offshore asset protection trusts: structuring foreign trusts...

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Presenting a live 90-minute webinar with interactive Q&A

Offshore Asset Protection Trusts: Structuring

Foreign Trusts as Part of an Integrated Estate Plan Underlying Concepts, Selecting Situs and Trustee, Arbitraging Competing

Legal Systems, Determining Asset Composition, Administration Considerations

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, OCTOBER 25, 2016

Barry S. Engel, Esq., Shareholder, Greenspoon Marder, Denver

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From the desk of: Barry S. Engel, Esq.

The Equitable Building, Suite 500 730-17th Street

Denver, CO 80202 Phone: 303.741.1111

Fax: 303.265.9473 Email: [email protected]

STRAFFORD PUBLICATIONS PRESENTS:

Offshore Asset Protection Trusts: Structuring Foreign Trusts as Part of an Integrated Estate

Plan

by

Barry S. Engel, Esq.

October 25, 2016

Barry S. Engel is a Denver-based shareholder in the national full-service law firm of Greenspoon

Marder P.A., where he chairs the firm’s International Wealth and Asset Planning Department. Prior to

joining Greenspoon Marder in July of 2016, he was a principal in Engel & Reiman pc, a Colorado-based

law firm having an international client base and an international reputation for being the architect and

progenitor of what has become modern-day asset protection and integrated estate planning.

Mr. Engel is one of three co-authors of the 1989 amendments to the Cook Islands International

Trusts Act (1984), as enacted by the Parliament of the Cook Islands. The first asset protection specific

statutory trust law of its kind, this enactment has served as the model for similar trust law as subsequently

adopted in more than 20 offshore financial centers and by almost one-third of our state legislatures.

Mr. Engel is the author of the Asset Protection Planning Guide, now in its third edition

(December, 2013), as published by CCH Incorporated, Chicago, Illinois. He has written extensively on

all aspects of asset protection and on its relationship with estate planning. His writings and lectures have

contributed in large part to the broad use of asset protection concepts by planners and how these concepts

are today integrated with traditional estate planning. Mr. Engel has also chaired or otherwise participated

in hundreds of continuing education programs for lawyers, CPAs, financial planners and other

professionals, both domestically and abroad.

Barry Engel has been written about or quoted by some of the business and professional world’s

publications and news cooperatives of highest regard, including The Economist, Business Week, the New

York Times, the American Bar Journal, National Bar Journal, Wall Street Journal, Worth, The Street,

Investor’s Business Daily, Forbes, and The Associated Press. His past appointments include Presidency

of the Isle of Man-based Offshore Institute (1992 – 1997), the Executive Committee of the Offshore

Institute (1992 – 2003), the Editorial Board of UK-based Trusts & Trustees, Consulting Editor of the

International Offshore and Financial Centres Handbook and of the Offshore Institute Membership

Directory and Analysis (1996 – 2000). Mr. Engel founded and served as the Consulting Editor of Shore

to Shore, an offshore industry magazine published calendar-quarterly by Highbury House

Communications PLC, London. He is a member of the Society of Trust and Estate Practitioners (STEP),

Nevada Chapter. Mr. Engel graduated with honors from the University of California, Hastings College of

the Law in 1979. He is a member of the American and the Colorado Bar Associations.

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INTEGRATED ESTATE PLANNING

ASSET PROTECTION RELEVANCE TEST

• Do you (or does your client) have at least a moderate level of liquidity, or at least a moderate level of net worth?

• Are you (or is your client) dependent upon or emotionally attached to the liquidity or the net worth?

• What are the chances of you (or your client) being jumped on from a great height within the next 10 or so years…a 1 in 5 chance? A 1 in 10 chance?

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Typical Client 1. A person of means who sees the wisdom in an “all-

perils” insurance policy

2. Seller of a business or a professional practice

3. Loan guarantor or future loan guarantor.

4. A person wishing to supplement other forms of

insurance (e.g., professional malpractice; general

liability)

5. “Hello, meet my future ex-spouse”

6. Someone with a matter that is pending, threatened

or expected (one or more legitimate planning

options often do exist)

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WHAT IS INTEGRATED

ESTATE PLANNING?

The result of the marriage between

traditional estate planning and

lifetime asset protection planning

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WHAT IS THE LIFETIME ASSET PROTECTION

COMPONENT OF

INTEGRATED ESTATE PLANNING?

Real

Estate

Jewelry, Art

& Antiques

Life Ins.

