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LAWYERS
ARE
LIARS
The Truth about
Protecting Our Assets
Mark J. Kohler
LIFES PLAN PUBLISHING
PHOENIX, ARIZONA
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Page 2
Copyright 2007 by Mark J. Kohler, MPrA, CPA, JD. All rights reserved.
Published by Lifes Plan Publishing, LLC, Phoenix, Arizona.
Printed in the United States of America.
Except as permitted under the United States Copyright Act of 1976, Section
107 or 108, no part of this publication may be reproduced or distributed in
any form or by any means, or stored in a database or retrieval system,
without the prior written permission of the Publisher. Requests to the
Publisher for permission should be addressed to 7077 E. Marilyn Rd., #130,
Scottsdale, AZ 85254. (480) 423-9100.
This publication is designed to provide accurate and authoritative information
in regard to the subject matter covered. It is sold with the understanding that
the Publisher is not engaged in rendering legal, accounting or other
professional service. If legal advice or other expert assistance is required, the
services of a competent professional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations.
ISBN-13: 978-0-9797385-0-0
ISBN-10: 0-9797385-0-4
10 9 8 7 6 5 4 3 2 1
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I would like to dedicate this book to Jennifer,

my wife and best friend,
for her love and unselfish support of all my endeavors.
Also, to Dillon, Sydney, Allison and Molly,
the most amazing children a parent could hope for.
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Contents
Acknowledgments
Preface
Introduction - Why use the title Lawyers are Liars?
PART I WHAT DOESNT WORK
Chapter 1 Is Asset Protection a Waste of Time? . . . . . . . . . . . . . . . page 1
Why Asset Protection?
The Myths
The Goal of Asset Protection
The Proper Approach to Asset Protection
Is there an Ethical Question?
The Big Picture
Chapter 2 There is No Silver Bullet . . . . . . . . . . . . . . . . . . . . . . page 13
Deception #1
Round 1- This Structure is a Must for You!
Round 2- Elaborate is Better
Round 3- You Can and Should make Your Assets Disappear
Your Situation is Actually Different
Chapter 3 The Truth about Nevada Corporations! . . . . . . . . . . . page 27
Deception #2
Pitch #1- You Achieve More Privacy
Doing Business Exclusively in Nevada
Doing Business Outside of Nevada
Pitch #2- You Will Save more Taxes
Doing Business in Nevada as a Resident of another State with an
Income Tax
Doing Business in another State with a Nevada Company
Pitch #3- You Have Better Asset Protection in Nevada
Business Liabilities
Personal Liabilities
The Final Word
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Chapter 4 Land Trusts: Savior or Snake Oil? . . . . . . . . . . . . . . . page 47

Deception #3
What is the Hype?
A Comment on Illinois and Florida
Half Truth #1 Land Trusts Hide the True Owner of a Property
Half Truth #2 Land Trusts Provide Bulletproof Asset Protection
Half Truth #3 Land Trusts Avoid the Due-on-Sale Clause in Loan
Agreements
Half Truth #4 Land Trusts Save Taxes
Revocable or Irrevocable
When a Land Trust Makes Sense
The Final Word Savior or Snake Oil?
Chapter 5 The Realities of Off-Shore Planning Is it worth the cost? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 65
Deception #4
The Traits of the Current Off-Shore Promoter
A Comment on the Cost of Off-Shore Planning
Tax Avoidance Versus Evasion and Off-shore Planning
Terrorism and the Effect on Off-shore Planning
The True Deception - Jail Time
Does Off-Shore Planning Still Have a Place in Asset Protection?
Chapter 6 Partnerships and Marriage:
The Hidden Asset Protection Issues . . . . . . . . . . . . . . . . . . . . . . . . page 75
Deception #5
The Nature of Partnerships
Considerations to Plan for in a Partnership
Planning for a Successful Marriage and Maybe Even Divorce
The Last Word on Partnerships and Marital Planning
PART II WHAT DOES WORK

Chapter 7 Using the Multiple Barrier ApproachIts a War!! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 91
Similarities in the Approach to Warfare and Asset Protection
Assessing Your Need to Protect Yourself and Do Battle
Considering Your Ability to Do Battle
The Multiple Barrier Diagram
Continued Education and Maintenance
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Chapter 8 Choosing Your Colonels and Captains. . . . . . . . . . . . page 103

The Team Concept
Is there Such a Thing as an Asset Protection Lawyer?
Your Most Trusted Advisor is You!
Choose Wise Educational Opportunities
Chapter 9 Battlefield Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . page 119
The Fraudulent Transfer Act- A Must to Understand
Protecting our Personal Residence
Protecting Yourself from Your Auto(s)
Liability Insurance
Continually Evaluate the Battlefield
Chapter 10 Exemptions - The O.J. Simpson Model . . . . . . . . . . page 131
Homestead Exemption
Retirement Plans
Annuities
Exemptions Related to Income
Life Insurance
The Final Word on Exemptions
Chapter 11 The Must Dos
if you own a Business or Rental Property . . . . . . . . . . . . . . . . . . page 145
Operating your Business in the Proper Structure
Protecting the Corporate Veil
Liability Insurance
Managing Your Employees Properly
The Beauty of Entrepreneurship
Chapter 12 Barricade Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . page 161
Umbrella Insurance
Equity Stripping
Series LLCs
Charging Order Protection Entities COPEs
Chapter 13 Fortifying your Castle . . . . . . . . . . . . . . . . . . . . . . . . page 177
Trusts Generally
Spendthrift and Discretionary Trusts
Beneficiary Defective Discretionary Spendthrift Trusts
Domestic Asset Protection Trusts
Enforcing and Collecting the Judgment
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Foreign Asset Protection Trusts

Foreign Charging Order Protection Entities
FCOPEs versus Foreign Asset Protection Trusts
Multi Layering Your Barriers
Appendix A Business Entity Descriptions and Matrix . . . . . . . . page 195
Sole-Proprietorship
General Partnership
Corporations in General
C-Corporation
S-Corporation
Limited Liability Company
Limited Partnerships and Family Limited Partnerships
Business Entity Matrix
Appendix B Tenancy by the Entirety Table . . . . . . . . . . . . . . . . . page 211
Appendix C Homestead Exemption Table . . . . . . . . . . . . . . . . . . page 215
Appendix D Retirement Plans,
Annuities and Life Insurance Exemption Table . . . . . . . . . . . . . page 219
Appendix E Charging Order Protection
and Series LLC Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 229
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 233
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Acknowledgments
First and foremost, I must thank my beautiful wife, Jennifer,
and wonderful children, Dillon, Allison, Sydney and Molly, for
being patient and understanding with the additional workload
writing this book put on my time and energy. It certainly was a
sacrifice as a family to embark on this endeavor and I truly
appreciate their love and support.
It is also with great pleasure that I acknowledge the significant
contribution of Jim Piccolo and his team at Nouveau Riche
University for the incredible support they gave me throughout the
development of this book. Jims vision, guidance, and support, not
to mention his high standard for excellence was remarkable and
absolutely critical for what has become a life changing experience
for me while completing this project.
Thanks to my four tax-law partners Mat Sorensen, Jim Park,
Jason Helquist, and Theresa Fette-Warner for their countless
hours helping contribute to the concepts, technical reviews, and
accuracy of the information presented. Thank you to Dan Baldwin
for your outstanding job in editing and researching for the book.
A special thank you to my life long friend, law partner, and
brother Bryan Kohler. He has always given me sage advice about
what is best for me and my family, and offers me more support
than he realizes.
I must also acknowledged my incredible staff at the law firm
and accounting firm who were patient and understanding with my
sabbatical from the offices to write this book. My partner LaDell
Eyre was left to manage our accounting firm during a busy tax
season and I cant say thank you to him enough for his
understanding with my uncanny ability to spread myself too thin.
Specifically, I must thank my amazing friend and office manager,
Debborah Stanton, for her ability to hold our office and her family
together at the same time throughout this amazing ride we have
been on. Her talents never cease to amaze me.
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Finally, I wouldnt be where I am today without the most
supportive and loving father and mother; Marden and Joy Kohler.
I thank them continually for their unrelenting commitment to
encourage and assist me in anything I embark upon. My sister
Suzanne Kohler has given this same love and support to me my
entire life. I am truly grateful for such a wonderful family.
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Preface
Lawyers are Liars. This is a statement maybe some of us have
heard many times before. Maybe even in the context of a lawyer
joke where we laughed or snickered at the dubious reputation of
attorneys. Some of us may have even declared lawyers are liars
ourselves in a personal and frustrating brush with the legal industry.
But is it true?
I realize that the title of this book is shocking to some;
provocative and dangerous to others, and may even seem reckless
to a portion of those practicing in the legal community, but please
dont misunderstand my position. I am not stating that all lawyers
are liars; I am presenting the statement as part of a serious
discussion that needs to take place. Issues must be addressed
because of this regrettable declaration often made in public and
private circles.
With that in mind, early in 2006 I decided to write a book
about deceivers and liars in the asset protection industry, whether
they were lawyers or not. Every week my law and accounting
partners came across heartbreaking experiences where new, as
well as seasoned business owners, investors and simple everyday
run of the mill families were taken advantage of with expensive,
unnecessary, and even incompetent legal and tax planning.
Interestingly enough I also realized early on in this process that it
was often times not lawyers and CPAs that were misleading
and deceiving consumers with their strategies and structures
(although there are always a few bad apples in any bushel).
I noticed that for better or worse the term lawyers are liars
started to be a major theme or discussion point as I embarked
upon this endeavor. It was interesting how this statement about
lawyers would justify various parties on all sides of the issue to
promote or justify their position. Thus, I felt I needed to address
this inflammatory accusation, but at the same time I needed to
expose the schemes, deceptions, and lies perpetrated on the
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American public all in the name of proper, correct or effective
legal planning. The topic I wanted to broach first is Protecting
Our Assets. It is absolutely astounding how much misinformation
is circulated on this topic and how many scams are sold to the
unwary all in the name of asset protection.
Although my initial goal was to warn Americans about these
atrocities, I realized early on that I also needed to inform the
reader about truly effective asset protection strategies. Therefore,
this book will first call out the frauds, and I am simply not going
to rely just on my own opinion to do so. I will quote from every
expert in the country on this topic and use more than 270
footnotes to prove it. Second, I will teach what actually works in
protecting our assets. This book will most assuredly be an
authoritative treatise, written in laymans terms, to help inform
and assist those seekers of truth in this area of legal planning for
many years to come.
Teaching the truth is the theme of this book and the topics I will
cover in an entire series under the title Lawyers are Liars. Topics
such as Tax Strategies that Actually Work, and What Wall
Street Doesnt Want You to Know will be forthcoming in the near
future. I am convinced, as you may also believe that every industry
is fraught with a few fraudulent and deceptive individuals who
only seek to take advantage of the average American. I am sick and
tired of seeing the tears and hearing of the credit card charges and
empty wallet stories that consistently come through my office. The
goal of this book and the entire series of books is to protect and
point you in the right direction!
I truly hope you will enjoy and profit from Lawyers are Liars
and walk away with a working knowledge of the various tools and
techniques available in asset protection planning.
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Introduction
Why use the title Lawyers are Liars?
Its interesting because there are really four groups or schools
of thought when addressing this very inflammatory statement. I
think most would agree that no one wants to be called a liar, and
I also believe most people dont want to accuse another of being
a liar. So with that said why is the statement lawyers are liars
used, believed, or even mumbled under some peoples breath?
Group 1- Some people just dont trust lawyers because they
have had a terrible experience with an unethical or deceptive
attorney that truly left a negative impression on them.
Regrettably, some lawyers are simply liars. They ruin many
peoples lives and at the least give lawyers a bad name and image.
There is no excuse for it. Just as some journalists are biased, some
doctors are quacks, and some evangelists money grobbers.
However, we should remember and realize that this is not the rule,
but the exception.
There are many excellent, hard-working and dedicated
attorneys practicing all over the country. I am proud to be a
Lawyer and a Certified Public Accountant and Im grateful to be
a part of both professions. The practice of law is filled with
incredible individuals and honest people who truly serve their
clients day in and day out.
To those in this first group, I submit that this book can be a
solution to the problem (at least in the area of protecting your
assets), not another contribution to your pessimism. Please know
that I have carefully researched every book, continuing education
seminar, published article, and statement from the leading experts
in the country on this area of the law in order to present the truth
on this topic. Please give this book a chance to restore your faith
in the legal industry.
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Group 2- This is the group that loves to call lawyers liars.
There are a number of promoters, so called gurus who arent
lawyers, who present or sell us their self-serving strategies and
products that only line their pockets with lucre and leave us
holding an empty bag. They delight in calling lawyers liars to
justify their supposed integrity and goal of providing truth,
which lawyers for some reason or another wont deliver.
Promoters in Group 2 use statements such as:
Lawyers simply dont understand land trusts, but
I do, so listen to this
Lawyers dont want to teach you the truth, so
check out this strategy
Lawyers charge too much, but heres how I can
help you much more affordably
These statements make me sick!! Regrettably, I have seen this
dark side of legal planning in a field known as asset protection.
Almost every day in our office, my partners or I meet with people
who have been victimized by these wolves in sheeps clothing
who present devious, self-serving half-truths, threaded with fear
tactics, just to make a buck.
Please allow me to just make a few counter points to the three
statements above, which are really only a small fraction of
promoters propaganda. Let me get this straight; lawyers just cant
understand some strategies, this is why they dont advise clients
on them. I believe most would agree that some of the most
complex theories and concepts in a variety of intellectual topics
may be mathematics, philosophy, or medicine, but let me assure
you; legal analysis is a close second. But of course, land trusts are
just too complex for us lawyers to grasp, thus well leave it to
the college drop outs, if that, to be the gurus for the topics we
cant simply understand.
Moreover, if there is a legal topic lawyers dont readily
suggest, such as a Nevada C-Corporation for the solution to every
small business owners woes, maybe its because Nevada C-
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Corporations actually dont work for everyone listening to the
radio. Imagine that!! Trust me, if the legal theory actually works
and is effective, lawyers will sell it and encourage their clients to
implement it. But, maybe lawyers are just idiots, so well leave it
up to an internet based incorporation service company to point
you in the right direction. Obviously they are smarter than the
average lawyer and should be trusted because their late night
radio commercials sound so convincing.
Give me a break! Do I need to continue these arguments? I
dont think so. For the people that may listen to Group 2, this book
is to help YOU understand the most common deceptions
perpetrated on the public under the guise of protecting your
assets. I promise you that you will love this truth presented in a
clear cut method with the legal support to back it up.
Group 3- This is the group of people that saddens me the
most. They are by far the largest group. These are the unfortunate
people who are so frustrated with the legal industry as a whole
and the proposition that they may find a lying lawyer, that they
take the path of least resistance and do nothing. This apathy is
understandable, but tragically regrettable. Some of you may have
become extremely cynical, distrusting, and afraid, sometimes to
the point of becoming polarized and deciding to not pursue any
legal planning whatsoever.
PLEASE dont let this happen to you, and if it is already taking
place, please use this book as an opportunity to shatter your
preconceived notions. Not all lawyers are liars! The far, far
majority want to help their clients succeed and propose accurate,
honest and well supported structures and strategies to help them.
However, if you are in doubt as to how to find the proper
lawyer to assist you, this book is for you! It will give you a
foundation and an outline as to what truly does and doesnt work
when you are attempting to protect your assets. This book can
potentially save you thousands of dollars because you were able
to avoid a misleading structure, or even better yet, help you
effectuate the proper strategy that could save you from a cause of
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action or claim that causes the loss of your assets.
Thank you for your trust and confidence for reading further in
this book. I promise you that it will absolutely help you in your
effort to protect your assets and find an honest planner to assist
you in your implementation.
This Book Can Change your life!

Wow! Can a book about legal planning really change my
life, you ask? I know that sounds a little crazy or at the very least
somewhat ambitious, but I really believe Lawyers are Liars can
fundamentally change your life. The reason is simple. Learning
the truth about any topic set forth in an understandable and
interesting manner can be a liberating experience. It gives us
perspective and focus. The truth saves us time, money, frustration,
and in a nutshell, it can provide benefits that last a lifetime.
But, I know what you are thinking: this is such a boring
topic! Mark, how are you going to make enough sense of it to
grab my attention and teach me something helpful or a principle
that I will actually be able to remember? Better yet, how am I
going to convey the point to the professionals Im working with?
I know most of us have these same concerns about such a
complex topic, and so we just throw up our hands, shrug our
shoulders, and exclaim, Ill just let my professional advisors tell
me what to do. Thats what they are paid to do. That is exactly
what I dont want you to do. I want, no need, you to know enough
to spot the wolves in sheeps clothing and recognize the basic
strategies that actually work.
Part I of this book is dedicated to presenting the Five
Deceptions currently promulgated in the name of protecting our
assets.
1. The Silver Bullet Plan
2. Nevada Corporations
3. Land Trusts
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4. Off-Shore Planning
5. Partnerships and Marriage
In Part II of Lawyers are Liars I present strategies, techniques
and principles of protecting our assets that actually work.
With that said, I have to acknowledge that some may think I
am truly sick and twisted for actually thinking this topic is
interesting and exciting. However, throughout my career I have
met countless individuals who have been completely surprised at
how engaging this subject can be. One of my primary goals with
this book is to not only present the simple unadulterated truth, but
to also make it appealing and fascinating for the person who may
not otherwise want to pick up this book because of the subject
matter.
Although the truth can fill that hunger for knowledge on a
particular topic, if it is presented as a dry piece of toast it just
doesnt seem quite as satisfying. It is my hope that together we
can enjoy a dynamic and exquisite dinner on this topic.
There is a Path
I believe most of us have the same basic goals for legal
planning:
Protect our assets,

Save taxes,
Build wealth, and
Keep the process as simple as possible.
Regrettably, all of us also have a difficult time trying to find

the most efficient, effective and cost-effective way to reach these
goals. Even after I went to college for eleven years while owning
several businesses, and then sat for the Bar and CPA exam, it took
me several years working in several professional firms before I
figured out a proper perspective and truths in this area of the law.
At that point, I also started to discover the frauds and the many
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smoke and mirror schemes and scams in legal business
planning that even the most dedicated and specialized
professional can buy into, get sidetracked, and sell to their clients.
It is no wonder that the law as it relates to asset protection can
easily overwhelm the lay person. Nevertheless, there is a path. As
an insider I have listened, studied, learned and (finally) been able
to point clients in the right direction and actually make it fun and
exciting for both me and my clients in the process. Its been a lifelong and profitable journey and I hope you will be one of the
fortunate ones who can continue to enjoy the scenery along the
path with me.
What the Frauds Dont Want You to Know

I am going to make some enemies writing this book. I have
already decided to take that risk in my career. I am sick and tired
of self-serving promoters and so-called professionals selling
products, strategies and services, taxpayers and business owners
really dont need. Of course, there are a lot of books in the
marketplace presenting various types of asset protection plans or
guides. However, I havent found a single book where someone is
willing to stand up and take the heat for explaining what strategies
they think are deceptive, fraudulent, or simply ineffective
executions of poor plans. Someone has to take a stand against
these people and companies and I am going to do it here and now.
I hope to save thousands upon thousands of dollars for as many
people as I can by helping them avoid the traps and pitfalls in their
quest for a workable asset protection strategy.
Most books I could find on this topic that were actually
teaching the truth to the lay person had some helpful strategies
and hints, but were often filled with superfluous information;
nothing more than unique strategies that only some people could
use in isolated or complex situations. Most average Americans
were left in the dust.
I also found a number of books that were accurate, but
narrowly written on specific topics. Yes, they were helpful, but
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WHY USE THE TITLE LAWYERS ARE LIARS? xviiii

they didnt bring it all together as I attempt to do with Lawyers are
Liars. I want to set forth strategies that people can use in the real
world, in real life situations, and tell the truth about deceptions
and frauds along the way. Then, and only then, will the reader be
able to create a working approach and correct perspective to asset
protection.
This book is filled with actual, verifiable and usable content,
not just fluff or obscure strategies only a few Americans can
actually use. During my career, I have researched, read and
studied every commentary, book or article I could find from the
leading experts, professors, and working professionals in this area
of the law from around the country. I provide footnotes,
references and give credit to these amazing experts throughout the
book. Nevertheless, I have worked hard to write the primary
content in laymans terms in an enjoyable and interesting format
so that everyone can profit from this book. Detail and references
to more complex discussions on a variety of topics are included in
every chapter of the book.
Thank you again for sharing your valuable time and energy in
reading this book. I am confident it will be a benefit to you.
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PART I
The Five Deceptions
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Page 1
Chapter 1
Is Asset Protection
a Waste of Time?
Lawyer, n. - One skilled in circumvention of the law.
Ambrose Bierce, The Devils Dictionary
This is the golden question I hear in my office and at
speaking engagements around the country every day. People
desperately want to know the truth about protecting their assets.
They realize that it is such an important element of their personal
and business lives. I honestly find that people are concerned and
interested in doing something, but genuinely confused about the
many different concepts, services and packages being marketed to
them.
Here is the unvarnished, simple truth. Asset protection is not
a waste of time, money or effort. It is an important consideration
for each of us regardless of our current economic status.
Unfortunately, many Americans are being sold products or
services that dont provide any asset protection whatsoever. Often
these products and services are scams. Of course, one of the main
purposes of this book is to expose the scams, frauds, deceptions,
and the half-truths that are consistently sold to the unwary who
are sincerely seeking protection for their assets. Another purpose
is to explain the concepts and strategies that actually work in the
realm of asset protection.
Again, I pose the question, Is asset protection a worthwhile
endeavor? Absolutely!
Elizabeth Schurig and Amy Jetel, two well known and
respected lawyers working daily in this area of the law have
recognized the same threat all of us feel to our assets. They
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summed up American citizens concerns with the following:
the United States judicial system has
developed in a way that causes many wealthy
individuals to feel exposed to legal judgments that
are wholly disproportionate to any actual
liability1
I believe many of us agree with the above statement. We
realize we are responsible for our debts, obligations and the harm
we may cause others, but we also believe the payment or
punishment should fit the crime. Huge financial windfalls and
damage awards perpetuate the problem, not solve it. Asset
protection is sometimes the only mechanism to keep litigators and
their clients greed in check.
However, the fear is real and it affects more and more people
of all types of backgrounds and levels of income. Consider an
article in Newsweek that addressed this very crisis and
interviewed a variety of individuals stating:
Americans will sue each other at the slightest
provocation. These are the sorts of stories that fill
schoolteachers and doctors and Little League
coaches with dread that the slightest mistakeor
offense to an angry or agitated parent or patient
will drag them into litigation hell, months or years
of mounting legal fees and acrimony and
uncertainty, with the remote but scary risk of
losing everything.2
Understanding that most of us recognize the need for some
type of asset protection planning in our lives, I submit that the first
important step is to approach the endeavor with a proper
perspective. If not, we can easily end up spending more time,
energy and money than it is worth.
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IS ASSET PROTECTION A WASTE OF TIME? 3
Why Asset Protection?

Some of you have been lucky enough to have never been
through a lawsuit, had a debt collected, hired deadbeat employees,
filed for divorce, or been through the dissolution of a partnership.
Maybe some of you dont realize the harsh reality that you could
lose all of your assets in a amazingly short period of time. In fact,
many of us just dont think it can happen to me, but it most
certainly does happen every day, to ordinary people just like you
and me. For the unwary and the unprepared the consequences of
sloppy asset protection (or no protection at all) can be financially,
emotionally and mentally devastating. Please know that Im not
being overly dramatic. Regrettably, all too often Ive seen bad
things happen to good people.
Even if you believe that the chances of a financial loss are
remote, I think you would agree that there are still obvious risks
we take every day with our assets. I think you would also agree
that at least some level of asset protection is a matter of good,
basic common sense. Face it, who wants to build up a reasonable
nest egg for retirement or a family estate for future generations
only to see it disappear in an unexpected situation or transaction?
Our society is certainly more litigious than it has ever been.
Statistics show that civil cases in state courts have increased an
average of 14 percent over the past 15 years,3 and federal cases
have increased an incredible 356 percent over the same period.4 A
number of commentators have referred to this current time in our
judicial system as a lawsuit explosion.5
Obviously, many of us have also had personal connections
with friends or family members who have had brushes with the
legal system, if not actual lawsuits. Many realize that one doesnt
have to be served with a lawsuit, but simply receive a threatening
letter from an attorney to know that our assets can be threatened.
Is it realistic to believe there are genuine asset protection
solutions for Americans at every income level? Absolutely, and
the process and options are simpler than you realize. I am
confident that within the next few pages you will experience a
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sigh of relief and feel that you finally have clear direction on how
to approach protecting your assets. Thank you for taking the time
to read this information and have an open mind to its content. I
promise you that the effort will pay dividends for years and years
to come.
The Myths
Before we talk about what asset protection is, lets talk about
what it is not. You will certainly encounter numerous
misconceptions and urban legends on this subject. Its important
to dispel these dangerous and damaging lies because, as the
proverb states, Show me a liar, and Ill show thee a thief. Lets
begin our asset protection journey by first destroying these myths.
Myth #1- Asset Protection is an all or nothing proposition.
Wrong. You can start now by taking small steps to protect your
assets and add additional protective barriers as your income,
assets, and your needs change and grow. Small steps help lead us
to take bigger financial steps. A well known author on asset
protection strategies, Arnold S. Goldstein, states You will find
there is no single correct formula or quick fix.6 It truly is a
process of starting with basic planning and doing the little
things until your circumstances become more complex.
Ultimately, you will tailor systems, structures, and strategies to
your particular situation.
Myth #2- Asset Protection is expensive and I have to go to an
attorney for a complete plan. Wrong again. Asset protection can
be as simple as taking advantage of certain statutory exemptions
in your state, refinancing your personal residence, buying
additional insurance, or placing your assets and businesses in a
more advantageous structure or business entity. Jay D. Adkisson
very carefully points out that, When attempts are made to place
assets out of the reach of creditors, one of the first-line strategies
is focused on the most effective uses of the asset exemptions
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allowed under Federal and State codes.7 In Chapter Ten I
discuss the simple and basic exemptions you may already be
entitled to that dont require hiring an attorney to use. It doesnt
start with paying an attorney; it begins with understanding your
options.
Myth #3- I dont have anything to protect, so I dont need to
worry about asset protection yet. Wrong. Wealth is relative and
you dont have to have millions of dollars to require asset
protection planning. The equity in your home might be only
$50,000 to $100,000, but that could represent years of hard work
and struggle in making a house payment every month. You can
certainly take a few simple steps to protect your homes equity
without creating an elaborate structure.8
Myth #4- I have an insurance policy and thus Im completely
covered. Wrong again. Do you really want to risk all of your
assets on the opinion and whims of an insurance adjustor as to
whether or not your claim should be paid? Duncan Osborne, an
attorney who teaches the truth in asset protection has warned
others about this false sense of security and stated:
While liability insurance was once the trusted
shield from potential economic devastation
resulting from a civil judgment, individuals with
deep pockets are increasingly susceptible,
irrespective of their insurance coverage.9
Now please dont misunderstand me. Insurance is an
important part of protecting our assets. I discuss it in detail in
Chapter Seven and highly recommend its use. However, I also
think it is ridiculous to put all of our eggs in one basket. Please
dont think that insurance is the be all and end all to a properly
conceived and implemented asset protection plan.
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The Goal of Asset Protection

I submit that the true goal of asset protection is to implement
a comprehensive design of procedures and structures to
minimize the occurrence of a law suit and minimize the losses if
a cause of action ultimately arises.
The definition is really that simple. Lets reduce the chance of
a lawsuit and, if a claim arises, minimize the damage. It is not a
process of some mysterious covert all-or-nothing approach sold in
a package at some seminar near you. It is also not to hide or
isolate our assets in a structure that no one can ever find. I discuss
the fallacy of trying to disappear or completely hide our
transactions and assets in Chapter Two. Here is how a number of
experts have defined the goal of asset protection:
The whole purpose of asset protection planning is
to insulate some portion of a clients asset base
from the claims of creditors. John E. Sullivan,
III10
In practice, asset protection is risk management
planning that is designed to discourage a potential
lawsuit before it begins or to promote a settlement
most favorable to the client- Jay D. Adkisson11
(asset protection) plans must be drafted to
deter litigation. The plan must provide an
incentive for an early and cheap settlement if it
fails to deter the litigation in the first place. Barry S. Engel12
Please dont think that asset protection is simply protection
from a lawsuit, a claim originating from a car accident, or
someone hurt on your property. The liability could arise from a
partnership gone bad, a disgruntled employee, divorce, or even
one of your family members in a car accident. Consider this. If
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you have assets, its likely that someone at some time will go after
them justified or not. Doesnt it make good sense to be prepared
for such an unpleasant and potentially disastrous situation? In
sum, I want to make the point that we accomplish our goal of asset
protection when we reduce the chances of a loss and have a plan
to minimize the damage in case there is a problem. You have
options. Use them.
The Proper Approach to Asset Protection

I propose that the proper mentality for asset protection
planning is the realization that there is a tool box of strategies,
processes and procedures that we can choose from in our tailored
asset protection plan. In fact, I suggest that there are already a
number of things all of us can be doing with little or no additional
cost. These little steps will progressively afford us greater asset
protection as our assets grow and our life becomes more complex.
Do we have to go to the extreme of asset protection strategies
and set up costly structures that create administrative nightmares
and make managing our financial affairs miserable? Absolutely
not! Adequate asset protection does not have to be overly
complex, time consuming, or inordinately expensive.
I feel strongly that we should only implement strategies and
procedures when needed and only after we carefully evaluate the
costs and benefits of each strategy. Think of the asset protection
mentality as loss prevention. Simply stated, What can I do to
make sure I protect my wealth and minimize my losses in every
business transaction I make?
Once you have a proper mindset in regards to protecting
your assets, the proper approach is to set up multiple barriers
between your assets and liabilities, whether personal or
business. The more barriers you have, the less likely you will
face a lawsuit, or in the event a suit is filed against you, the better
chance a settlement will be reached and minimize the loss to your
assets. Compare what the outcome may be with outright exposure
to liability without any layers of protection. I term this all
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encompassing strategy to asset protection as the Multiple Barrier
Approach. In Chapter Seven I cover the details of the Multiple
Barrier Approach and the various levels of asset protection.
However, to set a stage for the Five Deceptions in Asset
Protection we will be studying, I feel it is important to introduce
this concept.
Lets consider for a moment the one dimensional or one-size
fits all approach. What happens if our structure fails? Obviously
we are completely exposed. A more layered approach makes
complete sense. On the other hand, do several barriers provide
absolute protection? Certainly not! Ultimately, a creditor with
deep enough pockets and a competent lawyer (note: competent)
will pierce even the best designed asset protection plan.
Moreover, the government will have even greater success in
tracking and finding you. The power of federal and state agencies,
with virtually unlimited resources, can pursue us to the corners of
the earth and more than likely reach our assets. We certainly
cannot find any protection for our assets when we act fraudulently
or criminally.
Many of us, probably most of us, will never be in a lawsuit,
civil or criminal, that would challenge the extreme levels of our
asset protection plan. However, we definitely want to keep some
layers of asset protection between us and judgment creditors,
whether from a car accident, a renter in one of our properties, or
even a dissatisfied business partner or customer. In such
eventualities we want to force our creditors to jump through
various hoops and avenues of recourse before they could ever
reach our personal assets. Potentially, they will desire to settle for
less because of the cost and effort to penetrate our asset protection
plan.
Now the underlying theme of the Multiple Barrier Approach is
that the more barriers you have, generally the better chance we
have of protecting our assets. However, we must also understand
the more barriers we implement the more time, cost and headache
we might incur in the process. Understand that the Multiple
Barrier Approach employs a variety of options that we can
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choose from based on our personal circumstances, our budget,
and our tolerance for additional administrative duties. The next
step will be to implement the plan that fits your personal situation
based on how much time and money you want to spend setting it
up and maintaining it. Again, please see Chapter Seven for a
complete discussion of this topic, but also keep this concept in the
back of your mind as you read the rest of Part I.
Is there an Ethical Question?

I suppose this is a question each person needs to answer for
himself or herself and I dont intend to impose my belief upon
anybody. Is asset protection unethical? Allow me to offer my
moral opinions on asset protection, and essentially the ethical
theme for this book. I have carefully drafted the following four
principles that provide the basis for my ethical position on this
topic. You can decide your personal position regarding these same
ethical questions and principles.
Principle #1 I Fight fire with fire. Its no secret that there are
very unscrupulous people out there. When one is willing to admit
he or she has assets, it follows that someone may want those
assets and will stop at nothing to get them. Now if they cant steal
them in the middle of the night, indeed they may resort to
shopping around until they find an unscrupulous attorney who
will have no qualms about filing a frivolous lawsuit against you.
Because of this, I feel completely justified in using any legal
barrier I can place between my assets and liabilities after carefully
analyzing the costs and benefits of any particular strategy.
Principle #2 I do not hide assets from potential creditors.
In Chapter Two I cover the realities of secrecy and even if it is
possible, but I also want to ask, Is it the right thing to do? By
trying to hide my assets, I start to play the same games the
unscrupulous litigators coming after me play. I feel a higher
road of planning has more strength in the court room when a
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judge is deciding which party is legitimate and ethical and who
should win the case.
Principle #3 I carry adequate insurance and operate my
personal and business activities in a reasonable manner. I dont
place my assets in various structures so I can act more recklessly,
negligently and certainly not fraudulently. Good asset protection
planning is not a license to act with disregard for other persons or
their property.
Principle #4 I dont feel I should be exonerated if I am
responsible for harming someone. Nor should I be released from
a debt or liability I promised to personally pay. Nevertheless,
there should be a calculated limit to the liability of my exposure.
I want to choose that limit, not a court, mediator or arbitrator.
The Big Picture

Asset protection planning is an important consideration not
only for ourselves, but for our businesses, our families, and our
futures. Asset protection is about the people around us. Being
responsible for our actions and debts we may incur. Its also about
setting the limits for those gold diggers that may seek to part us
from our assets unjustly. Asset protection is a leaven in the mixing
bowl of the various practices of the law. It provides balance
against the litigators who wished their foes never considered asset
protection. Protecting our assets is a basic planning process all of
us need to be committed to.
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Chapter 1 Footnotes
Asset Protection Strategies- Wealth Preservation Planning with Domestic and Offshore Entities
1, Volume II, (Alexander A. Bove, Jr. ed. 2005) (Emphasis Added).
2
Stuart Taylor Jr. & Evan Thomas, Teachers. Coaches. Ministers. They All Share a Common
Fear: Being Sued on the Job. Our Litigation Nation-and a Plan to Fix It, Newsweek, Dec. 2003
(available at http://msnbc.msn.com/id/3660738. Last visited March 10, 2007).
3
Access to Justice, Costs, and Legal Aid, 54 Am. J. Comp. L. 293, 296-297 (Fall, 2006)
[hereinafter Access to Justice]. In regard to state court litigation, the most recent data measures
the period from 1993 to 2002, showing that during that time: (1) civil cases increased by 14
percent in state courts of general jurisdiction, and by 10 percent in state courts of limited
jurisdiction; (2) domestic relations cases increased by 14 percent; and (3) criminal cases
increased by 19 percent. Combined civil, criminal and domestic relations cases have grown 15
percent from 1993 to 2002Reliable estimates for this are nearly impossible because of the
variety of lawsuits and the varying number of parties in each suit, ranging from one plaintiff and
one defendant to thousands of parties. The most recent data available for both state and federal
litigation is for the year 2002. In that year, there were 97,887,356 actions filed in state trial
courtsThe 2000 census estimated the United States population to be 281,421,906 as of April 1,
2000. With this rough comparison of 2002 filings to the 2000 population, there were a little
under 100 million legal actions filed in state and federal courts in 2002 for a population
somewhat over 281 million. This number fails to account for the number of parties in each suit,
and for the number of disputes with parallel or multiple filings (that is, P sues D who in turn sues
P for a mirror-image claim in a second court); see also http://www.ncsconline.org.
4
Access to Justice, supra, at 298 (From 1960 to 2004, civil filings increased from 59,284 to
281,338 (475 percent) while the number of judges increased from 245 to 679 (277 percent).
From 1977 (this second table's starting year) to 2004, civil filings increased from 133,929 to
281,338 (210 percent); during this time federal question filings increased 284 percent (from
58,083 to 165,241) while diversity filings increased at the lesser rate of 213 percent (from 31,735
to 67,624), showing not only growth, but that growth is more attributable to Congress's
federalization of the law than it is to diversity litigation); see also Table 2.11, U.S. District
Courts, Civil Cases Filed, Terminated, Pending (found at
http://uscourts.gov/judicialfactsfigures/table2.11.pdf) and http://uscourts.gov for various tables on
this information.
5
See Richard O Jacobs & Tye J. Klooster, Asset Protection Tools for Florida Professionals:
Strategies to Pursued and Strategies to Avoid, 4 Fla. St. U. Bus. Rev. 1 (2004-2005); See also
Arnold S. Goldstein, So Sue Me! How to Protect your Assets from the Lawsuit Explosion,
(2005) [hereinafter So Sue Me!]; Conversely see Access to Justice, supra, at 296 (Some
commentators also argue that the lawsuit explosion is questionable at best, and we may be just
average); See also John Cochran, A Simple Case of Complexity, CQ Weekly, Jan. 31, 2005 at
230 (Critics were condemning the litigation explosion twenty years ago, and their accuracy then,
too, was questionable at best).
6
So Sue Me!, supra, at 3.
7
Jay D. Adkisson & Christopher M. Riser, Asset Protection Concepts & Strategies for
Protecting Your Wealth 5 (2004).
8
See the discussion on the Homestead exemption in The Judgment Proof Society, Washington &
Lee Law Review, 63 Wash. & Lee L. Rev. 603, 613 (2006). (As we will see, the judgmentproofing strategies available to individuals have been enormously popular and successful. In
large part, that is because many of these strategies are, as it were, automatic. Individuals who
accumulate wealth in customary forms such as homes and retirement plans do not need to resort
to more complex strategies such as asset-protection trusts. Their assets are already sheltered by
operation of law.)
9
Duncan E. Osborne & Elizabeth Morgan Schurig, Asset Protection: Domestic and International
Law and Tactics, 1-4, Volume I, Thomson West, Rel.4 (Nov. 2006).
10
John E. Sullivan, Asset Protection Plans & Bankruptcy: Some Possible Issues 78, (Asset
Protection Planning Update, June 16, 2005).
1
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11
Protecting Your Wealth 95 (McGraw-Hill 2004).
12
Barry S. Engel, David L. Lockwood & Mark Merrik, Asset Protection Planning Guide A State
of the Art Approach to Integrated Estate Planning, CCH Incorporated, 101.04 (2000).
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Chapter 2
There is No Silver Bullet!
A lawyer with his briefcase can steal more than a hundred
men with guns.
Don Corleone in The Godfather
There is a group of lawyers, promoters, gurus, coaches, selfprofessed experts, or whatever they want to call themselves, who
are guilty of perpetrating a number of deceptions on the American
public. Deceptions that can be harmful, hurtful and downright
dangerous to the very people theyre supposed to protect. These
are different from the myths I wrote of in the previous chapter.
These are worse. The so called asset protection professionals
use the myths and half-truths to have success selling their prepackaged hogwash.
Although there are a number of variations on these
deceptions, in my opinion there are principally five deceptions
that are perpetrated on the public in this area of legal planning
every day in America. Lets start with the first lie, which is the
bedrock of the asset protection seminar industry.
Deception #1
The Lie
There is a Silver Bullet plan just for you! Some
promoter or professional is out there today stating, If you do
the followingno one can touch your assets and you will be
protected. They do not mention the administrative costs or
tax consequences and how the structure or strategy is actually
administered. They only present the half-truths of successfulbut-unique strategies and then sell them to the unwary.
13
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The Truth
There is no one-size fits all asset protection plan. The
essence of asset protection is a comprehensive approach to
procedures and structures tailored to your situation that
evolve at the same pace you acquire your assets. Watch out for
anyone who says he or she has a bullet-proof or ironclad
structure just for you, especially, if it is at a seminar with tables
loaded with books and CDs in the back of the room and
representatives waiting to swipe your credit card.
This is probably one of the most devious techniques in the

marketplace because it completely bypasses your personal
situation, individual needs, and specific goals for the future. This
technique ignores how you might actually benefit from a different
approach or by implementing a plan on a different time table than
the next person on the hit list. Despite what the lying lawyer
says, he or she is using a one-size-fits-all mentality guaranteed to
sell the strategy or structure ahead of your real needs and desires.
I have often heard from people who attended a seminar by one of
these promoters and felt like they were beat up by the end of the
experience. Almost as if a professional boxer had used them as a
punching bag and they were knocked out in the third round and
forced to buy their product in the back of the room. Ill dissect
their tricks of the trade so you can better protect yourself from the
body blows.
Round 1
This Structure is a Must for You!
This statement is a very devious one and part of the Silver
Bullet sales pitch. It assumes this plan works for everyone and
it plants the seed that you must do something now. If you dont
implement this cookie cutter approach today you will expose
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THERE IS NO SILVER BULLET 15

