martin in News on July 2, 2011
Overhaul includes axing tax on inbound transfers and loosening other restrictions. Bank of Hawaii and First Hawaiian Bank urge change as old law received few trusts. Mainland experts are skeptical, saying “new rules don’t go far enough.”
The latest upgrade for the Aloha State’s trust code may be exactly what wealthy vacationers needed in order to eye the beauty and beaches of the islands and create a little asset protection fortress in the process.
But last year’s effort to woo trust accounts theoretically gave Hawaiian providers added tools — including the ability to shield trust assets from creditors — to compete with mainland jurisdictions.
As it turns out, once grantors learned Hawaii had wrapped these vehicles in unique restrictions and fees, the anticipated flood of out-of-state money never materialized.
“We saw very restricted movement of out-of-state trusts coming in” over the past year, says Jean Creadick, a vice president at the Bank of Hawaii.
New Nevada Legislation Strengthens its Asset Protection Laws
Posted by Steven Maimes in News on June 11, 2011
The competition among states is heating up as the different jurisdictions continue to modify their laws to make them more competitive.
Asset protection is a growing area of concern for many people, especially in a sour economic environment where lawsuits multiply.
Alaska and Delaware became the first states to allow specialized asset protection trusts — designed to protect the underlying property from creditor claims — in 1997. Nevada and Rhode Island soon followed, and now there are now 13 states that allow people to set up asset protection trusts.
But while the field has expanded, Nevada has remained at the forefront in making sure to continue to improve its laws.
On June 4, the governor of Nevada signed into law Senate Bill 221which significantly enhances the state’s already cutting-edge asset protection trust statutes.
Bret Afdahl Appointed South Dakota Banking Chief
Posted by Scott Martin in News on May 14, 2011
As the state’s new top regulator, Afdahl inherits oversight over $75 billion in trust assets and an ever-growing list of independent trust companies looking to take advantage of world-class statutes.
The nationwide search to find a replacement for Roger Novotny as head of South Dakota’s Division of Banking has ended with a local favorite — Bret Afdahl — getting the job.
Previously the division’s counsel and trust examiner, Afdahl is known as a “business-friendly” regulator who’s willing to get tough when he sees a problem at an institution, but is also happy to work with South Dakota’s 52 trust companies.
Given the fact that lawmakers are still making the state’s trust rules even more attractive — driving plenty of applications from cross-border banks, RIAs and other entities hungry for a South Dakota charter — that attitude almost certainly makes him the right man for the job.
No real surprise, locals say
The fact that South Dakota promoted an insider comes as no surprise to members of the local trust community, who’ve been telling me for awhile now that given Governor Dennis Daugaard’s own background as a trust administrator, promoting this business is a priority in Pierre.
As Sioux Falls estate attorney Daniel Donohue told me, the public job listing that hit the message boards back in March was probably just a way to make sure the state wasn’t cheating itself out of any spectacular long-distance candidates willing to take the reins.
“The public listing served largely to make sure they were casting the widest net possible,” he says.
But at the end of the day, few outsiders could ever know South Dakota’s universe of trust companies better than Afdahl, who helped review several of their charter applications over the last five years.
“An extensive search was conducted for the director position,” says Pam Roberts, the state’s newly anointed secretary of labor and regulation and herself a veteran of the banking industry.
“The best candidate ended up being from within the division, and I am excited for Bret to exercise his leadership capabilities and industry knowledge in this new role.”
New rules are already driving fresh applications
The latest improvements in South Dakota’s trust code should give Afdahl plenty of applications to review from both established out-of-state trust companies and start-ups.
In just the last few weeks, Michigan RIA firm Old Mission Investment Company filed the paperwork to start a South Dakota trust company — and, perhaps optimistically, registered various domain names to get the business moving as soon as it has its charter.
Old Mission CEO Christopher Lamb confirms that he’s applied, but understandably didn’t want to say anything that might prejudice the process.
For an eager entrant like Old Mission, South Dakota offers several distinct advantages. First, the state supports all major forms of trust arrangement, including dynastic trusts, asset protection trusts and directed trusts.
Coupled with relatively low capital requirements and the complete absence of state income tax, the state has successfully captured tens of billions of dollars from entrenched top-tier competitors like Delaware.
