Contempt and Foreign Asset Protection

 

So you read it on the internet. If you set up a foreign trust (or LLC, or corporation, or whatever) and move some liquid assets into it (which precludes protecting US real estate with a foreign entity – you cannot move it to the Cayman Islands, so the US still has direct jurisdiction over it). Presto! Your assets are beyond the jurisdiction of US courts. No creditor can touch you, you are bullet-proof!

Well, not quite. What happens in these situations is that a court will order you to disclose your assets. So you tell them about the Cayman Islands Trust (or perjure yourself, and not being a Clinton, go to jail). Then the court orders you to repatriate the assets. You tell them that you’d love to, but you cannot. Only the trustee can do that, and he refuses to do so. Darn him!

The court then holds you in contempt and imprisons you until the assets appear in the US. Sometimes the debtor eats the prison time and the assets never appear. In those cases the asset protection “worked” as long as you do not view your freedom as an asset. In other cases, the assets mysteriously & suddenly show up.

Debtors’ prison is alive and well! How long will a court leave you in prison? The record is held by corporate attorney H. Beatty Chadwick. He was imprisoned for 14 years because he would not disclose the location of approximately $2.5 million in assets in the course of his divorce. The court finally released him after 14 years on the theory that he was not going to comply with its orders. Now that is an ugly divorce! And we know what ole Chadwick valued his freedom at: $178,000 per year.

Foreign trusts, LLC’s, and the like have their place. But they also have their limits. Like all asset protection, nothing is perfectly bullet-proof. A Kevlar vest beats a T-Shirt. Until you get shot in the face.

We will discuss this and more this weekend in Sarasota, Florida at a two-day workshop. The subject matter is “Asset Protection” with a focus on “Entities” on Day One. Day Two we will cover a variety of (non-IRA) tax planning moves, including, but not limited to:

• Health Reimbursement Arrangement – What they are, when they beat Health Savings Accounts, how to create & run one, and a free sample plan

• Which meals can be written off 100% instead of the usual 50%

• How to meet five hours in Mexico and write off the plane ticket for the entire week-long trip

• How to get the special “manufacturers tax deduction” for builders and rehabbers

• What is a “real estate professional”, should you be one, how to qualify

• “Dealer” Status – how it is different from being a “real estate professional”, what it means and what to do about it • How to maximize depreciation deductions on your rentals – are you depreciating the driveway, shrubbery, and patio?

• How to get nice furniture in your personal home – tax-free

• Which entity is best for flipping/rehabbing/renting/lending/lease options

 

For more information, please visit my website at iralawyer.com or email me at johnhyre@realestatetaxlaw.com.

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