your assets and could lose everything. Or so they say. The
promoter creates a sense of fear and urgency for the sole purpose
of closing the sale. They want to scare you into buying. The
strategy could be the formation of an entity, a trust, the purchase
of some sort of training package to bullet proof your assets or any
of a number of scams and schemes. Watch Out!
Ask yourself, What can or should I do now based on my
current situation? What is the best plan for the individual
namely me? These snake oil salesmen want you to think they are
offering an all or nothing proposition that needs to be decided
upon today. They dont want to propose that there are things you
should or could be doing now, and other things you could do in
steps or stages in the future. Please understand that you dont
have to set up everything right now. Just start doing what you can
afford to do and what is absolutely necessary. Then let your plan
evolve at the same pace your asset acquisitions evolve or
liabilities increase.
Doesnt that make complete sense? Why dont these
professionals provide you with various options? If we think
about it for a moment, acting now and in stages according to our
individual needs not only makes sense, but it feels right in our gut.
It also doesnt make the promoter any money in their seminar
today does it?
Trust your instincts! Look at it this way, all of us have different
occupations, live in different parts of the country, have different
types of liabilities and assets. We also have different sizes and
types of families. How can we begin to presume we would all
have the same type of asset protection plan? It is far better to
implement the proper structure and strategy at the time you
actually invest in the asset instead of setting up a structure in the
hope of using the plan in the future. Invest the time to do it right.
The more time you put in up front, the better and more effective
your plan will be over time.
Alexander Bove, a well known author and a leader for
professionals in this area of the law has cautioned that:
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A common mistake made by planners is to
narrow their focus to the asset protection aspects of
the planning and ignore the basic estate and tax
planning methods that they otherwise utilize on a
regular basis.1
I couldnt agree more. Planning in a vacuum does a complete
disservice to the client and can do more harm than good. Please
watch out for the planner or promoter who isnt tailoring your
plan to your situation and is recommending boiler plate
solutions that may be unique and helpful in certain limited
circumstances, but not yours.
As I stated earlier, often the deceiving professionals create
a sense of urgency to begin planning immediately and purchase
their product. Are they completely unjustified or is there
something I still should be doing now, even if I dont have a lot of
assets? Do I set up my asset protection strategy after I build up
my assets or set-up a structure before my net-worth grows so that
I avoid problems during my wealth building years? These are
certainly valid questions and I agree that there are things you can
be doing right now to better protect your hard earned assets.
Its a process not a finale. There is not a culminating event in
your plan that says Youre finished. Its an ongoing song or
play. Remember the Multiple Barrier Approach I introduced in
Chapter One and discuss in detail in Chapter Seven. The
cornerstone of this approach is to implement structures,
documents or systems (otherwise referred to as barriers) along the
way, as we grow and when needed, not all at once at the
beginning.
Although the chicken before the egg quandary is a
legitimate concern in asset protection planning, it should not be
used as a fear tactic to close the sale. The promoters are distorting
the question and purposely so. They obviously want you to
purchase something today, rather than take your time, plan, and
ultimately make the most pragmatic and effective decision for
your individual needs and desires. That little bit of wisdom is
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what the devious promoters dont want you to know.
They will argue there is no benefit in doing it in pieces. Act
now or face the consequences. Of course, the consequences of
acting now without proper thought and planning can be
sometimes worse than doing nothing at all.
Round 2
Elaborate is Better
If the promoter didnt knock you to the mat in the first round,
they will now add the argument that you need an elaborate
structure to effectively bullet proof your assets. Sounds
plausible right? The more complicated, the harder time a creditor
will have getting at my assets. Well, maybe so, but do we know
what we are signing up for in regards to administration. Ask
yourself, Do I really need such a complex structure in my life at
this time?
We must first ask What exactly are we trying to protect?
The answer may seem obvious: our assets. Thats true in general
terms, but I really want you to think deeper. Realize that some of
us have different types of assets, various income levels, and we
may not yet be a millionaire. Each of us needs our own plan and
the Cadillac of asset protection structures may be far more than
we need. Of course, one of the best ways to protect your assets is
to avoid spending them unnecessarily.
Governments tend to get bigger and as they grow the service
they provide to their citizens decreases exponentially. As Albert
Einstein said, Bureaucracy is the death of any achievement. Just
because something is big, elaborate and/or expensive doesnt
mean it can achieve its stated goals. Approach your asset
protection plans with that in mind. Your plan should do precisely
what it needs to do and no more.
I have many new clients come in financially and often
emotionally damaged after purchasing a one-size-fits-all package
that in reality doesnt protect them the way they thought it would.
I also have clients who were just getting started asset building and
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were sold an elaborate and so-called bullet-proof package that
was clearly premature considering the amount of investing they
could handle at the time. Sometimes these cases border on the
tragic.
I really feel its important before people embark on the quest
for asset protection that they ask themselves the question, What
am I trying to protect and/or do I have anything worth
protecting? This is such a critical question that I am constantly
asking my clients to review their situation and honestly answer
the question themselves before embarking on a more demanding
structure or system in their life. The administrative costs in time,
money, and headaches could be overwhelming. Please keep in
mind the old proverb that The devil is in the details.
Of course choosing the proper strategy for the correct asset is
an obvious consideration, but sometimes people dont realize that
starting an elaborate asset protection strategy may be premature.
Purchasing an elaborate pre-packaged asset protection
structure is akin to buying a smaller and very expensive pair of
jeans and hoping to lose weight so you can work into them
someday. You may have a sincere intent to lose those extra 20
pounds, but maybe you wont reach your goal and your expense
for the jeans could be money wasted.
True Story
Susan went to a purported asset protection seminar where scary
newspaper articles were shown and stories told that impressed
her to implement her bullet-proof structure as soon as possible
and certainly before she started her small business or purchased
any real estate. She was sold a C-Corporation, Limited
Partnership and Charitable Remainder Trust. There were a
number of tax savings representations made to her at the same
time. Regrettably, none of the structures were tailored to her
specific situation based on her plans for future business
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ownership. She was told it was a must before she started.
She came to my office to see how she could implement this
package she had spent several thousand dollars on. I quickly
determined, as she did, that the administrative cost would far
outweigh any benefit she would see in the short or even the long
run. Wisely she decided to set up a much more simple structure
and reserve the options for more elaborate planning in the
future.
Once she was in a no-pressure setting without any hype and was
presented with a solution tailored to her needs, she could make
a clear and reasonable decision.
The Half-Truth
There are a lot of structures like C-Corporations, Limited
Partnerships and Charitable Remainder Trusts that are
excellent financial tools. We use them all of the time in our
legal and accounting practice, but only after they are tailored
to the clients specific situation and the true administrative
and tax costs are discussed and disclosed.
Theres no such entity as a cookie-cutter structure for all
business owners. If someone tells you that, you know youre
talking to a lying lawyer, promoter, adviser, or salesperson.
I think we all recognize that based on our individual situation,

maybe our assets dont require a complex structure at a given
point in time, or maybe we dont have the temperament to handle
the administrative duties to maintain the plan. However, we
should also ask the question, does elaborate really mean better.
Two well respected authors and attorneys on this topic,
Richard Jacobs and Tye Klooster, stated the following in an article
giving advice to other asset protection planners. I completely
agree with their logic. Their comments are an excellent ending
bell to this Round 2.
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There is no need to panic. Many marketers
would have one believe that if he or she does not
implement an exotic and expensive plan that one
could lose everything tomorrow. They paint such
dreadful pictures because their goal is to sell
something. If you [take advantage of quality
planning tools]... and surround yourself with a
team of experienced and knowledgeable wealth
preservation counsel, you can provide the
necessary degree of asset protection you are
looking for in a manner that is both cost-effective
and simple.2
Round 3
You Can and Should Make Your Assets Disappear
Well, here comes the knock out punch. This topic is generally
a subtext to the Silver Bullet argument. The promoter will use
the words hide or disappear to describe more advanced or
successful techniques that supposedly better protect you and your
assets. It sounds reasonable doesnt it? If my creditors cant find
my assets, that is the best asset protection of all. This of course
begs the question Is it possible to truly hide or disappear and then
is it even worth it?
Frankly, I am continually amazed at how many books
advocate disappearing from the public as a form of asset
protection. Do you really think you can hide everything you own?
It doesnt even make sense and in fact it is an impossible task for
the person who wants to live a normal lifestyle. It can be done, but
your way of life as you know it and your daily routine certainly
wont resemble your current lifestyle.
Asset protection and privacy planning are not one in the same
and are independent of one another. Lets assume someone does
have a claim against you and finds you. That is where privacy
planning ends and asset protection begins. Of course, there is
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some degree of overlap. Certainly, increasing our privacy is one
form of asset protection. However, ultimately we need good legal
planning to actually protect our assets rather than a futile attempt
to just hide them.
Now, is it possible to completely disappear? The answer is no,
short of leaving the United States for a third-world country and
leaving everything and everybody you know behind to take on your
new identity. You could try to remain in the U.S. by operating as if
youre in the Federal Witness Security Program. However, please
note that to make such an attempt in the U.S. is illegal unless
authorized by the federal government.
It is simply astounding to me what steps may have to be taken
in order to accomplish this elusive goal - no pun intended. Here
is a short list of tactics you may have to implement to effectively
disappear.
Creating a P.O. box and ghost address for the

IRS, drivers license, library card, voter
registration card, billing address, church records,
and so on.
Avoiding commercial flights, buses, trains, and
other forms of public transportation.
Discontinue deliveries to your home.
Shredding your trash.
Moving to another country.
Obtaining a new passport, social security number
and changing your name.
If someone wants to find you, they can simply enlist the help
of a competent private investigator and with an unlimited budget
they will find you. Mind you the police are not bad at finding
people either.
A number of true experts in this area of planning advocate the
actual strength of a disclosed structure versus one that is hidden.3
In fact, many planners argue that being too deceptive will work
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against you in court. Judges dont want to reward parties to a
lawsuit who plan in the fringes or on the other side of the law and
try to deceive or hide from their creditors. John E. Sullivan, III, one
of the most well respected attorneys in the field of asset protection
put it simply:
Many asset protection planners and their clients
often rely upon varying degrees of secrecy as part of
their planning. Secrecy, however, can be highly
counterproductive and is contrary to one of the
basics of good planning, which is disclosure.
maintaining secrecy is far less important than
maintaining a defensible position that will withstand scrutiny in civil and perhaps even criminal
litigation.4
Are there still benefits to increasing the privacy in your life?
Certainly! Is there a cost to it and does it take time? You bet. I still
believe we can all benefit from what I call privacy planning.
If you are interested in security and privacy planning, the most
comprehensive and accurate book in publication is How to be
Invisible by J. J. Luna. I particularly appreciate Mr. Lunas
declaration that he considers himself a law-abiding, tax-paying
citizen of the world and discourages off-shore planning and
schemes that advocate income taxes as being voluntary.5 He takes
a four-tiered approach to privacy planning in which a person can
implement various levels of privacy protection, providing varying
degrees of benefits compared to an increasing level of complexity
and cost.6
Again, some may argue that proper privacy planning will hide
your assets and therefore you dont need to complete basic asset
protection strategies. However, in an actual court action for your
assets, a judge is ultimately going to put you on the stand and have
you explain where your assets are and how they are being held. I
know I would have a problem lying on the witness stand about
what I own, control or benefit from. That isnt my style and its
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criminal. If the lack of morality found in the act of hiding assets
doesnt bother you, consider then the practicality of it. As
President Lincoln warned, You can fool all of the people some of
the time and some of the people all the time, but you cannot fool
all the people all the time.
The Counter-Argument
Please allow me to set forth the most common counter
argument I will receive in letters and emails after the
publication of Lawyers are Liars. It will go something like
this, You cant tell me that such and such structure doesnt
protect assets! You are the one scaring people away from the
very protection they need and desire. On the contrary, I
certainly agree these strategies work and want people to
consider asset protection more than they already do. I simply
want people to use the structures that are best for their
particular situation. Quit selling a cookie cutter solution to
the masses. That is my frustration. Help people choose the
proper structure after careful consideration and application
to their specific circumstances. That means, a one-on-one
consultation with a qualified attorney. You cant do that in a
seminar. Educate, dont sell products!
Your Situation is Actually Different

Usually after these three rounds of beating you up, the liars
have thrown out enough buzz words, jabs, body blows and kidney
punches to sell you on their product or system. Please dont get
into the ring with these jokesters. Im hoping that I have cut
through enough of their arguments and tactics that you can protect
your self. Be careful and dont get sucked into a cookie cutter
approach to your plan!
Please realize that you actually may have a unique situation.
You could have a number of considerations in choosing the right
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path for your asset protection strategy that are different from mine
or anybody elses. For example, consider the following issues that
could have a major impact on your decision making.
Tax planning
Administrative costs and demands
Number and value of assets
Number and types of partners
Estate planning
Business and/or career goals
Current and anticipated family situation
A custom-tailored asset protection plan takes all of these

issues into consideration and applies them to your situation.
Please consult with actual professionals who are concerned with
your best interest. Avoid the guru or promoter in a group setting
who wants to sell you a package that will solve all your asset
protection problems so you can start building your wealth now! At
least thats what he or she tells you they are going to do to help
you. The promoter feels you cant do anything without first
purchasing his multi-thousand dollar package. This is the trick.
This is the lie.
In Chapter Seven I set forth the proper mentality and approach
to strategies and structures for the battles in the asset protection
field. In Chapter Eight I show how to find the professionals,
colonels and captains of your assets if you will, who can truly help
you design a plan of defense that is in your best interest.
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Chapter 2 Footnotes
1
Alexander A. Bove Jr. Coordinating Asset Protection Plan with Estate Plan The Often
Overlooked Essentials, 1 Asset Protection Strategies 37 (2005).
2
Richard O Jacobs & Tye J. Klooster, Asset Protection Tools for Florida Professionals: Strategies
to Pursue and Strategies to Avoid, 4 Fla. St. U. Bus. Rev. 1, 9 (2004-2005).
3
Barry S. Engel, David L. Lockwood & Mark Merrik, Asset Protection Planning Guide A State
of the Art Approach to Integrated Estate Planning, CCH Incorporated, 175.01 (2000).
(Although many clients appreciate the confidentiality that can be obtained through an asset
protection plan, a properly devised plan will not rely on hiding assets or even obscuring the asset
trail to be successful.).
4
See Asset Protection Strategies- Planning with Domestic and Offshore Entities,- Volume I, The
Often Overlooked Role of Disclosure in Asset Protection Planning, John E. Sullivan III, 367 and
405 (2005).
5
J.J. Luna, How to be Invisible (2000).
6
How to be Invisible, supra, at 10.
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Chapter 3
The Truth about
Nevada Corporations.
If it were not for lawyers, we wouldnt need them.
A.K. Giffin
We hear a lot these days about the value of incorporating in
Nevada. I hear the same commercials as you do all the time on
the radio and television. The seminar industry endlessly
promulgates the supposed fact that Nevada is the ultimate
business sanctuary. Brace yourselves for the truth! This is another
ruse to part you with your hard earned cash.
Deception #2
The Lie
Forming a Nevada entity will provide the three following
primary benefits:
Preserve Your Privacy
Save You Taxes
Better Protect You from a Lawsuit
The Truth
For the small business owner, there are only a few
instances where a Nevada entity makes sense. If you conduct
your business outside of Nevada, the benefits of privacy and
protection are questionable at best. Tax savings will probably
be non-existent.
27
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I refer to this deception primarily in the context of Nevada.
However, the arguments I present could very well be the same for
any state that contends it is better than another for a particular
legal planning reason. These same concerns apply whether it is a
C-Corporation (C-Corp), S-Corporation (S-Corp), Limited
Liability Company (LLC), or Limited Partnership (LP).1
Ironically, there are hundreds of websites, promoters and/or
professionals selling these entities without explaining the pros
and cons, the benefits and the dangers.
This is really a situation where promoters over emphasize the
half-truths and neglect to disclose the downside and for most of us
theres a lot of downside. Many take this marketing information
as gospel and buy into the program. Later they discover they have
higher administrative costs, dont save any taxes and actually end
up disclosing company information to the public anyway. As is
always the case with lying lawyers, there is a promise and then
there is a very different reality.
Unless a company is exclusively conducting business in
Nevada and the owner or owners are residents of Nevada, most of
these so-called advantages are limited at best and in many cases
no greater than incorporation in other states. Forewarned is
forearmed. So lets examine in some detail the most common
sales pitches used to push Nevada corporations.
Pitch #1 You Achieve More Privacy

Doing Business Exclusively in Nevada Lets assume that
you are going to be doing business only in Nevada. Further, lets
assume you have an operational business such as a consulting
firm, a restaurant, or a small manufacturing business and you
choose to conduct business as an S or C-Corporation, rather than
an LLC or LP for holding investments. Finally, lets assume you
are going to have employees, an actual business location
customers may frequent, and other obvious features of a small
business.
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THE TRUTH ABOUT NEVADA CORPORATIONS 29

What do you have to disclose to the public to do business in
Nevada? First, you have to register my corporation with the
Nevada Secretary of State. According to Nevada law, you must
disclose the corporate name, the name and address of a resident
agent, and the names and addresses of the first board of directors
and those who are executing the articles of incorporation.2 Also,
within the first month of the corporations existence the
corporation must declare, under penalties of perjury, the name of
the president, secretary, and treasurer.3
Okay, so you dont have to disclose the shareholders of the
corporation. Great! Well, that is the predominate feature in 90%
of states where you incorporate. Now because youre doing
business in Clark County, the largest county in the State of
Nevada, which includes the City of Las Vegas, you have to file for
a business license which requires you to disclose the shareholders
of the corporation.4 Now, if youre going to hold investments in a
Nevada LLC or LP, you will have to disclose the Manager of the
LLC5 or General Partner of the LP.6 Where is the privacy benefit?
In my opinion there isnt one!
Those promoters who get questioned on these concerns set
forth above will propose two more deceptive strategies to close
the sale: (1) the Nominee Agent, and (2) IRS disclosure rules.
Lets analyze these carefully.
The Nominee Agent Deception Of course, after
understanding the above privacy features (or lack thereof) when
registering to do business in Nevada, you express your concerns.
The lying lawyer, promoter or professional will then suggest
you pay him (or her) an extra fee to serve as your nominee or
proxy officers and directors to the Secretary of State of
Nevada.7 The cost for this service is often exorbitant and
includes a signed contract for a period of time so you cant wise
up later and get out of it.
You are told that with this strategy, you supposedly dont have
to disclose yourself as an officer and director- you list the
nominee agent as your officers and directors for the corporation
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(Manager if LLC or General Partner if LP). Obviously this is a
logistical nightmare. Who is the one running the business, you or
the nominee officers? Believe it or not, You actually have to go
out and do business on day two. Someone has to sign contracts,
open bank accounts, hire employees, potentially get bank loans or
real estate mortgages, and get a business license that requires even
more disclosure.8
News Alert
On Friday, April 6, 2007 USA Today reported the filing
of a Federal Trade Commission lawsuit against the Asset
Protection Group, Inc.(APG) based in Las Vegas, Nevada.
The complaint alleged that many of roughly 1,000 Nevada
corporations formed by APG were sham entities, nominees
or alter egos of the firms clients. Essentially the chief
executive of the company, William Reed, a disbarred
attorney from Colorado, is being accused of defrauding
countless clients, and various government agencies.
The lawsuit was filed at the request of the IRS, which
also alleges that more than $30 million dollars in taxes are
owed by the clients of APG trying to hide from the IRS and
evade taxes.
This is exactly the type of fraud being perpetrated by
companies in Nevada and around the country every day!
Another interesting fact promoters fail to disclose is the

Nevada law entitled Enforcement of Judgments. Under this
code section, Nevada law allows for a judgment creditor, at any
time after the judgment is entered, to obtain a court order
requiring the debtor owning stock in a Nevada corporation to
appear and answer questions under oath concerning his or her
property held by the corporation.9 If a creditor does find out you
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own a Nevada company, it wont take long to pull you on to the
witness stand, under what are called supplemental proceedings10
or the appropriate type of court hearing to gather the information
they need. Where is the privacy now? This entire section of
Nevada code gives tremendous power to creditors over debtors to
pierce the privacy of a company.
Do we really think the public, particularly your competitors
and customers, are not going to figure out who is running the
business? Those are the ones who are going to sue you anyway;
and frankly, who cares? If you are operating the business in a
reasonable and prudent manner, youre going to be personally
protected from the operations of the business as an officer,
director and employee anyway. This is the whole purpose of
corporate law and one of the actual benefits of doing business in
Nevada.11
So my question is, What is so wrong about disclosing that
you are operating the business? This disclosure could actually
be important for marketing and business operations anyway.
Many business owners build the reputation of the business on
their name and connection with the business. How are we to
create and operate a successful business in secrecy with the very
people we are trying to sell our product or service to? It just
doesnt make sense.
I have also told my clients time and time again that in this age
of information, technology, and the extensive banking and lending
laws, it is nearly impossible to run the day-to-day operations of a
business and hide the owner from the public. There are too many
eyes and incredible public access to basic information about the
business.
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True Story
I had a client who lived in Idaho, but set up a Nevada
corporation and hired a company to act as his nominee for
his Director and Officer positions. Everything was
proceeding nicely until he was ready to complete a large
transaction. The bank, title company and buyer required the
signature of his nominee officers and the funds to be placed
in an account under the true officers of the company the
nominee he paid thousands to. Of course, the nominee became uncooperative even though the business owner was
simply trying to access his companys money and records.
This is when the gentleman became a client of ours trying to
gain control of his own company! We referred him to a
litigation attorney and he was ultimately forced to file a
lawsuit to compel this un-reputable deceitful incorporation
service company to release its grip on the companys
assets.
The Truth
Even in the best case scenario of using a nominee or proxy,
this process will involve greater fees and more
administrative headaches. In the worst case, the proxy may
refuse to conduct the required business you desire. Please be
careful about turning over control of your company to a third
party. Even with the best of contractual agreements you
could be creating a corporate and a personal nightmare.
The No IRS Disclosure Deception - So after explaining all

of the previously mentioned concerns to the promoter or
professional, theyll probably take another stab at the privacy
issue, explaining that there is still a privacy benefit because
Nevada does not share information with the IRS. This is another
half-truth. Promoters will specifically cite Internal Revenue Code
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6103 that requires tax return information to be confidential and
cannot be shared by a federal or state employee.12 However, for
the IRS to protect its interest in making sure taxpayers file tax
returns, the IRS and 48 states, including Washington, D.C., Guam
and American Samoa have entered into agreements of
cooperation regarding the exchange of information with
taxpayers.13 The two states who have no such agreement with the
IRS are Nevada and Texas.14
Guess what? Nevada and Texas do not share information with
the IRS because they dont have any information on a taxpayers
tax returns to share anyway. There is no state tax in Nevada or
Texas! Another half-truth presented to your detriment and to the
promoters benefit.
Doing Business Outside of Nevada Now lets assume you
are going to own rental property in Arizona and will be
conducting business there. You decide that a Limited Liability
Company (LLC) would be the best type of entity to hold the rental
property for asset protection purposes. Some lying lawyer,
promoter or professional sells the idea of a Nevada LLC
because of the benefit of additional privacy. The question
becomes, Even though Im not doing business in Nevada, is
there some sort of privacy benefit of incorporating in Nevada?
Again, the first step in this procedure is to register in Nevada
and disclose the Manager of the LLC, which is generally you.
Nevada does not require that you disclose the members or owners
of an LLC, but neither does California,15 Wyoming,16 Texas,17
Illinois,18 or Utah,19 just to name a few. Again, assuming I am
actually doing business in Arizona (because that is where my
rental property is) to receive the personal liability protection of
having a business entity in the first place I have to register my
company to do business in Arizona. This is because Arizona will
not respect the Nevada LLC unless it is registered as a foreign
company in Arizona.20
This is where the real shock hits. For example, in Arizona the
business owner must publicly disclose the members (or owners)
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of the LLC in the foreign registration.21 Again, wheres the
privacy? I dont see any benefit of forming a company in Nevada
when I can register my company in the state in which I am going
to be doing business, where I have to comply with their laws, and
I may receive equal privacy treatment anyway. Whats the point?
True Story
John and Mary were residents of California and were
deceived into setting up a Nevada C-Corporation and Limited
Partnership for their future real estate investments. I say
deceived because they had not yet selected any investment
property and were not sure where and when they might be
purchasing their new property. They were sold on the concept
that they needed their company set up before they made offers
to purchase property. John and Mary ultimately purchased
only one property in Colorado that was highly leveraged
without a significant amount of equity. They had no intention
of doing business in Nevada. This little sales tactic by the
promotion company cost them thousands in unnecessary
costs, such as tax return preparation fees, filing fees,
registered agent fees, and the exorbitant fees paid to the
company promoting the strategy. Ultimately, John and Mary
simply decided to register a Single Member Limited Liability
Company in Colorado, and reserved the more elaborate or
expensive planning for the future.
The Truth
Sometimes setting up a structure in Nevada makes sense and
sometimes investors have significant equity or a type of real
estate transaction where additional asset protection or tax
planning is needed, but everybody doesnt fit the same mold
and the costs certainly out weighed the benefits in the above
situation.
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In sum, the most frustrating aspect regarding the privacy
benefit sales pitch, whether doing business inside or outside of
Nevada, is that it simply isnt true. If I want to effectively hide
out from the IRS, my creditors or an ex-spouse, simply setting up
my business in Nevada and using some bizarre nominee officer
structure certainly isnt going work.
Pitch #2 You Will Save More Taxes.

Tax savings are often vastly over-touted as a reason to
incorporate in Nevada. Many companies advertising their services
to incorporate out-of-state businesses cite the lack of individual
and corporate State income tax in Nevada. They say its proof that
taxes will be nonexistent or lower. They generally fail to note
however that there are several other states without a state income
tax,22 but Nevada again is the universal remedy for good tax
planning. Of course, the discussion regarding the specifics and
actual details of when and how taxes would apply to your
individual situation are never a part of the conversation. If
prospective buyers of the Nevada product actually saw the
numbers based on their individual tax situation, the
overwhelming majority would see the fallacy of this sales pitch.
Doing Business in Nevada as a Resident of a State with an
Income Tax Lets assume that you are going to operate an
internet based business out of Nevada or even own a rental
property there, but you are a resident of Illinois (or some other
state with an income tax). Some promoter or professional at a
seminar or on a website sells the idea of a Nevada entity for your
business structure because you can save taxes. You then take their
advice and set up an S-Corporation or LLC with the Nevada
Secretary of State. (Ill comment on the C-Corporation later.)
It is true that Nevada does not impose a Corporate Income
Tax, Franchise Tax, or Personal Income Tax.23 However, Illinois
imposes an income tax on all of its residents for income earned
inside and outside of its state. However, it will also give its
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residents a state tax credit paid to any other state in the Union.24
This is so you wont pay double state tax for living and operating
in the United States. This is very common, if not the uniform
procedure, in all states imposing a personal income tax.25
Because all of the income is flowing to you as an owner of the
S-Corporation or LLC, you may avoid paying taxes in Nevada,
but in the end you still have to pay taxes in the state in which you
reside. This is such a simple and straightforward principal of
taxation. It is absolutely astounding to me how these advertisers
can morally justify making such blanket statements regarding tax
savings for incorporating in Nevada. Although it is not a good
excuse, I will tell you how they technically justify making this
sales pitch. They want to also sell you a C-Corporation, which is
even more damaging to the small business owner than even
setting up an entity in Nevada in the first place!
Doing Business in Another State with a Nevada Company
Is a lying lawyer or promoter really saying that you wont pay tax
in Michigan if you set up your Nevada entity and then do business
in Michigan? I dont think so. They dont tell you the reality of
the situation. They say there is no Nevada State tax and then leave
the false dreams to your imagination. Youre led to think that if
you set up a Nevada entity you wont pay state tax anywhere. For
example, most states follow a three-part Nexus test for
determining the tax liability of a business. None of the parts are
concerned with where the business is incorporated. The taxes are
based on: (1) where the business property is located, (2) where
the business assets/inventory are located, and (3) where the
businesss sales occur.26 Please remember that many states facing
falling revenues are on guard for such so-called dodgers who
try to use the Nevada corporation to avoid their own state taxes.
Again, it is amazing to me that promoters can make the save
tax pitch with a straight face. But of course, they will again turn
to the C-Corporation as the knight in shining armor for the multistate tax issue that is created in this situation. Lets look at this
argument with a little more detail.
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The C-Corporation deception - If the pain of paying for
something you dont need wasnt bad enough, the C-Corporation
just adds insult to injury. Generally, after you explain your
concerns to the promoter regarding state taxation and the fact you
live in a state that imposes a state tax anyway, he or she will
present the C-Corporation as the solution to all of your woes. In
addition to the administrative costs of maintaining a company in
both Nevada and the state in which you are doing business, you
now have an 1120 tax return to file and face the problem of
double-taxation.
In my opinion, the C-Corporation is one of the greatest pitfalls
in tax planning for the small business owner. It astonishes me how
many promoters and lawyers promote the C-Corporation. If they
want to sell setting up a new corporation, fine, however I wish
they would at least sell the S-Corporation, something that might
actually help the taxpayers achieve their business goals.
The subject matter of C-Corporation taxation for the small
business owner is such a big topic that it is beyond the scope of
asset protection. I address the issue in my book Lawyers Are Liars
- Tax Strategies that Actually Work. However, please allow me to
make this powerful suggestion to you for that ominous day when
you are presented with the C-Corporation sales pitch. Please take
the time to Stop, Drop and Roll when the promoter says you
need a C-Corporation. They will tell you that you have more tax
deduction opportunities with the C-Corporation rather than the SCorporation. They will bring up topics such as medical costs, life
insurance, tuition reimbursement, cafeteria plans, and all sorts of
fun ideas.
However, before you spend one dollar with them, make sure
they run the numbers. Have them take your last years business
tax return/operations and your projected business
revenue/expenses and calculate the savings as it ultimately nets
onto your personal tax return. Then, make sure you are actually
going to undertake the strategies they are suggesting, before the
final step of comparing the savings with the administrative costs
and headaches of the C-Corporation. This also includes the
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comprehensive cost-benefit analysis of any other entities you may
need to structure in conjunction with the C-Corporation to save on
self-employment tax and the double-taxation threat of the CCorporation.
I have never had a promoter go through this process for a
client, let alone show actual savings. This is because they either
dont know what they are doing, simply want the easy sale and
dont want to take the time or they realize they couldnt show a
positive cost-benefit analysis to make it happen in the first place.
Are C-Corporations Always a Bad Move? Absolutely not. CCorporations are wonderful and simply critical if you are going to
raise capital and someday go public. However, for the small
business owner, the benefits of a C-Corporation are extremely
limited.
Please be careful taking tax advice on the operations and
creation of any entity, unless it is from a licensed tax planning
professional with a good reputation.
The California Twist I want to make one last point on this
topic. When considering taxes, it is important to bring up the issue
of franchise taxes, filing fees or other costs imposed by the state
you are doing business in. You may set up a Nevada company, but
still have to go back and register your company in your home state
to do business. This issue is also often selectively overlooked by
the promoter. California is a good example of this situation, but
not an isolated circumstance. Texas27 also has a higher than
average state filing and tax cost that must be considered.
Regrettably, the California Twist Im referring to isnt a
type of dance move (although it can become a bad move for the
unwary). Its the California Franchise Tax,28 and we want to thank
Arnold for enforcing it so persistently.
Lets assume that I am persuaded to form a Nevada
corporation while living in and operating my business in
California. According to California law, I am required to register
my company in California and pay the additional franchise tax
just as if I had formed my business in that state.29 If I dont register
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my company in California to avoid the applicable state franchise
tax, the state taxing authority will certainly find out. I will then
have to pay the tax, plus penalties and interest for not taking care
of the registration at the proper time.
Interestingly enough, the California Franchise Tax Board
(FTB) has a page on its website dedicated to Abusive Tax
Shelters. It is similar to the IRSs annual Dirty Dozen tax scams.30
The FTB has three primary scams it targets, one being that of
the Nevada or Delaware entity established for the purpose of
avoiding California State tax. It reads as follows:
Commercial Domicile - This scheme promises
taxpayers that if they incorporate in non-income
taxing states, such as Nevada or Delaware, they
can avoid California income taxes. This scheme
requires an S corporation doing business in
California to reincorporate in Nevada. Promoters
of this reincorporation scheme argue that the
source of the S corporation income is Nevada
regardless of its business activity in California.
However, a corporation doing business in
California remains subject to California franchise
tax, and a California resident is taxable on income
from all sources, including sources in Nevada. In
this situation, neither the S corporation has
terminated its business activity in California, nor
has the individual taxpayer terminated his or her
California residency.31
Please do not listen to a promoter who says you can avoid this
California franchise tax by registering in Nevada. If you do
business in a state imposing a franchise tax or state income tax,
you will have to pay whether you like it or not, even if you form
your company in Nevada.
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Pitch #3
You have better Asset Protection in Nevada
This is a very, very difficult topic to cover in a few pages and
still provide the legal analysis the matter rightly deserves.
Nonetheless, I feel it is important to explain the basic principals
and include as many footnotes to additional resources as possible.
To set the stage I need to explain one important concept regarding
liabilities in general.
The first is inside liability. This is exposure created from the
companys own internal operations. Most professionals and
planners agree that the principal purpose of incorporating, using a
limited liability company or limited partnership is to create a
corporate veil to protect the owners. This corporate veil is
generally applied consistently and enforced whether it is in the
form of a Corporation, LLC or LP. (See Chapter Ten and
Appendix A Business Entity Descriptions and Matrix for more
detailed information)
Outside liability arises from events or conditions external to
the companys own operations, typically in the form of personal
liability. For example, consider a business owner who gets into a
personal automobile accident and the judgment creditors seek to
satisfy the debt by attaching business property. This liability
outside of the business threatens the assets of the business.
There is a significant difference between the protection
entities provide assets based on whether it is an inside or
outside liability, the type of entity, the state in which the entity
was formed, and the state in which the asset resides. Examining
the details of how entities and assets may fair based on the type of
lawsuit, the type of entity and applying various state jurisdictional
issues is beyond the scope of this book. However, this is the very
reason a Nevada entity should not be sold across the board as the
solution to every asset protection problem.
Business Liabilities To best address the issue, I ask, Can I
better protect my personal assets from my business operations by
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setting up a company in Nevada? Please note how carefully the
preceding question is phrased. The question doesnt ask how to
protect your business/investment assets from your personal
actions. It asks how to protect you and your personal assets from
your business operations.
Nevada provides excellent inside liability protection for
agents and owners of companies operating within its boundaries.
The law is clear that corporate officers and shareholders are not
personally liable for the operations and debts of the company
unless they provide a personal guarantee or are found to have
acted grossly negligent in the management of the company.32
Plaintiffs suing officers or shareholders of a Nevada corporation
must prove a higher standard of misconduct than states which
merely require proof of negligence. Similar protection is
provided for members and managers of Limited Liability
Companies33 and limited partners in Limited Partnerships.34
However, the question must then be asked, Are other states
required to follow this law and apply the same standard to officers
and directors when the lawsuit is taking place outside of
Nevada? Generally, the answer is, no. Without an agreement
between the parties that Nevada law applies (oftentimes referred
to as a forum selection clause), courts generally apply their States
law based on the principle of choice of law and completely
disregard Nevada law.35
Now some attorneys reading my position on this issue, may
ask if I am ignoring the Full Faith and Credit Clause of the
United States Constitution. This clause provides that each state
honor the official acts of other states, and thus, a judgment entered
in one state must be respected in another36 (I discuss this in
Chapter Thirteen). However; I am not talking about another state
enforcing a judgment or decision of another Court in a
different state. Im talking about which law is going to be applied
when my tenants fall off a termite infested deck on the back of
my rental in New York. Is the judge really going to apply Nevada
law in the personal injury suit when the accident occurred in New
York, the property is in New York, I registered to do business in
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New York, and all of the plaintiff are in New York? I dont think
so.37
In summary, unless you are doing business exclusively in
Nevada, Nevada State law is not going to mean a hill of beans in
a lawsuit over a cause of action in another state. In the case of
litigation involving a Nevada corporation doing business in
another state, there will be only one group of winners - the
attorneys.
Personal Liabilities Can I better protect my assets from my
personal actions and/or liabilities by setting up a company in
Nevada? This question is very different from the previous topic.
Im turning the tables to address our concerns for personal
liability and exposure. For example, what happens if you are in a
car accident, or even worse, your teenager is in a car accident and
the creditor/plaintiff comes after you and all of your personal and
business assets? How do we protect your property from you?
In Part II of this book, I cover numerous effective strategies to
protect your personal assets. But what about Nevada? Is there
some unique or special law in Nevada that I should know about?
Or is this just another half-truth that has been turned into a
whole-lie by a group of promoters? Regrettably, it is mostly
smoke and mirrors with a little bit of truth. Several states provide
excellent protection from outside liabilities with new Limited
Liability Company statutes crafted for this reason. Alaska,38
Delaware,39 Wyoming,40 and Oklahoma41 are just a few of these
states offering the same type of protection. Please see Chapter
Twelve for a more in depth discussion on Charging Order
Protection Entities (COPEs) and the benefits they provide.
The Final Word

A persons personal asset protection strategy/plan and the
choice of entity must be specific to his or her situation. Period.
End of discussion. Thats all, folks. The universal approach of
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selling Nevada companies, or any entity, across the board is
almost criminal.
I am sick and tired, and frankly emotionally drained, from
having tearful clients in my office, in e-mails and over the phone
saddened and damaged because they were sold a package that
does them no good whatsoever. In many cases these packages
have caused serious harm to the business, the business owner and
even his or her family. The valuable information in Lawyers Are
Liars has to be broadcast to the public with the equivalent force
of promoters marketing engine.
The determination of where best to incorporate is fact-specific
and almost universally different for each person. Your specific
needs depend upon your specific situation. Goals, taxes, partners,
the types of assets, the different states involved and a myriad of
issues must be considered well before any action is taken. It is
regrettable that so many companies make a living using this
deception. Be careful and make sure to obtain an independent,
second opinion before setting up a Nevada based company.
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Chapter 3 Footnotes
See a more detailed discussion of each type of business entity in Appendix A.
Nevada Revised Statutes [hereinafter, N.R.S.] 78.035 (2005).
3
N.R.S. 78.150 (2005).
4
State of Nevada, Clark County Code 6.08.010 (2006); see also Form APP-01.00 Rev 01-17-05.
5
N.R.S. 86.161 (2004).
6
N.R.S. 88.350 (2004).
7
Presumably this is statutorily supported under N.R.S. 78.355 (2006).
8
Id. Clark County Code 6.08.010 (2006).
9
N.R.S. 21.270 to 21.340 (2005).
10
Supplemental Proceedings are granted when a creditor's remedies at law are inadequate. They
are generally equitable in nature and are enforced through the Judges contempt powers. They are
used to discover assets and collect debts from debtors and are a last resort when the legal
alternatives of execution and garnishment will not satisfy the judgment. See D. Dobbs,
Handbook on the Law of Remedies 2.5, .6, .8, .9 (1973).
11
N.R.S. 78.747 (2004).
12
Internal Revenue Code [hereinafter, I.R.C.] 6103(a).
13
15 Stand. Fed. Tax. Rep. (CCH) 36,894.576, at 64,490 (2002). "The purpose of the
agreements is to identify persons who have failed to file either Federal or state tax returns
through cooperative inspection of the records." See also Id. 36,894.77 at 64,515.
14
Id.
15
Ca.Corp.Code 17050 (2003).
16
Wyo. Stat. 17-15-107 (2006).
17
Tex. Rev. Civ. Stat. art.1528n 3.01 (2007).
18
805 ILCS 180/5-5 (2007).
19
Utah Code Ann. 48-2c-801 (2006).
20
A.R.S. 29-802 (2006).
21
A.R.S. 29-632 (2006).
22
States without an income tax include: Alaska, Florida, Nevada, South Dakota, Texas,
Washington, and Wyoming. Additionally, New Hampshire and Tennessee only tax dividends and
interest.
23
N.R.S. Title 32- Revenue and Taxation.
24
See Illinois Income Tax Act, 35 ILCS 5/101-5/1701; See also Form IL-1040, Line 18, Schedule
CR.
25
Morgan v. Cook, 211 Ark. 755; 202 S.W.2d 355 (1947). (addressing An act to prevent double
state income taxation of individual residents of the state," providing, among other provisions,
that an individual resident of the state whose gross income includes income derived from sources
outside the state shall be entitled to a credit for the amount of income tax which such taxpayer
owes to another state for the same year); See also 12 A.L.R.2d 359 (Originally published in
1950).
26
International Harvester Co. v. Wisconsin Dept. of Taxation, 322 U.S. 435; 64 S. Ct. 1060; 88
L. Ed 1373 (1944). ("A state may tax such part of the income of a nonresident as is fairly
attributable either to property located in the state or to events or transactions which, occurring
there, are subject to state regulation and which are within the protection of the state and entitled
to the numerous other benefits which it confers."); See also 156 A.L.R. 1370 (1945).
27
The Texas franchise tax is a privilege tax imposed on each corporation and limited liability
company chartered/organized in Texas or doing business in Texas. The rate is the greater of .25%
(.0025) per year of privilege period of net taxable capital or 4.5% (.0450) of net taxable earned
surplus. For the initial report, the net taxable capital rate is prorated over the initial period. House
Bill 3, which was passed during the 79th 3rd Called Session in 2006, amends Texas Tax Code
1
2
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Chapter 171 to revise the existing franchise tax. Changes made by HB3 are effective for
franchise tax reports originally due on or after January 1, 2008.
28
West's Ann.Cal.Rev. & T.Code 23153.
29
Id. at 23153(b)(3).
30
See http://www.ftb.ca.gov/aboutFTB/press/Archive/2003/03_57.html (last viewed March 12,
2007).
31
Id.
32
N.R.S. 78.138.7(b) (2005). The statutory standard for liability for wrongdoing by an officer or
owner is intentional misconduct, fraud, or known violation of law.
33
N.R.S. 86.371 (2005).
34
N.R.S. 88.430 (2005).
35
Charles Nagy, Conflict of Laws, 15A C.J.S. Conflict of Laws 27. (Under its conflict of law
principles, sometimes spoken of as the "choice of laws," the forum court must determine what
rule governs when and how foreign law is to be applied, absent an effective choice of law by the
parties. When the court determines what rule governs the choice of law, it will then determine
what law is to be chosen by that rule in the particular case before it. Although the plaintiff
normally has the privilege of deciding which law will govern the case because the plaintiff
typically chooses the forum, this rule is not invariable. Forum shopping is discouraged.).
36
See Donald T. Kramer, 16B Am. Jur. 2d Constitutional Law 975; See also Hughes v. Fetter,
341 U.S. 609, 71 S. Ct. 980, 95 L. Ed. 1212 (1951) (The Full Faith and Credit Clause expresses
a unifying principle looking toward the maximum enforcement in each state of the obligations or
rights created or recognized by the statutes of sister states).
37
Indosuez Intl Fin. B.V. v. Natl Reserve Bank, 98 N.Y.2d 238, 746 N.Y.S.2d 631 (2002). (New
York choice of law principles require a court to apply the law of the state with the most
significant relationship with the particular issue in conflict).
38
Alaska Stat. 10.50.380 (2007).
39
Delaware Limited Liability Company Act, 6 Del.C. 18-703 (2006).
40
Wyo.Stat. 17-15-145 (2006).
41
18 Okl.Stat.Ann. 2034 (2006).
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Chapter 4
Land Trusts
Savior or Snake Oil?
There is a society of men among us, bred up from their youth
in the art of proving by words multiplied for that purpose, that
white is black and black is white, according as they are paid.
Jonathan Swift
One of my favorite television programs is Mythbusters1 hosted
by Adam Savage and Jamie Hyneman. On each program, Adam
and Jamie examine and actually test some of our most cherished
(and often mistaken) beliefs. In my own way, Im hoping to bust
a few myths about asset protection and, I sincerely hope I am
helping you from being busted by a number of financial myths.
I pose the following question: Is the land trust a vicious urban
myth for asset protection success or the panacea of asset
protection?
Deception #3
The Lie
Land trusts gurus actually spread four lies which state
that a land trust:
1. Hides the true owner of a property
2. Provides bulletproof asset protection
3. Avoids the due-on-sale clauses in loan
documents, and
4. Saves taxes
47
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The Truth
Unless you use a land trust formed and used to hold
property specifically in Illinois or Florida, the purported
benefits above are at best half-truths.
A trust is simply an agreement in which property is transferred
from one person (called a grantor) to a trust in care of another (the
trustee) who holds it for the benefit of a person or entity (the
beneficiary). There are many types of trusts and one youll
probably hear a lot about in relation to asset protection is the land
trust. The greatest proponents of the land trust are the self
professed real estate gurus at a traveling real estate seminar which
is probably being held near you this weekend. Regrettably, the
main thrust of these seminars is to sell the unwary a package of
basic CDs, DVDs, tapes, software for creating your own
documents, or a coaching system before being up sold
additional products and upcoming seminars. In reality, instead of
being sold something useful, theyll be sold out.
This process is not unique to the land trust seminar industry.
Please be careful! There are unethical promoters in each of the
deceptive practices I discuss in this book using the same bogus
technique all across the country every day.
Ironically, the majority of attorneys are warning their clients
to stay away from land trusts. Lawyers like to earn money.
Believe me, if they could find a bona-fide purpose for land trusts
they would seize this opportunity for significant additional billing
to their clients. Nevertheless, some attorneys and of course the
promoters continue to market them to the unwary in all 50
states. According to their sales pitch, land trusts are the next best
thing to sliced bread. BEWARE!
What is the Hype?