And the state is nowhere near ready to rest on its laurels. One of Governor Daugaard’s first official acts in office was signing House Bill 1155 into law back in March.
The bill, which Dan Donohue notes was written under the auspices of South Dakota’s long-standing task force for trust law reform, is yet another salvo in a long-term crusade to compete even more effectively for trust assets.
Previously, South Dakota’s asset protection statutes were considered better than most, but still somewhat weaker than those of archrivals Alaska and Nevada.
Both Alaska and Nevada allow people to “retroactively” protect their wealth by transferring it into trust, even if legal claims on that money are already on the table — except, naturally, where the transfer would be a fraudulent conveyance.
HB 1155 removes the preexisting claim exemption from South Dakota’s trust code, putting the state on more equal footing with Alaska in particular.
Once the new law goes into effect on July 1, we could see more trust assets flow toward South Dakota — and in any event, the decision to seek the strongest asset protection out there will get a little less clear-cut.
Moving fast to avoid policy drift
While some insiders had expected confirmation that Afdahl would be taking the regulatory reins from retiring boss Roger Novotny as early as May 4, the official announcement came last Wednesday.
Despite that extra week, the process seemed to move incredibly fast compared to the nine months it took to hire Novotny back in 2004.
Back then, South Dakota’s evolution into one of the biggest success stories of the trust industry was just getting underway. When Novotny took over, the state could boast maybe 17 state-chartered trust institutions with a little over $20 billion in assets between them.
Now, Afdahl inherits a thriving regulatory portfolio of 52 public and private trust companies that manage $75 billion.
He’ll also be responsible for monitoring the health of 62 banks, which only have $18 billion collectively and so demonstrate that in South Dakota, trusts are the main attraction.
And no wonder. While the state’s banks are in better shape than their counterparts elsewhere in the country, the number of depositary institutions the Division of Banking oversees has steadily declined over the last 15 years and their assets plunged in 2008 and 2009 during the credit crisis.
Afdahl may spend some time in his new job nurturing the trust companies, but he may find his biggest challenges rooting out the weakest lenders.
Scott Martin, contributing editor, The Trust Advisor Blog. Steve Maimes contributed to the editing and research.
Permalink: http://thetrustadvisor.com/news/afdahl
Deportation Trusts Become Hot Commodity with Rich Undocumented Immigrants
Posted by Scott Martin in News on November 28, 2010
As the quest to deport illegal aliens looms, wealthy immigrants with questionable status wait and worry about their dependents’ financial well-being. Some immigration attorneys and estate planners have engineered a cottage business creating trusts that protect assets in the event they are deported. But trust firms are cautious.
Practically speaking, the country’s 11 million undocumented immigrants have always been in a precarious legal position. But with federal and state authorities cracking down, the threat of sudden detainment or deportation is more real than ever.
In the face of that threat, wealthy foreign nationals are reaching out to estate planners to insulate their families and shield their property.
A simple power of attorney will do the trick in some situations, but others may require a full-fledged trust. That’s where things can get complicated, says Chuck Sharpe, a Dallas estate planner and co-founder of Wealth Advisors Trust.
To open a trust or bank account, a resident alien needs to register with the IRS to get an international taxpayer identification number (ITIN).
While many undocumented immigrants studiously avoid any contact with the federal government, plenty — 3.8 million of them — have ITINs and are paying taxes.
If members of this group can scrape up enough proof of identity to satisfy the trust company and if nothing in their background raises a red flag, the process of creating a trust can be relatively simple, Sharpe says.
“I don’t know of any requirements requiring you to be a U.S. citizen — or a citizen of a particular state, for that matter — to set up a trust,” he explains.
“The only special issue on that front is that you use the ITIN number in place of a Social Security number,” he adds.
Meet the deportation trust
The arrangements that estate planners are coming up with — call them “deportation trusts” if you like — need to work like a conventional asset protection trust, while building in a lot of the features of a will or estate plan.
Once the trust is in place, it works like a conventional asset protection trust. The settlor can use the assets as long as he or she is in the United States, and if a deportation order is ever served, the asset protection kicks in to make it harder for the authorities to freeze or confiscate wealth granted to the trust.
Meanwhile, the “estate plan” side provides instructions for winding down life in the United States in an orderly fashion: appointing guardians for children left behind, liquidating non-trust assets and paying debts.