Proceeds Business

Interests

Bonds

Stocks

Liquid

Assets

The process of organizing one’s assets and affairs in advance

so as to preserve the estate in view of risks to which the assets

are subject

IEPT

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WHAT THE LIFETIME ASSET PROTECTION

COMPONENT IS NOT:

Not an excuse to evade or avoid taxes

Not based on hiding assets

Not a justification for fraudulent transfers

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IMPORTANCE OF PROPER TIMING FOR THE

ASSET PROTECTION COMPONENT

3 LITTLE WORDS:

Pending, Threatened or Expected

Any Outstanding Judgments?

3 MORE LITTLE WORDS:

Civil, Criminal, Ethical

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WHY INCORPORATE THE LIFETIME ASSET

PROTECTION COMPONENT?

Expanding theories of liability

Risk of a jury of someone else’s peers

The legal system can be used for legal extortion

Provide incentive for an earlier and cheaper settlement

Have some offense in the defense; tilt the playing field

back to neutral if not to one’s favor

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Knock the wind out of the sails of the economic pursuit

Remember, it is better to plan and look ahead than to look

back and regret

Ultimately come out ahead in the event of a challenge by

an adversary

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GOALS OF THE ASSET

PROTECTION COMPONENT

To win every motion, every hearing?

To cause the adversary to run off, tail between its legs?

OR, to have the client and the IEPT weather a claim at

least moderately better than if there had been no

planning....

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FOUNDATIONS OF THE ASSET PROTECTION

COMPONENT OF INTEGRATED ESTATE

PLANNING

Property is either MORE or LESS vulnerable to creditors,

depending on how title is held

In general, creditors can only collect against what one

owns, not what one formerly owned

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PROTECTION

vs.

FLEXIBILITY TRADE-OFF

1 10

1 10

Protection

Flexibility

(i.e., Benefit & Control)

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THREE TYPICAL CLIENT GOALS FOR THE

ASSET PROTECTION COMPONENT OF THE

INTEGRATED ESTATE PLAN:

1) Protection

2) Flexibility, via Degrees of Benefit

3) Flexibility, via Elements of Control

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FUNDING CONTINUUM

nest egg in toto

Some clients fund a small percentage of the

overall estate (a “nest egg” approach); others a

greater level of funding (more of an “in toto”

approach)

A “greater level of funding” is more likely to lead to

fraudulent transfer issues

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ENGEL LADDER OF

TOOLS FOR


Expatriation

Foreign Situs IEPT

Stiftung - Civil Law Foundation

Hybrid Company

Domestic IEPT

Limited Partnership, LLC, etc

Insurance

Foreign Annuity

Exemption Planning

Joint Ownership

Gift Giving

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WHAT IS MISSING FROM THE ENGEL

LADDER…and WHY?

Secrecy; Hiding Assets

Going Offshore for Income Tax Advantages

Disclaimers

Retirement Plans

Corporations - domestic; foreign; bearer shares

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USING ASSET PROTECTION TO YOUR

PROFESSIONAL ADVANTAGE

Many clients of means will expect you to be knowledgable

Door opener for potential clients you may have difficulty

otherwise accessing

Bonding with current clients; opportunities for additional

projects

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WHAT IS A ...TRUST?

An English Common Law Concept Dating

Back 1,000 years

Separates Legal Title and Beneficial Title

Generally Only Known in English Common

Law Jurisdictions

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Please Note:

• The planning concepts presented herein have been simplified in the interest of

facilitating an understanding of the basic concepts involved in integrated estate

planning.

• It is assumed that the planning structure which follows is implemented at a time

when the client has no claims pending, threatened or expected; that the client

has no outstanding judgments; and that following all property transfers, the client

remains solvent and able to pay his or her reasonably anticipated debts as they

become due.

• The integrated estate planning structure depicted on the following pages is a

sample structure only. The design of any given plan is a function of the goals and

needs of the client and the particulars of the client’s own situation, and the plan

must be tailored accordingly. Planning of this nature is case specific and fact

intensive.

