sovereign confidential - amazon web services · sovereign confidential ... indeed, real estate is...
TRANSCRIPT
www.sovereignsociety.com July 2015
Sovereign Confidential
— Your Guide to Rogue Freedom & Bold Prosperity —
Lawyer-Proof Your PropertiesBy Ted Baumann
I like to bowl tenpins. It’s an old-school activity that’s starting to make a comeback in the U.S., thanks to the “hipster” generation’s reverence
for everything “vintage.”
But cultural cachet isn’t the reason I like bowling. And I’m not sure I qualify as vintage just yet.
I like it because I like throwing things. I enjoy knocking things down, blowing them up or shooting them full of holes. Maybe it’s a male thing. Whatever the reason, since my rural childhood on Maryland’s Eastern Shore, where I could indulge such habits, I’ve been partial to knocking things into other things.
Bowling has a special attraction, though, because of the physics involved. Your target is a collection of disconnected objects. If you hit the pins the right way, the first ones to fall topple other ones. A strike is a sequence of events in which a single blow causes an entire set to collapse.
Now, when it comes to your real estate holdings . . . would you rather be the ball or a pin? Are your properties just pins sitting at the end of an alley waiting for another pin to knock them down?
Without a properly designed asset protection plan, they may well be.
The Hidden Risks of PropertyIn discussions with Sovereign Confidential
subscribers by email, at our conferences or on one of
our special calls, I’ve learned that many people have
invested much of their wealth in U.S. real estate.
Indeed, real estate is one of the safest long-term
investments you can make — they don’t say “safe
as houses” for nothing — and there have been
opportunities galore to acquire it cheaply since the
financial meltdown of 2008.
I have taken advantage of those opportunities
myself. I bought one house for about $15,000 that’s
now worth a quarter of a million, and another that has
tripled in value in just four years.
A typical property portfolio might include
one’s home, a vacation home, a parcel or two of
undeveloped land and perhaps some houses and/or
apartments put out to rent.
Such a portfolio generates wealth by value
appreciation on some properties, and boosts your
current income by rentals and the associated tax
write-offs.
Whatever your personal strategy, the value of your
property probably constitutes a big chunk of your net
worth.
9 | The Market That Won't Melt Down
ByGeoffAnandappa
13 | The Constant Struggle for Liberty
ByBobBauman
11 | Using an IPM to Preserve and Grow Your Wealth
By Rob Vrijhof
Inside This Issue
July 2015 2 www.sovereignsociety.com
And every one of those properties is a bowling pin poised to get knocked down, and it will take the others down with it — such as your vacation home, or even your retirement savings — when that bowling ball comes rolling down the lane.
What is that bowling ball? A real estate crash? A natural disaster? A fire?
None of the above . . . I’m talking about a lawsuit.
One lawsuit can ruin a person’s life. And they are a very real threat.
In his book, Lawyer-Proof Your Life, my father Bob Bauman states that 70% of the world’s attorneys are located right here in the United States. The numbers are staggering: Every day 41,095 Americans are hit with a lawsuit. That means that every hour of every day, over 1,700 people are being sued.
But here’s the great news.
There are simple steps you can take right now to prevent your properties from toppling over. You just have to put a plan in place. And you need to do it immediately, if you haven’t already done so.
As the saying goes, once the horse has bolted, closing the barn door will make no difference.
I can’t stress this enough, if you have assets of any reasonable size or no assets at all — you need to act now. Let me show you why.
If Frank Lost Everything, So Can You
Based on the figures above, you have a 10% chance of being sued in any given year. One year it was Frank’s turn.
Frank inherited some farm and other property from his dad, acquired some during his career in the Navy and bought some more when he retired. He was in the habit of buying a house to live in when stationed for a few years in places like Hawaii, Southern California or Norfolk, then rent them out to fellow officers when he was reassigned. That way he augmented his service income and built a nest-egg for his retirement and his kids’ future.
As a landlord, Frank was legally expected to take “reasonable care” to ensure that his properties were safe and secure from “foreseeable” threats to tenants. That wasn’t always easy to do, especially when he was on sea duty. Sure enough, during a cruise to the Persian Gulf, a guest of one of his tenants — a civilian — was injured when a set of wooden basement stairs collapsed, resulting in the amputation of one leg above the knee.
The guest sued, and Frank was held personally liable for his medical costs and damages … all because of some rotting wood. The damages award significantly exceeded the value of the house in question, and the court ordered that several of his other houses and some of his pension funds be liquidated as well.
“Reasonable care.” “Foreseeable threat.” Terms like those are catnip to trial lawyers — those guys who set up billboards on highways to drum up business and have phone numbers like 1-800-INJURED. If a plaintiff’s attorney can convince a jury that you’ve failed to exercise reasonable care — that you’ve been “negligent” in looking after your property — you’re in big trouble.
Like Frank.
Ted Baumann is the editor of the
Plan B Club, a blueprint to help
protect your wealth and escape
excessive taxation, regulations
and wealth confiscation in
America. He is also the editor
of Sovereign Confidential, a
newsletter that’s brimming
with up-to-the-minute asset
protection strategies, tips
on buying and investing in real estate abroad, and
retirement and residency secrets in American-friendly
countries around the globe. Ted has been published
in a variety of international journals, including the
Journal of Microfinance, Small Enterprise Development and
Environment and Urbanization. Email Ted your thoughts
and questions at [email protected].
About Ted Baumann
www.sovereignsociety.com 3 July 2015
A Personalized Asset Protection Strategy
To beat this threat, savvy property investors adopt
an asset protection strategy.
Imagine a scenario where that bowling ball comes
flying down the lane, but the pins are shielded from
each other. It’s as if there were a force field between
each of them and the others. The most that can be
knocked down is one pin — and is some cases, it’s
nearly impossible to knock any of the pins down no
matter how well the ball is bowled.