Yes, land trusts work in certain limited circumstances and
actually work quite well. However, the typical land trust is
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LAND TRUSTS SAVIOR OR SNAKE OIL? 49

purported to accomplish much, much more than it actually does
often more than it possibly can. In many cases the land trust only
adds an additional cost to a transaction, lengthens the process
because it requires more time to understand and implement,
creates more administrative headaches, depending on the
transaction and easily expose you to additional risks and
liabilities.
The first Land Trust, at least under a specific state law,
originated in Illinois in 1973.2 Since then, only three other states
have adopted a specific land trust statute: Florida,3 Hawaii4 and
Virginia.5 If land trusts are such a great concept, why havent
more states adopted land trust laws by now? Compare it to the
Limited Liability Company (LLC) that was first adopted in 1977
and is now recognized under state law in all 50 states.6
Some commentators have argued that land trusts have a
serious negative impact on society and fly in the face of
recognized public policy.7 I agree. The public sometimes pays for
the devious practices of real estate investors improperly using the
land trust. For example, they employ the tactic of trying to avoid
real estate transfer taxes. The State of Washington,8 Florida,9 and
others impose a tax on the transfer of real property rather than an
individual income tax.10 However, some land trust advocates feel
they should be able to get around this tax, not legally, but because
it is hard for the county taxing authorities to discover what is
going on. Now please realize Im not talking about bona-fide
transfers of property into trusts or entities you own. There are
often times exemptions that give land owners the opportunity to
transfer property to their own structures, but not for selling
property to a third party in some sort of disguised sale.
Believe it or not, the citizenry rely on revenue from real
property transfers and when real estate investors are allowed to
avoid these types of transfer taxes because they use a land trust,
everyone else picks up the tab. Sure, someone gets a free ride, but
somebody else always has to pay the price. Moreover, the public
has an interest in property owners maintaining their properties and
having accountability for their actions regarding zoning laws and
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property upkeep. Secrecy of ownership thwarts this public
accountability.
These issues are just a few of the reasons why more states
have not adopted land trust laws in the 30-plus years since they
were originally established. If land trusts were such a hot
commodity, believe me, lawyers throughout the country would
have already lobbied their state legislators for them. The age old
argument that people dont use land trusts because they dont
understand them just doesnt hold water any longer. There are a
lot more complex legal structures and principles that have plenty
of support because of their merit, not the hype.
Daniel J. Boorstin, wrote Truth has been displaced by
believability as the test of the statements which dominate our
lives. People want to believe that land trusts have incredible
benefits and thats what the promoters of the half-truths count on.
Victims are almost universally willing victims. They want to
believe in whatever scam theyre being sold and that belief is one
of the most powerful weapons in a thiefs arsenal. Their pitches
sound good, but are basically tall tales and exaggerations of fact.
Heres my take on those half truths.
A Comment on Illinois and Florida

As I stated earlier, four states have specific land trust laws on
the books,11 with Illinois and Florida having the most established
statutory and case law regarding the implementation of land
trusts. Using land trusts in states with established law is very
different than trying to use land trusts in states without such
precedent. Savvy property owners should use a land trust attorney
familiar with the laws in the jurisdiction they plan to use these
trusts and make sure both the client and attorney are completely
aware of the pros and cons of using a land trust in that part of the
country. Mark Warda, Esq. is probably the most accomplished
author on the topic of Land Trusts in Illinois and Florida and the
practicalities of their use.12 Mr. Warda points out that
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if you are in a state where the law is not clear
you should consult an attorney who can review the
latest law and give you a legal opinion of what the
legal situation would be if you set up a land
trust.13
This doesnt mean buying a pre-printed set of land trust
documents or purchasing a land trust package at a seminar. Please
have an attorney acutely familiar with land trust law in your state
consult with you regarding your specific situation and the goals
you are trying to accomplish. Again, Mr. Warda:
you can use whatever wording you choose in
your trust, but you need to follow the law of the
state in which the property is located for issues
regarding the land or outside parties.14
My comments in this chapter regarding the half-truths sold by
many promoters apply to the use of land trusts in states other than
Illinois and Florida. Still, land trusts are certainly oversold in all
states and should be used with caution.
Half-Truth #1
Land Trusts hide the true owner of a property.
This is a very deceptive statement and needs to be carefully
explored. Its true that title to a piece of property held by a land
trust only publicly discloses the name of the trust and the trustee.
It is also true that a standard revocable living trust has the same
characteristics. In both instances the beneficiary is the true owner
of the property and that is private information. The problem is all
of the other privacy promises sold with the land trust package.
The first important point is that there are several states that
require full disclosure of the beneficiaries of a trust for a transfer
of the title to be valid.15 For example, in Arizona the law requires
that every deed conveying an interest in Arizona real property: (1)
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identify the trust that is the grantor or a grantee, and (2) disclose
the names and addresses of the beneficiaries of the trust.16
Second, even if you are making a transfer to a trust in a state
that doesnt require disclosure of the beneficiaries, when you file
the quit-claim or warranty deed there is a paper-trail showing the
previous owner - you! Most investigators and attorneys use this as
a major clue to discover the current owner of the property. It takes
but a little more effort to discover you are still the user or owner
of the property. Dont you think a reasonably competent private
investigator, creditor, or litigation attorney is going to find out
what you really own by tracking down this paper trail? Moreover,
the ownership will ultimately be disclosed on tax returns, which
judgment creditors will surely receive in their interrogatories or
supplemental proceedings.
The advocates of land trusts will attempt to refute my argument
with the statement, Well, maybe so, but it will certainly make it
harder for someone to find or uncover your true assets. Sure, I
agree, but please tell your seminar audience in advance that this is
what you are saying and/or selling. Dont tell the half-truth that you
are hiding your assets. A land trust doesnt hide anything; it just
makes your assets harder for the creditor to find, which they will
ultimately do. Many clients come to me believing that a land trust
will actually hide their assets from the public permanently and that
no one can ever find the property unless the owner chooses to
disclose it. They believe this because they were sold it by some
unscrupulous promoter at a seminar, on a CD, DVD or in a book.
Be careful!
Half-Truth #2
Land Trusts Provide Bulletproof Asset Protection.
This is such a blatant lie. I shouldnt even have referred to it
as a half-truth. The claims promoters and so-called gurus are
make regarding the asset protection benefits of land trusts are
outrageous. Let me dispel the lie. There is no asset protection in
a land trust, let alone bulletproof protection. The public is being
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sold a bill of goods, a pig in a poke, a fairy tale a lie.
The majority of land trusts are revocable in nature. This
means, you establish a land trust that you can change in the future,
appoint an arms-length friendly trustee, and you, or another
entity you control, will be the beneficiary. The bottom line is that
you are not giving up control. To believe you are protecting your
assets inside the trust from creditors without giving up control
flies in the face of hundreds of years of English and U.S. Trust
law.17 Mario A. Marta, one of the nations foremost experts on this
topic, has stated the following:
Attorneys familiar with the drafting of asset
protection trusts will know that a court can force a
beneficiary of a trust to exercise any power that the
beneficiary may have with respect to that trust. It
is therefore extremely important that the
beneficiary be given little or no unilateral rights to
control any aspect of the trust.18
The reality is that a typical land trust is not created to provide
asset protection benefits, but it is sold as if it does. With these
types of revocable land trusts the beneficiary of a land trust is the
owner and the one who ultimately controls the property. To
assume that once a creditor, who discovers you actually own and
control the property, is not going to be able to execute upon it is
absolutely preposterous.
In sum, a judge is not going to allow you to avoid a creditor
because you transferred your property into what we are describing
as a self-settled trust. A creditor will be able to acquire and
exercise the same rights and powers possessed by a debtor.19
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Half-Truth #3
Land Trusts Avoid the Due-on-Sale Clauses
in Loan Agreements
For those unfamiliar with the term, the due-on-sale clause is
a provision in a mortgage or loan stating that the principal and
accrued interest is due upon the sale or transfer of the property. To
avoid this provision, land trust advocates suggest a potential seller
of property transfer his or her property to the trust, then in an
internal document transfer the beneficiarys interest to a buyer.
By not requiring the new buyer to refinance the property at the
point of transfer he or she may obtain a loan and credit at a future
date and time.
This technique or variation thereof allows the seller to (1) sell
the property to a potential buyer with poor credit, (2) allows the
buyer to assume a sellers existing loan, (3) refinance the loan at
a later date, and (4) transfer title when it fits the time table and
needs of both the buyer and seller. If some of you land trust
promoters are frustrated that Im sharing this technique and
alerting mortgage companies of this aberration in real estate
investing, please dont flatter yourselves. Mortgage companies
have been aware of this strategy for years.
I have no problems with this strategy from an ethical or legal
standpoint, so long as the loan documents allow for this type of
transfer/sale or the mortgage company knowingly authorizes the
transaction.
However, if this is not the case, I would love to hear a bank,
mortgage company, or any lender for that matter, state in writing
that a borrower doesnt violate the due-on-sale clause within their
loan documents because they transferred the beneficial interest of
a trust that owns the property, rather than the actual deed or title
to the property.
In fact, the federal government passed a law in 1982,
commonly referred to as the Garn-St. Germain Act to address this
very issue among many others.20 This Federal statute states:
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(1) Notwithstanding any provision of the
Constitution or laws (including the judicial
decisions) of any State to the contrary, a lender
may, subject to subsection (c) of this section, enter
into or enforce a contract containing a due-on-sale
clause with respect to a real property loan.
(2) Except as otherwise provided in subsection (d)
of this section, the exercise by the lender of its
option pursuant to such a clause shall be
exclusively governed by the terms of the loan
contract, and all rights and remedies of the lender
and the borrower shall be fixed and governed by
the contract.21
Please note the emphasis that the government wants the
lenders actual loan documents to control. Moreover no state
legislature or court of law can override this federal law. However,
many land trust gurus will rely on the exceptions in subsection (d)
of this same statute, more specifically that of Section 1701j3(d)(8) that reads as follows:
With respect to a real property loan secured by a
lien on residential real property containing less
than five dwelling unitsa lender may not
exercise its option pursuant to a due-on-sale clause
upon
(8) a transfer into an inter vivos trust in which the
borrower is and remains a beneficiary and which
does not relate to a transfer of rights of occupancy
in the property;22
Note the emphasis on the key phrase remains a beneficiary.
If the grantor of the property into the trust makes him or herself
the beneficiary of the trust and then remains the beneficiary, there
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is no violation. If not, the mortgage company has full authority
under federal law to call the loan due and enforce the due-on-sale
clause. I assure you that mortgage companies are vigilant in their
effort to prevent these violations of loan provisions.
The primary argument of promoters using this strategy is that
its up to the mortgage company to find out and then enforce the
violation of the due on sale clause (in plain English- Breach of
Contract). If the mortgage company doesnt find out, or doesnt
enforce it, its not my problem and it must be okay. I think this is
a sad and unethical way to do business, certainly in todays
business climate of excessive mortgage abuses and fraud. Maybe
Im just out there, but Im shooting to be a law abiding citizen.
I dont want to plan my real estate investing career around the
fringes of the law or in outright violations of contracts with the
people and institutions that loan me money.
Half-Truth #4 Land Trusts Save Taxes

This could not be further from the truth. First the proponents
state You can save income tax because the IRS will not be able
to discover the true owner of the property. Not only can an
owner/investor hide from creditors, he or she can hide from the
IRS. That sounds believable doesnt it? But is it the truth?
Absolutely not!
This benefit of land trusts is also generally espoused by many
of the so-called constitutional tax protestors who are convinced
we have no legal obligation to pay taxes. They often attempt to
use land trusts to help hide their assets. This is bad thinking based
on inadequate and faulty knowledge. Be cautious when you hear
such unfounded claims.
The IRS is very aware of this deceptive strategy and continues
to win hundreds of cases and collect taxes from thousands of
citizens who use a variety of trust structures to hide their income
and assets because they foolishly believe they dont owe their tax
payments. Each year the IRS publishes its Dirty Dozen list of
tax strategies it pursues as shams. Please note the IRSs 2007 list,
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Strategy #8- Trust Misuses, which states:
However, some trusts do not deliver the promised
tax benefits. There are currently more than 150
active abusive trust investigations underway and
49 injunctions have been obtained against
promoters since 2001. As with other arrangements,
taxpayers should seek the advice of a trusted
professional before entering into a trust.23
Furthermore, it is important to note that there are no laws on
the books in the Internal Revenue Code that support the Land
Trust as a separate taxable entity. The IRS has specifically said
on its website under an article titled Abusive Trust Tax Evasion
Schemes - Special Types of Trusts.
The land trust has no special distinction in the
Internal Revenue Code and would be a simple,
complex, or grantor trust depending on the terms
of the trust instrument. Filing requirements would
depend on the type of trust.24
Please realize that this book is not about tax strategies. I
dissect the tax protesters arguments in my book: Lawyers Are
Liars - Tax Strategies That Actually Work. In the meantime, please
see a major red flag in your mind if someone starts to pontificate
that you can avoid taxes all together or arent required to pay taxes
under some archaic tax law. Get a second opinion.
The next tax savings touted by land trust proponents is,
You may save on property tax because the county taxing
authority overseeing the tax rolls for the county in which the
property is located will not be inclined to revalue the property
because theyll be unaware of any transfer. I have two problems
with this argument.
First, it is another vicious urban myth that transferring real
property will always result in a new tax basis for county property
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tax processes. Generally, most county taxing authorities,
commonly referred to as County Assessors, reevaluate property
values on a one or two-year cycle and adjust property values
whether a transfer has occurred or not.25 In many jurisdictions, to
assume that hiding a transfer minimizes a property tax assessment
is completely wrong. Obviously, I dont profess that I am keenly
aware of the inner workings of the thousands of county seats
across the U.S. and how they make their property tax assessments.
However, I am confident that land trust proponents dont have this
information either, yet they will often state that property tax
savings are a common benefit.
Second, if one indeed is using the land trust to avoid a new
property tax assessment, isnt this an act of deceiving the taxing
authority? I have the same problem with this concept as I
mentioned previously in reference to other scams. Why are we
who dont use land trusts obligated to pay more in taxes than those
who want to operate in the shady areas of the law? This is truly
why I believe more land trust laws are not passed in a number of
states. Such laws would give unscrupulous investors the
opportunity to take advantage of the property tax system and push
the burden of taxes to others like you and me.
Revocable or Irrevocable
If you decide to embark upon a land trust structure for
investments purposes please make sure you are aware of the tax
consequences of a revocable versus an irrevocable trust
arrangement. It is important to understand from a tax standpoint
why a revocable land trust is much simpler and safer than an
irrevocable land trust.
A revocable land trust is generally considered a grantor trust
and considered a disregarded entity in the eyes of the IRS.26 The
true owner of the property, whether an individual or a Limited
Liability Company, is not required to file a trust tax return on IRS
Form 1041.27 This is not a bad thing and is generally a very
favorable taxation principle. However, if one uses an irrevocable
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trust, a trust tax return will more than likely have to be filed and
getting around the trust tax rates is going to be difficult. Trust tax
rates are much higher than individual tax rates and are something
that cannot be taken lightly and must be considered when using an
irrevocable trust. In Chapter Thirteen I discuss defective trusts
that allow you to allocate, for lack of a better word, income to
grantors or beneficiaries. However, that again takes us completely
out of the realm of the typical land trusts sold in the form of
templates at weekend seminars around the country. Please be
careful.
True Story
My office received a call from a woman who lives in Illinois
and who had been sold a land trust as a way to hold her rental
property. She was extremely frustrated because her
accountant wanted to know who the nominee trustee was and
why she had used an irrevocable trust. Unbeknownst to her,
because this was an irrevocable trust she was forced to file
an annual 1041 Trust Tax return for her land trust and
potentially pay taxes at much more aggressive tax rate
schedule, which in effect create a greater tax impact than
simply claiming the income personally. Of course, the land
trust structure she was sold had been touted as bullet-proof.
The Truth
An irrevocable land trust is the only type of land trust that
provides any sort of asset protection, but it also requires a
great deal of individualized planning to address the actual
asset protection benefit, as well as gift and income tax and
other administrative issues. The woman in this example was
now concerned about the control she had over the trust.
Would it be treated as a complex trust in the eyes of the IRS,
subjecting her to potential tax liability? Who was really in
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control? Was there actually any asset protection benefit
anyway? These are very serious questions that have serious
answers, which werent addressed at the hotel seminar.
Please be careful out there.
Although an irrevocable trust generally requires a tax return

and could have a serious negative tax impact.28 This type of trust
could certainly provide more asset protection because the grantor
would theoretically give up control and ownership. However, it
also depends on whether the grantor remains as a beneficiary or
trustee. These types of trusts are generally referred to as selfsettled trusts and dont provide any asset protection whatsoever.
Please see the material on trusts in Chapter Twelve for types of
trusts that provide true asset protection without an accompanying
tax problem.
The sad part is that some unlicensed/inexperienced
professionals or traveling promoters suggest an irrevocable
land trust structure and dont realize that they may be causing
more harm than good. Although they rely on the general concept
that creditors have a much more difficult time getting at property
you dont control, you may create a gift to the new owner or have
a negative tax impact on your own tax return moving forward.
You can see how this topic can become very complex, very
quickly. Make sure you consult with a competent tax professional
before embarking on a land trust structure for your assets. Ask
tough and pointed questions. Make sure you get complete answers
and that you understand them. Only then press on with developing
a plan to make sure your land trust works for you and not against
you.
When a Land Trust Makes Sense

There are a few specific instances in which a land trust makes
sense. The following is a thorough but not a comprehensive list:
Avoiding Probate. Yes, property held in a land trust will avoid
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probate and the contingent beneficiaries of the trust will generally
inherit the property free of court involvement and a probate
proceeding. However, this is the purpose of a standard revocable
living trust in a familys estate plan anyway. Why do we have to
use a land trust when a familys revocable living trust will own the
property or the entity holding the real estate anyway? Whats the
purpose or the real benefit of such a duplication of effort?
Privacy of Ownership. In states such as Illinois and Florida
using a land trust will increase privacy protection, but not asset
protection.
Ease of Transferability. In a situation where you are not trying
to get a around a due-on-sale clause and need to sell a piece of
property in a creative manner, a land trust could be a great fit. This
is probably the most justifiable strategy for using a land trust for
the transfer of ownership of a piece of property between a buyer
and seller. There are numerous strategies and procedures that
could be used to create a win-win between a buyer and seller.
The Final Word - Savior or Snake Oil?

In the words of Adam and Jamie, hosts of Mythbusters,29 the
myth of the land trust is busted and regrettably snake oil. A
land trust may have some genuine benefit for certain people with
specific circumstances in Florida, Illinois, Virginia or Hawaii, but
unfortunately these types of trusts are far too often portrayed as a
one size fits all solution to a variety of problems in all 50 states.
In most cases this snake oil medicine just cant cure many
patients. Please use this financial treatment sparingly and only
after a consultation with your doctor. Otherwise some
unscrupulous promoter will really give you the treatment.
Myths are wonderful for teaching important lessons, guiding
people through lifes challenges and for plain old entertainment.
But myths have no place in the realm of asset protection. This is
an area in which you must become your own mythbuster and
create an asset protection plan that is firmly rooted in reality.
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Chapter 4 Footnotes
Mythbusters, A registered Trade Mark of Discovery Channel, and Discovery Communications,
Inc. (2007).
2
Land Trust Beneficial Interest Disclosure Act, 765 ILCS 405/1-3; see also Land Trust Successor
Trustee Act, 765 ILCS 410/1-2; Land Trustee as Creditor Act, 765 ILCS 415/1-4; Land Trust
Recordation and Transfer Tax Act, 765 ILCS 420/1-4; Sale of Residential Property Subject to
Land Trust Act, 765 ILCS 430/1-2; Land Trust Fiduciary Duties Act, 765 ILCS 435/1-99.
3
Florida Land Trust Act, Fla. Stat. 689.071.
4
Hawaii Land Trust Act, Haw. Rev. Stat 558-1 - 558-8 (1978).
5
Va. Code. Ann. 55-17.1 - 55-17.04.
6
Wyoming Limited Liability Company Act, Wyo. Stat. 17-15-101 (1977).
7
Haswell & Levine, The Illinois Land Trust: A Fictional Best Seller, 33 Depaul L. Rev. 277
(1984). (commenting that secret ownership of real estate is not particularly socially appropriate
or consistent with sound public policy. With land trusts, landlords are more likely going to not
fulfill their obligations to tenants, landlord tenant communication decreases, and can make it
difficult for buyers to have accurate or complete information regarding the history of the
property. Land trusts also thwart the efforts of bona fide creditors from collecting on bad debts
and can facilitate property owners to avoid paying proper property taxes or transfer taxes.)
8
See Wash. Rev. Code Ann. 82.45.010.
9
See Fla. Stat. Ann. 201.
10
Thirty Five states, including Washington D.C. impose some form of real estate transfer tax. See
the most recent bulletin provided by the Federation of Tax Administrators located at
http://www.taxadmin.org/fta/rate/B-0306.pdf (last viewed March 12, 2007).
11
Id. see FN # 61-64.
12
Mark Warda, Land Trusts for Privacy and Profit (Galt Press 2004); Mark Warda, Land Trusts in
Florida (Sphinx Publishing 2007).
13
Land Trusts for Privacy and Profit, supra, at 32.
114
Id. at 37.
15
Hawaii- Haw. Rev. Stat. 558-8; Connecticut- Conn. Gen. Stat. Ann. 8-124-8-7C; IndianaInd. Code 30-4-4-4.
16
Ariz. Rev. Stat. 33-404 (2006).
17
See Restatement (Second) of Trusts 153, 156, 157 (1959); and Restatement (Third) of Trusts
58-60 (2003).
18
Mario A. Marta, What Estate Planners Need to Know About Asset Protection, American Bar
Association, February 6, 2007, at 23.
19
See Uniform Trust Code, Article 5 (2005).
20
Garn-St. Germain Depository Institutions Act, 12 U.S.C.S. 1701j-3 (2006) (emphasis added).
21
Id. at 1701j-3(b)(1) & (2) (emphasis added).
22
Id. at 1701j-3(b)(1) & (2) (emphasis added).
23
See http://www.irs.gov/newsroom/article/0,,id=167983,00.html. For a current list of the IRSs
Dirty Dozen Tax Scams, please visit www.irs.gov and simply search for the words dirty
dozen.
24
See http://www.irs.gov/businesses/small/article/0,,id=106553,00.html; For a current copy of this
article, please visit www.irs.gov and simply search for the words abusive trusts.
25
Colorado mandates that each county revalue property in every odd numbered year, see
www.asr.elpasocom.com; Missouri requires the same, see www.showmeboone.com/assessor;
Tennessee reappraises property under a four, five or six year cycle, see Tenn. Code Ann. 67-51601; Connecticut assessors must revalue properties at least every 5 years, see Conn. Genn. Stat.
12-62 (2006); Under Proposition 13, California is one of the few states that requires a property
be revalued after every transfer.
1
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I.R.S. Reg. 1.671-2(b).
I.R.S Reg. 301.7701-2(a).
28
I.R.C. 651 & 652 (2006).
29
Mythbusters, A registered Trade Mark of Discovery Channel, and Discovery Communications,
Inc. (2007).
26
27
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Chapter 5
The Realities of
Off Shore Planning
Is it Worth the Cost?
A man often pays dear for a small frugality.
Ralph Waldo Emerson
Im moving my assets off-shore. Sounds sexy, doesnt it?
Thoughts of having Swiss bank accounts, a corporation in the
Caymans, or a support trust in the Cook Islands are certainly
exotic and mesmerizing at the least. We see and hear about their
value in novels, television shows, movies and in many books,
DVDs and CDs by so-called financial experts. We are encouraged
to think, Surely no one would ever be able to touch my assets if
they are off-shore. In fact, I might even be able to hide some
income from the IRS and certainly take tax write-offs for
traveling to some tropical island to check in on my bank account
and meet with advisors. Wow!
Hold your horses! Were not all billionaire Gordon Geckos
from the movie Wall Street1 or the happy, dancing and fancy free
rich from those 1930s musicals. Fred Astaire and Ginger Rogers
we are not. Most of us cant dance through the raindrops
without getting wet. We live in a very real world, one in which we
have to take asset protection seriously. When something sounds
too good to be true, it often times really is too good to be true.
Trust me, nothing, and I mean nothing, can be protected from a
creditor with the will and the wallet. In the end the SEC collared
Gecko, and Fred and Ginger danced back into a world where they
still had to earn a living.
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Deception #4
The Lie
Moving your assets off-shore will provide iron clad asset
protection for your assets, and save you taxes in the process.
The Truth
The real benefits of off-shore planning have been whittled
away in recent years so that the costs can far out weigh any
real benefits for the average American. However, off-shore
planning is still a valid and effective barrier for some
individuals and companies. Its just not the bullet-proof
ironclad strategy to fully protect your assets so often sold by
the gurus, promoters and lying lawyers. By the way, the true
cost is not only the dollars to set up the structure and maintain
it. The true cost could be mandated by a judge who will make
you serve prison time for tax evasion or for violating the
contempt of court order until you pay your creditors. For the
average American, I believe off shore should be off limits.
The Traits of the Current Off-Shore Promoter

The big rush to off-shore planning was in the mid to late
1990s. The trend certainly declined in the main stream law offices
of firms across the country after the landmark cases FTC v.
Affordable Media, LLC,2 decided in 1999, and Goldberg v.
Lawrence,3 finally decided on appeal in 2000. In both cases, the
courts ordered the debtors trying to protect their assets to bring the
money back to the U.S. and pay their creditors.
Two of the foremost experts in asset protection and off-shore
Planning, Jay D. Adkisson and Christopher M. Riser, who
earnestly seek to disseminate the truth in this area of law, said the
following about this change in the off-shore planning industry:
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THE REALITIES OF OFF SHORE PLANNING IS IT WORTH THE COST? 67
The Anderson and Lawrence cases exploded the

myth of in-your-face asset protection the
prevailing mode of asset protection in the
1990sMany clients realized they had been
mislead by the promises of offshore trust gurus.
They began to look for sound planning techniques
that were effective and that would not land them in
jailBy 2002, the two professional journals
devoted to asset protection planning, the Asset
Protection Journal and the Journal of Asset
Protection, both of which had commenced
publication in the middle of the offshore trust
boom, had ceased publication.4
However, and regrettably, many promoters continue to
promote one-size-fits-all trusts and banking structures hoping to
find those uninformed, gullible investors. Unfortunately, these
promoters have been able to find a market and people willing to
buy into their strategies. This chapter will help you avoid
becoming one of those unfortunates.
Interestingly, these promoters are not using seminars at hotels
down the street to peddle their products. They operate in an
almost underground cottage industry of planners who rarely have
recognized credentials. They make promises to potential clients
based on their practical/on the street experience due to travels
around the world. They often use websites that require passwords
to enter, thus preventing the IRS from using web crawlers and
other technology to find their schemes. Please be careful if a
promoter approaches you in a discreet or secretive manner. By
being careful I of course mean run!
Promoters have really had to change their MO (modus
operandi or method of operation). They use more of a word of
mouth approach to their marketing strategies, very similar to the
previously mentioned tax protestor industry. In a way these
promoters are brain surgeons. They get into your head and
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dull or slice away the very parts you need for critical thinking.
Ask actor Wesley Snipes who was recently indicted by the IRS for
attempting to cheat the government of $12 million in owed taxes.5
According to news reports, his foolish actions were based on
advice from a prominent tax protestor.
A Comment on the Cost of Off-Shore Planning

Its not that off-shore planning cant be a worthwhile
enterprise. It can be very helpful to a family or business owner.
There are many well qualified attorneys committed to honest and
straightforward planning in this area of the law. However, it is
absolutely critical that any planning be tailored to the individual
with realistic expectations set forth as to its actual value to the
familys assets. Its the deceptive planners who dont disclose the
true realities of off-shore planning that make a bad name for the
rest of us.
Off-shore planning is certainly not an area of business
planning that boiler plate documents downloaded off a CD or
website will suffice. There are certainly going to be set-up and
maintenance costs in the U.S. and abroad to maintain a quality
plan. If you let yourself believe that you can take the Walmart
approach to the costs and do it cheaply, you will certainly get what
you pay for.
Moreover, please realize that the administrative steps you will
have to consistently maintain may be more than you bargained
for. The bedrock principle of off-shore planning is that you give
up control and ownership, including some type of use of or
income from the assets for your family in the future, so that
creditors will have a more difficult time reaching the assets. This
does not take place without some major changes in your use or
access to the assets you are placing off-shore. Please be ready for
some administrative changes in your life.
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Tax Avoidance Versus

Evasion and Off-Shore Planning
After downplaying the cost and administrative requirements,
the promoters often add insult to injury by suggesting there may
be a tax benefit to moving assets off-shore and couple their offshore structure with outrageous claims of tax savings. Often the
structure doesnt even create a legitimate deduction or investment
that would receive preferential tax treatment. In fact, they
essentially claim the structures will hide or disguise income that
would not meet the purview of the IRS and/or not need to be
reported for some reason. This is a bold face lie!
Realize that the IRS has no problem with off-shore asset
protection unless it has some sort of purported tax savings aspect.6
The IRS is not going to be your friend when you try to hide assets
off-shore. One of the IRSs Dirty Dozen Tax Scams of 2006 was
Offshore Transactions.7 Do not think for one minute that the
IRS is not savvy to American taxpayers trying to hide assets and
income off-shore. They read the same articles, websites and
attend the same seminars you do. Regardless of how inefficient
the IRS bureaucracy may be, when they decide to come after you
theyre very good at what they do.
Even if the off-shore structure has a legitimate tax benefit, the
reporting requirements to the IRS can be significant. Although,
the 2004 American Jobs Creation Act eliminated the rules for the
registration of tax shelters, it required material advisors to
disclose Reportable Transactions.8 Certain transactions must be
reported to the IRS as a Reportable Transaction on Form 8886.9
The creation and funding of a Foreign Asset Protection Trust is a
clear example of a listed transaction and must be disclosed to the
IRS as a Reportable Transaction.10 By filing the 8886 you are
throwing up a red flag to the IRS and asking for an audit.
In fact, in November 2, 2006 the IRS issued additional
proposed tax shelter rules that would tighten disclosure rules for
taxpayers and material advisers. The proposal would also add
transactions of interest to the category of reportable
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transactions.11 As an aside, the fine for not disclosing a Listed
Transaction is $100,000, which would double for large entities or
high net-worth individuals.12 When it comes to asset protection
and the possibility of fines and jail time, which source are you
going to believe the underground promoter or federal law?
These reporting requirements often come as a complete
surprise to many who embark in foreign planning. Most of us
dont want to report our activities in a manner that is more
complex than the bureaucratic mess were used to. Naturally, the
need for highly detailed reporting of off-shore assets is not
disclosed by the promoters.
Terrorism and the Effect on Off-Shore Planning

On October 26, 2001, President Bush signed into law the USA
PATRIOT ACT, creating significant hurdles for many off-shore
transactions that previously would have never shown up on the
IRS or Federal Governments radar.13 The new law requires
greater disclosure in a variety of financial transactions, mainly
due to the governments estimate that money laundering amounts
to at least $600,000,000,000 annually.14
One example of increased reporting requirements is that a
report must be made and filed with the government for any cash
transaction received by any financial institution within the United
States if the amount involved is $10,000 or more.15 Now please
understand, Im not saying that the Patriot Act is good or bad for
our country, but I want you to understand one thing about its
effect on off-shore asset protection: it creates a serious paper trail.
The greatest hurdle a creditor has to overcome in collecting a
debt or judgment is tracking down the money and any transfers the
debtor has made to other entities or jurisdictions. A paper trail helps
creditors find the money and allows a judge to better determine
which funds he or she should require you to bring back to the U.S.
to pay legitimate judgments to creditors.
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The True Deception - Jail Time

This is the heart of the matter in regards to off-shore asset
protection planning. Assume the creditor finds the money
hidden. The debtor must ask, What happens when a judge
orders me to bring back the money I placed off-shore? This is the
question the promoters fail to discuss. I dont care if it is a loan
gone bad, a judgment from a personal injury case, or a business
deal gone bust, the reality is that the debtor has four options once
the Judge orders the payment from the foreign assets:
Option 1- Dont fight it. Once the creditor finds the money,
bring it back to the U.S. and pay the debt.
Option 2- Fight it out in court like the Andersons16 in the
Affordable Media, LLC case or Stephen Lawrence17 tried with
Bear Stearns. Chances are youll lose and end up right back where
you started. In both of these cases, the judge just didnt believe
that the debtor had really given up control of their assets to a
foreign trustee in a foreign jurisdiction.
Option 3- Refuse to comply with the judges order and be held
in contempt of court and then go to jail until you decide to go back
to Option 1.
Option 4- Leave the country so you are no longer under the
physical jurisdiction of the court, leaving your family, friends and
career behind.
By the way, dont plan on Option 4 working if you committed
a crime and are subject to extradition. This will bring you right
back to Option 3 and fighting a criminal battle to boot.
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True Story
In 2006 Comverse Technology, Inc Chief Executive Jacob
Kobi Alexander faced federal charges in connection with
backdating stock options. He decided to flee the country to
Namibia, South Africa (a country widely held to provide
refuge, secrecy and flexible banking laws). US prosecutors
located him through a tip from an informed source and on
September 27, 2006, Namibian authorities arrested
Alexander. They released him six days later on $1.4 million
bail. Interestingly enough, the same day of his arrest, the
Namibian government enacted a law allowing extradition to
the United States. He continues to live openly in Windhoek
as of the date of this publication, however an extradition
hearing is set for April 25, 2007.18
Does Off-Shore Planning Still Have a Place

in Asset Protection?
Absolutely! Just as Nevada companies may be established
and land trusts may be used for specific reasons tailored to
specific situations. There are still wonderful benefits to consider
with off-shore asset protection. However, there are certainly not
cookie-cutter type structures that will help most people in most
situations. This type of planning must be carefully entered into,
with experienced off-shore planners and individualized to your
situation. Please see a variety of bona-fide off-shore planning
strategies set forth in detail in Chapter Twelve.
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Chapter 5 Footnotes
Wall Street, (20th Century Fox 1987).
FTC v. Affordable Media, LLC, 179 F.3d 1228, 1242 (9th Cir. 1999). (wherein the owners of
Affordable Media, LLC, Michael and Denyse Anderson (Andersons) were telemarketers who
made millions of dollars in a fraudulent scheme and transferred the funds to a Foreign Asset
Protection Trust in the Cook Islands. It was determined by the Court that it was impossible that
they truly did not have control over their trust which held their money and destroyed the
planning strategy common referred to as the impossibility defense).
3
Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907 (Bankr. S.D. Fla. 1998); In re Lawrence,
251 B.R. 630, (S.D.Fla. Jul 31, 2000). (wherein Stephan Jay Lawrence, an options trader
working for Bear, Stearns & Co, Inc.(Stearns), lost millions as a result of a margin deficit call
after Black Monday, October 19, 1987, and further lost in a civil case against Stearns leaving a
debt owed to Stearns of over twenty million dollars. Stearns ultimately penetrated all of
Lawrences so called off-shore asset protection structures and set major precedent defeating the
impossibility defense and further supporting the doctrine of disbelief that what rational person
would truly transfer their assets to a trustee in a country across the world without anything in
return and completely give up control).
4
Protecting Your Wealth 3 (McGraw-Hill 2004).
5
Associated Press, October 18, 2006.
6
See The U.S. Senate Permanent Subcommittee on Investigations report detailing offshore tax
haven abuses, 109th Cong. August 1, 2006.
7
See http://www.irs.gov/newsroom/article/0,,id=154293,00.html. For a current list of the IRSs
Dirty Dozen Tax Scams, please visit www.irs.gov and simply search for the words dirty
dozen.
8
2004 American Jobs Creation Act, P.L. 108-357 (2004 AJCA), I.R.C. 815, effective for
transactions with respect to which material aid, assistance, or advice referred to in I.R.C.
6111(b)(1)(A(i) is provided after Oct. 22, 2004.
9
I.R.C. Regs. 1.6011-4(e)(1). In fact, there are several I.R.S. Forms that a U.S. Taxpayer may
be required to file when involved with a foreign entity or trust, see I.R.S. Forms 3520, 5471,
5472, 926, & 8865.
10
A listed transaction is a transaction that is the same as or substantially similar to one of the
types of transactions that the IRS has determined to be a tax avoidance transaction and identified
by notice, regulation, or other form of published guidance as a listed transaction.
11
Proposed Reg.103038-05, 71 Fed. Reg. 64488 (11/2/06).
12
See Senate Bill 301; I.R.C. 7701.
13
See Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA PATRIOT) Act of 2001 (Public Law 107-56). This law was readopted or renewed by Congress and the President on March 9, 2006.
14
31 U.S.C. 302(a).
15
31 U.S.C. 5331 (2007).
16
FTC, supra.
17
Goldberg, supra.
18
Steve Stecklow, Executive Retreat: Stock-Options Scandal Fugitive Puts Roots Down in
Namibia; Comverse CEO Kobi Alexander Buys a Golf-Course Home, Invests in Auto-Body Shop;
Fighting Extradition to U.S. Wall Street Journal (Eastern edition), Nov. 17, 2006, at A.1.
1
2
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Chapter 6
Partnerships and Marriage
The Hidden Asset
Protection Issues
You cant handle the truth!
Colonel Jessup in A Few Good Men
Do you want the truth? Believe me, this is a truth that you
must handle. The greatest threat to your assets is you, your
partner or spouse. Its sad to say, but its true. This is a unique
chapter because I dont blame a promoter or professional who
may mislead the public and send his or her clients in the wrong
direction. Im accusing us, you and me, of not taking these
situations seriously and properly considering the risks. Ask
anyone who has been through a business break up with partners,
a transaction that didnt go as planned, or who has even been
through a friendly divorce. Any of these experiences is at the
very least emotionally draining, mentally stressful, and often
financially devastating.
Deception #5
The Lie
We deceive ourselves into thinking something so terrible
will never happen to us. Unfortunately, far too many of us live
in a world of self-delusion.
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My partner will never rip me off.
The deal will certainly not turn out for the worse.
My spouse would never viciously turn on me and take all
of our financial assets.
The Truth
Our greatest enemies can be ourselves and the people
closest to us. We must consider all the potential risks when
doing business with our supposed greatest allies. This should
never be a reflection on a partner or spouses character. Its
just good sound business and family planning to consider the
possibility that our investment or business may fail or
experience the worse case scenario. Our marriage to our
sweetheart might fail. Once we understand these risks we
have to plan for them and realize the worst-case scenario may
become a devastating reality. The more you plan for the worst,
the better your chances are for achieving the best.
The Nature of Partnerships

One of the greatest benefits of living in the United States and
operating a business in a free-market society is that we can open
our own lemonade stand tomorrow. We can also shake hands
with someone and open that lemonade stand, retail outlet,
consultation firm, manufacturing plant or whatever we choose
with a partner. We can balance our weaknesses with someone
elses strengths and vice versa. This is a wonderful opportunity we
all can share. However, one of the greatest drawbacks of this legal
principle is the simplicity, ease and how fast a partnership can be
formed. Surprisingly to some, there is no legal requirement that
your partnership be in writing.1 The process is so simple that it is
incredibly easy to make incredibly bad decisions.
Why is such speed and convenience a problem? Isnt that a
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PARTNERSHIPS AND MARRIAGE THE HIDDEN ASSSET PROTECTION ISSUES 77
benefit? What does all of this mean? It means that even if you
didnt intend to form a partnership, you may have created one
when you scribbled out your idea with a friend on a napkin at
Dennys late one night. You may think you were just discussing
an idea. But, your friend thought you were actually proposing a
partnership. You can easily find yourself in a he says/she says
situation before a judge. It is easy to plan for all of the successes
of the partnership when the sun is shining, the sky is blue and the
winds are gentle. However, when the rain clouds come, poor
documentation and unforeseen liabilities can destroy the business
because the partners have different versions of what was actually
agreed to and what they bargained for. The following critical
issues must be considered when doing business with others.
1. You may not intend for a partnership to exist. Some of us
may have no intentions whatsoever of entering into a partnership.
The ramifications of an unforeseen partnership relationship can be
surprising at the very least and mentally, emotionally, and
financially disastrous at the worst. An unintended partnership
could result in exposure to unplanned liabilities or the unfavorable
division of partnership responsibilities and rewards.
I had a client experience the nightmare of having an employee
claim he was actually a partner and not just an employee. It
destroyed his business. Ive also had a friend of the family
dragged through years of litigation with an employer over who
came up with a specific idea.
There was no documentation to back up either party, so they
were playing the he says/she says scenario, which to me is a nowin scenario for each party.
2. Its easier to get divorced than to get out of a partnership.
Think about it. There is a proven, understandable and workable
structure in our legal system for divorce. We have divorce court
with divorce attorneys and divorce counselors. There is no such
system for partnerships and partners. I wish there was a handbook
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partners could turn to. I hope this chapter helps to fill some of that
unfortunate void.
True Story
Eric decided to open a cosmetology school after years of
experience in the industry. He invested a great deal of money
into the start-up of the business. Early on he met with a
woman named Melissa who also shared in his excitement for
the business and wanted to work at the School. Melissa had
a lot of great ideas and worked hard. When the business was
just getting started Eric paid Melissa when he could and
often spoke of her buying the business from him or being a
partner someday. Before the first year of the business was
over, she claimed she was a partner and gave him a written
demand for her fair share of the profits. Because of the lack
of written documentation between the two of them, a lawsuit
was filed and the business closed shortly thereafter. Melissa
ultimately opened up her own school/business across town
and because of the devastating experience financially and
emotionally, Eric never tried to re-start his own business.
3. Joint ownership creates a partnership and exposes assets to

unnecessary liability. Joint Ownership is one of the most popular
forms of ownership in the United States. To insure that jointly
owned property will pass to the survivor to avoid probate, many
people use the designation joint owners with rights of
survivorship. This may seem like a harmless form of taking title,
however there are significant hidden risks a partner needs to realize.
For example, if two investors have their individual names on title to
an investment property and one of the investors gets into problems
with a creditor, the creditor may seek to lien the property and force
liquidation. Once I had a client facing a foreclosure on the property
with the IRS and had no idea why there was a problem. Come to find
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out, she had put her son on title to the property and because her son
had not paid his tax bills for years, the IRS was attempting to collect
any asset he owned. The simple act of placing someones name on
title to your property creates a partnership, exposes the property to
your partners liabilities, and could create gift tax problems to boot.
4. Unlimited Liability for Partnership Debts and Partners
Acts. In a partnership, all general partners are personally liable for
the acts of their partners in any act or omission in the ordinary
course of the business.2 This is called joint and several liability.
Stated otherwise, this is the threat that in a general partnership you
are liable for your partners actions, even if you are no where near
the transaction or cause of action! Even scarier than being liable
for the acts of your partner, each partner is personally liable for
partnership debts, liabilities, and accidents that could arise in the
general operations of the partnership.3 This is a liability
nightmare waiting to happen and a dream for a creditor.
A Creditor trying to collect on a partnership debt can go after
the partner with the deepest pocket. The simplest way to
resolve this exposure is to set up a business entity such as a
Limited Liability Company or Corporation and not to operate as
a general partnership. Many entrepreneurs and professionals fail
to realize that a little legal planning can save thousands and
thousands of dollars later on by avoiding unnecessary exposure.
Please see Chapter Ten regarding proper entity planning for your
business.
True Story
One of our clients, Suzanne, was approached by a self
professed experienced investor and asked to contribute cash
out of her home equity into a real estate project. Suzanne
proceeded to re-finance her home and signed a very lengthy
partnership agreement that in reality wasnt worth the paper
it was written on. Due to the thickness of the document and
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the comforting comments of her partner, she believed
everything was fine and invested more than $100,000 into
the project. Within weeks her money was gone and the
partner had disappeared. Regrettably this happens on a
regular basis in all types of industries, not just real estate.
5. My Partner may not be as fair and honest as I thought.

