“Asset Protection” Isn’t a Scam

“Asset Protection” Isn’t a Scam

By Mark Nestmann • September 26, 2017

In the last few months, I’ve noticed an increasing stream of articles in the professional journals I read with the same theme: only tax evaders, fraudsters, and criminals pursue asset protection.

If I were a trial lawyer who earned his living by suing defendants with deep pockets, I might feel the same way. But you shouldn’t.

Take, for instance, an article I just read from the Journal of Forensic & Investigative Accounting (JFIA). The gist of it is that Bad People use wills and trusts to commit heinous crimes. What’s more, Bad People use the privacy-shielding aspects of these instruments to conceal their nefarious acts.

It’s certainly true that Bad People want to protect what they’ve stolen or laundered. The article makes some valid points, such as the fact that about 3% of wills are contested, mainly on the basis of duress or fraud. It also points out that neither federal law nor the laws of most states require that the terms of a trust – or the identity of trust beneficiaries – be made public.

But it then presents this whopper: the idea that the following acts are potential “badges of fraud” that point to possible criminal intent or money laundering:

  • Trusts that are funded with easily transportable assets such as gemstones, precious metals, coins, artwork, rare stamps, or collectibles.

  • The use of foreign bank accounts, offshore debit/credit cards and other similar instruments for no legitimate business purpose.

Get real. America is the most litigious society on earth. More than 80% of the world's lawyers practice in the US. Each day, they file around 50,000 lawsuits. Each year, the tort system – the area of law dealing with civil lawsuits – costs the US economy nearly $1 trillion. It’s no wonder some advocates of judicial reform call this cost to all of us the “tort tax.”

In the 30 years that I’ve been writing in this area, I’ve seen lawsuits over just about every conceivable dispute: divorce, the failure of a once-successful business, and disagreements among relatives following the death of a wealthy family member.

But some lawsuits are simply tragic. One of the saddest cases I’ve seen involved an elderly client. She was a few days late renewing the liability insurance on her home. In that period, a visitor slipped and fell on an icy sidewalk and suffered a broken leg. The victim won a $100,000 judgment. Since her insurance coverage had expired, she lost her home and wound up living in the basement of her daughter’s home.

If you’re sued – or if someone is sizing you up for a lawsuit –an enormous amount of data is available to determine if you’re a suitable target. With a few clicks of a mouse, financial investigators can find bank accounts, securities accounts, a list of all property you own, and much more. When I searched online for the term “find hidden assets,” Google returned 3.24 million results.

Unlike most other countries, in the US, lawyers can take cases on "contingency." The attorney receives no fees unless he can extract money from you. As a result, anyone with a chip on their shoulder can sue you and risk nothing more than time and energy.

Looking for a failsafe investment? You can now buy into funds to invest in selected lawsuits by buying a share of a future jury verdict or settlement.

Need money now? You can “sell” your lawsuit to a litigation funding company, get your money now, and let the pros litigate against the nearest deep pocket.

Under the circumstances, it’s no surprise that a growing number of Americans accumulate forms of wealth that don’t show up in an internet search: jewelry, precious metals, coins, artwork, rare stamps, antiques, or even bitcoin. Sometimes they even put them in a trust. Does that sound like fraud to you?

And how about so-called “offshore asset protection trusts?” Even the JFIA admits they can have legitimate purposes:

1) Economic diversification

2) Presentation of a low profile to disguise significant wealth

3) Tax and estate planning

4) Avoidance of forced heirship provisions [i.e. provisions in the laws of some countries, mostly non-English speaking, which dictate mandatory beneficiaries of a person’s estate]

5) Planned expatriation

6) Marital planning

7) Asset protection from potential future creditors

8) Privacy and confidentiality

But the article then goes on to highlight how offshore trusts can be used by tax evaders and criminals:

1) Hiding legitimate assets for the purpose of evading taxes

2) Integrating illicitly obtained funds into an economy as “clean assets” (money laundering)

3) Moving legitimately obtained funds to be used for heinous purposes (e.g., terrorism) into an economy as “clean” assets (reverse money laundering)

4) Hiding legitimate assets from creditors with bona fide claims and from spouses in divorce proceedings.

I can assure you that as one of the owners of a licensed offshore trust company (in Nevis), we are constantly on the lookout for these kinds of abuses. There’s a good reason for our diligence – if we failed to do so, we would not only lose our license, we could be criminally prosecuted. What’s more, if we knowingly help a client hide assets from a creditor, we could allow ourselves be sued.

Then, of course, we have “the use of foreign bank accounts, offshore debit/credit cards, and other similar instruments for no legitimate business purpose.” I suspect that most Americans – nearly two-thirds of whom have never set foot outside the US – would say there’s never any “legitimate business purpose” for their fellow citizens to hold assets overseas. Indeed, former Senate investigator Jack Blum once opined, “There is no legitimate reason for an American to have an offshore bank account.”

Again, it’s simply not true.

I own and operate a foreign business, so I suppose the JFIA might agree that I have a “legitimate business purpose” to have offshore accounts. But long before I owned this business, I held various foreign accounts. I opened my first one more than 30 years ago in an effort to convert some of my depreciating US dollars into Swiss francs. And yes, I eventually got an offshore debit card tied to one of my foreign accounts so I could withdraw cash from it when traveling abroad.

Indeed, I can think of numerous legitimate reasons to invest offshore that aren’t necessarily business-related:

  • Access to investments not readily available in the US

  • Enhanced protection from a drop in the value of the dollar

  • Getting a portion of your assets off the domestic asset tracking “radar screen”

  • The ability to trade non-US securities in the event of a disruption in domestic exchanges

  • For those Americans living outside the US, the ability to conveniently receive salary payments, pay bills, etc.

I suspect that none of the facts I’ve outlined will change the minds of those who believe that asset protection is illegal or immoral. It’s certainly true that a small percentage of individuals who engage in asset protection planning, are, in fact, Bad People. But it’s equally true that Bad People drive cars, consume electricity, and live in houses. Should we eliminate cars, electricity, and houses for everyone else?

The fact is, every US citizen is a potential target for a lawsuit. Plan accordingly. Get assets out of your name. Keep a store of invisible assets that can’t be tracked. And keep some of your hard-earned dollars offshore – even if some naysayers don’t approve.

Devastation in Dominica—How You Can Help

On Monday, September 18, the Commonwealth of Dominica suffered a direct hit by Hurricane Maria. The category 5 storm arrived in the early morning hours packing sustained winds of 160 mph.

The damage was devastating, as this video of Roseau, the capital of Dominica, demonstrates. Many government offices and the main hospital were virtually destroyed. Perhaps 90% of homes suffered major damage. At least 24 people are dead, but the tally will certainly rise as rescue crews reach isolated villages in the island’s remote interior.

I have a long association with Dominica and count numerous island residents as friends. Unfortunately, since all utility services have ceased, I have no way of reaching out to them. I can only pray they survived.

Pray for Dominica. And if you’d like to contribute to relief efforts, follow this link.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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