With the right asset protection strategy, that
scenario can be very real.
An asset protection strategy involves legal
techniques to shield your wealth from creditors’
claims and lawsuits. It’s based on three principles:
1. Segregate yourself from your assets. You want
an impermeable “veil” between you and your assets.
Your property should be held in a legal structure that
you control, not in your own name. That way they
can’t be touched to enforce any claim against you as
an individual. And any claims against your property
— like Frank’s house with the dodgy basement steps
— can’t harm your personal assets.
2.Behardtofind(legallyspeaking). Your asset
protection structure should be registered and
operated in such a way that your ownership of it
is hard to discover without prohibitive expense
and effort. That will discourage frivolous lawsuits.
Complete anonymity is impossible, but the harder it
is to find you, the more money a lawyer will require
upfront from a litigant looking to sue you.
3. Match your strategy to the circumstances.
There’s no one-size fits all. If you’re primarily
interested in protecting U.S.-based real estate from
lawsuits, a U.S. legal vehicle is just as effective as an
offshore one.
Remember, even if you vest ownership of your
property in the name of an offshore asset protection
trust or company, U.S. real estate will always be
vulnerable to seizure from U.S. courts because it sits
on U.S. soil.
Your Solution: Form a Limited Liability Company
(ButNotJustAnyLLC)One inexpensive and easy-to-achieve U.S.-based
strategy is the Limited Liability Corporation (LLC).
An LLC is like any corporation. It has a separate
legal identity from its owners. Any liabilities incurred
by the LLC are for it alone, and do not pass on to you,
the owner. If an LLC is sued, the most a claimant can
get is the net value of the LLC — its assets minus its
liabilities. And even that can be incredibly difficult for
a creditor to achieve.
LLCs can be formed in most U.S. states. Property
anywhere in the U.S. can be owned by any LLC in
any state — they don’t have to be the same state. A
vacation home in Florida, for example, can be vested
in the name of an LLC formed in Wyoming. Since LLC
laws vary from state to state, that allows you to shop
around for the best mixture of asset protection, cost
and privacy.
One of the most attractive features of LLCs is that
many states offer what’s known as “charging order”
approach to lawsuits against owners of LLCs. A court
in a state that offers only the charging order remedy
prevents the member of the LLC from losing the
investment assets within the LLC if he or she gets
sued personally. A charging order is basically a lien on
the sued member’s interest, but one that only comes
into play if funds are distributed out of the LLC. If that
happens, the holder of the charging order is entitled
to the grab the distribution. But charging orders
don’t allow the holder to participate in the LLC to
force the distribution. That way assets held in an LLC
can be held safely indefinitely — which is powerful
disincentive to sue someone to get what’s in their LLC.
Some property investors rely on landlord’s
insurance to protect them, thinking it can protect
them against a lawsuit. That is false. Landlord
insurance covers claims only up to a certain amount,
but an LLC can’t be held liable for anything over
and above the value of its own assets. And an LLC
is actually cheaper in many cases than comparable
insurance coverage.
July 2015 4 www.sovereignsociety.com
LLCs are much better than landlord’s insurance for protecting against liability arising from the property inside the LLC, too, as in Frank’s case.
Consider the case of one couple I know personally, who rented out a property and were hit with a lawsuit when a workman hired by his tenants — without their knowledge or consent — was killed when a garden retaining wall collapsed on him. They were in the mid-30s, with two young kids, living a few years on the west coast for work reasons, and renting out their home here in Atlanta in the meantime.
The couple had a landlord policy that included $1 million in liability coverage. That cost them $1,500 a year. They had $2 million in umbrella liability insurance for an additional $600 a year, taking their total liability coverage up to $3 million, at a cost of $2,100 a year.
But the workman’s family sued successfully for $5 million.
Because of this, the couple not only lost their property — they were forced to sell their own home and to liquidate a large proportion of their retirement savings as well. An LLC structure, on the other hand, would have forced the plaintiff’s attorney to settle for the value of the property at most. And it would have cost them only a few hundred dollars a year.
An LLC . . . Warren Buffett Style But there’s a scenario that even the ordinary LLC
can’t prevent. If your properties are like a set of bowling pins — all housed under one LLC — you could lose them all in the event of a large lawsuit against any one of them.
That’s because there’s nothing to stop a court from ordering the liquidation of any property held in an LLC’s name to satisfy a judgement against it . . . even if the property had nothing to do with the judgement in question.
For example, if Frank had had all of his properties in a single LLC, the judge could have attached his other properties to settle the guest’s claim against the one property that injured him. The only advantage of an LLC in this case would have been that Frank’s
personal pension would be safe, since it was shielded by the legal “veil” between him and the LLC.
One way to prevent this scenario would be to form and maintain a separate LLC to hold each property in your portfolio. That way only the assets owned by a specific LLC would be subject to claims or lawsuits arising against that LLC.
The problem is that the costs and administrative burdens associated with properly forming, registering and maintaining several separate LLCs can be substantial. Here are the things you have to do for each LLC in any state:
● Choose an available business name that complies with state LLC rules.
● File paperwork with the Secretary of State, usually called “Articles of Organization,” and pay a filing fee (ranging from a few hundred to about a thousand dollars).
● Appoint and compensate someone resident in the state where you form your LLC who can receive official communications — the “operating agent.” This is often the attorney who helps you set it up.
● Appoint “members” to the LLC — the people who control it. This is usually you and one or two other people you trust completely, such as a spouse, attorney or relative. (You can have a single-member LLC, but many courts disregard these when it comes to personal liability, so I don’t advise it.)
● Create and file an LLC “Operating Agreement,” which sets out the rights and responsibilities of the LLC members.
● File annual regulatory reports and state and federal tax forms, and comply with other state and federal regulatory requirements as needed.