This is probably one of the scariest aspects of a partnership
because we dont want to admit that our partner may actually take
advantage of us or steal the business profits or assets right out
from under us. Regrettably, this is something that happens more
often than we realize. We have terrible experiences come through
our door almost on a monthly basis where an unsuspecting
investor was talked into a partnership relationship and lost their
investment in the project. Please be cautious. I tell clients
repeatedly to negotiate like enemies and operate like best
friends. There is no substitute for good documentation in the
partnership.
Finally, please be cautious and remember that anybody
proposing to take your money or use your credit to start a business
or purchase an investment needs to be carefully interviewed,
scrutinized and treated with the utmost skepticism. If the deal
works out, great! If it doesnt you have hopefully created a safety
net or obtained security for the investment.
True Story
I recently received a call from a very frustrated investor
who had loaned more than $225,000 to a business promoter
who was going to use the money to make hard money loans
and real estate investments. In turn, the promoter would pay
fifteen percent to the investor and pay the note off in full
within two years time. Of course, the interest payments
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disappeared and the promoter squandered the principal

amount of the loan. There was no security provided, and the
promoter had not properly registered the investment as a
security under Securities and Exchange Commission
guidelines. The investors only recourse: file a lawsuit
against the promoter personally and hope to claim securities
fraud to get around the promoter claiming bankruptcy.
Please, please, please make sure you get competent legal
representation when making any investment large or small.
A few hundred dollars with an honest and competent lawyer
could save you thousands and thousands of dollars and
incalculable heartache.
Considerations to Plan for in a Partnership

The Partnership Agreement and setting up the proper
entity/structure for the partnership is the single most important
step in the partnership process, maybe even more important than
analyzing the merits of the project within the partnership itself.
You could have the most potentially successful money-making
idea in the world, but if the foundation for the partnership is
faulty, the business will ultimately fail.
Here is a checklist of considerations when entering into a
partnership that should be helpful:
1. Contributions of Capital. What in time, money and assets is
each partner contributing to the partnership? This includes the
initial contributions as well as additional contributions that may
be necessary to continue operating the business in the future.
2. Rights to Distributions, Profits, and Losses. Any right of a
member to receive discretionary or mandatory distributions,
which includes a return of all or any of the members
contributions, needs to be clearly and specifically set forth in the
Partnership Agreement. Moreover, both limited and general
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partners should be concerned as to whether or not, and how,
profits and losses will be allocated by the partnership. There is a
difference between distributions of monies and allocations of
profits and losses on the tax return.
3. Percentage of Ownership. It is absolutely critical to
consider your ownership percentage in relationship to the other
partners. Control of the business is what will ultimately determine
your personal return on your investment.
4. Dissolution. The Partnership Agreement should indicate the
events upon the happening of which the partnership is to be
dissolved and its affairs wound up. An exit strategy for the
business as a whole, as will as the individual comings and goings
of partners is often overlooked. It is easy to get things started.
5. Form of Doing Business. Choosing the right type of entity
is critical when entering into a partnership. For example, an Scorporation may be extremely beneficial to the partners to save on
self-employment tax. On the other hand, a Limited Liability
Company could be more flexible and allow for special allocations
of profit, loss and voting rights. From a liability perspective, it
cannot be emphasized enough that setting up the proper entity is
extremely important to prevent unnecessary exposure and liability
to the various partners.
6. Security. If you are a silent partner or even a participating
partner, please make sure there are checks and balances in place
for the management of the cash and assets in the business. Make
sure that your partner cannot run with the money and if he or she
does, there is protection in the partnership agreement for acts of
fraud and the requisite fiduciary requirements.
7. Representation. Have a competent and honest attorney
either represent the company, or have each partner obtain his or
her own attorney to review the partnership documents and address
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all of the above issues, as well as the individual and specific needs
of you and your partners particular situation.
8. Authorization to Managers/Officers. Have a very clear list
and understanding of what the managers or officers of the
business are authorized to do on behalf of the company.
Furthermore, there should be a description of each partners
responsibilities and duties so each partner knows what to expect
from each other.
Planning for a Successful Marriage

and Maybe even Divorce
Thats right! We have to talk about this ugly topic. But trust
me, if you dont talk about it, or at least think about it now, you
could be setting yourself up for even a more destructive event in
your life in the future. Not only is there a substantial emotional
impact to a divorce, the financial impact can be overwhelming.
Regrettably, the statistics on marriage and divorce are
disheartening. Consider the following:
59 percent of marriages for women under the age

of 18 end in divorce within 15 years. The divorce
rate drops to 36 percent for those married at age
20 or older.4
60 percent of marriages for couples between the
ages of 20 and 25 end in divorce.5
50 percent of all marriages in which the brides
are 25 or older result in a failed marriage.6
Im not talking about hiding assets from a future or current

spouse or cheating a spouse out of something that is rightfully his
or hers. I am simply suggesting proactive planning with a fiance
or spouse to insure that assets are protected from a divorce
proceeding. Its not that one spouse will lose in a divorce. Both
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spouses lose and the lawyers win. It is truly a travesty and a topic
for a future book I think the public desperately needs.
If you noticed carefully, I actually started this section by
titling it Planning for a Successful Marriage. Some specialists
have even argued that having discussions regarding finances and
assets before marriage can create a better and long-lasting marital
relationship. Even the wise and all knowing Dr. Phil made the
following comment directly on this point:
People often underestimate the commitment in
merging two lives together. The reason we fight
most about money is because its the most
measurable. Sure, compromises also need to be
made when it comes to issues of time, space and
affection, but with money the give and take is
quantifiable.7
One of the topics most debated and credited with causing
more divorces is the familys finances. Dr. Phil has confirmed
what many of us already know to be true It's this simple: money
can ruin your marriage. In fact, it's the number one problem in
marriages and the number one cause of divorce.8
Anyone reading this book who is or has been in a marriage
knows what I am talking about. Why not take the financial issue
off of the table, at least to some degree. By planning for family
business ownership, assets brought to a new marriage, or prior
investments in education we can avoid countless issues,
arguments and discussions. Again, it is my contention that we are
simply deceiving ourselves that we can avoid this topic when
dealing with asset protection.
If both spouses lack any assets to speak of, then the risks of a
financial loss are minimal. However, if either spouse is bringing
assets to the relationship, discussions must take place. Review the
following three situations when considering marriage and asset
protection:
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1. Both spouses getting married for the first time with no

children. Again, if one spouse is bringing assets to the marriage,
I realize that one of the touchiest and most difficult topics to bring
up with your new love is the prenuptial agreement, but it needs
to be at least considered. Neither fiance wants to be the bad
guy and bring up such a threatening topic. Dont you love me?
Dont you trust me? Are you suggesting we might get
divorced some day?
Certainly none of us want to be on either end of these
questions. One powerful solution rather than having to bring up
the topic of assets yourself is to consider pre-marital counseling.
Most pre-marriage programs or classes will have the participants
engage in a pragmatic discussion about assets and a potential
divorce in the future. Trust me, it is no fun to talk about, but a
premarital agreement or pre-nup is the foundation of any asset
protection against an ugly divorce proceeding wreaking havoc on
each spouses assets.
The Uniform Premarital Agreement Act, adopted in most
states, has set forth the basic requirements for a prenuptial
agreement.9 Laws will be somewhat different from state to state,
but the following are the four basic elements of a bona-fide
marital agreement:
a. The agreement must be in writing and signed,
b. There must be fair, accurate and reasonable
disclosure by each party of their financial assets,
c. The agreement must not be one-sided and be fair
to both parties, and
d. Each party must have a separate attorney
representing their interest.10
This is a very difficult topic to broach with the one you profess
to love unconditionally and will be marrying in the near future.
However, please dont deceive yourself. The truth is that If you
have significant separate assets coming into the marriage, make
sure to not only talk about the issue, but put your agreement in
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writing following the necessary protocol and rules for a proper
prenuptial agreement.
2. Currently married but concerned. This is a difficult
situation but obviously more common than we are willing to
admit. We have had a number of clients come into our office
where one spouse is concerned about venturing into a new
investment or starting to buy into a family business because their
marriage is on the rocks. Please know all is not lost. There are
some options. Many people in this situation will agree to start
marriage counseling but enter into a postnuptial agreement
regarding the venture into a new investment or business. The
postnuptial is a little more unique and not as common but
certainly as effective and binding.11 The basic requirements for a
post marital agreement are the same as the prenuptial agreement.12
The attractive aspect of the postnuptial agreement is the fact
the spouses can take the financial issues off of the table and focus
on marriage counseling and also pursue the investment or
business venture without feeling threatened or the risk of having
it chewed up by attorneys at a later date.
3. Second marriage for one or both spouses with children from
prior marriages. As I mentioned in the first situation above,
considering a pre-nuptial agreement is wise, but in this situation
an estate plan and/or pre-nuptial agreement are critical. The
reason why this is so much more important is that by this time in
your life you have more than likely accumulated more assets,
have children, and are blessed with the hindsight of having been
through a marriage before. Please understand the risks of
marriage and the chance of a divorce to better recognize the
importance of a discussion about assets with your new fiance.
An important consideration as well, is that a pre-nuptial
agreement and individualized estate plans may even be easier to
discuss because one or both of you have your own children and
its understandable you want to plan for their future financial well
being. Thus, you have a scapegoat topic to bring up the heart of
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the issue-assets. Even if a new fiance hasnt been through a

divorce, he or she can see what it did to the future spouse and
should be more understanding of a prenuptial agreement
discussion.
Finally, please understand that there is some pre-emptive
planning you may be able to complete on your own before the
marriage. Many parents have taken specific assets and created
beneficiary spendthrift trusts that isolate the assets for the future
benefit of the children. In these types of trusts, the new spouse of
a child would have no claim to the assets. These types of trusts are
covered in Chapter Thirteen.
The Last Word on Partnerships and Marital

Planning
Many of you that have had a partner or a spouse know how
important it is to have the last word. (I couldnt wrap up this
chapter without a little pun.)
You are not infallible. You might actually make mistakes in
your investment activities. I have made the blunder myself of
thinking I was above getting advice from an attorney in my own
personal deals. Remember, when you are in the forest, all you see
are the trees. Have someone help you step back and see the forest
for all the good and bad it has to offer. I recommend to everyone,
whether it is an investment with a life-long friend, family
member, or apparently reputable business to make sure to get a
second opinion from a licensed professional with a duty to seek
out your best interest.
If you are getting married, congratulations! I just dont want
to be saying a short time later, my condolences. If you have
considerable assets, insurance or you have children going into the
new marriage; please consider some sort of plan. It could be a
prenuptial agreement or placing some of your assets in trust
before the wedding. There are certainly options that can save you
a tremendous amount of financial loss and additional heartache
than simply the emotional break-up itself.
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Chapter 6 Footnotes
Young v. Delaney, 647 A.2d 784 (D.C. 1994); Persinger & Co. v. Larrowe, 252 Va. 404, 477
S.E.2d 506 (1996); See also Am. Jur. 2d Partnership 90, Oral Contract The parties' agreement
may be oral, unless a statute specifically provides otherwise, or unless the contract does not
create a partnership at will but instead contemplates a partnership lasting for more than a year in
violation of the statute of frauds. Even agreements for partnerships to deal in real property
generally need not be in writing for purposes of compliance with the statute of frauds, although
there is some contrary authority.
2
Uniform Limited Partnership Act 404(a) (2001).
3
Revised Uniform Limited Partnership Act (RULPA) 403(b); For a discussion concerning
general partner liability, see Rall, A General Partner's Liability Under the Uniform Limited
Partnership Act (2001), 37 Suffolk U. L. Rev. 913 (2004).
4
Matthew D. Bramlett and William D. Mosher, Cohabitation, Marriage, Divorce and Remarriage
in the United States, prepared by the National Survey of Family Growth (NSFG), reported by the
National Center for Health Statistics (NCHS), Series Report 23, Number 22 (July 24, 2002); See
also Marriage and Divorce: The Statistics, Dr. Phil, http://www.drphil.com/articles/article/351.
5
Matthew D. Bramlett and William D. Mosher, Cohabitation, Marriage, Divorce, and
Remarriage in the United States, prepared by The National Survey of Family Growth (NSFG),
reported by the National Center for Health Statistics (NCHS), Series Report 23, Number 22.
103pp.(PHS) 98-1998, (July 24, 2002); See also Marriage and Divorce: The Statistics, Dr. Phil,
http://www.drphil.com/articles/article/351.
6
Id.
7
Dr. Phil, Achieving Financial and Marital Harmony, Article 32 and Show 16, (July, 2003.) See
http://www.drphil.com/articles/article/32 (last viewed March 14, 2007).
8
Id.
9
Uniform Premarital Agreement Act 2; See also 41 Am. Jur. 2d Husband and Wife 90.
10
Id.
11
Jill Elaine Hasday, Intimacy and Economic Exchange, 119 Harv. L. Rev. 491, 505 (Dec. 2005).
("Postnuptial agreements about property distribution are enforceable."); See also 41 Am. Jur.2d
Husband and Wife, 107 ("Postnuptial agreements are presumed valid today.").
12
41 Am. Jur.2d Husband and Wife 109. ("Postnuptial agreements are generally scrutinized
under the same standards as apply to prenuptial agreements."); Id. 110 ("Postnuptial
agreements are interpreted and enforced applying standard contract principles."); Id. 112 (The
keys to insuring enforceability of postnuptial agreements are fairness, full and complete
disclosure, and voluntariness).
1
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Part II
The True Defenses that Protect
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Chapter 7
Using the Multiple Barrier
Approach Its a War!
Lawsuits are war. Its as simple as that and they all begin the
same way; a declaration of war: the complaint.
John Grisham, A Civil Action
Bottom Line
John Grisham could not have used a better analogy to not
only describe the proceedings of a lawsuit, but also the basic
principle of asset protection. As a consequence, if litigation
is war and a series of battles with each side seeking ultimate
victory, asset protection is the establishment of defenses
before the war begins.
It is my firm belief that the true essence of asset
protection planning is setting up multiple barriers, structures,
and strategies. If successful, these defenses should reduce or
prevent the chances of a war and promote a settlement or
treaty in the event of an actual conflict. The more barriers
between you and the attacking army the better your asset
protection.
I hope I have convinced you in Part I that among other things,

there is no silver bullet that can take out every potential
attacker. There is no one-size-fits-all approach for defense against
a minor or major assault. Just as a nation trying to defend itself
focuses on each threat according to the nature of the enemy and
the resources and challenges at hand, the same applies to asset
91
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protection and the strategies employed to defend against a
potential litigant or creditor.
To help explain my point, I ask for your indulgence in
allowing me to use the analogy of a medieval battle. Visualize a
battlefield with a castle surrounded by barricades and a waterfilled moat. There are really three areas in which the battle will
take place.
First, the defending country will use its armies as the first
barrier and first-line of defense in the field of battle. We will see
hand-to-hand fighting in the trenches, hills and valleys, with
soldiers in armor using basic, simple and affordable weapons
designed for this type of warfare. The second battle will take place
at the next barrier: the barricades. These are the moderate/midlevel protections a defending army uses as the invading army gets
closer to the moat and castle. They might include a moat, dirt
works, fences and apparatuses built of wood and metal. Finally,
we have the castle and all of its strength and defensive
mechanisms at full potency. You have stores of food and water to
weather the battles. You have the tall castle walls with soldiers
atop equipped with catapults, boiling oil, and even rocks to hurl
down on the enemy.
Is the castle impenetrable? Absolutely not! Castles were a
significant defense for societies in the middle ages, but of course
they were assaulted and fell from time to time. Read your history.
They never afforded complete protection in every situation.1
Of course, you also have assets that need protection. It may
not be chests of jewels, gold and silver, or flocks and herds, but a
portfolio of bank accounts, stocks, personal property, real estate,
annuities, insurance, and so on. Depending on the size and types
of assets, you will have barriers that form your own layers of
defenses just as valuable and critical to you as in medieval ages.
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USING THE MULTIPLE BARRIER APPROACH ITS A WAR! 93
Similarities in the Approach to

Warfare and Asset Protection
The first step in warfare is to properly assess your resources
and capabilities and, if possible, those of the forces attacking you.
The same principle applies to protecting your assets. Please assess
your situation in a realistic manner; review your abilities and
funds and other resources required to maintain your plan. Sun
Tzu, the famous war general, could not have said it better when
making the following comments in his book The Art of War:
One who knows the enemy and knows himself
will not be in danger in a hundred battles.
One who does not know the enemy but knows
himself will sometimes win, sometimes lose.
One who does not know the enemy and does not
know himself will be in danger in every battle.2
Sun Tzus basic principles of warfare are absolutely on point.
It is critical that each of us identify the key assets we need to
protect and the greatest threats to their security. This self
assessment; this personal interview, is absolutely critical in
determining which asset protection strategies are going to best
suit our assets and personality.
After you have assessed what assets need to be protected and
where your risks exist, the second step in a military action is to set
up barriers or multiple defenses between you and the invading
forces. Again, Sun Tzu on the art of warfare:
Therefore, one who is skilled in warfare
principles subdues the enemy without doing battle,
takes the enemys walled city without attacking,
and overthrows the enemy quickly, without
protracted warfare.3
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Before a significant offense can be undertaken, a serious
consideration of the defensive needs must be conducted and a
plan prepared and implemented. The barriers will range from
simple and affordable battlefield weapons (bows and arrows,
swords, knives) to moderate barriers for sieges against the castle
(moat) and a final fortress to withstand the assaults of a
determined enemy (castle). The same type of steps will be taken
in protecting your assets. An individual or business will
implement simple affordable day-to-day strategies to protect
against the empty pocket litigant or insurance claim. We add
moderate protection as our assets grow, which will of course be
more complex and expensive. But we dont break the bank in
building these barriers.
Finally, we may add some significant irrevocable structures
that may serve as the castle against a final assault. These are
only necessary when our assets dictate and after a full recognition
of the pros and cons of implementing such drastic measures.
Although these significant barriers can be very necessary and
helpful in a well designed asset protection plan, we also have to
be careful not to focus too much time, money, and energy on a
structure that may not accomplish what we think it does.
Choosing the proper barriers to invest in is absolutely critical to
a successful defensive strategy.
For example, in light of Frances experience in World War I,
in preparing for the inevitable German assault that would come in
World War II, the French invested decades of effort and a huge
fortune in building the Maginot Line of defense along the nations
eastern border. It was completed in 1939 at a cost of
approximately three billion French francs. When the Germans
attacked, they simply went around it and captured the supposedly
impregnable line from the rear. France fell in an astoundingly
short period of time.4 In turn, we must be careful not to
concentrate on ineffective or expensive strategies, or we too may
be headed for a devastating shock in the end.
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Assessing Your Need to Protect Yourself

and Do Battle
As I stated above, this is the first step and a difficult one at
that. Deciding what a client needs with asset protection can be a
very sensitive point leading to a tense discussion. A lot of us think
we are worth more than we really are. Others dont realize just
how big a target they are out on the street.
I am always excited to work with a client who is enthusiastic
and truly interested in asset protection planning. However, I have
had very eager clients wanting to take on complex planning, but
who have little accumulated wealth in the form of hard assets or
property our society would deem valuable as the spoil from a
lawsuit.
The same can be said in the medieval times of our history.
Those countries that really didnt have any resources, valuables or
assets that were wanted by their neighbors really didnt have
much to worry about did they? Think of Antarctica; the fifth
largest continent in the world. It has been referred to as the most
peaceful because it is the most useless.5 Those countries with
valuable land, people or territory, were consistently attacked and
required more significant barriers as part of their defenses. The
middle eastern region in and around Palestine and modern day
Jerusalem is a classic example of an area desired and sought after
by many countries, cultures and religions throughout the past
several thousand years.6 Its the same with some of us who may
have assets that gather attention from potential claimants, and
conversely those that really dont have the assets to worry about
the issue.
Its regrettable that Ive met too many people who have been
sold the bill of goods that they need to implement asset
protection before they even have any assets worth protecting. This
is a bold face lie and a deceiving strategy I refer to in Chapter
Two. Planning should begin when your assets start to accumulate
or you are truly on the verge of a windfall of wealth such as an
inheritance or business expansion. For now, many of us can
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provide sound protection by employing some simple, affordable
battlefield strategies. We can construct more costly trenches and
moats as we accrue resources a litigant may desire.
This is the point in a discussion where most of my students in
classes, or clients in my office, truly realize that a plan must be
genuinely tailored to the individual. Strategies and barriers should
be employed in direct proportion to the types of assets we are
trying to protect, their value and the liabilities we are exposing
ourselves to.
Considering Your Ability to Do Battle

The second step in preparing our defenses is to analyze our
personal temperament for additional administration and the costs
for additional asset protection strategies. I have been down the
hard and dusty road of implementing very elaborate, complex and
yes, highly effective and successful asset protection plans for my
clients, only to be on the brink of being fired a year later for
making their life an administrative nightmare. I have learned to be
much more focused on both phases of an asset protection plan: (1)
making sure the plan works, and (2) making sure my clients
understand exactly what they are getting into.
Some countries and societies have failed due to an
overemphasis on building and developing infrastructure. The
drain of money, resources, time and energy eventually puts too
much pressure on the people and the society falls apart. The focus
was taken off balance and the people, the society and the nation
paid a terrible price for it. An example of this preoccupation with
defensive measures that can distract us from our true potential and
productivity in our lives is the story of modern Russia. It is
interesting how intently they focused on military buildup that was
ultimately a major factor contributing to their bankrupt nation
after the cold war.7
I cant emphasize enough how critical it is to conduct a cost
benefit analysis with every barrier you erect or strategy you
implement. What good is a bow if you cant afford arrows? You
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must realize that the more structures, procedures and planning
you implement in your personal plan, the more administration,
paperwork and actual costs you will incur. This rule applies
beyond the formation of your barriers. It is likely you will also
have regular fees to maintain these plans.
When I reference the word ability or temperament I am
not talking about understanding every nuance and detail of your
plan. That is principally the job of the professionals guiding you
through the process. When I help a client with an asset protection
plan, I am certainly concerned about the effectiveness of the
structure and the hopeful outcome if it is tested, but I am equally
concerned for my clients tolerance for the administrative duties
and costs that will accompany your wonderful plan. I seek
balance.
It is common sense to assume that you will increase the
protection for your assets with the additional barriers you
implement as your assets grow. However, realize you will need to
have an equally increased stomach to digest the work it is going
to take to implement and maintain the plan.
The Multiple Barrier Diagram

As I wrote in Chapter One, the Multiple Barrier Approach
is truly a system to reach the true goal of asset protection
minimize the damage and promote settlement.
By way of analogy, the country with a well entrenched
defense system is less likely to be invaded, and if it is invaded by
a neighboring army, the enemy will consider facing the reality of
spending significant resources to try and win in the battlefield,
overrun the barricades, and penetrate the castle.8 That cost may
not stop a determined enemy. The defense is not guaranteed 100
percent. However, the invader and the invaded may eventually
resort to treaties, negotiations and compromises to end the
fighting.
It is the same process with asset protection. If a person has
implemented the proper number of barriers, based on the type and
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value of the assets he or she is trying to protect, the chances of
encouraging a treaty (settlement) are far, far more likely.
Remember, the goal is to eliminate the battle or at least minimize
the carnage and damage.
Figure 7.1 on the next page illustrates the structures and
strategies discussed throughout the remainder of the book.
My goal is to present the most simple and basic explanation of
these topics, yet provide comprehensive footnotes, references and
authoritative support to give you confidence regarding their
validity. The chapters that follow will address the Battlefield and
Barricade Strategies, finishing with the Final Fortress Defenses.
Continued Education and Maintenance

Arthur Koestler wrote, The most persistent sound which
reverberates through mans history is the beating of war drums.
In war good leaders keep their generals learning, studying,
considering and implementing strategies as the character of the
battlefield and as the nature of the enemy changes. Please do the
same. Continue to learn and have regular planning meetings with
your team of professionals.
Please stay away from the seminar industry promoters who try
to up sell you into more expensive products, one-size fits all
structures, and unnecessary coaching systems. Stick with tuition
based programs where licensed and experienced professionals
teach for the sake of sharing knowledge, not to sell something
stacked on a table in the back of the room.
Finally, dont destroy the barriers youve built by not
maintaining them. Its essential you follow the federal, state, local
and any regulatory procedures or protocol to sustain your
strategies and barricades so they are ready to serve their purpose
when needed. In sum, be ready and able to react quickly with our
own asset protection plan in the event of an unforeseen attack.
Realize that no single structure will always protect us, so we
continually erect new barriers and remove useless barriers, while
improving on others. All the time, we consider the costs and
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benefits of these structures and are continually assessing our
assets and resources, the very items we are trying to protect.
The ancient Romans, who knew a bit about invasions, had it
right. If you wish for peace, prepare for war. Or as George
Hebert put it a few centuries later, One sword keeps another in
its sheath.
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Chapter 7 Footnotes
See Walter A. Goffart, Romes Fall and After, (2003). (In the 5th century a society known as the
Goths became a major threat to other civilizations. Early in the 5th century the Goths wanted to
take over the Roman empire or at least parts of it. The problem was that the Romans had such
great defenses around their cities that they were hard to breach. So the Goths devised a plan to
cut off all of the supplies to these cities until the inhabitants had to either give up or come out
and fight. It was using this strategy that they were able to win several battles and start the fall of
the Roman Empire; a previously untouchable force).
2
Sun Tzu, The Art of War, written approximately 500 B.C.
3
Id.
4
Bryan J. Dickerson, The U.S. Army vs. The Maginot Line Published online Nov. 9, 2006; See
www.militaryhistoryonline.com/wwii/articles/maginotline.aspx (last retrieved March 19, 2007).
5
See William H. Kearns & Beverly Britton, Silent Continent (1955).
6
See James L. Gelvin, The Israel-Palestine conflict: one hundred years of war (Cambridge
University Press, 2005). (Palestine, the region that includes the contemporary State of Israel, the
West Bank, and the Gaza Strip has been a hot bed for dispute, wars and conquests. The author
has a specific chapter regarding The Land and its Lure).
7
See J.N. Westwood, Russia 1917-1964: A History of Modern Russia from the 1917 Revolution to
the Fall of Khrushchev (1966).
8
See John France, Western Warfare and the age of the crusades 1000-1300 (1999). (The feudal
society in the 12th to 15th Centuries relied heavily on a layer of barriers to protect the castle.
Even if a marauder managed to cross the mote and make it inside the castle there was usually
another army waiting ready to fight. If all of these defenses didnt work, then for the last line of
defense there was often a tower or maybe a cave. If it was a tower they could go in and drop
things on the approaching army and hope that this would deter them and if it was a cave they
would go in and hide hoping to wait it out).
1
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Chapter 8
Choosing Your
Colonels and Captains
Nothing is more important in war than unity of command.
Napoleon
Bottom Line
All of us need to build a team of professionals who are
honest and competent and who specialize in their respective
practices, professionals who will tell the truth and not twist
the facts and circumstances to their own benefit and your
detriment. But most importantly, they must work together
and be on the same page with respect to your goals, risk
tolerance, ethics and attitude towards to legal and tax
planning. Having a trustworthy and competent team thats
unified means you get the best result with any type of
planning.
Please do not discount this chapter because the topic seems

light and fluffy. This is critical information! Choosing the right
professionals before undertaking the planning is half of the battle
(no pun intended). Also, please realize that you dont have to have
a huge net worth or spend thousands of dollars on professionals to
get the professional help you need in your business. You can build
a network of resources to call on as you need them. You should be
able to develop access to excellent advisors, educational
programs, classes, newsletters, webinars, websites and support on
103
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specific issues as they may arise. The help you need is available.
Its out there whenever you need it, wherever you are.
The Team Concept

Remember, you are the general, and as most supreme
commanders have multiple branches of the military and various
colonels and captains to rely on, you to need a variety of
professionals to turn to for assistance. To illustrate this point, it is
interesting how often I have existing and potential clients ask how
to get their assets out of a divorce settlement with the least amount
of damage. My comment every time is, Lets talk with your
divorce attorney; working as a team will give you the best
results. That makes sense, right? It also doesnt have to be a
costly or expensive process either. It could just simply be a 30-45
minute brainstorming session to evaluate the issues and make a
plan of attack. Of course, it may cost more to implement a
strategy or go into some more in depth planning if it is warranted,
but please at least have the conversation.
It is a powerful resource in ones life to build your own
personal board of advisors that you bring together, either in
person or on a telephone conference, on a regular basis to plan for
your best interest. BusinessWeek recently highlighted this
approach in an article tailored to small business owners:
A board can be one of the small business owners
most effective tools. Most company owners wear
many hats, but it is a rare person that excels at
everything. And even the most talented
entrepreneur can benefit from the impartial
counsel doled out by the board of advisors.1
Is there Such a Thing as an Asset Protection Lawyer?
This is a great question. You can open the pages of any phone
book and find specialized listings for divorce attorneys, patent
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CHOOSING YOUR COLONELS AND CAPTAINS 105

attorneys, litigation attorneys and so on. But can you find a listing
for asset protection lawyers? The answer is generally no. Law
schools dont offer such courses. Rarely will you ever find a court
case where a judge recognizes asset protection as a specific
practice area under the law. Moreover, you wont find statutes or
laws on the books of the federal or state governments recognizing
asset protection strategies.
However, there are still lawyers who practice business in this
area of the law because it overlaps with estate, tax and business
planning. All of these areas generally go hand in hand with asset
protection planning. When we discuss asset protection there are
many lawyers who feel you must have a litigator with years of
experience in debtor and creditor collection proceedings to really
know how to best protect your assets.
This is a reasonable argument because litigators are the
lawyers in the trenches day in and day out fighting battles to try
to protect and collect on assets on a regular basis. They have seen
how asset protection techniques hold up in a court room.
Knowing how a judge is going to deal with or adjudicate a
debtors efforts to protect or hide his or her assets is extremely
valuable. Thus, when the enemy attacks your barriers you dont
want parade soldiers. Its a bit like having a general who
practices for military parades more than military battles. You want
and need battle-hardened veterans.
However, there are two major hurdles in working with a
litigator as an asset protection specialist. First, most litigators
dont carry on an active asset protection planning practice and
tend to spend most of their time preparing for courtroom
appearances or active cases. Being a litigator is an extremely
demanding area of the law. The common tendency for these
professionals is to be consumed with courtroom demands and
understandably so. A similar example is trying to find a
battlefield general who will come home on the weekends and
plan for the next war, but have to re-focus and head back to the
battlefield during the week and command the forces. Attorneys
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really find that they must choose between being a litigator or a
planner.
Second, litigators often lack the tax, business and estate
planning background necessary for comprehensive asset
protection planning. I feel that estate and tax planning can often
be thwarted with a great asset protection plan. Yes, you read that
right. Stated another way, you may have significantly protected
your assets from the potential threat of creditors, but you have
shot yourself in the foot for tax planning.
On the flip side, rather than fighting in the trenches, the estate,
business and tax attorneys are the professionals building the
defenses; the barriers, barricades and castles. They are working to
accomplish every day planning and provide asset protection
services in conjunction with their other areas of expertise. The
different skills that compliment asset protection make for a good
fit. Nevertheless, if you are going to rely on an estate and tax
planner for asset protection, you certainly want to find one who
has partners who litigate or have had some experience in litigation
themselves. If they have no concept of creditor/debtor law and the
ramifications of a lawsuit from a creditor, they wont serve your
needs either. This is a challenge for many seeking a good asset
protection planner. The purpose of the rest of this chapter is to
solve this problem and provide you with some excellent
techniques and strategies for finding the proper planners and
building an excellent team of professionals.
True Story
A client came to me with a real estate deal in which he had
converted a large building into a condominium project. He
wasnt a career real estate investor and had a day job
outside the real estate industry. Still, he had done a great job
completing the condo conversion and the value of his
building had increased significantly. Most of us would define
the project as an unqualified success. He had sold several
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condos, was carrying the paper and was also leasing some of
the condos on a lease-to-purchase option basis.
The Problem
Several years earlier, a con artist, in my opinion, had
persuaded my new client to put his property into a Charitable
Remainder Trust (CRT) to better protect it from his creditors
and an ex-spouse. Fine. Sounds great. The property certainly
was protected. No one could touch it not even my client!
CRTs are excellent planning structures and I use them
regularly in my practice for tax planning NOT asset
protection planning. My client wanted considerable
flexibility for managing the property. He also wanted some
tax write-offs and the ability to move the property into some
other types of projects. Although a CRT has many wonderful
benefits, it prohibited him from reaching the goals he wanted
to achieve.
A coordinated approach is necessary. Thats why you have a

team of professionals working on your behalf. There are several
advisors/ planners/professionals I feel are critical for any
individual trying to build wealth. Here are the team players you
need. Theyre all important and are listed below in alphabetical
order with further detail to follow:
Asset Protection and Business Attorney/Planner

Bookkeeper/Accountant/Tax Planner
Debt Repair/Monitoring Service
Estate Planning Attorney
Financial Planner
Insurance Agent/Planner
Litigation Attorney
Mortgage Lender/Banker
Property Manager
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Self-Directed Qualified Plan Administrator

Specialized Attorneys/CPAs/Planners
Asset Protection and Business Attorney/Planner. Your asset

protection attorney generally completes your business planning.
This professional assists you in setting up your various companies
and structures, drafts your partnership agreements, joint-venture
agreements and any associated business planning documents.
From an asset protection standpoint, this attorney should
implement proactive planning to keep you out of hot water in
transactions with third parties and your partners. It is common for
the middle-income taxpayer/average American to have this type
of planner also be their estate planning attorney. Most
business/estate planning firms have multiple attorneys
specializing in different areas to help clients complete this type of
planning with one-stop shopping. As your net worth grows you
could very well use different attorneys or law firms for asset
protection, business planning, or estate planning. When this is the
case, make sure that your team has regular meetings to coordinate
the planning and insure you are fully covered and not duplicating
efforts (and perhaps paying twice for the same basic service).
Bookkeeper/Accountant/Tax Planner. I list three different
titles in this area because each serves a distinct and different role.
You may have one firm that provides all three of these services,
however it isnt critical that you have them all centralized. It is
essential that you have them coordinated. Some clients do it
themselves or will have in-house employees complete these
services because they have a small business that can support this
approach. Others may outsource their various accounting services.
In a nutshell, a bookkeeper inputs your deposits and receipts in
your software (QuickBooks for example) and reconciles your
checkbook. Bookkeeping is not accounting; you will need an
accountant to balance your books if you are a business owner. The
accountant will make sure your books tie-out and that necessary
reports are sent to the IRS as needed (payroll accounting,
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reporting, sales tax reports, quarterly deposits for estimated tax and
so on). A tax planner will complete your tax return, make sure to
maximize your tax deductions, assist in implementing strategies,
plan for the future tax year and coordinate your plans with your
asset protection and estate planner.
Debt Repair/Monitoring Service. An honest, credible and
legitimate service to track your credit score and help keep it in
good repair is invaluable. Once you find such a service, stick with
them. Be careful of the scam artists in this industry. Ask good
friends, family or associates who they have used and can
recommend to verify their legitimacy and prior performance.
Estate Planning Attorney. It is common to sometimes have
your Asset Protection Business Planning Attorney also serve as
your Estate Planner. At the very least, they are generally going to
be in the same law firm. As your estate planning gets more
complicated your planner should have the honesty to indicate his
or her inexperience and recommend more advance planning
specialists as needed. However, for most middle income
Americans your typical estate planning attorney should be able to
complete a basic plan which generally includes a revocable living
trust, wills for each spouse (if married), power of attorneys for
health care and finances, living will or advance health directive,
and document for donating organs.
Financial Planner. This is the person, not a company, who
helps you plan for retirement. The reason why I say person is
because it should be a very personal relationship. The planner
should understand your risk tolerance and provide a broad range
of investment options as part of a well diversified portfolio. He or
she shouldnt exclude any investment or asset class, and should be
willing to consider and recommend real estate, lending, and nontraditional market investments as part of the portfolio. Finally, the
financial planner should be fully aware of your tax and asset
protection planning and familiar with your business structure to
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maximize your retirement planning options. Financial planning is
always part of a well balanced comprehensive plan in any legal or
tax discipline.
Insurance Agent/Planner. I refer to this person as a planner
because we all need someone who can look at our overall structure
and try to coordinate our insurance policies to (1) save premiums,
(2) give more comprehensive coverage, and (3) provide better
service. I am not fundamentally against the discount insurance
brokers who sell on TV and online and who have tried to turn
insurance into a commodity. However, I do object to their
argument that insurance coverage is all the same and that price is
the only difference. That is just simply wrong. Ask several people
who have had to file a claim under their policy and I promise you
will experience a variety of answers ranging from good, to bad, to
horrible. The insurance planner can be one of the most integral
parts of your asset protection plan. Have you had the planner quote
a comprehensive package to coordinate your home, auto, life,
business, health, long-term care and umbrella insurance? Believe
me, you can save money just making sure that your insurance
agent understands the true nature of your activities and coordinates
them with your other planners. I promise, you will save money or
at least get better coverage.
Litigation Attorney. This is the attorney who helps fight your
battles, writes the nasty letters, completes the eviction and who
performs other often unpleasant or distasteful duties for you. In
military terms, think of WWII Admiral William F. Bull Halsey
who said, Hit hard, hit fast, hit often! This is the one attorney
who must be licensed where your lawsuit it going to take place.
Litigation is a very individual matter in state and county law. A
planning attorney should not be handling your litigation and your
fighter shouldnt be doing your planning. Now, do we want them
coordinating their efforts? Absolutely! Please realize that the
days of the general practitioner attorney are over. Find an attorney
who works day in and day out in the area in which you need help.
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I dont go to my foot doctor for my prescription lenses and eye
exams. Be careful of the attorney who tries to do it all. Someone
who claims to be able to do it all may unintentionally do you
in in the process.
Mortgage Lender/Banker. Have you ever tried to get a loan in
the name of your company, rather than your individual name? If
your mortgage lender is not sophisticated enough to understand
that your business might require non-conventional financing from
time to time, you will be in for a great deal of heartache. Make
sure that before you even think of getting a loan, you build a
relationship with a lender who can make recommendations on the
structure that may assist you in getting the best loan. Then, make
sure your business/asset protection planner realizes you have to
go out and conduct business on day two. They cant cut your feet
out from under you with a plan that is unworkable. Find a lender
who can think outside the box and work with a variety of
underwriters, then, dont let him or her go. Make sure they are an
integral part of your team. Dont try to find a new lender every
time you have a new project. Build a long-term relationship.
Property Manager. It is so hard to find a good property
manager who treats your property and the rental relationship with
your tenant just as you would. Even if you found a company that
seems like a gem, dont let it run on auto-pilot. Ultimately, youre
the responsible party. Keep an open dialogue with your property
manager. Consistently visit your properties and be involved as
much as practicable. Pay them well and communicate often. A bad
property manager can cost you more than a bad tenant.
Self-Directed Retirement Plan Administrator. This is an
essential member of your team. Many people dont realize that
you can self-direct your retirement plan outside of the traditional
stock market choices. Your financial planner should have a good
understanding of this option and make it available to you. If your
financial planner says you cant self-direct your retirement funds,
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he or she is dead wrong! Its not that you cant, its that he cant.
Make sure you add this person or company to your team, or have
a financial planner that can provide or coordinate this service.
Specialized Attorneys and CPAs. It is very common to bring
in specialists for specific transactions such as dealing with
securities laws, divorce, high net worth planning for your estate,
taxable transactions such as selling a business or real estate, 1031
exchanges, off shore planning, and so on. Consider these forces
your Navy Seals or Green Berets who are brought in for
specialized missions.
True Story
A new client came to me recently in utter frustration. He had
paid $10,000 for a coaching system that included CDs, books
and tapes and then a certain number of hours of support or
coaching every week for a full year. Regrettably, he
learned everything he could from the coach by his second
phone call. He expressed his concerns to the company. They
then offered him the opportunity to come to the next super
duper seminar where he could learn even more. When he
attended, speaker after speaker gave only pieces of
information and up-sold more products and coaching to
truly learn what he went for. It was a classic bait and switch.
The wolves put on sheeps clothing and began fleecing the
rest of the flock. Adding insult to injury they placed his
business in a C-corporation in Nevada which cost him
thousands of dollars in unnecessary accounting and filing
fees.
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The Reality
His personal situation didnt fit their cookie-cutter structure.
The promised information he needed was consistently held
out like a carrot on a string that was continually pulled from
his grasp. Of course, another opportunity to catch the
carrot was sold at every turn. The great Sioux warrior Crazy
Horse used this technique with telling effect during the
Indian Wars of the 1880s. Hed tease the soldiers with a few
warriors riding and shouting outside the fort, surely an easy
victory the soldiers would think. Theyd give chase until
Crazy Horse would spring his trap and ambush the chasing
squad. In other words, if youre not extremely careful you
quickly can become financially scalped.
Your Most Trusted Advisor is You