MODEL FOREIGN SITUS

INTEGRATED ESTATE PLANNING STRUCTURE:

AN OVERVIEW

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Note 1: By definition the 1% general partner has full control over the

FLP and its assets

Note 2: By definition the 99% limited partner has no control over the

FLP and its assets

FLP

client

client

1%

g.p.1

99%

l.p.2

STEP 1:

Client Creates Domestic

Family Limited Partnership

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STEP 2:

Client Creates (“Settles”) an

Integrated Estate Planning Trust

IEPT client “Settlor”

Domestic Trustee3

Protector4

Beneficiaries5

Note 3: The domestic trustee can outvote the foreign trustee in most

situations

Note 4: The client (the “Settlor”) is often the Protector. The Protector

usually has the ability to remove and replace trustees and to veto

various decisions of the trustees

Note 5: The beneficial class often includes the Settlor, the spouse of the

Settlor, children of the Settlor, one or more charities designated by

the Settlor, and others

Foreign Trustee

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STEP 3:

Client Gifts the Limited Partner’s

Interest to the Trust

IEPT

FLP

99% l.p.

client 1%

g.p.

client

“Settlor”

Beneficiaries

Protector

Domestic Trustee

Foreign Trustee

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STEP 4: Funding

FLP client

cash

stocks

bonds

managed account

art

antiques

collectibles

IEPT

99% l.p.

client

“Settlor”

Beneficiaries

Protector

Domestic Trustee

Last Will

Note 6: The integrated estate plan will involve a Last Will that upon the death of the

client pours-over the client’s residuary estate to the IEPT. Other

conventional estate planning documents will also be involved (i.e., a

durable power of attorney, a health care proxy, and a living will). Other

planning tools will be integrated in the appropriate cases (e.g., a QPRT, a

CRT, a CLT, a Family Foundation).

1%

g.p.

Foreign Trustee

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STEP 5:

Multiple Entities Considered7

Note 7: Multiple entities are utilized to diversify terms and provisions; to

diversify foreign jurisdictions and foreign trustees for additional

protection; to isolate low or no risk assets (e.g., cash, stocks,

bonds) from higher risk assets (e.g., real estate, airplane, boat);

and to increase options should a threat develop.

IEPT2

S-Corp

Foreign Trustee Domestic Trustee

Protector

Beneficiaries

client

“Settlor”

100%

LLC2

commercial

warehouse

IEPT1


Protector

Beneficiaries

client

“Settlor”

99% l.p. 99% member

LLC1

apartment building

FLP1

cash

stocks

bonds

managed account

art

antiques

collectibles

1%

g.p. client

1%

Mgr. client

1%

Mgr. client

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Step 6:

Consider Separate Protection

For the Business or Investment Entities

Planning to protect individually held assets does not necessarily result in the

assets of a business or of an investment vehicle also being protected. This

“second-tier” or “Level 2” planning may involve a combination of various

techniques such as:

• A trust being settled by the active company, naming the company

and/or its owners as the beneficiary(ies);

• An LP in which the company is a 99% limited partner, and to which

liquid assets can be contributed;

• An LL in which the company is a 99% member and to which real

estate is contributed;

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• A distribution of accumulated liquidity not otherwise reasonable

required in the normal course of business;

• A divisive reorganization to segregate various assets from company

activities considered to be more risky than others;

• An “equity strip” by which the equity in the company is liquefied (as

opposed to liquidated), with the proceeds then being protected

through one or more of the other techniques (which “equity strip”

technique is particularly well suited for accounts receivable and notes

receivable); and

• A sale of company assets to a leasing company owned by the client’s

IEPT, with a subsequent leaseback to the company of the purchased

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STEP 7:

Liquidation of Underlying Entity8

Note 8: If and when necessary, the foreign trustee will have the power to implement a

protective measure by which assets held in a jurisdiction in which a threat has

developed can be removed from that jurisdiction and diversified into a safe

location.** Under this strategy the domestic trustee is fired by the foreign trustee

and the foreign trustee liquidates the underlying entity. As a result of the

liquidation, 99% of the assets held in the underlying entity(ies) are upstreamed to

the IEPT and repositioned by the foreign trustee.

Upon the particular threat dissipating, the foreign trustee can reappoint one or more

domestic trustees and reestablish the underlying entity(ies).

**Trustees have a fiduciary duty to protect trust assets from unnecessary exposure to risk of loss.

In re Matter of Joseph Heller Trust, 613 NYS2d 809 (Sur. 809)

IEPT

client/general partner

1% of assets

side-streamed to

client/general partner

99% of assets

upstreamed

to IEPT


Protector

Beneficiaries

?

FLP

Foreign Trustee

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PRIMER ON CONTEMPT LAW:

* The Rule: The Impossibility of Performance Defense

* The Exception: The Self-Created Impossibility

* The Exception to the Exception: Link or Nexus in Time to

the Court Order

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The Self-Settled Trust Aspect

* What is a self-settled trust?

* Are self-settled trusts valid trusts?