“The one thing you probably want is to make sure you’re creating the trust in a jurisdiction that allows for self-settled trusts,” Sharpe says.
In the Southwest, that means your options boil down to the domestic asset protection states: Nevada or South Dakota as a first choice, followed by Utah or Colorado, whose statutes either make a lot of exceptions or are too vaguely worded for many lawyers’ comfort.
Since neither Arizona nor California — hotbeds of anti-immigration rhetoric — support self-settled trusts, wealthy aliens in these states would probably be better served by situating their assets elsewhere.
Pinning down the details
Naturally, the normal asset protection statute of limitations is in force. A Nevada deportation trust, for example, would need to hold the assets for at least two years before providing any benefit.
Because the deportation process rarely gives people longer than one year to wind down their U.S. affairs, it’s going to be too late to get the trust process moving if someone is already on Immigration’s radar.
This makes advance planning critical. And since the people with the assets to take advantage of these arrangements tend to also have top-notch advice, many started laying the groundwork back in 2006 when Arizona first got tough on undocumented nationals within its borders.
“Anybody thinking of doing it probably has some wealth,” Sharpe says. “And with that kind of wealth, they were probably already thinking of broader estate planning needs.”
In those cases, amending the existing paperwork to cover the possibility of forcible ejection from the country — and add asset protection, where needed — may be enough, estate planners say.
At that point, the real questions revolve around beneficiary and trustee choice and the tax ramifications of any grant or gift of property. Gift tax considerations, for example, may apply whether the beneficiaries are foreign nationals or U.S. citizens.
As for fees, Sharpe says that a deportation trust should be roughly as expensive to administer as a more traditional asset protection trust. Added costs may arise if there are a lot of foreign beneficiaries or other research-intensive details complicate the situation.
No ITIN, no trust?
But if no taxpayer ID or tax record exists, even routine trust company due diligence could raise a red flag and make an already precarious situation worse.
“If you are in this position and use a third-party trustee, you are definitely opening yourself up to additional government scrutiny,” Sharpe says.
ITIN or no ITIN, some trust companies may want to see more documentation than these people can provide.
“It’s a mixed bag” for those who can’t come up with the paperwork, says Les Revzon, who handles due diligence for Nevada’s Summit Trust. At a minimum, he says, trust companies want to see a valid driver’s license or government ID, plus a credit card and a utility bill as proof of address.
For truly undocumented immigrants, granting power of attorney to a U.S. citizen and designating a temporary guardian for any children should go a long way toward ensuring that a sudden shift in the enforcement environment doesn’t wreck their lives completely.
Stipulations in the power of attorney can act like a “living will,” spelling out exactly what should be done with assets left behind in the event that the signer is detained or deported.
Without granting clear authority, it can be tough to sell cars, real estate or businesses in order to send the cash back or free it up for family members who remain here.
Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and reporting.
Permalink: http://thetrustadvisor.com/news/ins
Don’t Count on Hawaii’s New Trust Law to Attract the Super-Rich
Posted by Jerry Cooper in News on August 21, 2010
Experts say Hawaii’s new asset protection law is “dead on arrival.” With a 1% user fee and onerous investment restrictions, few billionaires will find Hawaii a proper bastion for their family fortunes.
The economic pinch has even affected paradise. Hawaii is suffering from a decline in tourists and as a result is scrambling for new ways to bring more money to the state. Ambitious plans are underway that include the revival of the 1970s hit CBS TV show “Hawaii Five-O.”
As part of the revival initiatives, Hawaii’s trust firms and the estate planners have embarked on a bold campaign to attract the world’s super rich by making it the premier trust haven of the Pacific.
On June 28, 2010, Hawaii Governor Linda Lingle signed into law a new trust law designed to compete with Nevada, Delaware, Alaska, South Dakota and other domestic asset protection trust states by allowing local trusts to shield assets from creditors or, theoretically, the courts.
With the new law, Act 182, as ammunition, local legislators hope their state will become a powerful “sun, swim and protect” combo that entices mega-rich families who may be vacationing in paradise to leave more of their cash behind.
“We believe that trust business is very compatible with our visitor industry,” explains state senator Rosalyn “Roz” Baker, who sponsored the bill back in January.
“Yes, the rationale was to woo offshore assets to a repository in Hawaii,” she adds.