I cant emphasize enough that it is important for all of us to
understand why and what our advisors are recommending. Do not
blindly rely on your planners. Thats when the wolves take
advantage of their prey. Suppliers are liars. Make sure you have a
solid understanding of the plan they designed for you and
question them until you understand it. If you have a bad gut
feeling about their personality or strategies - run! You dont have
to be stuck with an unethical or incompetent planner. There are
too many honest, reliable professionals out there who want to earn
your business and your trust. Get out and talk to friends and
family, partners, fellow business owners and find out who they are
hiring. You are the captain of the ship. Dont be afraid to fire your
crew from time to time. Its your ship. Its your command.
Command!
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The Interview
Here are some questions you can ask your prospective team
members as you search for the proper asset protection planner.
However, I frankly dont care what questions you ask if you at least
(1) ask some serious and probing questions, (2) dont hire your
planner without a referral and that you (3) do your homework on
the planner. Please dont allow yourself to be sold a structure in
high pressure seminar or telephone call. You have time. Take it.
Use the time to get a second opinion and find the advisor who will
to apply the proper structure to your individual set of
circumstances.
Here are some questions you could ask in a 5-10 minute
interview with a (you hope) professional concerned about your
interest and qualified to implement asset protection on your
behalf:
-
What are your credentials for advising on asset

protection?
What litigation experience do you have?
What tax planning experience do you have?
What estate planning experience do you have?
Explain Fraudulent Transfer (see Chapter Nine)
Are you willing to work with my team on an hourly
basis as needed?
What are your rates for flat fee work and hourly
work?
How do you feel about Nevada corporations? (See
Chapter Three)
How do you approach off-shore planning? (See
Chapter Five)
Do you ever use land trusts in your planning?
(See Chapter Four)
Is there a silver bullet plan for me? (See
Chapter Two)
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-
What other resources or professionals do you

have in your firm?
Do you have a newsletter, website, continuing
educational opportunities?
Remember, the wolves in sheeps clothing are everywhere. Be

careful. Poke around and dont let anyone pull the wool over your
eyes. When building a team of professionals, make sure the deal
you get is the real deal.
Choose Wise Educational Opportunities

I realize that the last thing some of you may want to do is
continue your education. And thats too bad because it is
absolutely critical for your success. There was an interesting
interview many years ago with a college classmate of President
John F. Kennedy. He was a successful businessman. When asked
about the difference between his level of success and that of the
president he made an interesting comment. Im paraphrasing, but
he said we both came from wealthy families. We both had
incredible opportunities. We had the same education, yet John
went on to become the most powerful man in the world. I think the
difference is that when I left the university I stopped learning. I
knew it all. John, on the other hand, never stopped learning.
Please keep in mind that no one is expecting you to
understand the details, but at least understand enough to know
what important questions to ask. Most important, when you find
a resource such as a law or accounting firm, financial planner, or
insurance agent who is willing to take the time to provide quality
information such as an E-Newsletter or Webinar, take advantage
and listen. Read good newspapers, follow current events and
attend continuing education classes when you can. All of these
steps will give you the ammo to ask the right questions of your
planners. You dont have to be an expert. You just have to be able
to make decisions when your expert makes recommendations.
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Finally, we cant talk about advisors and your team without
talking about the so-called coaching systems out in the market
place. Be careful. Im not saying they are all bad, but a great
majority of them are not worth the money theyre demanding. It
seems that anyone who has had a little success can get hired to be
on a phone bank and give advice on how to invest in real estate,
securities or a franchise. Surprisingly, some of these coaches
have never really had a success at all and certainly many dont
have the education or professional credentials to be giving advice
to others. Most importantly, be extra cautious of the coaching
system that charges a large up front fee for future coaching hours.
Tell any such supplier to put you on an hourly payment basis for
this type of advice. Dont pay for services up front based on a
promise. If their information is really worth it, theyll let you pay
over time because they are confident you will show up for the
next appointment and walk away with a tangible benefit. If
theyre not comfortable with a pay-as-you-go relationship go!
Congressman George Miller recently commented that
Education is the bedrock of individual success and leads to
higher lifetime income. I couldnt agree with him more. We all
must keep learning and building a team of advisors who will
facilitate this type of learning.
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Chapter 8 Footnotes
Anne Field, Management: The A Team, Business Week, Winter 2006.
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Chapter 9
Battlefield Strategies
The first casualty of War is Truth
Attributed to US Senator Hiram Warren Johnson, 1917
Died on August 6th, 1945 (of old age) ironically, the day
the United States dropped an atomic bomb on Hiroshima.
Bottom Line
Senator Johnsons quote is just as appropriate in the
battlefield of asset protection as it was in the trench warfare
of World War I. It is interesting how many myths and tales of
what works and doesnt work have evolved in the area of
basic asset protection planning over the battles of the past 20
years. Because of this, it is critical that we understand the
fundamentals or basics of asset protection in regards to
fraudulent transfers, our personal residence, the automobiles
we and our family members drive, and the types of insurance
we should carry.
The Fraudulent Transfer Act A Must to Understand

Remember asset protection is planning before the cause of
action arises. It is preventative in nature and requires proactive
planning. Even the best planner cant unwind or backdate your
transactions to help protect your assets after the storm clouds
come, nor should they. As a result, in some cases debtors want to
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hide or move property around after a creditor has made a claim to
the asset. Down South some call this locking the barn door after
the horses have run off. This is exactly where fraudulent transfer
laws come into play.
In 1918, the Uniform Fraudulence Conveyance Act was
passed to protect creditors who were seeking payment from
debtors in various forms of property, whether land or cash.1 In
1984 The Uniform Fraudulent Transfer Act (UFTA) was
created to revise, restate and rename the 1918 Act. It has been
adopted in most states to protect creditors from debtors
fraudulent acts to hinder, delay, defraud a creditor, or transfer
property under certain conditions to another person without
receiving reasonably equivalent value in return.2
Its imperative to note that not all transfers of a debtor, when
a debt is due, are fraudulent to every creditor. However,
understand that there are several critical rules to know when
undergoing good asset protection planning. The most important
being that you make sure your planner has a good understanding
of the law and can protect you before any cause of action arises.
The intent of the debtor is probably the most critical
consideration when there is a prima facie case that the transfer
was fraudulent (meaning on the face of it there appears to be a
fraudulent transfer). This is where the term Badges of Fraud
comes into play. During the past several hundred years courts
have created a list of badges or indications that the transfer may
have indeed been undertaken with fraudulent intent. Some of
these badges are:
The debtor knew of or suspected the claim of the

creditor.
The debtor tried to conceal the transfer from the
creditor.
The transfer was to an insider or related party of
the debtor.
The consideration received by the debtor for the
transfer was not reasonable.
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BATTLEFIELD STRATEGIES 121
The debtor was insolvent at the time of the

transfer.3
If any of the above conditions show their ugly faces to a judge,

and certainly the creditor will want to bring attention to them,
there is a good chance a transfer will be set aside. Thus, the assets
would be brought back into the control of the debtor and the
asset(s) transferred to the creditor in satisfaction of the debt.
In summary, if you try to transfer property out of your name
for the purpose of protecting the property for your future use
after a claim was incurred with a potential creditor, whether fully
litigated yet or not, there is a good chance the transfer will be
considered a fraudulent transfer and the property brought back
and given to the creditor. The lesson is to make sure your asset
protection plan and transfers of assets are completed before a
claim of a creditor arises, or even before a debt is entered into.
Proactive planning is the key.
No matter who you choose to join your team as your asset
protection planner, he (or she) must have a comprehensive
understanding of the fraudulent transfer laws. For example, you
may use an estate or tax planner as the general to coordinate
most of your asset protection planning. However, please make
sure that he or she understands the fraudulent transfers and can
explain some basic no-nos in laymans terms during your
interview. It is essential that you understand everything your
lawyer says. Dont be shy about asking for explanations and
clarifications. At the risk of pushing my analogy to far, he or she
may be the general on the battlefield, but you are the supreme
commander and must understand the battle plan if youre to live
and operate within it.
Protecting our Personal Residence

When it comes to setting up barriers and protecting a variety
of assets, I feel it is important, if not critical, to speak about our
personal residence first. For most of us our home is one of our
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most valuable assets. It truly is our castle and can be one of our
most vulnerable assets. We must do all we can to protect it from a
potential attack.
The Dilemma. We face several problems that create significant
hurdles to protecting the complete value of our home. First, there
are IRS guidelines and rules regarding the ownership of your
home if you want to take advantage of the Sale of Home
Exemption under Internal Revenue Code Section 121. This rule
allows us to exempt the first $250k if single, $500k if married,
from the net gain from the sale of our residence.4
Without getting into too much detail, one of the key
requirements is that we own and live in the home for two of the
preceding five years before the date of sale in order to take
advantage of the exemption.5 If we try to title the property in
anything but our individual names or a revocable living trust, we
can completely lose that tax planning strategy and opportunity.6
Thus, in the name of asset protection we could shoot ourselves
in the foot from a tax perspective if we hold title to our personal
residence improperly. I will discuss the strategy of having an
entity own your home in more detail later in this chapter.
The second dilemma is that our property is continually
increasing in value. We are forced to protect equity that is
consistently changing (and hopefully increasing). Therefore, it is
important to realize that any plan to protect your home requires
constant updating and the revisiting of your strategy on a regular
basis.
Finally, most of us have been taught for years that it is a wise
long-term policy to pay down our mortgage (pay off our home)
and thus contribute to the ever changing and generally increasing
equity in our home. Many people view paying off their home as
the pinnacle of their lifetimes work. Regrettably, a creditor or
plaintiff will view this nest egg as the golden egg in his or her
efforts to collect a payment from you. Please be open to protecting
your equity in creative ways. Im not saying its bad to pay off
your mortgage and own it free and clear, however, it is just plain
nave to pay off your home and not realize you are seriously
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exposing yourself to a loss.
There are essentially four principle options to protect your
personal residence:
Homestead Exemption
Tenancy by the Entirety
Equity Stripping
Holding Company
Homestead Exemption. This is a statutory exemption

available in most states to protect a certain amount of the value of
a persons home from a creditor or bankruptcy. The amount varies
from state to state as do the laws on how to avail oneself of this
protection. I discuss this strategy in more detail in Chapter Ten as
a Battlefield Strategy in the context of the most famous debtor
alive: O.J. Simpson.
Tenancy by the Entirety. In a number of states a different type
of protection can be extremely helpful in protecting the equity in
your home: title your property with your spouse in the form of
Tenancy by the Entirety. For example, the title would actually
read John and Mary Jones, tenants by the entirety rather than
John and Mary Jones, joint tenants with full rights of
survivorship. Im sorry, but if youre not married, this strategy is
not at your disposal.
In a nutshell, the benefit of this protection is that if one spouse
is sued, the property cannot be attached or bifurcated with a
lawsuit.7 Essentially, this means that if the husband is in a car
accident or is sued because of a bad business deal, the creditors
cant get at the home because the title is in the name of both the
husband and wife under tenants by the entirety. Regrettably, not
all states provide a law for Tenancy by the Entirety. For a table
addressing the State laws in your particular state, please see
Appendix B- Tenancy by the Entirety Table.
Most legal experts on this topic have summed up their opinion
on Tenancy by the Entirety with the following type of reasoning:
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Whether it is good public policy or notEven if

property held in an entireties tenancy may
ultimately, to some extent, be reached by an
individuals separate creditor, it may prove to be
such a complex and expensive procedure that the
creditor may not bother to pursue the property or
may be willing to entertain settlement offers
favorable to the debtor-spouse.8
Although it sounds like a no-brainer that in the states
providing this option, a married couple should title their property
in such a manner. It is important to be aware of two significant
drawbacks. First, if both spouses are exposed to a lawsuit or
creditor the property would not be protected.9 Second, for estate
planning purposes, it can create more work to insure the proper
beneficiaries inherit the house. Also, you may face probate if each
spouse doesnt have his or her own revocable living trust. My
general recommendation for those using Tenancy by the Entirety
is to have your estate and asset protection planning attorney tailor
the planning to the laws in your particular state and review all of
the pros and cons of choosing this type of strategy.
Equity Stripping. Another barrier a homeowner can use to
protect a home is commonly referred to as Equity Stripping. This
is a strategy that can be used on any asset with a significant
amount of equity, not just your personal residence. I discuss this
barrier in more detail as a Battlefield Strategy in Chapter Ten.
Limited Partnership or Limited Liability Company.
Although not as popular, it is certainly an option for some families
to protect the value of their personal residence from creditors by
placing the home in some sort of entity that provides outside
protection such as a Charging Order Protected Entity (COPE).10
A Limited Partnership (LP), or in some states a Limited
Liability Company (LLC), is considered a COPE and provides
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the benefit that outside creditors cannot attach or lien the property
inside the company, but only obtain a charging order against the
income the company distributes. One may think that this makes
perfect sense to place your home in one of these entities, however
the principal drawback is that the IRS Sale of Home Exemption
will most certainly be lost.11
I generally only recommend this strategy to clients in a
situation where mom and/or dad never plan on selling their dream
home and dont care if they lose the Sale of Home Exemption.
They basically want the kids to inherit the home anyway, and thus
an LP or LLC could be a great fit to avoid probate, obtain asset
protection, and insure the kids inherit the home without a
squabble. For most of us, however, we may want to sell our home
in the future and need the flexibility and the benefit of the sale of
exemption to save on taxes. We will generally not find solace in
this strategy.
Protecting Yourself from Your Auto(s)

After talking about one of our greatest assets, we also need to
discuss one of our greatest liabilities and risks to our wealth: the
simple act of driving down the road. Even greater is the nail biting
experience of having your teenagers driving down the road. There
isnt much you can do sometimes but to assume the risk, however,
please consider some of the following strategies.
Separate Ownership. If you own a business and have an
operating entity that does not hold assets, a sometimes effective
strategy is to place the title to the vehicle under the business name.
This would certainly provide another barrier and could prove to
be a very helpful tool to protect you from a lawsuit resulting from
a car accident. Essentially, if you have a valid business purpose
and are on business when the accident occurs, there is a good
chance you place the corporate veil between you and a potential
creditor. See my discussion of the powerful concept of the
corporate veil in Chapter Eleven.
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If you choose to have your company own your vehicle, please
realize that the corporate veil is not the universal cure for every
claim. If you are driving recklessly, intoxicated or to the point of
personal culpability, a creditor will be able to cut through the
corporate veil like a hot knife through butter.12 I am also not
proposing you set up a company simply for the sake of owning
your vehicle. The administrative cost for such a procedure and the
fact you may lack a valid business purpose could make the
exercise futile. It is critical that any company you create have a
business purpose to validate the corporate veil.13
Promoters who suggest you set up companies with no real
business purpose but to only to protect assets are deceiving you.
Some may even go to the extent of proposing you lease the
property back to yourself and thats the business purpose.
Please be careful! In most states this strategy will also cause
sales tax ramifications.14 It will also create income inside the
entity and more than likely not zero out. Americans generally
dont get a deduction for lease payments for their personal
property, but will certainly create income by receiving lease
income. Please consult with a qualified licensed tax advisor, who
is independent of your decision making process, before you begin
setting up companies just to hold your vehicle or other personal
property.
Moving Your Children on to Title. Remember while your
children are minors, in the far majority of states, you are
personally liable for any damages they cause to persons or
property.15 Once your children turn 18 please consider putting
them on the title to the primary vehicle they will be driving. Give
them complete ownership and set up their own insurance policy.
If you are going to give them use of a vehicle, but keep your name
on title, youll be putting your assets on the chopping block if
there is a lawsuit.16 When your children turn 18, let them be
responsible citizens who, like the rest of us, are liable for their
own potential lawsuits. You basically have exposure for two
years, ages 16 to 18.
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Liability Insurance
As I indicated in Chapter Seven regarding the Multiple Barrier
Diagram, one of the most basic, affordable and simple barriers to
first erect in your asset protection plan is buying good insurance.
Most of us already recognize this powerful benefit and maintain a
variety of insurance policies. John T. Mulligan at the well
respected and national law firm McDonald Hopkins, LLC has
emphasized that Identifying insurance gaps can be the most
valuable asset-protection service an attorney can provide.17 Some
of the greatest threats to our assets, without insurance, would
devastate millions of Americans each year.
Please make sure you have proper auto, home, health and
long-term care insurance; and not only having the right type of
policies, but coordinate your insurance to save money and obtain
better coverage. I have personally had meetings with several
insurance agents and gave them the opportunity to bundle or
package my insurance policies to provide better protection,
benefits, lower premiums and ease of administration.
The cost of multiple policies can appear to be significant as
you add up the premiums on a month to month basis. I encourage
you not to get frustrated and combine all of your insurance into
one big mess in your mind. Realize each insurance policy has an
independent and separate purpose. Dont throw the baby out with
the bath water either because one type of insurance may seem
exorbitant or unnecessary. Please analyze each one of your
policies independently of the other.
Continually Evaluate the Battlefield

My genuine hope is that this chapter highlighted the simple
steps and strategies that can be implemented with very little cost
and minimal maintenance procedures. However, these are also the
easy strategies that we forget to regularly consider and update
in our plan on a regular basis. Please realize that the battlefield is
constantly changing. One strategy that worked today, may not
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work tomorrow. I challenge you to consistently evaluate your
structures and strategies on a regular basis.
John Grisham was absolutely right. A lawsuit is warfare. You
must set up appropriate and affordable barriers because the more
assets you acquire the more likely you are to face an attack from
a formidable, resourceful and clever enemy. Be prepared, fully
prepared. Consider carefully the words of George Herbert, When
war begins, then hell openeth.
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Chapter 9 Footnotes
In 1918 The National Conference of Commissioners on Uniform State Laws (ULC) proposed
the Uniform Fraudulent Conveyance Act (UFCA), which was ultimately adopted by 26 U.S.
States and its provisions were incorporated into the Federal Bankruptcy Act. It was created to
supersede the Statute of 13 Elizabeth which was enacted in some form by many states, and
which introduced the concept of the fraudulent conveyance into the law of every American
jurisdiction, with or without enactment.
2
Clifton B. Kruse, Jr., Asset Protection: Domestic and International Law and Tactics, Chapter 2,
Fraudulent Transfers, 2:04 (The UFTA is currently the model for fraudulent transfer statutes in
41 states, including the District of Columbia).
3
Id. at 2:20.
4
I.R.C. 121 as amended by the Taxpayer Relief Act of 1997, P.L. 105-34 (1997).
5
I.R.C. 121(b)(3); I.R.S. Regs. 1.121-2(b).
6
I.R.S. Regs. 1.121-1(c)(3)(ii). (If an entity owns the home, the exemption is only allowed for
single member disregarded LLCs, not for multiple member LLCs or Partnerships); see also IRS
Private Letter Rulings 199912026 and 200119014 stating that the holding period does not include
the time the residence was held by a partnership.
7
Stephen Jody Helman, Kenneth E. East & Bradley G. Korell, Asset Protection: Domestic and
International Law and Tactics, Chapter 13, Marital Property Considerations, 13:6; See also
Richard O. Jacobs and Tye J. Klooster Asset Protection Tools for Florida Professionals:
Strategies to Pursue and Strategies to Avoid, 4 Fla. St. U. Bus. Rev. 1. (2004-2005).
8
Stephen Jody Helman, Kenneth E. East & Bradley G. Korell, Asset Protection: Domestic and
International Law and Tactics, Chapter 13, Marital Property Considerations, 13:6.
9
Id.
10
A phrase and acronym attributed to Jay D. Adkisson & Christopher M. Riser, from their book,
Asset Protection Concepts & Strategies for Protecting Your Wealth (2004).
11
I.R.S. Regs. 1.121-1(c)(3)(ii) (If an entity owns the home, the exemption is only allowed for
single member disregarded LLCs, not for multiple member LLCs or Partnerships); see also IRS
Private Letter Rulings 199912026 and 200119014 stating that the holding period does not include
the time the residence was held by a partnership.
12
The reason this is true is because clearly, driving either recklessly or under the influence is an
improper purpose which forms the basis for piercing the corporate veil. As such, it is
unreasonable to expect that the veil will withstand the proper purpose requirement. See 18 Am.
Jur. 2d Corporations, 47, n. 9 citing to XL Vision, LLC v. Holloway, 856 SO. 2d 1063 (Fla.
Dist. Ct. App. 5th Dist. 2003); See also Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114
(Fla. 1984).
13
Kurt Strasser, Piercing the Veil in Corporate Groups, 37 Conn. L. Rev. 637, 644 (Spring 2005).
(If there is no valid purpose, the corporate veil may be pierced); See 18 Am. Jur. 2d
Corporations, 47, n. 9 citing to XL Vision , LLC v. Holloway, 856 SO. 2d 1063 (Fla. Dist. Ct.
App. 5th Dist. 2003). (The corporate veil may be pierced if the Plaintiff can prove both that the
corporation is a mere instrumentality or alter ego of the Defendant, and that the Defendant
engaged in improper conduct in the formation or use of the corporation.).
14
2006 State Tax Handbook, CCH Incorporated, page 646 (Most states clearly tax the renting or
leasing of tangible personal property if the same property would be taxable if sold at retail).
15
8 Am. Jur. 2d Automobiles and Highway Traffic, 700, 1149 (If a vehicle is negligently
entrusted to a driver who operates it negligently, you may be personally liable); See also
www.lectlaw.com/files/fam17.htm (In 47 states, parents are responsible for all malicious or
willful property damage done by their children; in 30 states, parents are liable for all malicious or
willful personal injuries inflicted by their children. Eight states obligate parents only when their
children have acted illegally. Hawaii, Louisiana, and Oregon hold parents responsible for all
1
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torts committed by their children. Only Washington D.C. does not hold parents liable at all.).
16
Restatement (Second) of Torts 316; see also Jeffrey L. Skaare, The Development and Current
States of Parental Liability for the Torts of Minors, 76 N.D.L. Rev. 89, 97 (2000).
17
John T. Mulligan, Asset-Protection Strategies for Physicians, Oct. Am. Bankr. Inst. J. 22, 50
(2003).
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Chapter 10
Exemptions The O.J. Simpson Model
Bottom Line
A critical Battlefield Strategy is taking advantage of various
federal and state laws created to protect certain assets and
exempt them from collection actions by creditors. The
reasoning being that certain assets should not be taken away
from a debtor so as to completely leave them destitute. In
other words, a court in a judgment creditor action or our
bankruptcy system will take away most of your assets and
give them to your creditors, but not all of them. As a society
we want to make sure debtors retain certain key assets, or a
portion thereof, such as a home, car and your funds for
retirement. How we use these exemptions in our asset
protection planning can be absolutely critical.
I know that the title of this chapter may sound somewhat

offensive to some, but hear me out. Please know that I am
certainly not praising O.J. Simpsons actions in regards to Nicole
Brown Simpson and Ronald Goldman, nor am I evaluating his
guilt or innocence. However, there is a reason why he is still
living in a plush three bedroom home with a pool on the south
coast of Florida1 trying to make ends meet on a $300,000 per year
retirement income.2
O.J. played his cards almost perfectly in terms of asset
protection. I apologize for commending him in this manner, but it
is the truth. O.J. Simpson (or his team of advisors) understood the
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most basic and fundamental battlefield strategies - federal and
state exemptions preventing creditors from taking away a persons
basic necessitates. Putting everything else aside, we can learn
from that example. I refer to exemptions as basic because they are
actually very easy to use and can be highly effective. In most
cases a citizen doesnt have to hire an attorney, file a document,
or pay a fee to be entitled to an exemption.
I feel that O.J. Simpson has clearly surpassed his popularity
of being a football player and has now become one of the most
famous debtors in America. He should be inducted into the
Debtor Hall of Fame.
The story actually begins long before the tragic events of Los
Angeles in 1994.3 In 1969, O.J. Simpson went to work for the
National Football Leagues (NFL) Buffalo Bills and received an
interesting benefit in his compensation plan: A Defined Benefit
Retirement Plan.4 Ill provide more details on this plan shortly.
For Simpson, the plan meant that upon retirement from the NFL
he would be paid approximately $25,000 a month for the rest of
his life in the form of a pension.
Twenty five years later, on June 17, 1994, he was charged with
committing a double murder.5 Although on October 3, 1995 he
was found criminally innocent of the crime,6 in early 1997 he lost
a civil judgment against the Brown and Goldman families. The
jury found that O.J. Simpson committed both homicides
willfully and wrongfully.7 The families obtained a combined
judgment against him in the amount of $33.5 Million.8
Interestingly, at the date of the final civil judgment on appeal,
Simpsons retirement plan was reported by the Court to be valued
at $4.1 million and untouchable by the plaintiffs in the case.9
Under Federal law, Simpsons type of retirement plan is
untouchable by creditors claims. Moreover, Simpson moved to
Florida in 1999 and purchased a home10 in order to avail himself
of Floridas unlimited homestead exemption, wherein creditors
cannot touch an individuals home or its equity.11
In 2006 we saw another round of legal maneuvering.
Simpson thwarted the efforts of the Brown and Goldman families
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EXEMPTIONS THE O.J. SIMPSON MODEL 133

to collect on their civil judgment by obtaining any revenue from
a book deal he had apparently made with Regan Books.12
Attorney Peter Haven, representing the Goldman family, stated
that the plaintiffs in the civil case were determined to obtain any
revenue from this book and to his knowledge, it would not be
exempt from our efforts to collect it.13
By simply relying on various federal and state exemptions,
Simpson has found amazing benefits for his asset protection plan.
It is imperative we dont overlook these strategies. The sections
of this chapter explore each one of the following exemptions in
detail:
Homestead Exemption
Retirement Plans
Annuities
Income Exemptions
Life Insurance
However, before proceeding, it is important to understand that

not all creditors are stopped from collecting debts or judgments
against your assets. For example, IRS tax liens, divorce
settlements, and child support are generally not subject to the
exemption laws.14 Also, various exemptions are treated very
differently based on the type of collection (for example a
judgment creditor inside or outside of bankruptcy) and the state in
which you reside. Use this information as an introduction and
survey of the different types of exemptions.
Homestead Exemption
One of the most powerful exemptions available is the
protection afforded to our individual personal residence,
commonly referred to as the Homestead Exemption. This is one
of the cornerstones of Simpsons current asset protection strategy.
This tool is generally available in 44 states and is a law
specifically designed to protect a certain amount of equity in a
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persons residence from a variety of creditors.15
Not only do the amounts of the homestead exemption vary
from state to state, there are also different rules on how to qualify
for and satisfy the particular requirements of the homestead
exemption based on the jurisdiction. Twenty-one states even
require that a home owner file appropriate paperwork to qualify
for the exemption.16 For a table showing how the homestead
exemption may be treated in your state, please see Appendix CHomestead Exemption Table.
In an effort to curtail homestead exemption abuses, in 2005
Congress passed the Bankruptcy Abuse Prevention and Consumer
Protection Act ("BAPCP"). Although the title of the BAPCP may
sound onerous, many commentators have felt that the bark is
worse than the bite. Essentially, the impact the BAPCP increases
the importance of long range planning.17 For example, in response
to the BAPCP and its impact on their states homestead
exemption, the Florida Legislature implemented a more
complicated qualification process for taking advantage of the
homestead exemption.18
At this point of the discussion, it should be obvious that this is
a very complex area of the law. If homeowners want to take
advantage of this exemption it is essential that they have a general
understanding of their states law and consult with their asset
protection professional. Moreover, using the homestead
exemption in combination with the proper titling of your assets
(See Tenancy by the Entirety in Chapter Nine) and the appropriate
use of debt inside your property (See Equity Stripping in Chapter
Twelve) can be a powerful combination in protecting your home
from creditors.
Retirement Plans
In 1974 Congress passed the Employee Retirement Income
Security Act (ERISA) to create minimum standards for pension
plans and to protect the interests of employees in benefit plans
offered by employers.19 One of the key features of this law is the
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anti-alienation provision that helps guarantee that employees will
actually receive the benefits promised by their employers, by
preventing creditors from collecting against the debtors
retirement plan.20 The Supreme Court has upheld this law.21
The ERISA exemption is exactly what O.J. Simpson has relied
on in making sure his multi-million dollar retirement plan is not
taken from him. The Defined Benefit Retirement Plan established
by the NFL for its players is rarely ever going to be subject to the
claims of a creditor.22 However, dont fret. If you have a small
business there is a good chance you could set up the same type of
plan for yourself.
In this asset protection context there are really two types of
retirement plans: those covered under the ERISA protection as
described previously, and those that are not. Forget about the
terms defined contribution, defined benefit, 401(k), IRA,
pensions and which ones provide the best tax benefits or
contribution limits. This is not a discussion on the tax or
investment benefits of one plan versus another. However, from an
asset protection benefit, Figure 10.1 on the next page indicates
which plans are protected under ERISA and which ones are not.
The reality is that protection afforded to non-ERISA Plans
(such as IRAs, SIMPLEs, SEPs and KEOGHs) is going to vary
from state to state. Thankfully, most states provide protection for
these individual retirement types of accounts and, in fact,
payments from the retirement plans are protected as well as the
cash value itself. However there are a few states that dont provide
any protection at all, or dollar limits.23 If you are in one of these
states with little or no protection, your IRA could be lost to an
unforeseen liability or debt. For a table showing how a retirement
plan may be treated in your State, please see Appendix DRetirement Plans, Annuities and Life Insurance Exemption Table.
Annuities
I present the concept of annuities separately from retirement
plans because of their unique characteristics. Annuities can
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provide the benefit of a sound and quality investment vehicle that

can also be significantly protected from the claims of creditors.
There are two types of annuities: (1) life annuities, and (2)
variable annuities. Life Annuities generally are based on an
insurance contract in which an owner pays a certain amount of
money up front and the insurance company then pays the owner
fixed payments over a term of years.24 The Variable Annuity is just
as credible and is also based on a life insurance contract.
However, the contributions of the owner grow on a tax-deferred
basis until a future payment schedule.25
The beauty of both of these types of annuities is that in a
number of states a creditor cannot attach the payments from an
annuity or the cash value of annuities themselves, not to mention
the federal bankruptcy law also affords significant protection.26
For example, in Florida the annuity exemption is unlimited.27 For
a table showing how an annuity may be treated in your state,
please see Appendix D- Retirement Plans, Annuities and Life
Insurance Exemption Table.
If an investor combines the tax-free growth of the annuity
with the benefits of asset protection, he or she can protect
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thousands, if not millions of dollars from creditors and also
experience significant tax planning advantages.
Thus, for individuals with significant liquid/cash assets,
annuities can be an important piece of their investment portfolio.
Note how I use the word piece. I am not a licensed financial
planner, however I have always been taught that we dont put all
of our eggs in one basket. I believe a financial portfolio should
have diversity and be well balanced based on our risk tolerance, tax
bracket, current income and retirement needs, and estate planning
goals. Throwing all your cash into an annuity may help from an
asset protection standpoint, but could be devastating from an
investment standpoint. Make sure your team of professionals
implement the best strategic plan for you based on your individual
circumstances, needs, resources and goals.
Exemptions Related to Income

There are essentially two types of protection given to creditors
and debtors alike in relation to the production of income. First, is
the principle of garnishing and the amount that can be garnished
from a debtors wages. Second is the fact that certain types of
income are simply exempt from the collection efforts of a creditor.
Lets explore both of these legal principles.
Garnishments. Some commentators have made the insightful
observation that one of our most valuable assets is our potential to
produce income.28 The government recognizes this and therefore
allows creditors the opportunity to collect against or garnish
wages of debtors, but it also imposes limits on the amount they
can obtain on a monthly basis. In 1968 Congress passed The
Consumer Protection Credit Act to restrict garnishments to the
lesser of 25 percent of an individuals disposable earnings, or the
same earnings in excess of thirty times the federal minimum
hourly wage.29 The law even allows states to create less stringent
impositions on debtors if they so choose. For example, Texas does
not allow garnishments whatsoever,30 and Florida provides special
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rules for garnishments against the head of a household.31
It is also important to note that there are several exceptions to
the rule in regards to the percentage limitations on garnishments.
For example, a judge can order a more substantial garnishment,
and exceed the 25 percent limitation, in the cases of court-ordered
child support or outstanding state and federal taxes.32
Although these restrictions on garnishments are helpful to a
debtor, I would presume many of us dont want to plan our lives
around this strategy. Nevertheless, it should be comforting to
know that we can still earn income and generally keep 75 percent
of it for our own discretionary expenses in such a situation. You
should research the rules in your particular state regarding any
variations from federal law. As always, do your homework before
you face the test.
Excluded Income. In addition to the federal and state
garnishment laws, there are several types of income that are
excluded from garnishments or any type of collection efforts by a
creditor. These include federal social security, disability and
health insurance benefits33 as well as unemployment
compensation, state welfare benefits, and workers compensation
benefits under various federal and state bankruptcy laws.34
However again, if there are claims for child or spousal support, a
court has broad authority to collect against income otherwise
untouchable.35
Again, if you are in a situation where statutory income
exclusions may be of assistance, it is critical you consult with a
knowledgeable professional in your jurisdiction to determine
which laws may apply to you and your specific circumstances.
Life Insurance
Life insurance can also be used for asset protection as well as
for future needs at death for family members or partners in
business. Again, why not try to hit several birds with one stone.
If the generals on your team are working together, life insurance
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can be used in all sorts of circumstances, such as in asset
protection, investing and estate planning.
Honestly, I dont think the primary benefit of life insurance is
asset protection. It serves so many other purposes of greater
worth. I dont recommend that anyone rush out and buy life
insurance just to protect cash they may have in the bank. In fact,
I encourage my clients to make the wisest possible decision for
the investment of their liquid assets and real property. However,
asset protection is a part of that decision making process. Now for
some who have more net worth, we can make asset protection a
higher priority, but for most of us I recommend making money
first.
Conversely, I dont want clients to think of asset protection
as an after thought. Lets just not make it the primary
consideration, but an integral part of the discussion.
Essentially, life insurance is afforded minimal protection
under Federal Bankruptcy Exemptions36 and protection under the
states of course varies drastically. Some states give blanket
protection of all of the accrued cash value inside an insurance
policy. If moving to Hawaii for the weather wasnt an incentive
enough, their pro-debtor stance is again a leader with Florida in
exempting life insurance cash value and proceeds.37
Other states may give just a limited dollar amount of
protection.38 There are even limitations on the IRSs ability to
collect against the cash value of life insurance or the proceeds.39
For a table showing how life insurance is treated by creditors in
your particular state, please see Appendix D - Retirement Plans,
Annuities and Life Insurance Exemption Table.
Of course, if you have Term Life Insurance that does not
build up liquidity inside the policy, but simply pays out a death
benefit upon your passing, there is no cash value to worry about.
For example, Jimmy Stewart in Its a Wonderful Life at least had
some sort of cash value in his life insurance policy he tried to
pledge to Mr. Potter.
However, even if you dont have a cash value inside your
insurance policy, it is important to consider that life insurance
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proceeds are afforded protection from the owners creditors in
some states.40 Your family could inherit your life insurance and
not have to pay your debts with the proceeds. Nevertheless, note
that if you assign your insurance policy as collateral for a loan, go
through a divorce with minor children, or claim bankruptcy, there
are a myriad of other issues to address and your life insurance
policy may become a sacrificial lamb.41
In my opinion, one of the most effective places to hold a life
insurance policy is in an Irrevocable Life Insurance Trust,
commonly referred to in the industry as an ILIT. This type of
trust provides a variety of benefits such as tax free proceeds for
the family members outside of the insured estate and numerous
estate planning benefits. Obviously, a discussion about the
particularities of an ILIT is beyond the scope of this book.
However, suffice it to say that the asset protection provided by an
ILIT is truly astounding. Please see my discussion on the
Beneficiary Defective Spendthrift Trust (BDST) in Chapter
Thirteen below. In my opinion, it would be wise to consider
combining the benefits of an ILIT with the provisions of a BDST.
The Final Word on Exemptions

In terms of asset protection, you are an army in need of every
battlefield strategy you can find because you dont know what
type of war or enemy you are going to be fighting. You certainly
want to implement the barriers that are most simple, easy and
affordable. However, it is also important to realize that everyones
needs are different. A brilliant strategy for your neighbor could be
a disaster for you. Consider the words of the brilliant military
strategist Karl von Clausewitz. The best strategy is always to be
very strong, first generally, then at the decisive point. Examine
carefully your needs, goals and resources. Implement a broad and
balanced plan and then beef up the defenses at your decisive
points.
There are three absolutely critical points I want to make in
summary regarding the discussion of exemptions. First, I would
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never recommend relying solely on exemptions for your asset
protection plan. Many view exemptions as a last line of defense,
although they should be implemented from the outset of anyones
plan.
Second, this area of the law is extremely technical and subject
to numerous variations under State and Federal law, as well as the
particulars of an individuals situation and the type of judgment.
If the day comes you need to rely on some type of exemption,
please rely on an extremely competent attorney familiar with your
particular local statutory and common law.
Finally, remember to consider fraudulent transfer rules when
transferring money or assets presumably to iron clad
exemptions. Just because these exemptions are provided under
well- established statutes and common law, if you try and move
assets in an effort to defraud a known creditor a court will
certainly unwind the transaction faster than a cat with a ball of
yarn. (Please see Chapter Eight for a more detailed discussion on
the topic of fraudulent transfers).
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Chapter 10 Footnotes
O.J. Simpson originally purchased his home in 1999 for $575,000.; see John-Thor Dahlburg,
Los Angeles Times. South Florida Sun - Sentinel. Fort Lauderdale, Fla., Jun 12, 2004 at 3.A.
2
Stephen G. Gilles, The Judgment Proof Society, 63 Wash. & Lee L. Rev. 603, 643 (2006).
(Simpsons pension funds--which began paying him approximately $300,000 per year when he
reached age 55 in 2002--were and are beyond the reach of his tort creditors. Simpson is now a
resident of Florida, and under Florida law, payments from a qualified retirement plan are exempt
from collection). See also Fla. Stat. Ann. 222.21(2)(a) (stating "any money or other assets
payable to" a participant in a qualified retirement "fund or account is exempt from all claims of
creditors").
3
For more information on the criminal trial of O.J. Simpson, see Vincent Bugliosi, Outrage: The
Five Reasons Why O.J. Simpson Got Away With Murder (1997). Vincent Bugliosi is one of the
famed prosecutors that handled the Charles Manson trial.
4
In the typical defined benefit pension plan, the plan promises the employee a definite pension
and makes no reference to the level of employer contributions. The required level of employer
contributions is determined by actuarial calculations. Unlike defined contribution plans,
employees' retirement benefits under defined benefit pension plans are not held in individual
accounts Tax Management Portfolio, Employee Plans -- Deductions, Contributions and
Funding, No. 371-4th; see also Employee Retirement Income Security Act of 1974, as amended
3 (P.L. 93-406 or "ERISA").
5
Leonard M. Baynes, A Time to Kill, The O.J. Simpson Trials, and Story Telling to Juries, 17 Loy.
L.A. Ent. L. Rev. 549, 558 (1997). (5 days after Nicoles and Ronalds death, O.J. was charged
with their Murders).
6
For more information on the criminal trial of O.J. Simpson, see Vincent Bugliosi, Outrage: The
Five Reasons Why O.J. Simpson Got Away With Murder (1997).
7
Rufo v. Simpson, 103 Cal. Rptr. 2d 492, 497 (Cal. Ct. App. 2001).
8
Id.
9
Id. at 529.
10
O.J. Simpson originally purchased his home in 1999 for $575,000.; see John-Thor Dahlburg,
Los Angeles Times. South Florida Sun - Sentinel. Fort Lauderdale, Fla., Jun 12, 2004 at 3.A.
11
See Fla. Const. Art. IX 1 (1868). (Florida residents have benefited from a constitutional
protection of the homestead, otherwise known as the homestead exemption since 1868); 151
Cong. Rec. S2306, S2342 (2005).
12
In November 2006, Reagan Books announced a book by O.J. Simpson as well as a TV
interview entitled If I Did It, an account the publisher pronounced "his confession". Fox
Television was to air an interview with Simpson November 27 and 29, 2006 in which Simpson
would allegedly describe how he would have committed the 1994 slayings of his ex-wife, Nicole
Brown Simpson, and her friend Ronald Goldman, "if he were the one responsible." "This is an
historic case, and I consider this his confession," Regan told The Associated Press (Written by
Erin McClam, November 15, 2006).
13
Leslie Simmons, Goldman Lawyers to Pursue Simpson Book Revenue, The Hollywood
Reporter, Esq., November 17, 2006.
14
John R. Kennel, 40 C.J.S. Homesteads 54 (2007). (A debtor generally is not permitted to
assert a homestead exemption against claims of his or her dependents for support. Thus, the court
may place or enforce a lien for child support on a parent's homestead, or on the proceeds from a
sale of the homestead, at least where the debt to support the child was incurred prior to the
acquisition of the homestead).
15
Philip R. Rupprecht & Lisa B. Querard, Asset Protection Strategies- Planning with Domestic
and Offshore Entities, Homestead Declarations in the Fifty States, 176 (2005). (The amount that
1
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may be claimed runs the gamut from zero (Rhode Island, District of Columbia, Delaware, New
Jersey, and Pennsylvania have no homestead exemption) to nearly unlimited exemptions (Texas,
Florida, Iowa, Oklahoma, and Kansas). Toward the lower end of the scale are Georgia and
Maryland, neither of which has what could be accurately defined as a homestead exemption.).
16
For example, See Alabama- Ala. Code 6-10-20; Indiana- Ind. Code Ann. 34-55-10-12;
Nevada- Nev. Rev. Stat. Ann. 115.020-115.030; See also Whitney Fleming, Asset Protection:
Domestic and International Law and Tactics, Chapter 7, Homestead, (updated by Amy P. Jetel,
2006).
17
Richard O. Jacobs, Asset Protection Tools For Professionals: Strategies to Pursue and
Strategies to Avoid, 4 Fla. St. U. Bus. Rev. 1, 7 (2005).
18
Florida Senate Bill 660; Fla. Stat. Ann. 222.21 (2006).
19
Employee Retirement Income Security Act, P.L. 93-406, 88 Stat. 829, 29 U.S.C. 18 (1974).
20
Id. at 206(d) (provides each pension plan shall provide that benefits provided under the plan
may not be assigned or alienated).
21
Guidry v. Sheet Metal Workers Natl Pension Fund, 493 U.S. 365, 372 (1989); see also,
Stephen G. Gilles, The Judgment Proof Society, 63 Wash. & Lee L. Rev. 603, 643 (2006).
22
116 A.L.R. Fed. 503 (Congress amended ERISA to provide an exception to its broad preemption provision for qualified domestic relations orders (QDROs). Thus, when faced with
whether ERISA pre-empts a domestic relations order, courts usually focus on whether the order
satisfies the statutory requirements for a QDRO); See 26 U.S.C.A. 401(a)(13)(B); 29 U.S.C.A.
1056(d)(3)(A).
23
See Iowa Code Ann. 627.6(8)(e); Maine Rev. Stat. Ann. Tit. 14, 4422(13)(F) (limit
$15,000); and N.D. Cent. Code 28-22-03.1 (limit $200,000).
24
Annuity contracts and the federal income tax treatment are generally governed under I.R.C.
72; See also Bureau of National Affairs (BNA) Income Tax Portfolio- Annuities, Life
Insurance, and Long-Term Care Insurance Products (2007).
25
Id.
26
See Gideon Rothschild & Daniel S. Rubin, Asset Protection Strategies- Planning with Domestic
and Offshore Entities, Volume I, Creditor Protection for Life Insurance and Annuities, 140-147
(2005); see also 11 U.S.C. 522(d)(10)(E). (Regarding federal bankruptcy annuity exemption).
27
Fla. Stat. Ann. 222.14.
28
Stephen G. Gilles, The Judgment-Proof Society, 63 Wash. & Lee L. Rev. 603, 623 (2006).
29
15 U.S.C. 1673(a) (2000); See also Gilles, supra, at 625-626.
30
See Tex. Prop. Code Ann. 42.001(b)(1).
31
See Fla. Stat. Ann. 222.11(2)(a)(1998); See also Gilles, supra, at 626.
32
15 U.S.C. 1673(b); Gilles, supra, at 626.
33
42 U.S.C. 407(a) (2000).
34
11 U.S.C. 522(d)(10) (2000).
35
Anne E. Melley, 31 Am. Jur. 2d Exemptions 268 (2007).
36
11 U.S.C. 522(d)(7) & (8). (Passed in 1994 stating that the exemption is only $8,000,
however it is adjusted annually for cost of living increases).
37
Haw. Rev. Stat. 431:10-232(a).
38
S.C. Code Ann. 15-41-30(8). (For example South Carolina only exempts $4,000 from
potential creditors).
39
47B C.J.S. Internal Revenue 719 (2007). (The cash surrender value of a life insurance policy,
where subject to control by the insured, is subject to a federal tax lien, even if the premiums for
the policy were not paid by the insured. However, the lien does not attach to the cash surrender
value itself but rather to the insured's right to obtain it, and it is not affected by, but passes with,
an assignment of the policy by the insured).
40
(2005).
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(2005).
41
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Chapter 11
The Must Dos if You Own
a Business or Rental Property
Bottom Line
If you dont own a business, rental real estate, or serve in a
managerial role in a small to medium sized business, this
chapter is not for you. However, if you fit into one of those
categories, this section could be the most important chapter
of the book in regards to your asset protection planning. As I
discussed in Chapter Six, sometimes we are our own worst
enemy. As a business owner, you already know that your
business can be your greatest asset or your greatest liability.
How you manage it and the steps you take to maintain your
company can make or break the success of your business.
And once your business goes your assets could be next!
I dont care if you are a doctor, dentist, contractor, real estate

investor, developer, manufacturer, accountant, restaurant owner,
car salesman, or engineer. If you are in business for yourself,
please review and carefully consider the following four steps that
could be the difference in whether your business fails or succeeds:
1. Use the right structure for your business
2. Protect the corporate veil with five key
procedures
3. Obtain proper insurance coverage
4. Manage your employees properly
145
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Operate Your Business in the Proper Structure