* Are self-settled trusts protective?

* What states have specific asset protection trust-style

legislation? What foreign jurisdictions? See

comparative grid

* How to obtain protection in a state without asset

protection trust-style legislation? Consider the

discretionary trust

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Concept of the Discretionary Trust discussed -

Restatement of Trusts 2d Rule: A creditor of the settlor-

beneficiary can access 100% of what the settlor-beneficiary

could receive in trustee’s discretion

This rule applies whether or not the settlor-beneficiary has

ever received a penny from the trustee of the trust

This rule does not apply to the interest of a non-settlor-

beneficiary

As to the settlor-beneficiary, for protection consider

restricting the circumstances under which the trustee can

exercise discretion in favor of the settlor-beneficiary

If the circumstances do not exist at the relevant time, then

because the settlor-beneficiary cannot receive anything,

neither can the creditor of the settlor-beneficiary - and

protection results 34

Advantages

of

Domestic

Trust

Foreign

Trust over

Increased Ability of Settlor to Retain

Benefit and Control

Foreign Trust Less Likely to be an

Automatic Target in Litigation Against

Settlor

Foreign Element will Impact a Creditor’s

Decision Regarding Chasing Assets

Foreign Element Ultimately More

Protective

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ADVANTAGES OF FOREIGN IEPT OVER

A DOMESTIC IEPT

Comity issues favor foreign trusts (“comity” concerns

recognition of court orders and judgments from one

jurisdiction to another)

Avoidance of issues concerning federal law pre-

empting state trust law

Increased ability of settlor to retain elements of benefit

and control

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Foreign trust less likely to be an automatic target in

litigation against settlor

Foreign element will impact the decision concerning how

far to go in chasing assets

Foreign trusts ultimately more protective

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SO...DOES ASSET PROTECTION WORK?

YES - Reference should be made to (i) the goals of the planning,

and to (ii) how the client would have landed in the absence of

planning

Many variables impact each situation. Phony liens can “work,” as

can last minute transfers - so imagine the favorable potentials

under a proper planning structure.

Remember...an adverse ruling does not necessarily put $$$ in the

adversary’s pocket

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EACH OUTCOME IS CASE SPECIFIC AND FACT

SENSITIVE

MANY VARIABLES IMPACT THE ULTIMATE RESULT

Goals of the Client

Facts Particular to the Client’s Situation

The Manner and Extent to Which the Goals Are or Can Be

Incorporated Into the Plan

The Skill With Which the Plan was Crafted and Implemented

The Mix of the Assets Held in the Planning Structure

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The Settlor’s Own Desire and Ability to Sustain in Litigation

The IEPT’s Applicable Law – Thorough? Protective?

The Abilities of the Defending Trustee(s)

Whether the Adversary is a Governmental Instrumentality

Whether Criminal Sanctions Could Result From Protective Measures

The Skill With Which the Plan is Attacked

The Skill With Which it is Defended

The Law of the Forum Court

Any Biases or Bent of the Presiding Judge

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OTHER COMMON PRACTICAL APPLICATIONS OF


Fire insurance for the estate (or a percentage thereof)

Replacing or supplementing liability insurance

Planning motivated by a current problem - protect should something else happen down the road

International diversification for investments/currencies

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COMMON PRACTICAL APPLICATIONS OF

INTEGRATED ESTATE PLANNING, cont.

Segregating assets from risks associated with future

transactions

Protecting proceeds upon sale of a business or

professional practice

Premarital planning

Protecting fruits of future business opportunities

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COMMON PRACTICAL APPLICATIONS OF

INTEGRATED ESTATE PLANNING, cont.

Protecting an inheritance

Additional protection for retirement benefits

Protection from business or investment activities outside main area of work

Strategic positioning for a current concern or a current problem.......be careful!

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LEVEL I PLANNING

Distinguished From

LEVEL II PLANNING

LEVEL I - Planning for individually held assets (e.g.

planning to protect one’s equity in the family business)

LEVEL II - Planning to protect the business itself (as well as

the professional practice...as well as real estate holdings)

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BARRY S. ENGEL, ESQ.

INTEGRATED ESTATE PLANNING SERVICES:

Receive and analyze integrated estate planning cases

referred, which are accepted in the appropriate situations

and are often co-counseled with the referring attorney

Expert witness services - trust law and related matters

Protective measures / assist in defense and protective

measures in case of a threat or an attack

Analyze the potential for asset recovery against wrongfully

funded planning structures

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offshore asset protection trusts: structuring foreign trusts...

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