For one LLC, that’s not such a big deal. But for three, four, even six . . . that’s a lot of expense, paperwork and hassle. For example, if you formed a single LLC that owned a number of other LLCs — so called “parent and subsidiary” set-ups — you’d still have to do all the paperwork associated with each LLC.
But there’s a special type of LLC that functions like a the portfolio holding company, where an umbrella
www.sovereignsociety.com 5 July 2015
firm like Berkshire Hathaway owns others that are legally independent and do not share liability. You can put Warren Buffet’s strategy to work for you.
That’s because some states allow you to form an LLC that has multiple “series.” Each “series” can own distinct assets, incur separate liabilities and have different managers and members. A series LLC pays a single annual state fee and often files one set of official reports each year.
Most importantly, liability incurred by one series doesn’t cross over and jeopardize assets titled in or allocated to other series of the same series LLC. A lawsuit brought by a tenant of one property cannot threaten other properties under other series — even though they are owned by the same LLC. In Frank’s, his properties would have been like bowling pins with a force field around each of them.
The legal doctrine of “limited internal liability” provides that the debts, liabilities, obligations and expenses relating to a particular series — whether contractual or in relation to lawsuits — are enforceable against the assets of that series only, and not against the assets of the LLC or any other series, on two conditions:
1. The Operating Agreement of the LLC includes an “enabling statement” allowing series; and
2. Separate and distinct records are maintained for the series, and the assets of the series are held and accounted for separately from the other assets of the LLC and any other series.
The series LLC sounds radical, but it’s really just an extension of standard legal practices in the corporate sector. The basic concept was first introduced to help the mutual fund industry avoid filing multiple Securities and Exchange Commission (SEC) filings for different classes of funds. SEC filings would all be under one corporate umbrella, but each individual fund’s activities could still be conducted separately — separate profits, separate losses.
How It WorksThe goal of a series LLC is to create an “internal
veil” similar to the “veil” between you and the LLC
itself — the basic goal of an asset protection strategy.
Let’s say you decide to transfer title of your six
properties in four different states into a single serial
LLC. You form the LLC, the founding document of
which includes an “enabling statement” allowing
series. Then you create six series, one for each
property, each with a separate name (or letter or
number). Each series is governed by its own Operating
Agreement specifying who does what — the rights
and responsibilities of members and managers
toward that specific series. You then open a separate
bank account for each series, so you can keep the
operations of each series separate from the other
series. You also keep a separate set of records for each
series.
From then on, anything you do for the property
held in a given series — contracts, deeds, rental
agreements, maintenance and renovation expenses,
etc. — is in the name of that series, not the LLC. For
example, you might register and rent a beach house
in north Florida under “Blackdesk LLC, Flagler Series
only.” You then submit a registration form to the
office of the Secretary of State along with a filing fee
to register this specific series — not the LLC itself
— as a “foreign” (i.e. out of state) LLC. As an added
measure, you could file a fictitious business name
statement in the county where the property is located,
using that designation. Both of those steps establish
that the property contained in the series is not legally
linked to any other properties, but stands alone.
Operationally, it is important that the series be
genuinely independent from each other, lest a court
rule that they are a sham. Any transactions between
series, such as transfer of property from one to
another, must be conducted in an “arm’s-length”
manner, at fair market prices, using documented
appraisals from independent third parties. Any loans
between series must also be properly documented.
That reinforces the notion that they are truly separate
operations.
Any member or manager of a series LLC can
be associated with some, but not all, of the series
contained in the LLC. For example, you might have
specific members or LLC managers who live in the
July 2015 6 www.sovereignsociety.com
states where a specific series’ property is located. If
you choose to do that, you must take care to ensure
that these members or managers have properly
documented authority to act on behalf of that
series, and not the others. All this can be done in the
Operating Agreement or in the documents creating
each series.
YourLLCPaysNoTaxWhat about taxes?
If you own 100% of your series LLC and each
series is owned 100% by the LLC, with no partners,
you can treat each series as a “pass-through” or
“disregarded” entity. That means the LLC and
its constituent series pay no income tax directly,
although they do have to submit a federal return.
Instead, the profit from each series “passes through”
to you as personal income, and you pay taxes on it at
individual rates.
U.S. Code 26 CFR 301.7701-1 provides that each
series in an LLC is treated as a separate entity for
tax purposes, regardless of whether the series is
considered legally distinct under local law (as in the
Florida example above). That means you file state tax
returns (if applicable) for the series holding property
in that state only. (Prior to that, some states tried to
tax the entire LLC on the operations of all its series,
even if the some of the properties in question weren’t
located in the state.)
Location, Location, LocationThe first state to adopt the series LLC was
Delaware in 1996. Since then numerous states have
done the same, albeit in different ways. The District
of Columbia, Illinois, Iowa, Kansas, Minnesota,
Montana, Nevada, North Dakota, Oklahoma,
Tennessee, Texas, Utah, Wisconsin and Puerto Rico
all have adopted provisions for series LLCs.
Only three — Delaware, Nevada and Montana —
allow the formation of separate LLC series without
the legal rigmarole of registering each one. Overall,
I recommend Delaware as your jurisdiction of choice
for a series LLC. Let me explain why.
CLARITY
Delaware law has always been exceptionally friendly to the formation of corporations of all types. Delaware is like a small foreign country that seeks to encourage business by making its laws investor-friendly. It works hard to maintain this reputation and is unlikely to change its laws unless there is a compelling reason. That’s a good thing, because it increases your security.
Initially, Delaware series LLC law didn’t clearly state that each series could sue, enter into contracts and be sued on its own, without the entire LLC being named in the lawsuit. But the Delaware legislature soon clarified that a series can enter into contracts, hold title to assets, grant liens and security interests and sue or be sued separately from the rest of the series in an LLC. That’s what you want — internal “veils” between the series
In Delaware, Nevada and Montana, the procedure for adding and deleting LLC series is uncomplicated. You can form or dissolve additional series without any public filing by simply amending the LLC’s “operating agreement” — something you can do with an attorney. By contrast, some states (such as Illinois) have restricted your rights to create new series by requiring a public filing when you do. This eliminates some of the savings of a series LLC. Illinois also doesn’t treat series as separate entities or allow them to enter into contracts or sue or be sued … which doesn’t help much.