I know it seems like alphabet soup: LLC, LP, S-Corp, CCorp, LLP, FLP and so on, but each of these business entities has
distinct advantages and disadvantages. What works best for you
depends onwell, you. Do you need to know the general inner
workings and pros and cons of these entities? Most definitely, yes.
However, you shouldnt worry about all the minute details. Thats
the job of your legal and tax advisor. You worry about the big
picture and let them sweat the details. As Nigel Hamilton wrote of
Englands General Monty Montgomery, An army is the
creation of its commander, not the sum of its units.
Please dont try to select the entity you need on your own. You
have (or should have) advisors to help you make this decision.
The process also doesnt have to be an all or nothing, expensive
and time consuming project in which you are held captive by your
legal advisor. I often have clients who have set up many
companies and who know exactly what they need. If that is you,
great! However, if this is your first business, you have partners,
or a unique project/transaction, please have the structure tailored
to your specific situation.
In my opinion there are five primary considerations to address
when determining which entity best fits our individual needs.
Many qualified and competent attorneys use these same
issues/criteria to advise their clients. They are:
1. Asset Protection Exposure
2. Tax Planning Opportunities
3. Flexibility and Partnership Goals
4. Raising Capital
5. Administrative Issues
Ill elaborate each of these issues briefly. Read carefully
because I am confident these few words can save you thousands
of dollars and hours upon hours of headache, heartache and
frustration. For a more in depth analysis of the various types of
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THE MUST DOS IF YOU OWN A BUSINESS OR RENTAL PROPERTY 147
entities and their pros and cons, see Appendix A Business Entity
Descriptions and Matrix.
1. Asset Protection Exposure. Some clients who come to me
couldnt care less about tax planning and have no plans for other
partners. However, they are scared to death about the possibility
of being sued because of the operations of their business. If this is
your situation, it is essential to choose an entity that provides
protection from the liabilities created inside your business.
However, we also want to choose a company that is the most tax
neutral to avoid creating tax problems, but still provide the
protection you need. For example, if a client is purchasing a rental
property a Limited Liability Company or Limited Partnership
would generally be a great choice. Again for a more in depth
discussion regarding these entities, see the Appendix A Business
Entity Descriptions and Matrix.
2. Tax Planning Opportunities. Of course tax planning is
beyond the scope of this book. However, it is hard to express in
words my zeal and excitement for the incredible opportunity
business ownership gives a taxpayer in the realm of tax planning.
I have many, many clients who enter my office with no interest in
asset protection planning or concerns for administrative
headaches. They just want to know how to save taxes. Please see
my book Lawyers are Liars - Tax Strategies that Actually Work for
more information on this powerful topic.
3. Flexibility and Partnership Goals. In this area of planning
a new business owner can face numerous land mines that if
undiscovered early on, can cause far more damage than just losing
the business. For example, people can choose an entity such as an
S-corporation that is extremely inflexible in terms of allocating
profits, losses, debt and capital contributions, thinking it is perfect
for them in terms of saving employment taxes. Thus, it is
important to sometimes have a multi-layered structure with
corporations and partnership entities to create the proper level of
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flexibility without giving up tax savings. For more on the risks of
having partners and other issues related to partnerships, refer back
to Chapter Six.
4. Raising Capital. Another major issue to consider is the need
new business owners often have to raise capital and bring on other
investors or sell stock. These situations not only create partnership
concerns to address, but also investor or securities issues. Its a
very dangerous proposition for a business owner to bring on
investors without taking the proper care to follow securities laws.
Our government has established numerous rules and protocols
that must be followed when investors are sold interest in a
company, small or large. For a more in depth discussion on this
issue, see the recent book by Professors Larry D. Soderquist and
Theresa A. Gabaldon, Securities Law- Concepts and Insights,
Foundation Press, 2007.
5. Administrative Issues. This is an area of business ownership
that will certainly blindside the new business owner. I have
learned the hard lesson that I need to repeatedly forewarn my new
business owner clients of the steps that must be taken with a new
business. One needs to realize that filing fees at the state level,
and probably at the local level, will be a constant occurrence. Tax
returns have to be filed, books kept, annual meetings held,
protocol followed (see Protecting the Corporate Veil below) and a
myriad of paperwork and mail will always follow. This doesnt
mean that these administrative tasks are a bad thing. They can be
excellent training mechanisms for family members and create
tremendous tax planning opportunities. However, I still want to
encourage you to make sure you understand the administration
you are signing up for with a new company and go in with the
big picture in mind.
In sum, realize that every person has a different family
situation, different financial and business goals, different risks
and rewards, and different business enterprises. I know some of
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you want me to just say, Here is the new business entity you need
to use and how to set it up; step one, two and three. However, and
regrettably, there is no one-size fits all structure for everyone or
every situation. Notice the emphasis I placed on this issue back in
Chapter Two. It is so important to tailor your business structure to
you very carefully considering all of the short-term and long-term
options.
Protecting the Corporate Veil

The corporate veil is the invisible wall that protects you
personally from liability arising from the operations of your
business.1 Other than maybe tax planning and raising capital,
obtaining limited liability protection is one of the greatest benefits
of incorporation.2 It is also important to note, that the corporate
veil concept provides the same benefit in a Limited Liability
Company or Limited Partnership.3 Thus, for purposes of
discussion surrounding the concept of the corporate veil, note that
any references to the terms: corporation, corporate entity or
business throughout the rest of this chapter includes the LLC, LP,
and LLP entities or any other entity designed under legislative law
to provide limited liability from the operations of the business.
More specifically, the protection the corporate veil provides
is protection from inside liability. The corporate veil protects the
owners, officers and directors from liabilities that may arise inside
the corporation. Figure 11.1 on the next page is a simple example
of corporate veil protection.
See Chapter Eleven for a discussion on outside liability and
protecting your business or investments from your personal
actions.
Of course, the corporate veil doesnt protect you if you act
fraudulently, grossly negligent and outside the scope of your
business activities.4 For example, officers and directors of Enron5
and WorldCom6 were found personally liable for actions while
serving in their respective companies because of various actions
outside the scope of their duties and unauthorized by the
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shareholders.
Additionally, if you dont protect the corporate veil by
performing certain maintenance procedures and following the
formalities of corporate ownership, the corporation will NOT
provide the protection you planned on.7 In my opinion, the
following list of five items are absolute necessities in the
maintenance of your business.
However, before I begin, I want to make a pre-emptive
comment to the critics that will most certainly object to my list
and the opinions I espouse regarding the concept of protecting
the corporate veil. There are some lawyers and promoters out
there that brag about the fact that they can pierce any corporate
veil and no shareholder, officer, director, member, manager or
limited partner is ever fully protected. I have to admit that I dont
particularly disagree with their comment in certain situations, or
even in the abstract. I have stated repeatedly in this book that there
is no single iron clad or bullet proof structure/strategy that
will protect everyone in every situation. However I have to ask the
question, what is the point?
Usually the advocates of the above opinion regarding the
shortcomings of the corporate veil are selling their special
bullet proof program of how to properly protect the corporate
veil. Of course, this sales pitch usually costs you thousands of
dollars and some sort of maintenance contract over several years.
Be careful!
Now, realize that I certainly propose good maintenance
procedures and the help of a legitimate law firm to potentially
serve as your registered agent, keep your corporate records in
order, and give regular advice and tips on maintaining the veil.
However, this should be an affordable proposition without a
bullet proof claim and long-term engagement.
Okay, so the lawyer/promoter states adamantly that he or she
is not selling something in conjunction with his or her vicious
warnings and tough opinions about the corporate veils
weaknesses. Then, what are you suggesting in the alternative? Do
nothing? I dont think so! The corporate veil is certainly another
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valid barrier we need in our business and overall asset protection
plan. I have never stated that it will protect a manager, member,
shareholder, officer or director in every instance, but why not set
up the barrier, maintain it and rely on its historic protection to
hopefully induce a settlement or prevent a cause of action
altogether.
See the following steps we can be implementing on a day to
day basis to protect the all too valuable corporate veil in an
affordable, easy and simple manner:
1. Set Up Your Company Properly and Maintain Its Records.
Some may think that just filing the Articles of Incorporation
with the appropriate state agency is sufficient to establish and
maintain the corporate veil. They are sorely mistaken. Without
a corporate book, by-laws, stock certificates, initial minutes,
and regular director and shareholder meetings with minutes, a
corporation will fail quickly and the corporate veil will be
pierced. Also, many people forget to pay annual registration
fees and the company is involuntarily dissolved by the
appropriate state agency. Jay Adkisson said it best with the
following:
All of the offshore and domestic asset protection
trusts, family limited partnership, and other socalled asset protection entities should be formed in
anticipation of one thing: that a creditor someday
will put the entitys governing documents before a
hostile judge who has just signed a judgment.8
2. Document Your Business Transactions. Once you establish
your company it is imperative that you use the company name on
all of your transactions, rather than your individual name.
Remember, it is not you doing business; it is your company doing
the business with you serving as an officer or manager. If you
dont use the company name on leases, contracts, and every other
transactional agreement, how can the corporation protect you?
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3. Use the Company Name in All Advertising and

Correspondence. Im always surprised at how many people form
a holding company to own real estate or investments, but dont
use the company letterhead, business cards and checkbook to
transact business. If you set up a company you need to let the
public know about it in your transactions or they will assume it is
you they are doing business with and not your company. Saving
on letterhead by not printing or using letterhead could save
you right out of business.
4. Separate Checking. Set up a separate checkbook for each
company you form and do not co-mingle your personal and
business transactions. Co-mingling can be one of the quickest
ways to threaten the integrity of your business and cause the
corporate veil to collapse.9 Moreover, many issues arise from a tax
and audit perspective when poor bookkeeping and co-mingling
exists. Good bookkeeping always means better tax write-offs,
better decision making and a stronger, healthier business.
5. Ownership of Company Property. Please do not own your
business property personally or have your business own personal
property. If your personal name is on the title to your rental
property, equipment, or business assets, this property would be
outside the protection of the corporate veil and could get dragged
into a lawsuit if you had a personal liability. Conversely, if you
have the business own property that has nothing to do with your
business and is primarily property held for personal use, that
ownership clearly affects the integrity of the business. It is
equivalent to co-mingling the checkbook and just as foolish.10 In
doing so, you threaten the integrity of your corporate veil. Youve
potentially torn down one of your best battlefield barriers.
Liability Insurance
I realize that insurance is a difficult topic. Insurance premiums
for workers compensation, health insurance and general business
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insurance continue to increase each year. Still it is surprising how
many individuals and businesses are underinsured. Consider some
of these statistics:
In addition to those in poverty, many more live
with only slightly more income; 47 million are
uninsured and millions more are underinsured.11
Loretta Worters, a spokeswoman for the
Insurance Information Institute, said that a study
by her group found that 64 percent of all homes in
the United States were underinsured, by an
average of 27 percent.12
In a recent survey, the Roofing Contractors
Association of California found that nearly 70
percent of roofers in the phone book were either
underinsured or "going bare," operating with no
insurance.13
I know many of us as business owners dont feel insurance
provides a tangible benefit, and consider it a sunk cost. However,
if we have a claim, accident or some other cause of action, it could
mean the difference between life and death for our business
and/or family life as we know it. Simply stated, its something we
cant avoid and have to try and maintain at the most affordable
cost possible. I highly encourage you to have a personal
relationship with your insurance agent and continually review
your various types of coverage if you can find savings in
bundling your insurance policies or coverage. There are several
types of insurance policies we need to be familiar with and take
into account in our business. Consider the following five types of
insurance which are not exhaustive of all the potential types of
insurance a business owner may need:
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1. General Liability Insurance. This is a policy to cover the

general slip and fall that could take place in a business, the
general unforeseen liability that could happen to anybody.
2. Malpractice or Errors and Omissions. Typically this is a
policy for the professional practitioner to cover accidents or losses
incurred from their advice or services they provide.
3. Director and Officer Insurance. If you have a non-profit or
a large company that employs or solicits the assistance of
individuals on a board of directors, it is very common to maintain
a policy to protect your board members should something go
wrong in the business.
4. Workers Compensation. This is must for the small business
owner. In fact, its illegal in most states for an employer to have
employees and not carry Workers Comp. This insurance protects
the owner from a claim due to an employee accident.
5. Property Insurance. This could be personal property
insurance for the computers in the building, the equipment on the
manufacturing floor or out on the job site, or it could be real
property insurance for the building you use for your business or
investment property you rent.
For a more in depth review of insurance for the small business
owner, see Rick Vassars Hide! Here Comes The Insurance Guy:
A Practical Guide to Understanding Business Insurance and Risk
Management, Universe Incorporated, 2006.
Managing your Employees Properly

Your employees can be your greatest asset and sometimes
your worst nightmare.
It is absolutely imperative you approach the hiring of
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employees with the following considerations at the forefront of
your planning.
Protect yourself with proper agreements and protocols during
start-up to make sure an employee doesnt claim he or she is actually
a partner. I wrote of this in detail in Chapter Six. From an asset
protection standpoint there are numerous considerations when
hiring, managing, and firing an employee. Consider them carefully
and consider them all.
Remember, the goal of asset protection is to minimize or
prevent the liability. This principal holds true now more than
ever with employees.
Employment Agreement. It doesnt have to be an all or
nothing proposition with an employee. Most states have well
established law regarding At-Will employment allowing you to
terminate, and the employee to quit, if either party wants to end
the relationship.14 In conjunction with this legal principle, you can
still have a simple agreement established as a basis for and an
understanding between the parties regarding the relationship.
Such a short and concise employment agreement, coupled with a
more detailed employee manual, can dispel significant
misunderstandings and contention in the future. It is interesting
how we all remember facts a little differently than the other
person when the stress of a situation is applied to the agreement.
I encourage you to practice a little writing and documentation
in your relationships with your employees. It can certainly save
you a great deal of time, money and heartache later. Leave no
room for ambiguity so that you dont end up playing corporate
he says she says in front of a judge or arbitration panel.
Non-Competition/Disclosure/Solicitation Agreement. This can
be a very powerful tool for a business where proprietary clients,
areas, or information is absolutely critical for the businesss
success. Admittedly, these types of agreements can be difficult to
enforce and their advocacy depends on the industry, the jurisdiction
youre in and the specific terms of the agreement. However, they
can certainly deter employees from running off with important
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information, or clients, or at least, make an employee think twice

about such damaging and potentially disastrous actions.
Reviews and Discipline. If you ever anticipate firing an
employee without the threats of discrimination, or at the very
least, unemployment claims, please take the time to have written
reviews with your employees when you discuss their short-falls
and the improvements they need to make. Have them initial the
notes from these discussions. Be familiar with the laws of your
state and also the laws affecting your business due to the number
of employees you have. For an in-depth analysis of human
resource management issues and properly hiring, managing and
terminating an employee, see the HR Answer Book, The: An
Indispensable Guide for Managers and Human Resources
Professionals, by Shawn A. Smith and Rebecca A. Mazin.
Human nature being what it is, the world is filled with
wonderful people, okay people, and scoundrels. I try to assume
the best about all people, but I never forget the warning of
humorist Finley Peter Dunne. Fight fair, but dont frget th
other lad may not know where th belt line is.
The Beauty of Entrepreneurship

It truly is the American Dream to own a business. What a
wonderful opportunity we have. It could be an internet business in
our basement, rental property, or a full blown retail business. The
skys the limit!
However, with great opportunity comes the equally daunting
responsibility. Make sure you are going into business with your
eyes wide open regarding the true risks and rewards of the
venture. The responsibility can outweigh the opportunity without
proper planning.
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Kurt Strasser, Piercing the Veil in Corporate Groups, 37 Conn. L. Rev. 637, 640 (Spring 2005);
See also Fletcher Cyclopedia of the Law of Corporations, 1 Fletcher Cyc. Corp. 41 (There are
essentially two major views of the nature of a corporation. A corporation may be regarded as a
privilege granted by the state and treated as an artificial entity to be operated by its members.
According to this view, it is viewed as a privilege that carries with it the responsibility to operate
in accordance with the public interest. Thus, the corporate veil should be pierced if there is an
abuse of the corporate form. In the alternative, a corporation may be viewed as a mere
contractual arrangement between individuals. As such, the state should not interfere with the
corporate form any more than it would a private contract. Accordingly, the corporate veil should
be pierced only when it appears that something in the original contract has gone amiss.).
2
F.H. Easterbrook & D.R. Fischel, Limited Liability and the Corporation, 52 U. Chi. L. Rev. 89,
94 et seq (1985).
3
Sandra K. Miller, What Standards Should Apply to Members and Managers of Limited Liability
Companies?, 68 St. John's L. Rev. 21 (Winter 1994); See also Allan W. Vestal & Thomas E.
Rutledge, Disappointing Diogenes: The LLC Debate that Never Was, 51 St. Louis U. L.J. 53, 54
(Fall 2006). (The creation of the limited liability company and limited liability partnership
forms was one of the most sweeping changes in business organization law in our history.
Combining limited liability and the ability to participate in management while enjoying flowthrough taxation, the LLC and LLP forms allowed participants to have an essentially
unprecedented mix of desirable attributes.).
4
18 Am. Jur. 2d Corporations, 47. (The doctrine of disregarding a corporation's separate and
independent existence is commonly referred to as "piercing the corporate veil." The doctrine of
piercing the corporate veil is the rare exception, applied in the case of fraud or certain other
exceptional circumstances, and is usually determined on a case-by-case basis. It is equitable in
nature. The corporate veil may be pierced and the shareholder held liable for the corporation's
conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain
wrongful purposes, most notably fraud, on the shareholder's behalf.).
5
Officers Convicted in ENRON Collapse, Washington Post, May 28, 2006.
6
The Kings Of Excess, And Other Standouts, New York Times, December 29, 2002.
7
Thomas Lee Hazen & Jerry W. Markham, Corporations and Other Business Enterprises 124144 (2003); and Stone v. Frederick Hobby Associates II, LLC, 2001 Conn. Super. LEXIS 1853.
8
Protecting Your Wealth 47 (2004).
9
See In re Xyan.Com, Inc., 299 B.R. 357 (Bankr. E.D.Pa. 2003); C.F. Trust, Inc. v. First Flight
L.P., 266 Va. 3, 580 S.E.2d 806 (2003); Some courts express a more elaborate list of factors. See,
e.g., Walter E. Heller & Co. v. Video Innovations, Inc., (under New York law, criteria for
piercing include (1) absence of formalities of corporate existence; (2) inadequate capitalization;
(3) personal use of corporate funds; and (4) perpetration of fraud by means of the corporate
vehicle).
10
Daniel J.H. Greenwood, Linking Corporate Law with Progressive Social MovementsIntroduction to the Metaphors of Corporate Law, 4 Seattle J. for Soc. Just. 273, 282 (If the
board of directors or the shareholder acts as if the shareholder actually owned the corporation-for example, by using corporate assets for the personal benefit of the shareholder or otherwise
failing to distinguish between corporate and personal property, or by neglecting the formalities of
board control--the normal response of the courts would be to deny the existence of the
corporation, deeming the shareholder to be the owner of a sole proprietorship.).
11
For Future Generations, War is Worth the Sacrifice, USA Today, January 29, 2007.
12
John Rather, Dreading a Replay Of the 1938 Hurricane, New York Times, August 28, 2005.
1
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Robin Stein, Insurance; Another Painful Issue: On-the-Job Coverage, New York Times,
February 24, 2004.
14
Laura Hunter Dietz, Wrongful Discharge, 82 Am. Jur. 2d Wrongful Discharge 1
("Employment at will is a term used to mean that an employer may discharge an employee
without restriction, that is, for any reason or for no reason, without incurring any liability to the
employee, as long as the reason for the discharge does not violate public policy. Implicit in the
employment-at-will doctrine is the idea that either the employer or the employee can terminate
an employment contract of indefinite duration for any reason.).
13
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Chapter 12
Barricade Strategies
Bottom Line
The next level of defenses raise the drawbridge over the
mote, if you will, and serve as our second line of defenses
before the castle. These Barricade Strategies are simple,
generally affordable, and fully disclosed strategies that have
time tested results based on standing law. These barriers are
strategies that can be used independently or combined for a
more overall resilient protective asset protection plan. Do
these strategies completely prevent someone from pursuing
us or attacking our castle? Absolutely not! However, these
strategies may persuade the common marauder looking for a
quick victory with limited resources to move on to an easier
target.
The four strategies I discuss in detail throughout this chapter

are barriers we as average, middle-income Americans can
implement with a reasonable budget and with a little bit of study
and discussion. We can also understand most of the principles and
procedures particular to each strategy. These are as follows:
Umbrella Insurance
Equity Stripping
Series Limited Liability Companies
Charging Order Protection Entities
Again, the goal of these procedures is to create additional

barriers. They are not silver bullet or one size fits all
161
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strategies. Tailor each one of these strategies to your individual
circumstances, needs, goals and resources. Always conduct a
complete cost-benefit analysis to determine if they are in your
best interest.
Umbrella Insurance
This comprehensive type of insurance isnt new to the
insurance industry;1 however, it is new to the average individual
home or business owner.2 In the past five years, there has been a
substantial increase in the number of umbrella insurance policies
issued to individuals with a net worth of $1 million or less.3 It
certainly is a strategy worth considering because of the cost to
benefit ratio. Its affordability is the main reason its use is so
common.
Essentially, umbrella insurance is an additional policy
providing an umbrella of coverage over all of your activities
that create liability. It provides a second layer of protection in the
case of an insurance claim or potential lawsuit.
An example of how the policy may come to your rescue is in
the case of an automobile accident with a seventeen year old girl
that occurred in Massachusetts. The teenager was driving a
vehicle owned by her parents wallpaper business and ran a red
light causing substantial injuries to several individuals. The
automobile insurance policy had a limit of $500,000.00, however,
both of her parents individually and the business carried umbrella
insurance for excess liability over their standard policies with
limits of $1 million for each policy. The case settled for
$1,215,000.00 and all amounts over the automobile insurance
were covered equally by the two umbrella policies.4
The average cost for $1 million dollars in coverage is
approximately $200-$300 per year.5 That figure emphasizes the
importance of this strategy. In my opinion every person should at
least consider it as an important part of their overall asset
protection plan.
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BARRICADE STRATEGIES 163
Equity Stripping
This strategy has been given many different names over the
years, but is not a new strategy in the toolbox of an experienced
asset protection planner. There is another type of equity
stripping often referred to as a predatory loan practice of subprime lenders. This chapter segment has nothing to do with that
type of fraudulent practice.6
I refer to equity stripping in the context of placing a lien
against the equity in an asset to discourage a creditor from seeking
to possess, claim or otherwise acquire the asset to satisfy a debt or
judgment. Generally, this is a strategy employed with real estate,
however it is sometimes used to protect accounts receivables or
liquid assets. Heres how equity stripping functions.
Real Estate Scenario Lets assume you have a personal
residence worth $500,000 and a current mortgage against it of
$200,000. You have $300,000 in equity. Great! But that equity is
free for the taking by a creditor if you have an unexpected claim
or judgment to pay. Barring the fact you may live in a state such
as Florida or Texas with a liberal Homestead Exemption (See
Chapter Nine), you could face major problems when the creditor
comes a-knocking. There are probably three realistic liens you
could place on your home to try to protect the equity. Each will
have varying degrees of effectiveness depending on your
individual situation.
1. Take out a Home Equity Line of Credit or HELOC. The
use of a HELOC can have several major benefits in addition to
providing asset protection. First and foremost, it is a second
mortgage. You can draw upon it if necessary in a potential
financial crisis. If you dont need the equity line, leave it alone. If
you get into an emergency situation you can turn to the HELOC
in a matter of days if not hours. You also have the option to invest
the credit line in real estate or financial instruments that may
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provide a greater return than the cost of the equity line (a very
common strategy recommended by many planners). Finally, it is
the most legitimate method of stripping equity from our
personal residence compared to the other strategies.
The beauty of the HELOC is that the lien will show future
creditors a reduced equity on the property whether you draw on
the credit line or not. For example, with that previously mentioned
$500,000 home you may place a lien on it for an additional
$250,000, which would be shown on the trust deed against the
property. Public records would show $450,000 in mortgages on
the property. You would have effectively stripped the equity out of
the home whether or not you ever used that credit line.
Finally, make sure you consider the cost of maintaining the
HELOC. Shop around to find a product that fits your needs,
especially if you are not going to draw on the cash immediately
and want the equity line to simply show up on public records.
Realize that the strategy could be more susceptible to failure if
you try and draw on the equity line after a cause of action or debt
arises. A creditor could argue that the act of drawing on the credit
line was a fraudulent transfer, although it would take a
sophisticated creditor to discover and also make such a claim.
2. Have a friendly third party lien the property. This moves us
toward the lesser effective options when considering liens on real
estate for equity stripping purposes. However, it can still help
create a picture for creditors seeking a judgment against your
property. This strategy is quite straightforward and basically
requires granting a friend or family member you trust to record a
lien against your property. Of course, the lien should tie to an
actual tangible, legitimate and calculable loan. Also, to protect
your true interest or equity in the property you may decide to
trade liens and lien one of their properties for the same amount
they place against your property. This can give each party
protection or security in the very equity they are trying to protect.
In sum this strategy is really a smoke and mirrors effort to
send a message to the public regarding the equity in the home.
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Ultimately, this strategy would certainly fail in providing actual
protection if the lien is not based on a legitimate loan.
3. Use an entity you control to lien your own property. Either
use a company you already have operating for other purposes or
set up a shell company to place the lien. This can be extremely
affordable compared to a HELOC, and less risky than giving a
friend or family member a lien against your property. However,
this is clearly the least effective option in the case of a full blown
battle, but still a useful strategy to disguise or hide the equity in
your property without providing any actual protection. The
downside? Most creditors will ultimately convince a judge to set
aside such a lien as a sham.
Of the three options above, I believe the HELOC is probably
the most effective. It could withstand most, if not all, attacks from
future creditors, especially if you draw on the equity line for
investment purposes before a claim or cause of action arises.
When using a lien rather than a HELOC, the closer the lien holder
is to you, whether family or a company owned or controlled by
you, the greater chance a creditor could blow through the equity
stripping as a sham.
Remember, our goal is to establish barriers to increase a
creditors cost to pursue and collect against your assets and
thereby increasing the likelihood of a settlement. The cost and
simplicity of this strategy certainly makes it worth considering.
Accounts Receivable Scenario - Some advisors recommend
placing a lien against accounts receivable or equipment in your
business. This type of strategy is a little more complicated and
difficult to accomplish. Placing a lien against real estate is easy
with a trust deed, but there isnt such well-established procedure
for placing liens against personal property. There are two options
to use in this scenario.
The first option is to sell your accounts receivable to a
separate company. Essentially, this third party company would
buy your accounts receivable at a discount, pay in advance of
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collecting the accounts receivable, and in effect the purchasing
company would receive a fair market value amount of interest for
the service because of the discount. The process is commonly
referred to as factoring and there are many reputable companies
providing this service.
When you use factoring you can increase the cash flow in
your business, for a cost, but it also creates a wonderful side
benefit - asset protection. The factoring company has a bona-fide
lien against your accounts receivable for the future date when
your customers actually pay their invoice. In fact, many factoring
companies take actual control or possession of your accounts
receivable to insure payment. In the meantime, you get to use the
cash in your business and if you get sued, no creditor can touch
your accounts receivable without first standing in line behind your
factoring company.
Just like the HELOC, you can use an arms-length reputable
company to actually factor your receivables or you can try and
lien your own accounts receivable. Again, the more legitimate the
structure, the stronger the protection. If you set up the company
and actually dont transfer the cash, pay any interest and go
through the steps, the actual asset protection benefit can be
minimal at best. However, any factoring at all sends a message
that a creditor will have to spend some time and money to fight
through the situation and investigate it for its authenticity- again
another barrier to a future creditor and a tool to promote
settlements.
The actual public notice of a lien against a companys
accounts receivable generally takes place with the recording of a
Uniform Commercial Code (UCC) filing at the appropriate state
agency. Most states have a system and database to file, record and
report such liens to the public, generally referred to as an Article
9 filing.7 Again, refer to the applicable law in your state.
Equipment Equity Scenario As in the real estate context,
this strategy involves having a person or entity place liens against
the equipment in your business. Of course, this may be a lien by
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an arms-length third party or it could be a related entity of the
business owner which files the lien. The procedure is to use the
UCC recording system to send a message to the public regarding
the lien. The more bona-fide the lien holder and the arms length
nature of the lien holder, the stronger the equity stripping strategy
would hold up in court against a creditor.
I feel this is a strategy that can provide a significant barrier to
future creditors, claims or judgments, however it is important to
enter into these types of transactions with our eyes wide open and
realize that the more legitimate the loan against the equity in our
assets, the stronger the strategy will be.
Series LLCs
Most business owners understand the concept and importance
of isolating assets or ventures that may expose them to personal
liability. Moreover, in our day and age it is typical to see investors
or business owners with multiple ventures or investments. A
hundred years ago, small business owners would rarely own
several business enterprises. As a result, some business owners
have historically taken the additional steps and cost to create a
separate Limited Liability Company (LLC) or Corporation for
each property, asset or business venture.
Therefore, it is not surprising that you can face the dilemma of
choosing between the most cost effective approach and the benefit
of multiple entities and increased limited liability. Accordingly,
various states have tried to resolve this problem by enacting
statutes to create Series LLC laws.
These new Series LLC statutes are phenomenal and can
provide a number of benefits. Regrettably, as of 2007, only eight
states have enacted statutory provisions for a Series LLC:
Delaware,8 Illinois,9 Nevada,10 Iowa,11 Oklahoma,12 Tennessee,13
Wisconsin,14 and Utah.15
When structured properly and respected, the first benefit of a
Series LLC is the administrative cost savings of not having to
maintain multiple LLCs in the same state and not having to file
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multiple tax returns. Figure 12.1 on the next page is a diagram of
how the typical Series LLC would be structured for four rental
properties versus having four different LLCs.
What makes a Series LLC different is its ability to amend its
operating agreement to provide for the establishment of
designated Series or mini-LLCs within the original LLC
(Parent LLC).16 Each Series of the Parent LLC can generally
have its own specified property, assets, investment objective, or
business purpose. The debts, obligations and liabilities of each
Series are only enforceable against the assets of that particular
Series, and not against the assets of the Parent LLC or any of the
other Series.17 For the more reasonable filing cost and preparation
of one Series LLC, a person can save on the legal costs of
maintaining a more complex or elaborate structure with multiple
entities.
Another benefit of the Series LLC is the reduced cost of tax
filing fees. If properly created, you can still have multiple partners
in the same projects with one Series LLC and only have to file one
tax return.18 Also, you can have the flexibility to have multiple
partners in the sub-series, but then you would have to file a
separate tax return for the sub-series that have different partners
other than the parent.
A third benefit of the Series LLC, is that some states have
included even more advanced provisions than those contained in
a standard LLC. For example, some Series LLC statutes have an
additional provision that gives protection from claims arising
outside of the entity. You may have a potential personal liability
and want the LLC to protect the assets inside the business from
these personal activities. I cover this unique characteristic of asset
protection planning later in this chapter.
Of the eight states offering the Series LLC statute, five also
provide the benefit of outside liability protection through charging
order protection: Delaware,19 Nevada,20 Oklahoma,21 Tennessee,22
and Utah.23 See Appendix E- Charging Order Protection and
Series LLC Table for a list of which states have these laws on their
books.
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Finally, a Series LLC should only be used in state jurisdictions
where it is statutorily recognized. For example, many business
owners in California are already extremely familiar with the $800
minimum annual Franchise Tax for the privilege of having a
standard LLC. Additionally, the California Franchise Tax Board
has stated that it wont comment on whether or not the Series LLC
will be recognized in California, but has issued guidance that it
will tax each sub-series as an independent LLC subject to the
annual Franchise Tax. Thus, the Series LLC in California could be
a very expensive proposition.24 Be very cautious in following the
advice of a promoter who would suggest a Series LLC in those
non-series states as the law is unclear as to how these out of state
entities will be recognized. As a baseball fan would say, You
could lose the series.
This is obviously a very technical topic, however, it should be
recognized that the Series LLC can be a wonderful addition to a
well designed asset protection plan. It creates more barriers
without a significant increase in administration duties or costs.
Please take the time to research this strategy and discuss it with
your asset protection and tax planners.
Charging Order Protection Entities COPEs

I must credit Jay D. Adkisson and Christopher M. Riser, two
leaders in the asset protection planning industry, with coining the
phrase COPEs. In their book Asset Protection- Concepts &
Strategies for Protecting Your Wealth, they do an excellent job of
research on this topic and presenting their information to
practitioners in a very clear and straightforward format.
Throughout the rest of this section I will use the term COPE
to refer to a company that offers charging order protection to the
members or owners of the company. However, before explaining
what this protection is all about, I need to explain a couple other
basic principles that build a foundation for this concept: inside
liability and outside liability.
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Inside liability is exposure created from the companys own
internal operations. For example, you own a restaurant and a
patron slips and falls on a banana peel and breaks his or her back.
Most of us understand this risk and the concept of forming a
company such as a Corporation, LLC or Limited Partnership
LP to protect you from the liability created from operations of
the restaurant. All of these companies generally provide owners
the same protection from inside liability, assuming the owners
maintain the corporate veil. (See Chapter Eleven).
Outside liability arises from events or conditions external to
the companys own operations, such as personal liability. For
example, a business owner gets into a personal automobile
accident and the judgment creditors seek to satisfy the debt by
attaching business property. Suddenly, a liability outside of the
business threatens the assets of the business. Trial lawyers can get
inside most entities and attach your properties, take the business
as a whole, or force a liquidation of its assets. Like a virus, the
creditor could move from outside to inside the business, and
wreak havoc on the corporate body, perhaps even cause death.
There is a significant difference between entities that protect
the equity and assets in the business from outside liabilities, and
those that protect the business owner from the business liabilities.
Companies that provide protection both directions rely on the
charging order principle and are therefore considered Charging
Order Protection Entities (COPEs).
The charging order principle holds that if you get into a
lawsuit, the plaintiff wins, obtains a judgment against you, and
then comes after your assets held by a COPE, the most the other
side can get is a charging order against you for the distributed
income from your business.25 Stated otherwise, the Court orders
you, the defendant, to distribute any income from the business
you may receive to the plaintiff, but the plaintiff is not allowed to
touch or foreclose on the underlying assets of the business. Of
course, you have a great deal of control over when and how the
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income is distributed or allocated to the judgment creditor.
Interestingly enough, the IRS actually comes to the debtors
rescue as well. Under partnership law, if the creditor gets a
judgment against a flow-thru entity such as a Limited Liability
Company or Limited Partnership, the managers of the company
may allocate income to the judgment creditors, but not distribute
cash. A creditor may get a tax bill, but no cash. Ninety-nine
percent of trial lawyers will be extremely hesitant to go after a
company that provides for charging order protection because the
rate of success in actually collecting an asset of value is very
limited.26
Figure 12.2 on the next page is a diagram illustrating Charging
Order Protection:
Traditionally, only Limited Partnerships have provided
Charging Order Protection for owners of a company.27 This is
because of historic case law originating in a succession of
legislative acts beginning with the English Partnership Act of
1890 and the almost universal adoption of the Revised and
Uniform Limited Partnership Acts.28
The question then becomes, can I use an LLC to get the same
type of outside protection? Regrettably, the answer is going to
vary dramatically from state to state and whether or not the LLC
is a single-member or multi-member LLC. Despite the
introduction of the Uniform LLC Act in 1996, many states have
not adopted a uniform LLC statute. Unlike the more uniform LP
statutes and their limited judgment creditor remedies, in many
States there is a wider range of statutory remedies available to
judgment creditors against a member of an LLC.
However, in recent years a number of states have passed LLC
laws that supplement current statutes to provide charging order
protection as an exclusive remedy for creditors. See Appendix E
Charging Order Protection and Series LLC Table for a list of the
states that provide such protection.
If you are in a State that does not provide that the charging
order protection is the exclusive remedy in the LLC structure, it is
unclear whether or not a creditor can pierce the company veil
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from the outside. It is likely, however, that in those states with
LLC statutes that mirror LP restrictions on judgment creditors,
courts will generally interpret both LP and LLC statutes
similarly.29
An important point when using COPEs in planning is that the
legitimacy of the company business is going to be carefully
considered. For example, the charging order remedy limitation
imposed on a judgment creditor was ignored in the California case
Evans v. Galardi, because it was determined the LP was not a
valid business.30 This is why it drives me crazy when promoters
suggest that people use Limited Partnerships to hold their home,
personal property, cars, and so on. Again, either these promoters
are lying or ignorant. See my comments in Chapter Nine
discussing the serious pitfalls of trying to lease personal property
back to yourself.
In summary, individuals who are actually trying to protect an
asset from their personal liabilities and not the traditional
approach of protecting themselves from the liability of the
business will certainly want to consider the benefits of using a
COPE. This is a very complex topic and an individual interested
in this strategy should speak with his or her asset protection
planner to determine the effectiveness of a COPE in their
situation. However, it is my humble opinion that COPEs are
affordable, well tested, publicly disclosed and a legitimate
strategy when measured against the protection they provide. If
you understand what you are getting into, this strategy should
create a phenomenal structure with no hidden costs or surprises.
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Chapter12 Footnotes
James A. Robertson, How Umbrella Policies Started Part 2: The First Umbrella Forms,
Insurance Risk Management Institute, April 2000.
2
Id.
3
Steven Fall, A World of Opportunity Exists Under the Umbrella Market, Insurance Journal,
September 6, 2004.
4
Aetna Casualty & Surety Co. v. Home Ins. Co., 44 Mass App. Ct. 218, 689 N.E.2d 1355 (1998).
5
Safeco Insurance, Why do you need umbrella insurance and AAA, Personal Umbrella Policies:
Not Just for Millionaires Anymore (May 10, 2005).
6
See Ann Balcer Norton, Reaching the Glass Usury Ceiling: Why State Ceilings and Federal
Preemption Force Low-Income Borrowers into Subprime Mortgage loans, University of
Baltimore Law Review 35 U. Balt. L. Rev. 215, 222 (Winter 2005). ([this type of equity
stripping] occurs when the [sub-prime] lender 'strips' the equity in the borrower's home by
making a loan based solely on the amount of equity in the home rather than on the borrower's
ability to repay the loan. In equity stripping situations the predatory lender is frequently aware
that the borrower does not have the ability to repay the loan and simply awaits the opportunity
for foreclosure.).
7
4 White & Summers, Uniform Commercial Code 31-10 (5th ed.). (Perfection by filing is by
far the most common method of perfecting a security interest under Article 9. Section 9-310(a)
identifies filing as the norm and, except when they are proceeds, there is no other way to perfect
a security interest in most accounts (as distinguished from deposit accounts) and general
intangibles.Of course, Article 9 does not contain the only filing system in each state or even
the only one in most states. Section 9-311 must bow to federal filing systems that preempt
Article 9).
8
6 Del. Code 18-215.
9
805 ILCS 180/37-40.
10
Nev. Rev .Stat. 86.161(e) & 86.291.
11
Iowa Code 490A.305.
12
Okla. Stat. Ann. tit. 18 2054.4.
13
Tenn. Code Ann. 48-249-309.
14
Wis. Stat. 183.0504.
15
Utah Code Ann. 48-2c-606.
16
For example see 6 Del. Code 18-215; See also Larry E. Ribstein & Robert R. Keatinge, 1
Ribstein & Keatinge on Limited Liability Companies 4:17, Formation of Limited Liability
Company (2004).
17
For example see 6 Del. Code 18-215(b).
18
BNA U.S. Income Portfolios, 704 T.M., III.B.2. (A partnership that owns a disregarded entity
will be treated as if it directly owned the assets and liabilities of the entity.).
19
6 Del. Code 18-703.
20
Nev. Rev. Stat. 86.401 and 21.090.
21
Okla. Stat. Ann. tit. 18 2034.
22
Tenn. Code Ann. 48-218-101 and 105.
23
Utah Code Ann. 48-2c-1103.
24
See Instructions to California Form 568- Limited Liability Company Return of Income.
25
William C. Pollard & Margaret M. Williams, Asset Protection: Domestic and International Law
and Tactics, Chapter 18, Introduction to limited Liability Entities 15:2 (updated by Carolyn M.
Beckett).
26
Peter Spero, Asset Protection: Legal Planning and Strategies 8-7 8.02 (Warren Gorham
Lamont 1994). (Combined with adverse tax consequences to a creditor holding an assignment of
interest, the limitations inherent in the assignment of interest remedy for LPs may induce
judgment creditors to make early settlement of claims).
1
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27
Id.; See also Robert F. Klueger, A Guide to Asset Protection 83 (John Wiley & Sons 1997).
Elizabeth M. Schurig & Amy P. Jetel, Asset Protection: Domestic and International Law and
Tactics, Chapter 16, Limited Partnerships, 16:1 and 16:4 (1995).
28
Elizabeth M. Schurig & Amy P. Jetel, Asset Protection: Domestic and International Law and
Tactics, Chapter 16, Limited Partnerships, 16:1 and 16:4 (1995).
29
Peter Spero, Asset Protection: Legal Planning and Strategies, SA-8-16 8A.04[4] (Warren
Gorham Lamont 2002 Cumulative Supplement).
30
Evans v. Galardi, 546 P.2d 313 (Cal. 1976). Other remedies may be ordered if the partnership
does not appear to be a viable business organization or if it appears the creditor may not be able
to receive satisfaction of the claim by levies of execution or charging orders against other
property owned by the debtor. Mario A. Mata, Use of Domestic FLPs and LLCs in Asset
Protection Planning, in Asset Protection Strategies (Alexander A. Bovoe, Jr., Ed. 2002).
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Chapter 13
Fortifying Your Castle
Bottom Line
These are the strategies that strengthen the walls of the
castle and provide the last line of defense. They also are the
barriers in the asset protection continuum that are the most
expensive and administratively intensive. However, they can
also be most effective and successful in motivating a
creditor/plaintiff to settle, and minimize the losses if your
assets are attacked. Remember, these barriers do not make
your castle bullet proof and they can certainly be
penetrated by a determined creditor with deep pockets and a
legitimate claim. However, the more money, time and
resources creditors have to spend, the less likely they would
be to make an effort to reach your assets. Finally, these are
not strategies for everyone. They are designed for those with
more valuable assets, the temperament for more advanced
planning, and a willingness to handle the required
administrative costs and maintenance procedures.
The bulk of this chapter addresses trusts and the role they can
play in asset protection planning. Thats right, the role they can
play. Not everyone will want or need a specialized asset
protection trust, however, most people do need to consider the
standard Revocable Living Trust for estate planning purposes. The
following information could change your entire perception of how
trusts can or should be integrated into the estate and asset
protection plan.
177
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Trusts Generally
Of all the barriers and tools used in asset protection today, the
trust may be the most effective. There are many different types of
trusts, purposes of trusts and various jurisdictions a trust may be
settled and administered. However, the basic design and concept
of the trust is quite straightforward. Essentially, a trust is a
relationship in which a person or entity, known as the trustee,
holds legal title to certain property. The trustee then protects and
invests the trust property or trust corpus, and is bound as a
fiduciary to exercise that legal control for the benefit of one or
more individuals, the beneficiaries, who are entitled to a
beneficial interest in the trust property. Figure 13.1 below is a
diagram of a typical trust design:
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FORTIFYING YOUR CASTLE 179