DEAD ON ARRIVAL
Even though Honolulu is optimistic that asset protection trusts will bring in revenue, estate planners do not see a credible threat to established trust centers on the mainland.
Although Act 182 puts Hawaii ahead of the 37 states that do not support asset protection trusts at all, unique twists ensure that the Aloha State will remain a poor second choice compared to other asset protection states
Under the new law, wealthy families must pay an unprecedented 1% excise tax on all money and assets they move into an asset protection trust.
Given the potential size of these accounts, this can add up to real cash for the state government—but why would anyone pay it if a few phone calls to Nevada, Delaware or South Dakota will provide the same benefits without the added charge?
“The law won’t work as intended,” says Dan Rubin, a prominent estate planning attorney with the New York firm of Moses and Singer.
“Without very bad legal advice, no smart billionaire is going to set up a trust in Hawaii even if they have a $10 million house on the beach if it requires participants to pay a 1% user fee to gain trust benefits.”
If the extra expense weren’t enough, Hawaii also restricts asset protection trusts to 25% of the grantor’s net worth—and prohibits transfers of real property into trust.
And unlike states like South Dakota or Nevada, trusts administered in Hawaii pay state income tax whether their trustees are locals or tourists.
Someone in Hawaii must have done some quick math to work out a formula for political success. According the state’s 2010 budget, Hawaii only had a $22.3 million shortfall. Therefore, if say only a few billionaires set up a handful of trusts, with a 1% excise tax, $3 billion would do the trick and generate $30 million in tax collections.
Finally, while Honolulu may hope Tiger Woods or other celebrities with contentious marriages will start flying in for sun, golf and protection, Act 182 does not shield assets from divorce—or even secured creditors.
Steve Oshins, a Nevada asset protection trust lawyer who rates asset protection trust states based on their benefits, agrees with Rubin that the new law is “dead on arrival.”
“I don’t even know if it’s got a lot of sizzle, let alone the steak,” he says. “Nobody’s going to use it.”
In fact, he gives Hawaii a failing grade where asset protection is concerned, and would be surprised if the new law will help the Aloha State carve out even 1% of the business currently dominated by Nevada, Alaska, South Dakota and Delaware.
“Laws need to be competitive with those of the Tier 1 states,” he explains. “Given the ability to forum-shop, nearly everybody from out of state uses one of these four states.”
NOT FOR TIGER WOODS…BUT WHAT ABOUT THE LOCALS?
With reviews like these, the state’s three institutions with trust powers—Bank of Hawaii, Central Pacific Bank and First Hawaiian Bank—may not win many accounts from the mainland after all.
Bank of Hawaii, far and away the biggest of the trio, does substantial trust business with locals, but so far this year its trust and asset management income has been flat or even slightly lower on a year-over-year basis.
Resident estate planners doubt that the new law will even give Hawaiian professionals and other wealthy residents an incentive to keep their assets at home.
“Now that I’ve chewed through this a bit more, I’m moderately certain we won’t use many of these,” says Hawaii-born financial planner Lesley Brey.
“I suspect that it will not be very appealing to most professionals,” agrees Honolulu estate planning attorney Ethan Okura. “I see no reason to keep marketable securities with a trustee in-state.”
In fact, Okura believes that only relatively “unsophisticated” locals will take advantage of the new ability to create an in-state asset protection trust.
“Many local Hawaii residents prefer to work with other local professionals, so perhaps there will be quite a few who utilize the new law—especially if the local banks promote it with their clients,” he says.
Dan Rubin predicts the Hawaiian legislature to wake up to Act 182’s problems and start fixing them fairly soon.
But for Hawaii to become a real national competitor, just putting asset protection on the menu is not going to be enough, Steve Oshins says.
“Because they have a state income tax, they wouldn’t have a chance,” he says. “If you had the best state law, then you can say that you’re going to charge a little more because you’re the best. But this is a mediocre law anyway.”
Perhaps the revival of the TV show Hawaii-50 may have the same good luck it did 40 years ago and attract tons of tourists to the islands. But for now, as Dan Rubin says “if this were 1997 and Hawaii introduced the first domestic asset protection statute, this law might be taken seriously.” He adds, “but this is 13 years later, and wealthy families expect a lot better.”
Jerry Cooper, senior editor, The Trust Advisor Blog. Steven Maimes and Scott Martin contributed to the research and reporting.
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