PRIVACY
One of the great benefits of using a separate legal identity as an asset protection strategy is that you can make it very difficult for a potential litigant to identify who actually owns and controls your LLC. Some states, such as Delaware, Nevada, Wyoming, Alaska and New Mexico, don’t require the identities of an LLC’s members and managers to be listed on the public register of companies.
Now, complete anonymity is impossible — don’t let anyone trick you into thinking otherwise. For example, because of the “pass-through” tax status of LLCs, a determined adversary could theoretically
www.sovereignsociety.com 7 July 2015
find out that an LLC’s income is paid to you by going to the IRS for public tax records. And if you are asked by a court under oath to state your assets, you must include any LLCs that you control.
But such strategies of discovery are expensive and time-consuming. The point of legal asset protection is to make it difficult to identify you — so difficult that a litigant, or (more likely) the litigant’s attorney, will do their sums and decide that their lawsuit isn’t worth it. That’s why Delaware and Nevada are the two states with series LLC laws that pass muster — Montana doesn’t offer the same protections.
But Google Says It’s Too Good to Be True!
If you Google series LLCs, you’ll find plenty of people who warn against series LLCs on the grounds that they are too new and untested in states’ courts to be reliable. They’re usually attorneys who make money by forming and managing stand-alone LLCs and for whom series LLCs are therefore a threat.
The question of reliability arises because LLCs are governed by state, not federal, law. If you create a series LLC, will the separate series and internal liability protection be respected in the state where the property is located, even if that state doesn’t have statutes allowing for series LLCs? There isn’t any case law on the question yet. It also isn’t clear whether a series is a “person” with the right to file a bankruptcy petition separate and apart from the LLC and its other series. Finally, many banks aren’t familiar with series LLCs, and you may have to search for one that is comfortable opening different bank accounts for each series (although your attorney can do that if he or she is familiar with serial LLCs).
On the other hand, tax treatment of series LLCs is much clearer. The IRS has stated that the federal tax classification of each series — i.e., whether it is a disregarded (pass-though) entity, partnership or taxable association — is determined for each series as an independent unit (Private Letter Ruling 200803004, January 18, 2008). This led to a number of state tax rulings that reinforce the independent nature of series:
● California: The Franchise Tax Board has taken
the position that if each LLC series is recognized
under the laws of the state where the series LLC was
formed, then each unit will be treated as a separate
entity for registration and tax purposes. Although
that defeats the cost-saving intention of a series LLC
when it comes to multiple properties in California,
it is a powerful legal statement that the individual
series of serial LLCs are, in fact, separate business
entities with distinct assets and liabilities.
● Florida: The Florida Department of Revenue
follows the federal income tax treatment of the series
in a series LLC, unless that treatment conflicts with
Florida law.
● Massachusetts: The Department of Revenue
concluded that the Massachusetts rules for classifying
an LLC extend to a series established and governed
pursuant to the Delaware LLC statutes.
● NewYork: The New York Department of Taxation
and Finance has held that individual series have
the same tax status under New York law as they do
under federal income tax law — i.e., they are separate
entities.
● Tennessee: Like California, the Department of
Revenue held that a series LLC was required to file
separate franchise and excise tax returns for each
individual series rather than a single Tennessee
return, because the clear intent of the law was for
each series to be treated as a separate entity for
purposes of tax.
● Texas:A series is considered a single taxpayer.
Many attorneys take these developments as a
strong sign that state courts will be reluctant to
rule against individual series even if serial LLCs
aren’t allowed under the laws of the state where the
property is located.
Indeed, state courts go out of their way to respect
each other’s laws, and only overrule them in the most
egregious cases.
For this reason, I believe the efficacy of serial LLCs
for the purposes of real estate liability protection
comes down to two things:
July 2015 8 www.sovereignsociety.com
1. The character of the operations of each series: If the law of the state under which you formed a serial LLC says you have to do certain things — like maintain separate records and keep separate finances for each series — and you do this diligently; then, courts in that state have no reason to second-guess your intentions. Courts in other states would look at this matter carefully from the perspective of the
other state’s laws and would be loath to disagree.
2. The quality of notice given to potential creditors
that a series is a separate entity: Above I mentioned several steps that you should take when establishing a series to hold a property in a state other than the one where you registered the series LLC. You register the series, not the LLC, with the state as a “foreign” LLC. This may involve a filing fee and in some cases, an annual maintenance fee. You also tell the county deed office where the property is located that it is titled in the name of the series — NOT the parent LLC. Your lease agreements, utility bills and other contracts are similarly titled. Finally, lease agreements with tenants specify the series as the owner of the property and that it is subject to the
laws of the state where your serial LLC is registered.
If you do those things, you have told the entire world in no uncertain terms that your property is legally distinct from any others in the parent LLC, and that it is the only asset potentially attachable in a lawsuit. A court would have to violate practically every rule of interstate legal ethics to go against that.
There are also encouraging developments on the legal front.
● The U.S. Court of Appeals for the Fifth Circuit ruled on the appeal of a lawsuit (Alphonse v. Arch Bay Holdings, LLC) from the U.S. District Court for the Eastern District of Louisiana in which a litigant challenged the independence of a Delaware LLC series that held the mortgage on his home. The Federal court ruled that the litigants should have sued “Arch Bay Holdings, LLC, Series 2010B” since it was the legal entity holding the mortgage under Delaware law.