The first point I must make about trusts in asset protection is
that a revocable trust is not going to provide any protection
whatsoever for the assets it holds. The courts have been quite
clear in allowing creditors to attach, recover or make claims
against assets in a trust where the debtor has control or ownership
of the underlying assets.1 These incidents of control are the
Achilles heal of any asset protection structure involving trusts.2
If you serve as a trustee of your trust or have the rights to change,
modify or revoke your trust, your creditors will have the same
control.
Some of you may ask, Why did my estate planning attorney
recommend a revocable living trust (RLT) as part of my estate
plan? You were not led astray. An RLT is an integral part of a
basic and well designed estate plan. However, this type of trust is
not meant to protect your assets, but it fulfills a host of other
purposes, such as avoiding probate, distributions to minor
children in the future (or children that act like minors), and can
provide a plan for assets in a second marriage. The RLT is an
excellent foundation of an estate plan, but it is not an asset
protection entity.
Conversely, an irrevocable trust can provide far superior asset
protection compared to a trust where the creator or settlor retains
control and is also a beneficiary. However, there are several
important issues to consider if you decide to create an irrevocable
trust. First, its IRREVOCABLE! This is not a path for the
skittish. You cant presume that the provisions can be changed in
the future if you dont like the way things are going.
Second, one must have the proper tax advice when creating an
irrevocable trust because gift tax laws may apply when
transferring assets into the trust.3 Moreover, there can be ongoing
income and estate tax ramifications of maintaining a trust and
operating the assets/income within the trust.4
Finally, the timing of transfers of property or assets into an
irrevocable trust will not always guarantee automatic protection.
Fraudulent transfer laws play a major role in determining when an
asset is protected versus when a debt or cause of action arises.
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(See Chapter Nine)
Nevertheless, with proper advice regarding tax and fraudulent
transfer laws there are tremendous asset protection benefits with
an irrevocable trust. The following is a discussion of different
types of irrevocable trusts that can be useful in a comprehensive
asset protection plan.
Spendthrift and Discretionary Trusts

In the year 2000, the National Conference of Commissioners
on Uniform State Laws adopted the Uniform Trust Code to
provide comprehensive and uniform resources for states and
practitioners regarding trust law questions.5 This Uniform Trust
Code was also amended and ratified in 2005 and includes specific
provisions regarding the Spendthrift and Discretionary trusts.6
These laws were drafted and adopted to help provide clear
guidance regarding the proper use and outcome of using various
types of trusts.
One of the most basic irrevocable trusts, whether created
domestically or offshore, is the Spendthrift Trust. This type of
trust provides that an interest of a beneficiary may not be
voluntarily or involuntarily transferred unless allowed for under
the terms of the trust document.7 Essentially, it allows the creator
of the trust to tie the hands of the beneficiary as to the control
of the trust and its distributions. These trusts are most commonly
used by parents to create an instrument that controls when, where
and how a child may receive income or the assets.
The historic benefit of a Spendthrift Trust is that so long as the
creator or grantor of the trust is not also the beneficiary, the
income and principal for the beneficiary is generally protected
from the beneficiarys creditors.8 The only two exceptions are
self-settled trusts in which a creator or grantor of the trust is also
the beneficiary or in a situation where the beneficiary owes
money under a claim for child support or alimony.9 Most states
prohibit a settlor from establishing a valid spendthrift trust for him
or herself. This is referred to as a Self-Settled Spendthrift Trust
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and should be avoided. Some States however are attempting to get
around this prohibition by passing laws allowing for Domestic
Asset Protection Trusts.
A Discretionary Trust offers even greater protection than a
spendthrift trust and is generally established and maintained in the
same manner. The significant difference is that the trustee is given
sole and absolute discretion over distributions of income or
principal to the beneficiary.10 Richard W. Hompesch, II, a writer
for the Section of Real Property, Probate and Trust Law for the
American Bar Association sums it up nicely with the following:
The beneficiaries of such a trust have no
enforceable right to any portion of itCreditor
protection is derived from the fact that the creditor
who tries to attach the beneficiarys interest in the
trust stands in no better position than a beneficiary
who could not force the trustee to make a
distribution. For this reason discretionary trusts
generally offer protection even from tax claims,
child support and alimony.11
There have been further attempts by creditors and their
lobbyists to whittle away at the benefits of Spendthrift and
Discretionary Trusts. In the recently issued Restatement of Trusts,
3d and the proposed Uniform Trust Code, there are not only
specific provisions preventing protection for self-settled trusts,
but creditors are also allowed to attach the future distributions
beneficiaries may receive from a trust even before they are
made.12
Although creditors may be able to attach the future
distributions of a trust to a beneficiary, the creditors can NOT
force a distribution to satisfy a creditors debt. On this point, the
issue can be easily explained in the words of Mario A Mata, one
of the foremost experts in the country on trusts:
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The beneficiary of a discretionary trust cannot
compel the trustee to pay him or to apply for his
use any part of the trust property, nor can a creditor
of the beneficiary reach any part of the trust
property until it is distributed to the beneficiary.13
Some of the best asset protection planning in the country is
taking place in applying the unique characteristics of Spendthrift
and/or Discretionary Trusts. For the wealthier individual, these
types of trusts are almost a must as a part of a well designed
asset protection plan and can be incorporated into a new or
existing estate plan.
Beneficiary Defective
Discretionary Spendthrift Trusts
In my opinion, the real exciting planning is in the combination
of well established asset protection laws and principles with
equally powerful and recognized tax law planning. The
Beneficiary Defective Discretionary Spendthrift Trust
(BDDST) provides just that type of synergy and is one of the
most cutting edge structures in the marketplace for advance
planning. The purpose of this book is not to emphasize and
explain various tax planning strategies, so I will only comment on
this structure briefly.
First and foremost, please dont view the word defective as a
negative term. Dont believe it is a reflection of the actual
integrity and benefits of this trust. The word is derived from the
tax code regarding who is actually taxed on the income of the
trust.14 Thus, a tax planner can structure the trust to have the
income of the trust taxed to either the grantor or
the beneficiary. This allows for some amazing estate and income
tax planning opportunities.
The other option of an extremely powerful BDDST, is to have
a third party set up the trust for you. I realize this may not be
possible in some family scenarios, however, if you and your
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planner can think creatively you might be able to create and fund
a trust in this manner, whether through a gift or a sale of an asset.
By implementing a valid non-self-settled BDDST established
for your benefit, you can create incredible asset protection, estate,
and tax planning benefits. Obviously, you need a planner
completely conversant in trust planning, tax planning and
fraudulent transfer laws. However, with the right planner, you can
reach unparalleled heights in asset protection with this type of
trust. The benefit being that without going off-shore or playing
games with the IRS, you have literally locked up assets from
almost any type of creditor with a judgment against the grantor or
the beneficiary.
Domestic Asset Protection Trusts

In 1997, a new type of trust came onto the scene: The
Domestic Asset Protection Trust (DAPT). Alaska was the first
to adopt DAPT legislation,15 and since then seven more states
have enacted similar legislation: Delaware,16 Nevada,17 Rhode
Island,18 Utah,19 Oklahoma,20 Missouri,21 and South Dakota,22 in
that order since 1997.
The main objective of a DAPT is to create a structure that will
allow for self-settled trusts, a structure wherein the creator or
grantor creates a trust for his or her own benefit as a beneficiary,
if not the primary beneficiary. As noted in the section on
Spendthrift and Discretionary Trusts, the public policy and laws
have generally prohibited any type of asset protection for selfsettled trusts.23 The DAPT is an outright offensive against
common law and legislation to provide a method for individuals
to set up trusts for their own benefit and obtain significant asset
protection for the trust assets.
Although there are obvious benefits to a DAPT, there are still
many unanswered questions regarding their longevity. To date,
there is no authoritative case law in which a court interprets and
supports the core provisions of the DAPT. The first significant
question regarding these types of trusts will probably be in the
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realm of bankruptcy. A number of commentators have expressed
an interest in the first bankruptcy case that will address the selfsettled aspect of the DAPT.24 Will a bankruptcy court uphold the
DAPT and not allow creditors to reach the assets of a self-settled
trust in a state offering DAPT legislation? Interestingly, the
Bankruptcy Code requires that applicable State law be honored in
bankruptcy.25 Only time will tell this tale.
Enforcing and Collecting the Judgment

With all of this discussion regarding asset protection, I feel it
is important to take a breath and ask the question, How does all
of this really play out if someone sues me? This is a really good
question! Regrettably, the answer is a complicated and lengthy
one. It always will depend on a myriad of facts and circumstances.
However, please allow me make a few observations and
comments on this issue and address some of your potential
questions and concerns.
The first question that arises when addressing this
complicated topic is what law will actually be applied in a court
proceeding? For example, if I have a Nevada LLC that owns my
rental property in Texas, or my mutual funds in Illinois, but I live
in New Jersey, which law should apply? (See Chapter Three) The
general rule is that without a written agreement between the
parties regarding the law to be applied, oftentimes referred to as a
forum selection clause, courts will most likely apply their states
law based on the principle of choice of law and completely
disregard Nevada law.26
When it comes to the liabilities arising in your business,
where you set up your business is really irrelevant for determining
what law will apply in the case of a lawsuit. It is where your
business is operating and where the cause of action arises that will
determine which law will be applied the majority of the time.
Now in regards to protecting our assets from business or
personal activities, will the state jurisdiction of our trust or entities
really matter? Yes, it could have a big impact! For example, what
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happens if someone sues me personally and obtains a judgment,
but I live in one state, my entities and trusts are in another state,
and the assets are in even another state?
Interestingly enough, our forefathers actually contemplated
these very situations and included in the Constitution what is
commonly referred to as the full faith and credit clause.27 This
clause was primarily intended to provide continuity between
states and enforcement across state lines of non-federal laws, civil
claims and court rulings. Without this clause, enforcement of all
sorts of legal judgments, such as court orders, spousal and child
support orders, and the collection of fees and fines would be
impossible without separate federal action or a similar action by
the other states.
Although the respect the Constitution requires states to give
each other and their judgments sounds like it will work against you
in protecting your assets, it actually works for you. First, if a
creditor obtains a judgment against you in your home state and
then attempts to collect an asset of yours held in a COPE (see
Chapter Twelve) in another state, the creditor must take the
additional steps and pay for the costs to register or file the
judgment in the state where the COPE is licensed to do business.
Second, Duncan Osborne and Jack E. Owen, two well
respected asset protection lecturers on this topic point out:
the mere fact that a court outside of a domestic
venue has jurisdiction to hear a creditor's postjudgment enforcement action does not guarantee a
creditor victory. The judgment creditor must also
advance an argument that convinces the court that
it should enforce the underlying judgment on the
merits against the assets.28
Finally, just because a foreign state gives full faith and
credit to the judgment of a debtors domicile state, it doesnt
mean that the foreign state must also follow the collection
procedures and laws of the domicile state where the judgment was
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originally obtained.29 In fact, the foreign state has the liberty to
apply its own jurisdiction and collection laws. Therefore, the
creditor is stuck with the charging order as its exclusive remedy,
even if the debtor it was pursuing wasnt even living in a COPE
state.
Lets consider the situation where you use a DAPT rather than
a COPE to hold your liquid assets or real property. For example,
lets assume your DAPT is set up in Delaware to hold property in
Oregon. Which state law applies and will the provisions of the
DAPT protect your assets in another state? The result should be
the same as in the COPE scenario previously outlined. However,
due to the relative infancy of DAPT structures, the jury is still out
(no pun intended).
Nevertheless, some commentators have taken the position that
the DAPT will protect your assets in such a scenario and the law
where the trust is formed and where the trustee resides will be
applied.30 There is yet to be a court case resolving this debate. In
the meantime, if you have significant assets and are interested in
re-locating, you have eight states to choose from.31
Foreign Asset Protection Trusts

The Foreign Asset Protection Trust (FAPT) is simply the
same version of the DAPT only established in an off-shore
jurisdiction that provides favorable legislation and administrative
support.
The beauty of the FAPT in comparison to the DAPT is that a
judgment creditor seeking to obtain your assets has only two
options: (1) convince the court that the debtor has the ability to
control or access the trust assets and force the debtor to repatriate
or bring the assets back to the US and give them to the creditor,
or (2) take a trip to the foreign jurisdiction, hire an attorney, and
fight to obtain a judgment against the debtor under the other offshore havens statutes and procedures.32 These requirements
create significant barriers for creditors and forces them to the
bargaining table, minimizing your loss in a potential cause of
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action.
Although convincing a judge that you have control over a
properly drafted FAPT may seem difficult, several cases in recent
years have exhibited that the control issue can be the greatest
hurdle to overcome. Essentially, courts have felt it is
unbelievable that a person would transfer a great deal of money
into a structure on the other side of the world with no control
over it.33 Courts are convinced the whole purpose of the trust is
to benefit yourself in the end, and a judge will have the option to
throw you in jail for contempt of court if you dont bring the
money back to the US.
In the case of FTC v. Affordable Media, LLC, Michael and
Denyse Anderson were not so lucky and served many days in jail
before making some phone calls to their foreign trustee (or
protector) to have the funds being sought by the creditor sent back
to the U.S.34 As I discussed in Chapter Six, the nineties saw a
significant increase in the number of FAPTs and then were
curtailed dramatically after the Affordable Media case. It is not
that FAPTs are not useful in a well-designed asset protection plan,
it is just that promoters over promised and now are unable to
make the pie in the sky promises they were once able to use to
close the sale at their seminars.
FAPTs can still be a viable tool for the individual with off
shore investments, such as annuities or bank accounts, for an
individual who wants to eventually move out of the country, or
who anticipates problems with their family over the inheritance.
For example, it could be much harder to dispute a family estate
battle in a foreign jurisdiction and force the family to live with the
result.
Foreign Charging Order Protection Entities

In the previous chapter, I covered in the detail the benefits of
Charging Order Protected Entities or COPEs. Not only can the
same be said about Foreign COPEs (FCOPE), but there can be
even greater protection for family assets through the use of
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offshore entities.
Ironically, the Charging Order Protection statutes that exist in
the U.S. for most domestic limited partnerships are mirror images
of the same laws in the British Commonwealth of Nations, and of
course including the United Kingdom.35 The same laws that
protect partners in U.S. partnerships are the same in these
countries because they are rooted in or based on the English
Partnership Act of 1890.36 Thus, a person can go to a number of
countries such as Bahamas,37 Nevis,38 Gibraltar,39 or Cayman
Islands40 and receive the same or better Charging Order Protection
they would have received in the United States.
The one-two punch that comes with a FCOPE is the fact that
foreign countries will not recognize the judgments of a court in
the U.S.41 In fact, a creditor or claimant will have to bring his or
her case in the foreign jurisdiction to win the judgment and then
and only then be able to have a charging order against future
income.42
The combination of these two benefits can be very difficult for
a creditor to overcome and can some sometimes be (or seem)
economically insurmountable. Once again we reach our asset
protection goal minimize the damage and increase the
likelihood of a favorable settlement.
FCOPEs Versus Foreign Asset Protection Trusts

A significant benefit of using FCOPEs is the simplified tax
reporting process compared to that of trusts. If a U.S. citizen
establishes a foreign trust they must file forms 3520 and 3520-A
with the IRS and disclose a considerable amount of information.43
Conversely, with regards to a FCOPE, a U.S. taxpayer needs only
file a U.S. Partnership Tax Return, FORM 1065, and a Return of
U.S. Persons with Respect to Certain Foreign Partnerships,
FORM 8865, attached to the 1065 Partnership Tax Return.44 It
should be clear that from an annual administrative standpoint with
the IRS, a partnership or LLC is much more private and simpler
procedure than the reporting requirements for foreign trusts.
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As I wrote in Chapter Five, it is important to note that there is
certainly an increased awareness of the stigma that comes with a
trust versus a partnership and corporation, especially in federal
agencies. Due to the excess promotion of trusts in the nineties, the
continued effort of fringe planners trying to avoid US tax, and
of course the governments efforts to track the funding of
terrorism, trusts receive even a greater level of scrutiny in the eyes
of the authorities.
Finally, more and more planners are realizing the historic
common law and statutory benefits of the charging order principle
versus the controversial and continuing court battles surrounding
self-settled trust strategies.45 For example, if a family loses the battle
with a FAPT, more than likely a judge will order the settlor to move
the assets back into the U.S. and pay the bills. If a creditor seeks a
judgment against a FCOPE, the creditor will have to most certainly
fight the battle in the foreign jurisdiction and if he or she wins will
simply return with a charging order for future distributions. The
serious difference between the two scenarios is apparent to most
planners.
Ultimately, a combination of the two structures is where more
advanced planning ends up. Again, creditors who have to go
through several barriers to reach their goal will be more motivated
to settle.
Multi-layering Your Barriers

In the fourth century, Vegetius wrote, Part of the victory
consists in throwing the enemy into disorder before you engage
them. One of the best ways to sow disorder among your attackers
is to have in place many barriers of protection. There are a variety
of multi-layered plans at this higher level of complexity that could
provide significant protection in the case of a lawsuit or claim.
When planning at this level it is critical to work with a highly
qualified asset protection planner who will take a methodical
approach in tailoring a plan that meets your specific situation and
needs.
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If you have assets that justify the time and effort to protect,
there are certainly some amazing strategies to help fortify your
castle and create a final significant set of barriers to withstand the
majority of creditors.
Please consider asset protection as a major planning issue in
your life, however consider it wisely. Dont rush into any
planning and certainly weigh the costs and benefits of every
strategy you consider. I truly wish you the best in your family,
investment and business endeavors and hope this book will serve
to save you thousands of dollars and hours of headache. Thank
you for taking the time to study this material.
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Restatement (Second) of Trusts 156 (1957).
See 90 C.J.S. Trusts 272 (2007).
3
See I.R.C. 2503(b).
4
See I.R.C. 6012(a)(4); See also Alan S. Acker, BNA Tax Management Portfolio, Income
Taxation of Trusts and Estates, No. 852-2nd.
5
The Uniform Trust Code was drafted by the National Conference of Commissioners on Uniform
State Laws and approved and recommended for enactment in all the states at its Annual
Conference in July 2000. It contains a set of basic default rules that govern voluntary trusts.
6
The complete text of the Uniform Trust Code (2005) with comments, may be accessed through
the National Conference of Commissions on Uniform State Laws website, http://www.nccusl.org.
7
Mario A. Mata, What Estate Planners Need to Know About Asset Protection, American Bar
Association 14 (Feb. 6, 2007).
8
See Restatement (Second) of Trusts 153, 156 & 157 (1959) and Restatement (Third) of
Trusts 58-60 (2003).
9
Id.
10
Richard W. Hompesch, II, Asset Protection Strategies- Planning with Domestic and Offshore
Entities, Domestic Asset Protection Trusts- More Might than First Appears, American Bar
Association 2 (2005).
11
Id.
12
Restatement (Third) of Trusts 58-60 (2003).
13
Association 16 (Feb 6, 2007). (referencing G. Bogart, The Law of Trusts and Trustees 228 (2d
ed. 1979)).
14
See I.R.C. 672-679.
15
Alaska Trust Act, House Bill 101, April 1, 1997; Alaska Stat. 13.36.105-220 (2006).
16
Qualified Dispositions in Trust Act, Del. Code Ann. tit. 12, 3570-76 (2006).
17
Nev. Rev. Stat. tit. 13, 166 (2003).
18
Qualified Dispositions in Trust Act, R.I. Gen. Laws 18-9.2-1, et. seq. (2006).
19
Utah Laws Ch. 301 (H.B. 299) (2003); Utah Code Ann. 25-6-14 (2006).
20
Okla. Stat. Ann. 31 10-18 (West 2006).
21
Mo. Rev. Stat. 456.080(3) (West 2001).
22
S.D. Codified Laws 55-16-1 to 55-16-16.
23
Richard W. Hompesch, II, Asset Protection Strategies- Planning with Domestic and Offshore
Entities, Domestic Asset Protection Trusts- More Might than First Appears, Volume I, at. 3,4
(2005).
24
Association 30 (Feb 6, 2007).
25
11 U.S.C. 541(c)2.
26
Charles Nagy, Conflict of Laws, 15A C.J.S. Conflict of Laws 27 (Under its conflict of law
principles, sometimes spoken of as the "choice of laws," the forum court must determine what
rule governs when and how foreign law is to be applied, absent an effective choice of law by the
parties. When the court determines what rule governs the choice of law, it will then determine
what law is to be chosen by that rule in the particular case before it. Although the plaintiff
normally has the privilege of deciding which law will govern the case because the plaintiff
typically chooses the forum, this rule is not invariable. Forum shopping is discouraged.).
27
U.S. Const. art. IV 1; See also Donald T. Kramer, Constitutional Law, 16B Am. Jur. 2d
Constitutional Law 975; See also Hughes v. Fetter, 341 U.S. 609, 71 S. Ct. 980, 95 L. Ed. 1212
(1951). (The Full Faith and Credit Clause expresses a unifying principle looking toward the
maximum enforcement in each state of the obligations or rights created or recognized by the
statutes of sister states).
1
2
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Duncan E. Osborne & Jack E. Owen, Jr., American Bar Association Continuing Legal
Education, Asset Protection: Trust Planning 250, (American Law Institute, November 13 - 17,
2006).
29
See Koh v. Inno-Pacific Holdings, Ltd., 114 Wash. App. 268, 54 P.3d 1270 (Div. 1 2002); See
also World Fuel Services Corp. v. Moorehead, 229 F.Supp.2d 584 (N.D. Tex. 2002); See also Jay
D. Adkisson & Christopher M. Riser, Asset Protection Concepts & Strategies for Protecting
Your Wealth 100 (2004).
30
Duncan E. Osborne & Jack E. Owen, Jr., American Bar Association Continuing Legal
Education, Asset Protection: Trust Planning 249, (American Law Institute, November 13 - 17,
2006). (A leading case in the trust jurisdiction area is Hanson v. Denkla, 357 U.S. 235 (1958).
While this case is sometimes cited for the broad proposition that a judgment-rendering state court
must have jurisdiction over the trustee for its judgment to receive full faith and credit in another
state (e.g., a Domestic Venue state), a careful reading of the case fails to support this
conclusion.). See also Richard W. Hompesch, II, Asset Protection Strategies- Planning with
Domestic and Offshore Entities, Domestic Asset Protection Trusts- More Might than First
Appears, Volume I, 4-6 (2005).
31
The following eight States provide DAPT protection: Alaska, Delaware, Nevada, Utah, Rhode
Island, Oklahoma, South Dakota, and Missouri.
32
See Jeffrey R. Matsen, Tax Advantages and Considerations Compliance under State Law
Advantageous Uses of LLCs, 25644 NBI-CLE 44, 100-105 (National Business Institute, 2005).
33
See FTC v. Affordable Media, LLC, 179 F.3d 1228, 1242 (9th Cir. 1999) (wherein the owners of
Affordable Media, LLC, Michael and Denyse Anderson (Andersons) were telemarketers who
made millions of dollars in a fraudulent scheme and transferred the funds to a Foreign Asset
Protection Trust in the Cook Islands. It was determined by the Court that it was impossible that
they truly did not have control over their trust which held their money and destroyed the
planning strategy common referred to as the impossibility defense); See also Goldberg v.
Lawrence (In re Lawrence), 227 B.R. 907 (Bankr. S.D. Fla. 1998); In re Lawrence, 251 B.R. 630,
(S.D.Fla. Jul 31, 2000) (wherein Stephan Jay Lawrence, an options trader working for Bear,
Stearns & Co, Inc.(Stearns), lost millions as a result of a margin deficit call after Black Monday,
October 19, 1987, and further lost in a civil case against Stearns leaving a debt owed to Stearns
of over twenty million dollars. Stearns ultimately penetrated all of Lawrences so called offshore asset protection structures and set major precedent defeating the impossibility defense
and further supporting the doctrine of disbelief that what rational person would truly transfer
their assets to a trustee in a country across the world without anything in return and completely
give up control).
34
FTC v. Affordable Media, LLC, 179 F.3d 1228, 1242 (9th Cir. 1999).
35
Mario Mata, Asset Protection Strategies- Planning with Domestic and Offshore Entities, Use of
Offshore Limited Partnerships and Limited Liability Companies in Asset Protection Planning,
Volume II (2005).
36
Mario Mata, Asset Protection Strategies- Planning with Domestic and Offshore Entities, Use of
Domestic Family Limited Partnerships and Limited Liability Companies in Asset Protection
Planning, Volume I, 105 (2005).
37
See Bahamas Partnership Act 24.2 (1995); and Bahamas Exempted Limited Partnership Act
(1995).
38
See Nevis Limited Liability Company Ordinance, as amended, 43(2) (1995).
39
See Gibraltar Partnership Act 33(1) (1984).
40
See Cayman Islands Partnership Law, rev. 73(1)(a) (1995).
41
See Ronald L. Rudman, Asset Protection Strategies- Planning with Domestic and Offshore
Entities, International Asset Recovery, Volume I (2005).
42
See David S. Neufeld, Asset Protection Strategies- Planning with Domestic and Offshore
Entities, The Emergence of Offshore Limited Liability Companies, Volume I, 123 (2005).
28
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I.R.C. 6048(b) requires any U.S. person that is treated as a grantor of any portion of a foreign
trust to ensure that the trust files an annual report and provides other information to the IRS;
6048(a) provides that taxpayers must report, within 90 days of the transfer, all amounts
transferred to a foreign trust by a U.S. person.
44
If a partnership meets any criteria in I.R.C. 6038, 6038B, or 6046A, Form 8865 must be
filed; For more information see BNA Portfolio 910 T.M., Partners and Partnerships -International Tax Aspects (Foreign Income Series).
45
Alan R. Eber, Asset Protection Strategies- Planning with Domestic and Offshore Entities,
Creative Use of Foreign Entities For Asset Protection and Tax Planning, Volume I, 273 (2005).
(The Small Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997 contained
a number of provisions that appeared to threaten if not undermine, the use of offshore trusts for
meaningful tax savings. Mr. Eber goes on to indicate that there are still numerous tax planning
opportunities with off-shore planning, however, the point is also made that increased reporting
and scrutiny by U.S. Federal authorities was certainly a by-product of legislation in the late
90s.).
43
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Appendix A
Business Entity Descriptions and Matrix
Sole-Proprietorship
Sole-Proprietorships are the most popular business entity in
America because they are the easiest and most inexpensive to set
up and operate. However, it doesnt mean that it is the best entity
to operate within.
A sole-proprietorship is just that. It is owned and operated by
a single owner who has the right and the responsibility to make all
management decisions. In addition, any profits the busainess
makes are solely his or hers.
The liberty and benefits of complete managerial control and
sole ownership of profits also come with unlimited liability. The
sole-proprietor is personally liable for all the obligations of the
business. All the debts, including debts on contracts signed only
in the name of the business, become the sole owners debts. If the
assets of the business are insufficient to pay the claims of its
creditors, the creditors may require the sole-proprietor to pay the
claims using his individual non-business assets, such as money
from his bank account and the proceeds from the sale of his house.
A sole-proprietor may lose everything if his business becomes
insolvent. Hence, the sole-proprietorship is the most risky form of
business ownership.
Another major reason so many people form soleproprietorships is because they dont invest the time to research
and consider the other forms of doing business. They merely
begin doing business, and thus by default their sole-proprietorship
is created. Otherwise stated, a person going into business for him
or herself automatically creates a sole- proprietorship when they
fail to create another type of business. This is largely the reason
why this form of business is the most common in the United
States.
195
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The sole-proprietorship is merely an appendage of its owner.
It has no life of its own. It is not a legal entity. It cannot sue or be
sued. Instead, creditors must sue the owner. The sole-proprietor,
in his or her own name, must sue those who harm the business. If
the sole-proprietor decides to hire employees they are his or her
employees and if anything goes wrong they are the one personally
responsible.
A sole-proprietorship is also easily transferable.
"Transferability of ownership refers to the ability of an owner of
a business to sell or convey that ownership interest to someone
else. Transferability also refers to the impact any such transfer
will have on the existing business venture. The sole-proprietor is,
essentially, the business. If a sole-proprietor sells his or her
business, the proprietorship ends for that person while a new one
is formed by the buyer.
The ability to raise capital for a business is limited by the
nature of the business organization. The immediate and long-term
financial needs of a business are very important factors in
selecting a business organization. Sole-proprietorships are the
most limited business entities for raising capital. The most
common source of capital is the proprietors own pocket or his
ability to get a loan. An investor cannot invest in a soleproprietorship; they could only make a loan to the business owner.
Federal and state taxation influence the type of business
organization to form and tax treatment varies widely among the
various business entities. Typically, the income of a soleproprietorship is taxed as the personal income of a proprietor. The
business itself does not pay taxes on its profits. However, the
effect of self-employment tax (FICA) on a sole-proprietorship
can be significant. A new business owner should seriously
consider the benefits of an S-Corporation in an effort to minimize,
yet pay his or her fair share of Social Security and Medicare.
General Partnership
A general partnership is a form of doing business in which two
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or more people, called partners, agree to form a partnership to go
into business together and earn a profit. In this form of doing
business, all partners are general partners and have a fiduciary
duty of loyalty and trust to one another.
Partnerships are very similar to sole-proprietorships in most of
the basics, in that they are very easy to create and not many
formalities exist. For example, if a couple of people get together
to create a business, and agree to ownership, little do they know,
but before they even make one dollar, they have created a general
partnership. In most cases this type of partnership has no life of its
own. If the partners leave the business or are cut off, the business
dissolves as well.
Not surprisingly, just like sole-proprietorships, all partners of
the general partnership are burdened with unlimited personal
liability and all of the other obligations that may come with their
business. If anything happens to the business, such as bankruptcy,
they have to answer personally to any and all creditors. In fact,
creditors may demand payment from personal assets such as a car
or even in some case a home.
Partners own the business so each one has the right to make
any management decision they see fit provided they can get the
other partners to agree. Generally, decisions will be made by
majority rule. A partner is an agent of the general partnership and
has the ability to make the partnership liable for contracts, torts,
and crimes. Because of this and the fact that each partner is liable
for the actions of the others, in effect, each partner is an agent of
the other partners.
If a partner decides he or she wants to leave the business, the
partners interest is easily transferable. Generally, the partner can
sell his or her share of the business to someone else, but that does
not automatically make the purchaser a partner. The state laws in
which the partnership was formed and is operating will generally
control the administration of the partnership, unless a
Partnership Agreement has been executed by the partners.
Business profits or losses are shared by each partner, which
are reported on their individual income tax returns. Because the
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partnership does not pay an income tax, the income or losses are
passed thru to the partners. This is why it is called a pass-thru
entity. Nonetheless, a partnership still needs to keep its own
financial records and must file an information return with the
Internal Revenue Service. The federal income tax return filed by
a partnership on a Form 1065 is merely an information return in
which the partnership indicates its gross income and deductions
and the names and addresses of its partners. The information
return allows the Internal Revenue Service to determine whether
the partners accurately report partnership income on their
individual returns.
When creating a partnership even though documents are not
required they are preferred. When there is no written partnership
agreement a dispute may arise over whether or not persons who
are associated with the enterprise are partners rather than
employees, consultants or sub-contractors.
Corporations in General
In the mainstream culture today, most people understand the
concept of incorporation, but dont realize that there are two
types of corporations: The C-Corporation and the S-Corporation.
The distinction being the way each company is taxed and operated
under provisions of the Internal Revenue Code. However, both
share the same basic principles and history of the standard
corporation.
Whether an S-Corp or C-Corp, the modern corporation is the
most important form of doing business in the history of the United
States. Thanks to corporations we have seen tremendous
economic growth in the last 150 years. It is easier for corporations
to grow and achieve important economies of scale because they
have the ability to raise capital, a capacity created by corporation
law. They can do this largely because ordinary people have the
opportunity to invest in the company and have part ownership (a
share) of the corporation without taking personal liability or many
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of the management responsibilities that ordinarily go along with
business ownership.
Most large businesses are corporations. A corporation may
acquire, hold and convey property, sue and be sued in its own
name. You can create a corporation through the Secretary of State
in the state or states in which you wish to register, with methods
of creation dictated by state statute. Upon approval, the
incorporators designate the board of directors, issue stock to all
the stock holders, and elect the officers.
There are a few basic elements to almost all corporations.
First and maybe the most important are the stockholders. They are
the original investors who put up their money for the corporation
so it can raise capital. The shareholders are literally the owners,
but they enjoy the luxury of limited liability. With few exceptions
they are not liable for the debts of a corporation beyond their
investments. Unless an investor, officer or director breaks the law,
investors risk only the loss of their original investment, but they
have the potential of getting very high returns with very little
effort.
The corporation is a legal entity separate from its
shareholders, even if there is only one shareholder. Corporate law
erects an imaginary wall between a corporation and its
shareholders that protects shareholders from liability for a
corporation's actions. This is its referred to as the corporate veil,
which means the obligations of a corporation are not obligations
of its shareholders and that acts of a corporation are not acts of its
shareholders. Consequently, the shareholders' liability is limited
to their capital contribution.
Nevertheless, courts will sometimes ignore the separateness
of a corporation and its shareholders by piercing the corporate
veil. The primary consequence is that a corporation's shareholders
may lose their limited liability. This usually happens when
something illegal happens or something could have been
prevented by the shareholders but due to their negligence
something bad happened. Generally, the ownership interest in a
corporation is freely transferable. A shareholder may sell his
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shares to whomever he wants whenever he wants. The purchaser
becomes a shareholder with the same rights of the seller.
The second element is the board of directors. They are voted
in by the stockholder with aspirations of helping the corporation
earn a profit. Some of the roles of the board of directors include:
(1) establish a vision or a mission and set some corporate values
to guide and set a pace for the current operations as well as the
future growth and development; (2) set a strategy and the
corporate structure; (3) review and evaluate the opportunities and
any threats or risks in the external environment; (4) evaluate
strategic options and decide on the best ones to be pursued and
provide the means to accomplish them; and (5) delegate
management giving authority to managers who make the
necessary decisions to achieve and follow corporate visions and
strategies.
The third element are the officers, which are probably the
most scrutinized by the public and more importantly the
stockholders. Officers are elected by a board of directors, who
have great flexibility in determining the total number of officers.
One person may hold several offices, president and secretary, for
example. If a corporation desires the protection of dual signatures
as a safety measure, it must create positions for two officers
whose signatures are required on corporate documents. Officers
are classified as Agents for the Corporations. As agents, officers
have express authority to make decisions conferred on them by
the bylaws or the board of directors. Directors and officers are
expected act within their authority and powers given to the
corporation by the Board. They are given great responsibility and
are expected to be loyal and act in the best interest of the
company. Most management actions are protected from judicial
scrutiny by the business judgment rule: absent bad faith, fraud, or
breach of a fiduciary duty, the judgment of the managers of a
corporation is conclusive.
Some states require corporate bylaws and some do not.
However, they can be very helpful and are viewed by some as
necessary. The function of the bylaws is to supplement the articles
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of incorporation by defining more precisely the powers, rights and
responsibilities of the corporation, its managers, and its
shareholders and by stating other rules under which the
corporation and its activities will be governed.
The bylaws state the authority of the officers and the directors;
specifying what they may not do, the time and place of the annual
shareholders meetings, the procedure for calling special meetings
of shareholders, and the procedures for shareholders and
directors meetings. The bylaws may make provisions for special
committees of the board, defining their membership and the scope
of their activities. They set up the machinery for the transfer of
shares, the maintenance of share records, and for the declaration
and payment of dividends.
As stated above, corporations are usually divided into two
different classifications for tax purposes: S-Corporations and CCorporations. The next section explains the differences between
them stating the advantages and disadvantages of each.
C-Corporation
People often think of huge businesses such as GM, Wal-Mart,
or Microsoft when they talk about C-Corporations (C-Corp). A
C-Corp can sometimes, but rarely, be the right vehicle for smaller
entities. Often the main reason for choosing a C-Corp is the ability
to raise capital and have numerous shareholders/investors.
The first benefit of the C-Corp is that the business can
deduct100 percent of all the employee health insurance, including
those employees who are shareholders. Along those lines it can
deduct fully the costs of any and all medical reimbursements.
Fringe benefits such as qualified education costs, group term life
insurance up $50,000 per employee, employee provided vehicles
and bus or public transportation passes, can also be deducted in
most cases. Now with that said, for most small business owners
the tax benefits of other forms of doing business can far outweigh
that of using a C-Corp.
A second benefit is that of being able to go public and/or
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have more than 100 shareholders for the purpose of raising
capital. Although the Securities and Exchange Commission
highly regulates this process, the potential advantage of using a
company to raise money for the business is amazing.
The greatest con to a C-Corp is the corporate tax that is
applied to the net-profit of the company. If after paying all of
expenses, including your salary, the corporation has profits, the
corporation then pays tax on those profits. Typically then the
profits are distributed to you as a shareholder, you then pay
personal income tax on the dividends. This is more commonly
known as double taxation because the profits are being taxed on
the corporations side then on the personal side as well. Although,
your first $50,000 of profits in a C-Corp each year is taxed at a
rate of 15 percent, the corporate tax rate then fluctuates between
34 and 39 Percent. This is definitely a concern for the small
business owner.
S-Corporation
An S-Corporation (S-Corp) is a corporation, Limited
Liability Company or any other eligible business entity that can
make a valid election to be taxed under the Subchapter S of the
Internal Revenue Code.
Unlike regular corporations, an S-Corp does not pay any
corporate income taxes on its profits. Instead, the individual
shareholders pay on their proportionate shares, called distributive
shares, of the S-Corps profits. The S-Corp is often times referred
to as a flow-thru entity. Shareholders must report the income
(and pay a related tax, if any) regardless of whether the
shareholders receive distributions from the company. An S-Corp
must file an annual return on Form 1120S, which is due on or
before the 15th day of the third month following the close of the
corporations tax year.
To make an election be treated as an S corporation, the
following requirements must be met:
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APPENDIX A 203
Must be an eligible entity (a domestic

corporation, a partnership or a single-member or
multiple member limited liability company).
Must not have more than 100 shareholders.
Shareholders must be US citizens or residents,
and must be natural persons, so corporate
shareholders and partnerships are to be excluded.
Must have only one class of stock.
Profits and losses must be allocated to
shareholders proportionately to each one's interest
in the business.
If a corporation meets the foregoing requirements and wishes

to be taxed under Subchapter S, its shareholders must file Form
2553 with the IRS within two months and fifteen days or 75 days
after the beginning of the tax year for which the election is to take
effect, or any time during the year immediately preceding the tax
year for which the election is to take effect.
Limited Liability Company (LLC)