● A joint task force of the American Bar association Tax Section’s Partnerships and State & Local Tax
Committees submitted a comprehensive report both
to the Treasury Department and to the ABA Tax
Section in January 2104 recommending interstate
recognition of serial LLCs.
● The National Conference of Commissioners on
Uniform State Laws (NCCUSL) has mounted an
initiative to develop a uniform law for series LLCs
and for series in other business entities.
Conclusion
At Sovereign Confidential I look beyond the tried
and trusted solutions. I’m looking for cutting-edge
developments. Serial LLCs have moved a bit beyond
cutting edge, and are poised to become mainstream.
For the purposes of tax law, they already are.
My recommendation is that you seriously consider
a Delaware series LLC for your property holdings if
the following apply:
● You are a small or casual property investor who
can benefit from the reduced cost and complexity
of the series LLC form. Two or three properties,
especially if they are in the same state, could
probably use separate LLCs for each one. But larger
numbers of properties and properties in different
states are a good candidate for a series LLC.
● You, your attorney and your accountant are
conscientious and prepared to maintain and
document the operational distinctions between the
different series and properties in your LLC.
● You do not anticipate unusual risks to your
properties and are not aware of pending lawsuits.
Forming any type of LLC in anticipation of a lawsuit
renders the LLC meaningless to courts.
To further explore the benefits of a series LLC,
contact Council of Experts member Josh N. Bennett
JD. He can be reached at [email protected] or at
www.JoshBennett.com.
A series LLC is a great low-cost solution to a
problem that is facing more and more of us. Do your
research, consult a good attorney (as always) . . .
and let them bowl away at you. I’m convinced your
property pins will stay standing. n
www.sovereignsociety.com 9 July 2015
By Geoff Anandappa
WHEN it comes to asset protection, one of the
best strategies is to invest in collectible items
that retain their value over time. It’s a plus if those
assets appreciate well. Even better is the ability
to store these valuable assets
offshore in secure vaults that aren’t
subject to the same U.S. reporting
requirements as are bank and other
financial accounts.
What fits this bill? One such
asset is rare collectible stamps.
In 2013, a British Guiana One-
Cent Black on Magenta — the world’s rarest stamp —
sold for $9.5 million. That price eclipsed the previous
record of $2.2 million, set in 1996 for a different stamp.
Not bad for a stamp discovered by a schoolboy in his
grandfather’s papers.
Headline-making transactions such as these
have been popping up in the media with increasing
frequency. You could be forgiven for thinking that the
main action is concentrated in these multi-million dollar
items.
In fact, many categories of rare stamps — including
those at much more reasonable prices — have been
appreciating in value faster than almost any other
major asset class.
The company I work for, Stanley Gibbons Ltd. of
London, compiles an index of investment-grade stamps
based on our catalogs, which have been published
annually for over 140 years. The GB250 Index tracks
British stamps that are accessible to the average
investor. It has averaged 13% per annum growth over
the past decade, going up 18% during the 2008 through
2010 economic crisis while stock markets crashed and
property values crumbled (see the chart on page 10).
The GB250 Index demonstrates the value of
rare stamps as an asset protection AND investment
strategy. It shows consistent, stable returns that are
uncorrelated with mainstream asset classes, such as
stocks and bonds. When the latter tumbled in 2008
through 2009, the BG250 rallied.
The reason is simple: there are always more buyers
than sellers. Unlike art, antiques and U.S. coins, there
is relatively little investment money in stamps. Most of
the rarities are still owned by dedicated collectors who
hold on to them for years.
Now, many first-time investors in collectibles make
the mistake of concentrating their efforts on finding
the right stamp or antique or work of art, at the best
possible price. This is often their downfall, and many
have lost significant sums by dabbling in collectibles as
an investment.
Very few have the expertise to identify investment-
grade collectibles at auction. And even if they were
fortunate enough to buy the right item, most fail to
consider their exit options.
That’s where the specialist companies come in. They
should be able to advise you and offer you a number of
options, including selling at public auction, commission
The Overlooked Investment Strategy That Escapes Economic Crisis
n The Unfiltered Insider
In fact, many categories of rare stamps — including those at much
more reasonable prices — have been appreciating in value faster than
almost any other major asset class.
July 2015 10 www.sovereignsociety.com
n The Unfiltered Insider
TOTAL WEALTH SYMPOSIUM 2015
October 14-17, 2015 Atlantis Paradise Island, Bahamas
The Sovereign Society is heading to the Bahamas and you’re invited to join us. At the
TOTAL WEALTH SYMPOSIUM, we will help you discover the unvarnished truth about ʻ̒ going
offshoreʼ̓ and learn about some of the most-lucrative (and little-known) global investment opportunities. Keep in mind, seating is limited
and we are on track to sell out in advance. Looking forward to seeing you there!
Call 1-877-422-1888 to reserve your seat Or visit www.totalwealthsymposium.com
free; marketing the portfolio to their network of
collectors, on a profit share basis; or retaining the
portfolio for future generations.
Collectibles are generally a medium- to long-term
investment: three to five years or more. However,
some of collectible investment products can produce a
quick profit, which one can either take out as funds or
reinvest in other stamps.
So how much?
Well, the minimum investment Stanley Gibbons
recommends is $15,000. Of course, not all stamps will
appreciate at the same rate — some areas of collecting
may become popular and suddenly take off.
Companies like ours can help put together a
diversified portfolio of stamps from different countries
and periods. (Free insurance and storage, in our vaults
in Guernsey or Hong Kong, is also available.) n
Geoff Anandappa joined Stanley Gibbons in 2005 and works with investors, financial advisers, wealth managers and the media, providing guidance on alternative investments and diversifying into collectibles. Contact Geoff at [email protected] or +44 20 7557 4442.
500%
400%
300%
200%
100%
0
-100%1995 2000 2005 2010 2015
Performance of Stanley Gibbons GB250 Rarities Index
—— U.S. Dow Jones —— U.S. City Property —— GB250 Rare Stamp Index
www.sovereignsociety.com 11 July 2015
n Forbidden Knowledge
By Rob Vrijhof
A MERICAN investors often wonder how they can
invest safely in offshore markets, especially in
Europe. One method is to work with an independent
portfolio manager (IPM) who specializes in managing
an investment portfolio as well
as the banking arrangements you
need to invest offshore.
Let’s explore some of the
advantages of this approach:
1. Access to Investment Opportunities
You wouldn’t always know it
from the mainstream financial press, but international
investments have been huge winners in recent years.
At certain times, foreign stock markets outperform
the U.S. market by as much as eight times.
The problem is that in most cases you can’t access
these markets through a U.S. broker. Sure, a few
boutique firms specialize in international shares,
but to experience the full richness of international
markets, you need an offshore bank account so you
can invest directly.
That’s where a Europe-based IPM comes in
handy. Our firm, for example, has links to Swiss and
Liechtenstein private banks that offer all the services
you would expect from a full-service stockbroker.
Through them, you can purchase any security in the
world … not just those listed on a domestic exchange.
2. Protection Against a Sinking Domestic Currency
Even though it has been up in recent months, the
value of the U.S. dollar has declined over the past
several decades. How can you protect yourself from
potential loss in the dollar value of your investments?
Listening to late-night television, you might think
the only option is to trade high-risk foreign currency
options and futures. But there is a much easier, safer
and more conservative alternative — purchasing
shares and bonds denominated in foreign currencies.
Here’s an example: A few years ago, my firm began
purchasing short- and medium-duration bonds
denominated in Australian dollars (AUD) for our
clients. If you bought US$10,000 of AUD denominated
bonds at that time, your $10,000 would have
purchased AUD 11,000 of AAA-rated bonds, paying 6
% interest annually.
Over a period of five years these bonds — including
interest — would be worth AUD 14,720, which is a
gain of 33%. If you cashed out your bond investment
and converted back in to U.S. dollars, you would have
received $14,019 (less fees and commissions).
As a result of currency gains, your total five-year
return would be more than 40% and would have
performed better than shares. Of course, the Australian
dollar could have gone down against the U.S. dollar. But
in an uncertain economic environment, it makes sense
to diversify your currency holdings internationally. And
bonds denominated in foreign currencies are one of the
easiest and safest ways to do so.
3. Protection from Professional Liability and Other Claims
No doubt you have heard the story — sad but
regrettably true — about the burglar who injured
himself breaking into a home, then sued the
homeowners for his injuries. Or the woman who sued
How an Independent Portfolio Manager Can Help Preserve
and Grow Your Wealth
July 2015 12 www.sovereignsociety.com
n Forbidden Knowledge
a supermarket for negligence after tripping over her
own child … not to mention countless other examples
of frivolous lawsuits that plague the U.S. legal system.
More than 80% of the world’s lawyers practice in
the U.S. What’s more, U.S. lawyers file over 50,000
lawsuits each week. And each year, lawsuits cost the
U.S. economy more than $250 billion.
Many Americans rely on domestic laws and
instruments to protect their wealth from frivolous
lawsuits. However, there are considerable variations
between states, and some states provide little or no
protection.
The problem is that in most cases you can’t access these markets through a U.S. broker. Sure, a few boutique
firms specialize in international shares, but to experience the full
richness of international markets, you need an offshore bank account so
you can invest directly.
In contrast, asset protection laws in countries
such as Switzerland are usually enforced without
local variations. The bottom line: When someone
who wants to sue you discovers that your assets are
offshore, they will usually pursue an easier target.
4. Enhanced Privacy Protection
Your wealth, spending habits and almost every
other detail of your financial life is under scrutiny in
the U.S. Hundreds of websites advertise their services
in “tracking assets” and offer their services in locating
real estate, vehicles, even the balances of bank and
security accounts.
These services are effective at tracking only
domestic assets, however. The U.S. is one of the few
nations where it is legal for banks and other financial
services to disclose information about your accounts
without your permission and without probable cause
of wrongdoing. Many disclosures that would be illegal
in other countries are commonplace in the U.S.
As a result, the army of information brokers who
advertise their ability to uncover assets will not
be able to pry information out of an offshore bank,
particularly in countries such as Switzerland that
have strict bank secrecy laws. The prudent strategy
is to maintain a “nest egg” outside your country of
residence in an offshore area that is politically neutral,
and thus a less likely target for terrorist attacks.
5. Switzerland: Still Europe’s Best Financial Haven
Switzerland is the world’s most famous offshore
haven. A staggering one-third of the world’s private
wealth resides in Swiss banks.
What is Switzerland’s secret? There are several
factors: Switzerland’s long history as a financial haven,
the professionalism and integrity of its banks, and its
strict policy of neutrality and non-intervention.
Banks were established on Swiss territory in
the 16th century and Swiss banks were some of the
primary financiers of the industrial revolution. In
1815, Switzerland’s unique status as a banking haven
was acknowledged by international treaty. Over
the centuries, Swiss banking clients have contained
many of the world’s wealthiest individuals, including
virtually all of Europe’s royal families.
By creating an investment relationship with an
independent portfolio manager in a country like
Switzerland, you can access the world’s markets in a
way that just isn’t possible in the U.S. n
Rob Vrijhof, President of WHVP, leads a Swiss portfolio management service adhering to conservative principles of investment diversification and asset protection. WHVP is registered with the SEC to allow them to freely work with their American clientele, both from a long-distance as well as on a direct face-to-face basis. Contact him at [email protected]
www.sovereignsociety.com 13 July 2015
n Chairman’s Corner
By Bob Bauman JD
WHEN Hitler’s Wehrmacht invaded Poland on
September 1, 1938, I was only two years old.