Limited liability companies (LLCs) are a relatively new
form of doing business. They combine the flexibility in operation
with tax status of a general partnership with limited liability
protections normally found in limited partnerships and
corporations.
The LLC is a business entity consisting of one or more
"persons" (which could mean individuals, general partnerships,
limited partnerships, associations, trusts, estates or corporations)
conducting business for any lawful purpose. An LLC may also be
an incorporator, general partner, limited partner, applicant of a
DBA, or a manager of any corporation, partnership, limited
partnership or limited liability company. LLC's consist of three
main parts, members, managers, and employees. Management of
the company is typically under the responsibility of the members
or managers, which must be specified in the Articles of
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Organization.
LLC's are entities of statute and become effective only after
having filed approved articles with the proper division of the
government according to state statutes. LLC's are formed by filing
articles (called Articles of Organization.) Foreign LLC's may
transact business in the state once having completed an
Application for Registration. LLC's may amend their articles, file
articles of dissolution, and in most states must file an annual
report.
Unlike most other corporations, an LLC doesnt require the
owners to hold annual meetings with all the shareholders or
partners, however it is generally recommended to help reinforce
and maintain the corporate veil. The restrictions on the number
and types of shareholders applicable to a subchapter SCorporation do not apply to the owners of an LLC (the
"members"). The members of an LLC may also participate in
management to a greater extent than limited partners.
An LLC is different from a general partnership in that its
members are not personally liable for the obligations of the LLC.
It also differs from a limited partnership in that no member is
jointly and severally liable for obligations of the LLC, unlike the
general partner in a General or Limited partnership. Many form
an LLC to protect personal assets from a legal claim relating to
their real estate investment or business liabilities. Additional
liability protection may be gained by properly forming and
maintaining a separate LLC to hold each property or business
entity. By forming a separate LLC, theoretically only the assets
owned by a specific LLC would be subject to claims or lawsuits
arising against that LLC. An LLC is subject to disclosure, record
keeping and reporting requirements that do not apply to a general
partnership.
A single member LLC has just one member or partner. The
main difference between this form of LLC and a regular LLC is
the way it is taxed. In a single member LLC the income, expenses
and all of the financial operations of the company are reported on
the owners tax return, whether an individual, corporation or trust
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for example. If the members are filing as a multi-member LLC
then the company would file an IRS Form 1065. Members of the
LLC would receive a K-1 at the end of the year to report their
individual share of the income and expenses on their tax return. If
the income is considered ordinary income and thus subject to
Self-Employment tax, the individual members would be required
to account for and pay this tax. The LLC does not provide the
opportunity to save on Self-Employment Tax. Again, an SCorporation would be the entity of choice for this purpose. The
principle purpose of an LLC is to provide various types of asset
protection.
The Series LLC is discussed in detail in Chapter Twelve.
Limited Partnerships
and Family Limited Partnerships
Limited Partnerships have been used for hundreds of years
and originated in Europe in Great Britain during the age when
merchant ships started doing business around the world. The
primary purpose is to allow for multiple limited partners to
invest in a business venture without any personal liability
exposure for the operations of the business and/or the actions of
the general partner.
Another primary benefit of a limited partnership, is the
protection it provides from outside liabilities of the individual
partners, thus protecting the assets of the limited partnership from
the partners themselves. This is a concept I discuss more fully in
Chapter 12 under the topic of Charging Order Protection Entities
(COPEs).
Limited partnerships are also very attractive entities for
raising capital. The limited partners in the limited partnership are
usually just investors who seek investment opportunities and
believe will earn an acceptable return on their investment. They
hope the venture is a success, but never really have a say in the
day to day operations.
A limited partnership may be created only in accordance with
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an applicable state statute. If the statute is not followed, unlimited
liability may be imposed on all the partners. A limited partner
usually has two types of partners: general partner(s) and limited
partner(s). Generally you have to have at least one of each. A
general partner has unlimited liability for the obligation of the
business. Each general partner has the right and obligation to
manage the business. The general partner is an agent for the
limited partners and has the responsibility to act in their best
interest. The limited partners have limited liability that only
includes their capital investment in the business. Although a
limited partner generally has no actual right to make management
decisions, a limited partner does have the right to vote on
important matters such as the admission of new partners.
A limited partnership pays no federal income taxes. The
partners, general and limited, report their profits at the end of the
year on their personal income tax returns. The partnership must
still file an information return with the IRS letting them know of
each partners share of the years profits or losses. Similar to a
General Partnership and a Multi-Member LLC, a Limited
Partnership must file an IRS Form 1065 to report its
income/expenses and all of the partners would receive a K-1 to
report their share of those expenses on their individual or
company tax return.
A Family Limited Partnership (FLP) is for all intents and
purposes a Limited Partnership, except that all partners are
family members according to applicable Internal Revenue Service
definitions. In fact, the benefit of an FLP is that the Internal
Revenue Code has specific provisions for gifts of Limited
Partnership interests and other sanctioned strategies for using an
FLP. The asset protection benefits of an FLP are the same as a
Limited Partnership; it is essentially the tax benefits that are
offered under an FLP that may be attractive to a family doing
estate planning.
In the typical scenario selected family assets are transferred to
the FLP, and a company owned by the husband and wife is named
as the general partner, while husband and wife retain the bulk of
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APPENDIX A 207
the ownership as limited partners. The plan is to make the children
limited partners over time. Past cases demonstrate that the value
of FLP interest typically will be reduced by valuation discounts by
30 to 35 percent. Also, an FLP can shift the income tax burden
from a parent who is in a high-income tax bracket to a child or
other relative who is in a lower income tax bracket.
As I stated, the FLP is also used for asset protection while
allowing mom and dad to maintain full control and enjoyment of
their property while transferring the actual ownership to the
children. The law provides that a creditor of a partner cannot
reach the assets of the partnership to satisfy an obligation of the
partner since it is the partnership, not the partner, which owns the
asset. With greater frequency, many land and business owners are
coming to recognize the many non-tax benefits of an FLP.
When retention of ownership of assets within the family is
desired, this could arguably be the best non-tax reason for creating
an FLP. The FLP allows the family to keep either land or a
business under the control of the family for many years and
provides a mechanism that is much easier to control than the
typical business structure or trust. This is a wonderful benefit
because parents can still be in control, yet at the same time get
younger family members involved.
An FLP also provides flexibility in establishing the rules for
managing property. Unlike an irrevocable trust, an FLP can be
amended by vote of a given percentage of partnership interest.
This results in a parent being able to easily change the governing
rules, which apply to the partnership if the parent maintains the
necessary percentage ownership interest to amend the agreement.
Finally, parents can protect assets that are to be transferred to
younger generations from being dissipated through
mismanagement or divorce. Special provisions can be drafted into
the buy-sell sections of the FLP agreement requiring ownership to
remain with the immediate family. If a divorce occurs, it
automatically triggers a buy-out of certain interests so a divorced
spouse will be cut out of the ownership. Once again, the FLP
agreement can set forth specific provisions and guidelines for
9/26/07
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Page 208

dealing with disagreements of the evolution of the family land or
business.
In sum, all of the previously mentioned business entities can
provide a variety of pros and cons and need to be carefully
considered and evaluated before implementing a plan for any
entity. The following is a matrix that can show some of the
distinct differences that may be helpful in understanding the
nuances of each entity.
No
Pass Thru
1040, Schedule C, 1065, unless elected

E or F
otherwise
N/A
Low
None
Flexible, but may

have Self-Emp
Tax
Hard to raise
Hard to raise
capital, exposure to
capital, loans only all partners
Perpetual
existence
Taxation
IRS Form for

Filing
Flexibility
Client/Investor
perception
Controlling
Document
Tax
Considerations
Financing and
Credit
considerations
Flexible, but may

have Self-Emp Tax
Good for raising

capital
Flexible, but may

have Self-Emp Tx
for GP
Partnership
Agreement
Familiar capital
transaction format
Extensive, with
control issues for
LPs
1065, unless
elected otherwise
Elect or default
pass-thru
No, dissolved by
IRS if more than
50% change
GP-No
LPs-Yes
LLC
O.K. for raising

capital, but
unfamiliar
Flexible, but may

have Self-Emp Tax
Operating
Agreement
New, unfamiliar,
uncertain
Extensive (few
mandatory
provisions)
1065, unless elected

otherwise
Elect or default
pass-thru
No, dissolved by
IRS if more than
50% change
Yes
Filing, annual
minutes
recommended
S Corp
Limited to 100
shareholders
Save on SelfEmp. Tax, but

inflexible
Bylaws
Good for small

business owner,
familiar
Least flexible
1120S
Pass-thru
Yes
Yes
Filing,
annual minutes
required
C Corp
Easiest to raise capital
Can deduct fringe

benefits but have corp
tax
Bylaws
Complex, but
familiar, certain
Not flexible, but may

have different types
of shares
1120
Entity level
Yes
Yes
Filing, annual minutes

required
3:21 PM
Partnership
Agreement
Easy, unfamiliar
with defaults
Limited Php
Filing, annual
minutes
recommended
9/26/07
Extensive (few
mandatory
provisions)
Elect or default
pass-thru
No, dissolved by
IRS if more than
50% change
None
None
General Php
None
Limited
Liability
Sole Prop
None
Formalities of
Organization
Characteristic
Business Entity Matrix

Page 209
APPENDIX A 209
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Page 210
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Page 211
Appendix B Tenancy by the Entirety Table

Notes:
Column 1 indicates the States without Tenancy by the Entirety
laws.
Column 2 indicates the States that are considered Modified Bar
Jurisdictions. These are States in which a creditor can obtain
rights to the debtors portion of the personal residence if married,
but only after the debtors part is no longer absolute, such as in
cases of divorce or death.
Column 3 indicates the States that are considered Full Bar
Jurisdictions. These are the best States under this type of asset
protection, and are States in which a creditor has no rights against
the personal residence of a married couple, so long as only one of
the spouses is liable for the debt to the creditor. If both spouses are
liable for the debt to the creditor, than Tenancy by the Entirety
provides no protection for the personal residence.
The information provided in this table is general in nature and is
only to serve as initial guidance in your research. It is absolutely
critical that you review the specific laws of your state and
determine what the laws specifically provide for Tenants by the
Entirety. I want to give credit to the following professionals who
provided the foundation for the information in this table on the
various state laws. Stephen Jody Helman, Kenneth E. East, and
Bradley G. Korell, Asset Protection: Domestic and International
Law and Tactics, Volume II, Marital Property Considerations
13:1- 174 (2006).
211
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Page 212
States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Column 1
Column 2
Column 3
Not Available
Modified Bar Jurisdiction
Full Bar Jurisdiction
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
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Page 213
APPENDIX B 213
States
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Column 1
Column 2
Column 3
Not Available
Modified Bar Jurisdiction
Full Bar Jurisdiction
X
X
X
X
X
X
X
X
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Page 214
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Page 215
Appendix C Homestead Exemption Table

Notes:
Column 1 is the dollar amount that is exempt for those that are
single.
Column 2 is the dollar amount that is exempt if you are married.
Column 3 indicates property interests that qualify for the
homestead exemption, other than a typical residence.
Column 4 indicates whether or not the exemption is automatic.
Column 5 indicates if a spouse can claim the exemption even if
their name is not on title.
determine what State Exemptions you may qualify for and the
amounts for that exemption. I want to give credit to the following
professionals who provided the foundation for the information in
this table on the various state laws. Philip R. Rupprecht & Lisa B.
Querard, Asset Protection Strategies- Planning with Domestic and
Offshore Entities, Volume I, Homestead Declarations in the Fifty
States, 184-191 (2005).
Column 1
Column 2
Column 3
Single
Exemption
Amount
Married
Exemption
Amount
Other Interests
Protected inc.
a Typical Home
Alabama
$5,000
$10,000
Mobile Home
Alaska
$67,500
$67,500
Arizona
$150,000
$150,000
States
Arkansas
$2,500
$2,500
California*
$50,000
$75,000
215
Column 4 Column 5
Automatic
Exemption
Title
Effects the
Claim
No
No
Yes
No
Condominium
Cooperative
Mobile Home
Yes
No
Yes
No
Mobile Home,
Boat,
Condominium
Apartment
Yes
No
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Column 1
Column 2
Column 3
States
Single
Exemption
Amount
Married
Exemption
Amount
Other Interests
Protected inc.
a Typical Home
Colorado
$45,000
$45,000
Mobile Home
Farms
Connecticut
$75,000
$75,000
Mobile Home
None
None
Delaware
Florida
None
None
Unlimited
Unlimited
Column 4 Column 5
Automatic
Exemption
Title
Effects the
Claim
Yes
No
Yes
No
N/A
N/A
N/A
N/A
Mobile Home,
Leaseholds
No
No
No
No
Yes
No
Georgia
$5,000
$5,000
Hawaii
$20,000
$30,000
Any Rights to
Immediate
possession
Idaho
$100,000
$100,000
Mobile Home
Yes
No
Illinois
$15,000
$30,000
Farm, Coop.,
Condominium,
or Lease for
Residence
Yes
No
Indiana
$7,500
$15,000
No
No
Iowa
Unlimited
Unlimited
No
No
Kansas
Unlimited
Unlimited
No
No
Kentucky
$5,000
$10,000
No
No
Louisiana
$25,000
$25,000
Yes
No
Maine
$35,000
$70,000
Yes
No
N/A
N/A
No
No
Maryland
Massachusetts
Michigan
Minnesota**
None
None
$500,000
$500,000
$3,500
$3,500
$200,000
$200,000
Mobile Home
Mobile Home
"Dwelling Place"
Yes
No
Yes
No
Mississippi
$75,000
$75,000
No
No
Missouri
$15,000
$15,000
Yes
No
Montana
$100,000
$100,000
No
Yes
Nebraska
$12,500
$12,500
No
Yes
Nevada
$350,000
$350,000
Cooperative,
Condominium,
Mobile Home
No
No
New Hampshire
$100,000
$200,000
Mobile Home
None
None
New Jersey
Mobile Home
No
Yes
N/A
N/A
New Mexico
$30,000
$60,000
No
No
New York
$50,000
$50,000
Cooperative,
Condominium,
Mobile Home
Yes
No
North Carolina
$18,500
$37,000
Cooperative
No
No
North Dakota
$80,000
$80,000
No
Yes
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APPENDIX C 217
States
Ohio
Oklahoma
Oregon
Column 1
Column 2
Column 3
Single
Exemption
Amount
Married
Exemption
Amount
Other Interests
Protected inc.
a Typical Home
Column 4 Column 5
Automatic
Exemption
Title
Effects the
Claim
Yes
No
$5,000
$10,000
Unlimited
Unlimited
Mobile Home
Yes
No
$30,000
$39,600
Mobile Home,
Condominium
Yes
Yes
Pennsylvania
None
None
N/A
N/A
Rhode Island
None
None
N/A
N/A
South Carolina
$50,000
$100,000
Cooperative
Yes
No
South Dakota***
$30,000
$30,000
Mobile Home
Yes
Yes
Tennessee
Texas
$5,000
$7,500
No
No
Unlimited
Unlimited
Yes
No
Utah
$20,000
$40,000
Mobile Home
No*
Yes
Vermont
$75,000
$75,000
Real Property
Taxes
No
No
Virginia
$5,000
$5,000
No
No
Washington
$40,000
$40,000
Any Property
Interest used
as Residence
Yes
Yes
West Virginia
$5,000
$5,000
Any Property
Interest used
as Residence
Yes
No
Wisconsin
$40,000
$40,000
No
Yes
Wyoming
$10,000
$20,000
Yes
Yes
* Exemption is $150,000 if the debtor or debtors spouse is over 65 years old,

has a physical or mental disability that makes them unable to work, is 55
with a gross income of less than $15,000 if single, or $20,000 if married.
** If the property is used primarily for agriculture $500,000 can be exempt.
*** Unlimited in exemption if over the age of 70 and it stays a homestead.
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Page 218
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Page 219
Appendix D Retirement Plans,

Annuities and Life Insurance Exemption Table
Notes:
The information provided in this table of the table is general in
nature and is only to serve as initial guidance in your research. It
is absolutely critical that you review the specific laws of your
state and determine if the State Exemption for Retirement Plans
will apply to you in your situation. I want to give credit to the
following professionals who provided the foundation for the
information in this table on the various state laws. Amy P. Jetel,
Asset Protection: Domestic and International Law and Tactics,
Chapter 10, Retirement Plans, 10; Gideon Rothschild & Daniel
S. Rubin, Asset Protection Strategies- Planning with Domestic
and Offshore Entities, Volume I, Creditor Protection for Life
Insurance and Annuities, 153-174 (2005).
Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Life Insurance Proceeds
Alabama
Non-ERISA plans
protected.
$250 a month is exempt

Beneficiary's interests is
anything over this amount wholly exempt and
can be garnished.
Owners Interests wholly
exempt if Beneficiary is
one of the following:
Spouse and/or Children,
Owner and/or Children.
Alaska
Non-ERISA plans
protected up to $12,500
of the unmatured value of
an Annuity.
Arizona
Non-ERISA plans
protected.
Up to $12,500 of
unmatured value Of
Insurance policies.
Exempt if held for 2 years
and has named as
beneficiary is the Debtor,
Debtors spouse child,
parent, parent, brother
sister or dependant.
219
A maximum interest of
$20,000 if proceeds are
received by a Surviving
Spouse or child, $25,000
of cash surrender value is
exempt if the policy is
held for more than 2
years and beneficiary is a
spouse child parent
sibling or other
dependent. Beneficiary's
interests are wholly
protected from creditors.
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Page 220

Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Arkansas
Non-ERISA plans
protected.
Exempt from all liability

as long as the annuity
does not exceed the
personal property
exemption of $500 fro
head of household and
$200 for others.
Exempt from all liability

as long as the policy was
not created to defraud
creditors.
California
Non-ERISA plans
protected.
Generally unmatured life

insurance policies and
Annuities are exempt to
the extent of $9,700 of
the loan value. Benefits
of Matured policies and
annuities are exempt to
the extent reasonably
necessary to support a
family.
Colorado
Non-ERISA plans
protected.
No Interest or Premium
of any Annuity or Policy
is subject to any debts of
the insured, beneficiary is
irrelevant for this
exemption. Death
benefits payable to
Beneficiary are wholly
exempt. Interest in up to
$50,000 of cash surrender
value except for
contributions made in the
last 48 months, unless
beneficiary is the estate of
the insured.
Connecticut
Non ERISA Plans

protected.
Only if ERISA qualified.
Delaware
Non ERISA Plans

protected.
$350 per month of an

Annuity is exempt any
amount over this is
subject to garnishment.
The beneficiary's interest

in all proceeds from an
insurance policy are
exempt unless the
beneficiary is the insured
or person that created the
policy.
Non ERISA Plans

protected.
Maximum of $200 a
month of any annuity is
exempt if they are the
principal provider for a
family and $60 if they are
not.
Maximum of $200 a
month for a beneficiary if
they are the principal
provider for a family and
$60 a month if they are
not.
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Page 221
APPENDIX D 221
Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Florida
Non ERISA Plans

protected.
Interest in proceeds of
any annuity are wholly
exempt unless created to
defraud creditors.
Interests of beneficiary
are Wholly exempt from
all creditors as long as the
beneficiary is not the
insured or His/her estate.
Interest in cash surrender
value is wholly exempt
from creditors.
Georgia
Non ERISA Plans

protected.
All Annuity proceeds are

wholly exempt as long as
they are reasonably
necessary to provide for a
family.
Unmatured policies are

exempt up to $2,000 of
the value of accrued
dividends, interest, and
loan or cash value of the
policy. Death benefits are
wholly exempts long as
they are reasonably
necessary to provide for a
family.
Hawaii
Non ERISA Plans

protected.
An annuity payable to the

Spouse, child, parent, or
other dependant is wholly
exempt.
All proceeds and any cash

value of any policy is
exempt from the creditors
of the insured as long as
the beneficiary is the
Spouse, child, parent, or
other dependant.
Idaho
Non ERISA Plans

protected.
Any amount under $1,250

per month is exempt for
any creditors but the
amount over this is
Proceeds and avails of

any policy are wholly
exempt from any creditor
as long as the beneficiary
is not the insured, the
person affecting the
policy, or the executor of
the estate of the insured.
Illinois
Non ERISA Plans

protected.
Indiana
Non ERISA Plans

protected.
Proceeds and cash value

payable to spouse, child,
parent, or any other
dependants are wholly
of the insured. If the
beneficiary of the policy
was a dependant of the
insured proceeds are
exempt to the extent
reasonably necessary to
support a family.
If contract so provides, all
the benefits payable to the
persons other than the
person effecting the
annuity are wholly
exempt from all creditors.
All benefits payable to a

person other than the
person that created the
policy are wholly exempt
from all creditors.
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Page 222

Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Iowa
Only ERISA Plans

protected.
All proceeds are exempt

as long as the
contributions in the last
year don't exceed your
normal payment. If they
do then the amount over
the normal is not exempt.
Interest, dividends, and

loan or cash value of the
policy are wholly exempt
as long as the increase in
the last 2 years doesn't
exceed $10,000. Death
benefits up to $25,000 are
exempt as long as the
beneficiary is the spouse,
child, parent or other
dependant.
Kansas
Non ERISA Plans

protected.
There are some very

specific exemptions on
annuities but there are no
general exemptions.
The policy and its

reserves are exempt from
all creditors are unless
purchased in the last year
or if the beneficiary is the
debtors estate.
Kentucky
Non ERISA Plans

protected.
Any amount under $350

is wholly exempt from
any and all Creditors of
the annuity holder.
All proceeds and avails

are exempt as long as the
policy is in favor of
someone other than the
insured, the person
effecting the policy, or the
executer of his estate.
Louisiana
Non ERISA Plans

protected.

from creditors but many
of the same insurance
proceeds rules apply here
as well.
All proceeds and avails

are exempt from all
creditors but if the policy
was created within 9
months of the seizure or
bankruptcy there is a
maximum exemption of
$35,000.
Maine
Non ERISA Plans

protected up to $15,000.
Annuities are exempt

from Creditors up to $450
a month anything above
this amount is subject to
garnishment.
Interests in proceeds and

avails are wholly exempt
from creditors. Accrued
dividend and interest, and
loan value of an
unmatured policy is
exempt up to $4,000.
Maryland
Non ERISA Plans

protected.
All the proceeds of an

Annuity are exempt from
creditors if the payments
go to the spouse, child, or
other relative of the
insured.
All proceeds of an
exempt from all creditors
if the beneficiaries are the
spouse, child, or other
dependant of the insured.
Massachusetts
Non ERISA Plans

No exemptions for
protected with limitations. annuities.
Beneficiary's interests are

fully protected from
creditors if they are not
the insured or one of their
representatives.
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Page 223
APPENDIX D 223
Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Michigan
Non ERISA Plans

protected.
Proceeds are entirely

exempt.
All proceeds are wholly

exempt from all creditors
if the beneficiary is the
spouse, child, or other
relative.
Minnesota
Non ERISA Plans

protected up to a
combined amount of
$60,000.
Proceeds are wholly

of the person effecting the
policy if benefits go to
spouse, child, or
dependant.
All proceeds of insurance

policy are exempt if they
go to a spouse, child, or
dependant. Death benefits
paid to a spouse, child, or
dependants are exempt up
to $40,000 and an extra
$10,000 for each
additional dependant. A
maximum of $8,000 is
exempt on any accrued
dividend or interest, and
loan value.
Mississippi
Non ERISA Plans

protected.
Exempt to the extent

support debtor and
dependants on account of
illness, disability, death,
and age.
Proceeds, cash surrender,

and loan values are
exempt but if in the last
12 months premiums
make the cash surrender
or loan value exceed
$50,000 then this amount
of $50,000 is all that is
exempt.
Missouri
Non ERISA Plans

protected.

to the extent reasonably
necessary to support the
family of the debtor
provided benefits are by
reason of Illness,
disability, death, or length
of service.
All interest in an
unmatured contract are
exempt. In addition all
accrued dividends and
interest, and loan value
are also exempt but in
cases of bankruptcy there
is $150,000 max.
Montana
Non ERISA Plans

All benefits are exempt to
protected with limitations. the extent of $350 a
month, anything over this
is subject to
garnishments.
Beneficiary's interest in
proceeds and avails are
wholly exempt from all
creditors of the owner and
the insured. Maximum
$4,000 in value of an
unmatured life insurance
contract is exempt.
Nebraska
Non ERISA Plans

protected.
$100,000 of proceeds,
cash value, and benefits
are exempt on all mature
and unmatured contracts.
Maximum $10,000
proceeds of policy are
exempt.
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Page 224

Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Nevada
Non ERISA Plans

protected limited up to a
combined amount of
$500,000.
Maximum $350 a month

of annuity benefits
exempt from creditors.
wholly exempt Owners
interests in all money
benefits, privileges, or
immunities are exempt as
long as the yearly
premium doesn't exceed
$15,000.
New Hampshire
Non ERISA Plans

protected if set up on or
after January 1, 1999.
Exempt to the same

extent as retirement plans. proceeds are wholly
protected from creditors
unless proceeds are
payable to the insured's
estate.
New Jersey
Non ERISA Plans

protected.
$500 dollars a month of

all benefits under an
annuity are exempt.
Everything in excess is
Beneficiary's proceeds
and avails are protected
for all creditors as long as
the beneficiary is not the
insured, person affecting
the policy, or their estate.
New Mexico
Statute makes no
distinction between
ERISA and standard
retirement plans. See
current case law.
Proceeds of policy are

wholly exempt from
creditors.
All proceeds of a life

exempt from the debt of
the deceased. Cash
surrender value and
withdrawal value are also
exempt.
New York
Non ERISA Plans

protected.
Annuity payment are

fully exempt because they
fall under trusts as a
spendthrift trust.
wholly protected from all
creditors as long as
owner of the policy or the
insured. Owner's
interests are protected if
they are insuring another
and this person is the
owners spouse.
North Carolina
Non ERISA Plans

protected.
Only a individual
retirement annuity can be
exempt.
Proceeds from Insurance

are wholly protected from
creditors of the insured
and the beneficiary/s,
provided the beneficiary
is not the owner or the
insured.
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Page 225
APPENDIX D 225
Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
North Dakota
Non ERISA Plans

protected up to a
combined amount of
$200,000.
Ohio
Non ERISA Plans

protected.
Wholly protected from

creditors of the owner of
the annuity as long as the
beneficiary is the spouse
child or dependant.
Proceeds and avails are

wholly protected from
creditors as long as the
beneficiary is the spouse,
child, or dependant
relative.
Oklahoma
Non ERISA Plans

protected.
Annuity proceeds are

creditors.
Proceeds and cash values

of the policy are wholly
protected from all
creditors.
Oregon
Non ERISA Plans

protected.
Proceeds up to $500 a
month are exempt. Any
amount over this is
proceeds are wholly
protected as long as the
owner, the insured, or the
estate. Cash value is
wholly exempt as long as
the beneficiary in not the
owner, insured, or estate.
Pennsylvania
Non ERISA Plans

protected.
Proceeds payable to
spouse, child, or
dependant are wholly
of the insured. Proceeds
exempt from own
creditors to the extent of
$100 per month.
Proceeds payable to
spouse, child or
dependant relative are
wholly exempt from the
creditors of the insured.
Proceeds exempt from
own creditors to the
extent of $100 per month.
Rhode Island
Non ERISA Plans

protected.
Only Individual
retirement annuities are
exempt under special
rules.
wholly protected from
creditors of the insured as
long as the beneficiary is
not the owner or the
insured.
Pensions, individual
retirement accounts,
retirement plans,
proceeds, surrender value,
payments, and
withdrawals from
pensions, policies, plans,
and accounts are exempt
up to $100,000 for each
with an aggregate limit of
$200,000.
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Page 226

Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
South Carolina
Non ERISA Plans

protected.
Exempt if on account of
illness death, age, or
length of service but must
qualify like a retirement
plan.
Proceeds and cash

surrender of a policy are
exempt if they are
payable to the spouse,
child or dependant. A
Maximum of $4,000
dollars is exempt from
interest accrued in
dividends or interest, or
loan value of any
unmatured policy.
South Dakota
Non ERISA Plans

protected up to a
combined amount of
$250,000.
Maximum of $250 per

month is exempt from all
creditors anything over
this amount is subject to
garnishment .
If the beneficiary is a
spouse, child or
dependant then $20,000 is
exempt. If the beneficiary
is the estate then $10,000
is exempt.
Tennessee
Non ERISA Plans

protected.
The interest of the

beneficiary are wholly
exempt as long as they
are one of the following
spouse, child, or
dependant.
If the beneficiary is a
spouse, child or
dependant, all proceeds
under policy are wholly
protected from all
creditors of insured.
Texas
Non ERISA Plans

protected.
Policy proceeds are

wholly exempt from all
creditors.
Policy proceeds and cash

value are wholly exempt
from all creditors of the
insured or the beneficiary.
Utah
Non ERISA Plans

protected.
Assets held and proceeds

paid to the extent
support beneficiary and
dependants.
All proceeds or benefits

payable to a spouse,
child, or dependant are
exempt at time of death if
policy is more than a year
old. Proceeds and avails
of an unmatured policy
are exempt except any
payments made in the last
year.
Vermont
Non ERISA Plans

protected.
Maximum of $350 per

month is exempt from all
creditors any amount
exceeding this is subject
to garnishment.
Owners interest in
unmatured policy wholly
exempt if beneficiary is
not the insured, the
person affecting the
policy or the executer of
his estate. Beneficiary's
interest in payment under
policy insuring life of
individual on whom
debtor was dependent is
wholly exempt otherwise
just exempt from
creditors of the insured
and the owner of the
policy.
9/26/07
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Page 227
APPENDIX D 227
Column 1
Column 2
Column 3
State
Retirements Plans
Annuity Proceeds
Virginia
Non ERISA Plans

protected up to the
combined amount that
would provide an annual
benefit of up to $25,000.
Must qualify under IRS

code 403.
Interest in payment of the

of the insured and the
owner as long as the
insured or the owner.
Washington
Non ERISA Plans

protected.
$250 per month of

benefits under all annuity
contracts are exempt from
creditors amounts above
are subject to
garnishment.
creditors.
West Virginia
Non ERISA Plans

protected.
Only exemption for

annuities is in connection
to retirement plans.
Interest in payment of the

Wisconsin
Non ERISA Plans

protected.
Wholly exempt provided

benefits are by reason of
age, death, illness,
disability, or length of
service.
any unmatured policy
including dividends or
interest, and loan value
are exempt up to
$150.000 in value.
payment under policy
insuring life of individual
on whom debtor was
dependent is wholly
exempt. Otherwise just
exempt from creditors of
the insured and the owner
of the policy.
Wyoming
Non ERISA Plans

protected.
$350 per month is exempt

from all creditors
amounts over this are
Interest in proceeds of the

9/26/07
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Page 228
9/26/07
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Page 229
Appendix E
Charging Order Protection and Series LLC Table
Column 1 indicates the States that are considered Type 1 LPsForeclosure Jurisdictions. These are the States providing
moderate protection from outside creditors. These laws provide
that a creditor may foreclose upon a limited partners interest in
the LP and thus divest the partner of their ownership and step into
their shoes in the LP as a limited partner. However, the creditor
cannot force the dissolution of the LP and will have to comply
with the voting rights it is given in the LP as a substitute or
replacement limited partner. These laws are based on the
relatively new Uniform Limited Partnership Act of 2001 which
specifically classifies a charging order as a lien that can be
foreclosed upon.
Column 2 indicates the States that are considered Type 2 LPsCharging Order Jurisdictions. These are the States providing
the best asset protection from outside creditors. These laws
provide that the exclusive remedy for creditors seeking to
satisfy a debt with an LP interest, may only obtain a charging
order for future distributions from the LP to the limited partner.
The creditor cannot force foreclosure of the interest or dissolution
of the partnership. It is important to note that State case law is also
going to be extremely determinative as to the effectiveness of the
charging order protection.
Column 3 indicates the States that are considered Type 1 LLCsDissolution Jurisdictions. These are the States with the worst
LLC statutes for protection from outside creditors. These laws
are based on Section 503 of the Uniform LLC Act of 1996 and
allow creditors to force the dissolution of the LLC and receive a
pro rata share of the LLCs assets upon dissolution.
Column 4 indicates the States that are considered Type 2 LLCsForeclosure Jurisdictions. These are the States providing
moderate protection from outside creditors. These laws provide
229
9/26/07
3:21 PM
Page 230

that a creditor may foreclose upon a member/debtors interest
and actually take away their interest in the LLC, thus stepping into
their shoes in the LLC. However, the creditor cannot force the
dissolution of the LLC and will have to comply with the voting
rights it is given in the LLC as a substitute or replacement
member. These laws are based on Section 504 of the Uniform
LLC Act of 1996, or Section 703 of the Revised Uniform Limited
Partnership Act of 1976, which does not specifically bar creditors
from seeking foreclosure. Specific case law for these States and
how a creditors claim may be treated will be the determining
factor.
Column 5 indicates the States that are considered Type 3 LLCsCharging Order Jurisdictions. These are the States that provide
the best in asset protection from outside creditors. These laws
provide that the exclusive remedy for creditors seeking to
satisfy a debt with an LLC interest, may only obtain a charging
order for future distributions from the LLC to the member/debtor.
The creditor cannot force foreclosure of the interest or dissolution
of the company.
Column 6 indicates States that have Series LLC statutes/laws
and thus provide for the Series LLC.
determine what the laws specifically provide for Tenants by the
Entirety. I want to give credit to the following professionals who
provided the foundation for the information in this table on the
various state laws. Elizabeth M. Schurig and Amy P. Jetel, Asset
Protection: Domestic and International Law and Tactics, Volume
II, Limited Partnerships and Limited Liability Companies,
Chapters 16 and 18 (2006).
9/26/07
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Page 231
APPENDIX E 231
States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Dist. of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Type 1 - LP Type 2 - LP Type 1 - LLC Type 2 - LLC Type 3 - LLC
Foreclosure Charging Dissolution Foreclosure Charging Series LLC
States
Order
States
States
Order States
States
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X*
X
X
X
X*
X
X*
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X**
X
X
9/26/07
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Page 232
States
Washington
West Virginia
Wisconsin
Wyoming
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Type 1 - LP Type 2 - LP Type 1 - LLC Type 2 - LLC Type 3 - LLC
Foreclosure Charging Dissolution Foreclosure Charging Series LLC
States
Order
States
States
Order States
States
X
X
X
X
X
X
X
X
X
* Beginning January 1, 2008, Illinois and Kentucky will adopt the 2001 LP
Act. Maine will adopt this Act July 1, 2007. Thus all the States above will
become Type 1-LP States and thereby provide less protection against
outside creditors.
** Single member LLCs have no charging order protection, only multimember LLCs have such protection.
9/26/07
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Page 233
Index
A
Administrative issues, see also
must dos, 148
Advisory Team, 107-108
Attorney/Planner, 104-108
Accountants, 108-109
Bookkeeper/Accountant/
Tax Planner, 108-109
Debt Repair/Monitoring
Service, 109
Estate Planning Attorney, 109
Financial Planner, 109-110
Insurance Agent/Planner, 110
Litigation Attorney, 110-111
Mortgage Lender/ Banker, 111
Property Manager, 111
Self Directed Retirement
Administrator, 111-112
Specialized Attorneys
and CPAs, 112
Interviewing, 114-115
Annuities, see also Appendix D,
135-137
Anti-Alienation Provision, 135
Articles of Incorporation, 28, 152,
200-201
B
Badges of Fraud, 120
Bahamas, 188
Bankruptcy, 81, 123, 131-144, 197
Bankruptcy Abuse Prevention and
Consumer Protection Act
(BAPCP), 134
Barricade Strategies, 98, 161-174
Umbrella Insurance, 110, 162
Equity Stripping, 163-167
Series Limited Liability

Companies, 167-170
Charging Order Protection
Entities, 170-174
Battlefield Strategies, 119, 129
Fraudulent Transfer Act, 119
Protecting Personal Residence,
121-125
Protecting Yourself from Your
Auto(s), 125-126
Liability Insurance, 127
Continually Evaluate the
Battlefield, 127-128
Bear Stearns, 71
Beneficiary Defective Spendthrift
Trust, 140
Discretionary Spendthrift Trust
(BDDST), 182-183
Beneficiary Spendthrift Trust, 87
Bookkeeper, 108-109
By-laws, 152
C
C-Corporation, see also Appendix A,
19, 28-38
California Twist, 38-39
California Franchise Tax Board
(FTB), 38-39, 170
Charging Order Protection Entities
(COPE), See also Appendix E,
42, 161, 170-174
Charging Order Principle, 171, 189
Charitable Remainder Trust (CRT),
19, 107
Choice of Law, 41, 184
Coaches, 13, 116
Collection Proceedings, 105
9/26/07
3:21 PM
Page 234

Constitutional Tax Protestors, 56
Consumer Protection Credit Act, 137
Contempt of Court, 66, 71, 187
Continuing Education Opportunities,
115-116
Corporate Officers, 41
Corporate Veil, 40, 125-128, 145,
151-153
Corporate Income Tax, 35, 202
D
Debt Repair/Monitoring Service,
107, 109
Defined Benefit Retirement
Plan, 135
Dirty Dozen Tax Scams, 39, 56, 69
Directors, 29
Discretionary Trust, see also Trusts,
180-184
Disappearing, 20
Divorce, 3-7, 73-88, 140
Domestic Corporation, 203
Double Taxation, 32, 37, 202
Domestic Asset Protection Trust
(DAPT), 183-186
Due on Sale Clauses, 47, 54-56
E
Employee Retirement Income
Security Act (ERISA), 134-135
Employment Agreement, 156
English Partnership Act of 1890,
172, 188
Entrepreneurship, 157
Equity Stripping, 124, 163-167
Estate Planning, 24, 106, 109, 124,
137-140
Estate Planning Attorneys, 109
Ethics, 9, 48-56, 103
Evasion, 69-70
Evans v. Galardi, 174

Exchanges (1031), 112
Exemptions, 131-141
F
Family Limited Partnership,
see also Appendix A, 205-208
Filing Fees, 34, 38, 148, 168
Financial Planner, 107, 109-110
Florida, 49-61
Foreign Asset Protection Trust
(FAPT), see also Trusts,
186-187, 188-189
Foreign Charging Order Protection
Entities (FCOPES), 187-189
Forum Selection Clause, 41, 184
Franchise Tax, 36, 38-39
Fraudulent Transfer Act, 119-121
FTC v. Affordable Media, 66, 187
Full Faith and Credit Clause, 41, 185
G
Garn-St. Germain Act, 54-55
Garnishments, 137-138
General Liability Insurance, 155
General Partnerships,
see also Appendix A, 196-201
Gibraltar, 188
Goldburg v. Lawrence, 66
Ghost Address, 21
Grantor, 48, 52, 55-59, 182-185
H
Home Equity Line of Credit
(HELOC), 163-165
Homestead Exemption,
see also Appendix C, 123
9/26/07
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Page 235
INDEX 235
I
Impossibility Defense, 73
Income Exemptions, 131, 137-140
Inheritance, 96, 186-187
Inside Liability, 40-41, 149, 170-171
Individual Retirement Accounts
(IRA), 134-135
IRS Disclosure Rules, 29, 32-33
Irrevocable Trust, see also Trusts,
59, 179-180
Irrevocable Life Insurance Trust,
see also Trusts, 180
J
Joint Ownership, 78-79
Jurisdictional Issues, 41-42
L
Land Trusts, 47-61
Liabilities, 40-41, 149, 170-171
Liability Insurance, 5, 127, 153-155
Liens, 133, 162-165
Life Insurance, see also Appendix D,
136-141
Limited Liability Company (LLC),
see also Appendix A, 33-44, 49,
58, 82, 124-125, 147, 170-174,
203-205
Limited Partnerships, see also
Appendix A, 124-125, 149,
172-175, 182, 205-208
Litigation Attorney, 32, 52, 104-106,
110-111
M
Marketing, 28-31, 42-43, 67
Marriage, 75-87
Members, LLC, 33-34, 40, 203-204
Mortgage Lender/Banker, 111
Multiple Barrier Approach, 16,

91-100
Must Dos of Business or
Rental Ownership, 145-157
N
Nevada Corporations, 26-43
Nominee Agent/Nominees, 29-32
Non-Competition/Disclosure/
Solicitation Agreements,
156-159
Nevis, 188
Nexus, 36
O
Off Shore Planning, 22, 65-72, 114
Off Shore Promoter, 66-68
Officers, 41, 83, 149, 201
O.J. Simpson Model, 123, 131-141
Outside Liability, 40-41, 149,
170-171
P
Partnerships, 75-87, 196-198
Partnership Agreement, 81-83, 197
Patriot Act, 70
Personal Income Tax, 35, 202
Personal Liabilities, 41, 174
Piercing the Corporate Veil, 199
Postnuptial Agreement, 86
Privacy Planning, 20-23
Privacy of Ownership, 61
Private Investigator, 21, 52
Property Manager, 111
Premarital Agreement, 85
Probate Avoidance, 60-61, 78, 125
R
Real Property, 49-58, 139, 155
9/26/07
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Page 236

Registered Agent, 34
Retirement Plans, see also
Appendix D, 134-140
Reportable Transactions, 69
Restatement of Trusts, 3d, 181
Risk Management, 6, 155
Right of Survivorship, 78, 123
S
S-Corporations, see also Appendix A,
28, 35-36, 82, 146, 202-203
Sale of Home Exemption, 121-125
Secrecy of Ownership, 50
Securities Law, 81, 116, 148
Series Limited Liability Company,
see also Appendix E, 167-170
Sole Proprietorships, see also
Appendix A, 195-196
Stock, 148, 152
Sub-Prime Lenders, 163
T
Tax(es)
Avoidance, 30
Benefit, 56-57, 69-70, 134, 201
Evasion, 56-57, 66
Deductions, 37, 109
Planning/Planner, 108-109,
121-122
Savings, 18, 35, 57-58, 69, 148
Tenancy by the Entirety,
see also Appendix B, 123-124,
210
Trusts
Revocable, 59-60, 179-180
Irrevocable, 59-60, 179-180
Spendthrift, 180-183
Discretionary, 180-183
Self-Settled, 181-188
Self-Settled Spendthrift, 181-188
Domestic Asset Protection, 152,

183-184
Beneficiary Spendthrift, 87, 182
Discretionary Spendthrift,
180, 182
Irrevocable Life Insurance, 140
Foreign Asset Protection, 186-189
Revocable Living, 53, 61, 179
Revocable Land, 53, 58-59
Trustee, 178-185
U
Umbrella Insurance, 161-162
Uniform Commercial Code (UCC),
166
Uniform Fraudulence Conveyance
Act, 120
Uniform Limited Partnership Acts,
172
Uniform LLC Act, 172
Uniform Premarital Agreement Act,
85
Uniform Trust Code, 180-182
9/26/07
3:21 PM
Page 20
9/26/07
3:21 PM
Page 22

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I would like to dedicate this book to Jennifer,

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Chapter 4 Land Trusts: Savior or Snake Oil? . . . . . . . . . . . . . . . page 47

PART II WHAT DOES WORK

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Chapter 8 Choosing Your Colonels and Captains. . . . . . . . . . . . page 103

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Foreign Asset Protection Trusts

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x THE TRUTH ABOUT PROTECTING OUR ASSETS

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xii THE TRUTH ABOUT PROTECTING OUR ASSETS

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xiv THE TRUTH ABOUT PROTECTING OUR ASSETS

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WHY USE THE TITLE LAWYERS ARE LIARS? xv

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xvi THE TRUTH ABOUT PROTECTING OUR ASSETS

This Book Can Change your life!

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WHY USE THE TITLE LAWYERS ARE LIARS? xvii

Protect our assets,

Regrettably, all of us also have a difficult time trying to find

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xviii THE TRUTH ABOUT PROTECTING OUR ASSETS

What the Frauds Dont Want You to Know

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WHY USE THE TITLE LAWYERS ARE LIARS? xviiii

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2 THE TRUTH ABOUT PROTECTING OUR ASSETS

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IS ASSET PROTECTION A WASTE OF TIME? 3

Why Asset Protection?

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4 THE TRUTH ABOUT PROTECTING OUR ASSETS

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IS ASSET PROTECTION A WASTE OF TIME? 5

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6 THE TRUTH ABOUT PROTECTING OUR ASSETS

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IS ASSET PROTECTION A WASTE OF TIME? 7

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10 THE TRUTH ABOUT PROTECTING OUR ASSETS

The Big Picture