I reached the age of reason in 1943, at seven years
old, a curious little boy growing up
in wartime Washington, D.C., far
removed from the horrors of World
War II in Europe. Yet I vividly recall
my father patrolling our street as
an air raid warden, sirens wailing
during night time black outs,
listening to Hitler and Mussolini
ranting on our RCA shortwave
radio, my parents’ grave concern when my brother left
to join the Army Air Force.
In my brother’s empty bedroom there was a cedar
chest that belonged to my father. In it I discovered my
Dad’s olive drab wool U.S. Army uniform he wore in
France during World War I, metals he earned and an
iron helmet.
But I also found several large rolled, parchment-like
documents. One was the U.S. Constitution, another, the
Declaration of Independence. But the third document
was a mystery to me, written in Latin.
Many years later, when I saw a reproduction of this
document, I realized that among my Dad’s souvenirs
was the Magna Carta, the basic charter of freedom for
the English speaking world. That famous document
celebrated 800 years on June 15 this year.
My father was an accomplished professional
musician. In 1917, seventeen year old Carl Bauman
of Catonsville, Maryland, lied about his age in order
to enlist in the Great War. In France he was handed
a bugle and told to learn bugle calls, the start of his
musical career.
Why, I wondered, would a bugle boy from
the Army’s 29th Division cherish these historic
documents, carefully preserved along with the
uniform he wore?
In retrospect, I must conclude that my Dad
understood the intimate connection between
his military service and the continuing battle to
preserve the basic freedoms that began with Magna
Carta. Indeed, the affixing of King John’s signature
on this document gave rise to the Declaration of
Independence and the Constitution, Dad’s other
cherished documents.
The influence that Magna Carta had on America’s
founding is told in an excellent article by the Cato
Institute’s Roger Pilon. Roger points out that the
Declaration became America’s Magna Carta, exalting
“our Creator” as the source of our natural, unalienable
rights.
Do the sacred documents I discovered as child still
have force and application in America; are we not also
ruled by despotic government that ignores our rights?
My friend Ronald Reagan famously observed:
“Freedom is never more than one generation away
from extinction. We didn’t pass it on to our children
in the bloodstream. The only way they can inherit the
freedom we have known is if we fight for it, protect it,
defend it…”
Let us hope and pray that Americans still love
liberty enough to fight for it, even when it means
opposing the despotism of our current rulers. n
Bob Bauman is a former U.S. Congressman from Maryland. He is an author and lecturer on wealth protection, offshore residence and second citizenship. Email Bob at [email protected].
The Constant Struggle for Liberty
July 2015 14 www.sovereignsociety.com
n Your Voice
oI learned of your service through the email from
Glenn Beck (sponsored message). Today I signed up
to receive your book, do research and understand the
benefits and knowledge you and your team provide.
In watching and listening to your video, you asked
to send an email with two items; 1. what is my No. 1
concern; and 2. what would I like to learn over the
next few months. Well, here goes. . .
1. My primary concern is to protect my assets and
generate passive income so my wife and I can have a
comfortable and active retirement. We’re both 57 and
have a bit of time before that, however, I would prefer
to retire closer to 62.
2. What I would like to learn the most is why
your service is better than others, and how I can
review, decide and execute on actionable items. I
have other services, but I do not like the flood of
emails — most are not actionable or beneficial, and
largely promotions or sales related. This is incredibly
annoying. I’m most interested in seeing if your service
allows me to quickly get to the key information and I
can see benefits and results.
Thank you, and looking forward to discovering.
Reply: Sovereign Confidential’s specialty is wealth preservation rather than income generation per se — that’s my colleague Jeff Opdyke’s role. To my mind, the best solution to wealth preservation in uncertain times is (a) to diversify out of both U.S. dollar-denominated assets and (b) to locate at least some of those assets offshore. For example, there are numerous brokers who offer private, secure storage that deal in collectible stamps, precious metals and similar items that can be located in a safe haven outside the U.S., and are not reportable to the IRS. Similarly, ownership of foreign real estate in your own name isn’t reportable. I will be writing about many such solutions in the coming months — also be sure to check our archives.
I’m glad to hear your comment about the nature of the
service. I ALWAYS focus on actionable and viable solutions — every issue of Sovereign Confidential will provide concrete solutions to a variety of issues. And I won’t be bothering you with surplus emails, other than those that either (a) give you more information about the publication and about me or (b) share useful and interesting news that I think you will find helpful.
oI recently joined and received a thorough, personal
message from your Dad concerning ‘bail-ins and
wealth tax.’ Another threat lies in the background.
I heard Andrew Maguire interviewed on King World News. He said that unallocated precious metals
accounts are in danger of being cashed out without
the owner’s permission, just as metals are about
to soar, according to many international experts. I
couldn’t quite understand if these were just the
accounts held in the six bullion banks and the LBMA
or across the board stealing of the metals in the banks,
Comex, and governments’ greed to find bullion for
delivery on their paper bullion and to fill the empty
vaults. This is certainly a threat to our sovereignty and
financial health.
Reply: That’s an excellent question. The danger is with unallocated metals stored with any institution. “Unallocated” simply means that you own a share in a pool of metal, not specific bars with serial numbers that are recorded and audited in your name as your personal property. Many unallocated storage contracts stipulate that the manager of the pool can liquidate it at any time and compensate holders at the selling price less costs. The danger is that unscrupulous dealers will cash you out before a price increase. To avoid this, you want to own an allocated supply of metals with an offshore non-bank institution. That will ensure that you, and only you, have the authority to sell. Also, being in an offshore non-bank
Your No. 1 ConcernHere is a sampling of letters in response to last month’s Sovereign Confidential:
www.sovereignsociety.com 15 July 2015
institution means that you are not required to report these gold holdings to the U.S. government.
oMy No. 1 concern is wanting to gain total
anonymity. For example, I would like the house I live
in to NOT be subject to Internet searches and have
the same protection of my privacy that is afforded to
law enforcement officers and politicians. My local tax
assessor has informed me that unless I am a member
of a law enforcement agency, or an elected politician,
my name must appear in the tax records for the
property I own. Our home is owned by a trust, but this
offers zero privacy or the kind of personal privacy I am
after.
Secondly, I would like to learn how this kind of
‘ultimate’ privacy can be structured, if at all. I first
met Josh Bennett two years ago and he has done a
masterful job with our asset protection structure for
our assets outside of Florida. Now I want to focus
on becoming invisible to the basic Internet search of
my name. Can you help? Is there a service that can
guarantee my ‘disappearance’ from the public view or
is it just wishful thinking on my part?
Reply: Thanks for writing. Here are my thoughts: Sadly, total anonymity is impossible in this day and age. Aside from the legal reasons you cite, digital information in the hands of third parties is almost impossible to eradicate completely. I do not think that in the U.S., at least, it is possible to make your name unsearchable, because we do not have a “right to be forgotten” law like the European Union. Nevertheless, if there are specific things about you that you wish to have removed, you could try using a service such as www.reputation.com, or contacting the host of such information directly to ask that it be taken down.
Nevertheless, there are ways to maximize your privacy and achieve substantial anonymity. I wrote about this recently (http://thesovereigninvestor.com/privacy-invasion/solution-to-digital-privacy-threats/). Also, I am planning to release a special report on personal anonymity very soon. Stay tuned!
oI had joined as member principally because of your
Dad’s rather unique skill set and experiences, first as
an attorney and secondly as a former Congressman.
I note that you have been assuming a lot of his
responsibilities over the last year or so. I don’t
necessarily have a problem with that. You seem to be
doing a good job. However, your readership knows
very little about you, such as your education, your
previous career experiences and your qualifications to
opine and render advice to us on a multitude of topics.
I think this would be of great interest to your readers. I
look forward to seeing some of this in not-too-distant
future issues.
Reply: That’s a perfectly legitimate question! I am an economist by training (M.A., with a specialty in economic history). I lived and worked abroad from 1985 through 2007, have travelled to over 75 countries, have a second passport and home abroad (South Africa), and continue to travel extensively.
The bulk of my career prior to taking over my father’s portfolio involved working for and with a global non-profit organization dedicated to helping people in developing countries with overbearing governments — including South Africa — to exercise their sovereign rights to manage their own finances and homes. Unlike most of my peers at university in the early 1990s, I was not interested in helping to extend and entrench the post-apartheid ruling party’s power of over individual citizens. Nor was I satisfied to see opportunistic private companies misuse public funds and monopolistic market power to profit at the expense of such individuals. That made me an outlier in the non-profit world, and I spent two decades honing my understanding of the exercise of individual liberty and sovereignty in real-world situations. I have brought these insights to bear on my work at Sovereign. n
I’m interested in hearing more from you about this topic. Is government-sponsored welfare the cause of these problems, or a symptom of it? Does police militarization threaten all of us, or just those who get out of line? Send your comments to me at [email protected]
July 2015 16 www.sovereignsociety.com
All international and domestic rights reserved, protected by copyright laws of the United States and international treaties. No part of this publication may be reproduced in any form, printed or electronic or on the worldwide web, without written permission from the publisher, Sovereign Offshore Services, LLC. 55 NE 5th Avenue, Suite 200, Delray Beach, FL 33483 USA.Legal Notice: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. (c) 2015 Sovereign Offshore Services LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 55 NE 5th Avenue, Suite 200, Delray Beach, FL 33483 USA.
n Final Thoughts
Moving Abroad: Easier Than It Seems
LAST year, more than 3,400 people gave up their U.S. citizenship. That was a record — for the second
year in a row. My mailbag has been full of letters from people who want to leave the U.S. They want to join the exodus but think they can’t manage it.
I understand that feeling. I left the U.S. in 1985. I didn’t think the country was about to implode. I was too young and footloose to worry about those things.
But I did learn a thing or two about what it takes to move abroad.
Let’s get one myth out of the way. Some people think that moving abroad requires renouncing U.S. citizenship. That’s not true. You can hold your U.S. passport when you become a permanent resident of another country — even if you become a citizen of another country, as I am. (As long as you remain a U.S. citizen, you remain subject to U.S. laws and income tax. And any assets physically or legally located in the U.S. itself remain subject to U.S. law.)
I tend to think that some folks’ fixation on formal “expatriation” is really due to concern about the difficulty of relocating to another country. It seems like an impossibility when you first think of it.
Like any move, it can be a gradual process. You start with self-examination: Do I want this enough to do it? Then comes the researching. Where do I go? Can I obtain residence? How much will property cost me? What assets should I take with me.
After four international moves of my own, I’ve narrowed down the single most important step in
moving offshore. If you are serious about moving offshore, being debt-free in the U.S. is essential. Secured debt like a mortgage on a rent-generating house is fine, but unsecured personal and business debts have to be settled before you can go. That’s the bottom line, if only for your peace of mind and to clear space for the challenges ahead.
That means that if you are serious about moving abroad but worry about the cost, you may want to liquidate some U.S. assets, such as a summer home or other real estate. You can use this to retire other debt, and squirrel the rest away in an offshore trust or LLC for safekeeping. That also frees up resources to invest in a foreign property.
There is a more difficult question: Is it time to go? It’s helpful to remember that there’s a difference
between being angry at the government and facing a real and present danger from it. Many people feel that the danger is more immediate than it probably is.
My advice to those people is consistent: You don’t have to sell things at a loss and suffer a lot of personal pain in order to get out of the U.S. immediately. Take your time.
If you are interested in moving abroad however, you have to start planning now. Put your Plan B in place before you need it
Kind regards,
Ted Baumann, Editor