Untitled

[speiserlaw]

Nevis Enacts Amendments to LLC Ordinance

By Stephen Speiser, Esq. May 2024 In 2009, the Nevis Island Assembly enacted the Nevis Limited Liability Company Ordinance, which opened the door to the convenient formation of offshore business entities in a tax-friendly and asset-protective Caribbean jurisdiction. A major rewrite of the legislation in 2017 did not make any substantive changes, disappointing many who advocated for the adoption…

View On WordPress

[speiserlaw]

Is All Asset Protection Planning Bad Under the UVTA?

by Vera Felber, Director Lighthouse Trust and Stephen E. Speiser, Attorney at Law The Speiser Law Firm, P.A. Introduction It is not often that a state legislature will enact two sets of laws which make certain actions both lawful and unlawful at the same time.  Such, however, may very well be the case with the adoption of both the Uniform Voidable Transactions Act (“UVTA”) and domestic asset protection trust (“DAPT”) legislation by Michigan and Utah, which became the first two states to adopt both UVTA and DAPT statutes in 2017.   In essence, the UVTA provides that transfers of assets which frustrate collection efforts of present and future judgment creditors can be set aside.  Conversely, DAPT statutes generally provide that the transfer of assets to a self-settled spendthrift trust, which frustrate the collection efforts of present and future judgment creditors, may be lawful. Regardless of whether a state adopts one or both statutes, the fact remains that successful asset protection planning requires an understanding of the tensions and interplay between the provisions of the UVTA and the objectives of various states in enacting DAPT legislation.  This article evaluates the inherent conflicts between both types of legislation, with particular focus on certain commentary in the UVTA that draws into question the underlying premises of the UVTA’s approach to asset protection planning. Voidable Transactions Voidable transactions are a fundamental concept in asset protection planning. To appreciate how the international asset protection trust has evolved as a shield against voidable transaction liability, one must understand the elements of a “voidable transaction” and how the UVTA can be applied in a variety of settings.  In general, a “voidable transaction” is a transfer of assets made with the actual purpose or constructive result of denying a creditor access to the assets.  Once a creditor establishes that a transfer was voidable under the UVTA, the creditor is entitled to a number of remedies. These include the possibility of reversing the transfer or suing the transferee for the value of the transferred assets. The Relevance of Intent Because the actual intent to hinder, delay, or defraud creditors is seldom susceptible of direct proof, the UVTA contains a list of “badges” of fraud. These badges of fraud are basically red flags telling the world that most likely someone acted with the specific intent of defeating a creditor. The weight given these badges varies greatly from jurisdiction to jurisdiction, and the Uniform Law Conference sought to minimize or eliminate this diversity by providing that proof of certain fact combinations would conclusively establish fraud. In the absence of evidence of such facts, proof of a fraudulent transfer would instead depend on evidence of actual intent. Section 4(a)(1) of the UVTA expounds upon this further: A transfer made or obligation incurred by a debtor in which the transferor actually intends to deprive the creditor the ability to reach the transferred asset is deemed prejudicial to both present and future creditors. This means that, not only can the people who you owe money come after you, but even an unanticipated future creditor can look to set aside a transfer of property that you made some time ago.    Asset Protection Planning Asset protection is a term used to describe legal planning that shields your assets from the unanticipated claims of creditors. Because the UVTA seeks to deter many forms of transfer that are to the detriment of creditors, there is an inherent conflict between voidable transaction law and asset protection planning. Official Comment 2 specifically addresses this conflict by stating that asset protection planning, such as setting up a self-settled spendthrift trust, is in and of itself evidence of actual intent to avoid a creditor, without regard to whether the transaction is directed at an existing or identified creditor.  Thus, the creation of an asset protection trust (DAPT) is a per se “actual intent” voidable transaction under the UVTA. The Importance of Residency Several states have enacted domestic asset protection trust (DAPT) laws, permitting people to create self-settled spendthrift trusts that are ostensibly enforceable in their courts.  Official Comment 2 weighs in on the impact of such legislation, holding that a state asset protection trust law will override the principle that asset protection planning constitutes an “actual intent” voidable transaction.  Even in those states that have enacted a domestic asset protection trust law, the scope of transferors who can avail themselves of asset protection planning without having “actual intent” imputed to them is quite limited.  Comment 8 provides a series of examples illustrating how the residency of the debtor influences whether “actual intent” may be imputed.   - Creation of DAPT in State Where One Resides Suppose a debtor residing in Wyoming creates a self-settled spendthrift trust, which is expressly permitted under Wyoming law.  As Comment 8 explains,  a transfer of assets to the DAPT by itself cannot be considered voidable because the Wyoming legislature, by authorizing asset protection trusts, “must have expected them to be used.”  Thus, the creation of the trust itself cannot be used to impute “actual intent” to commit a voidable transaction under Section 4(a)(1). - Creation of DAPT in State Where One Does Not Reside a. Debtor Resides in Non-DAPT State What happens where a debtor, residing in a state that does not recognize DAPTs, creates a DAPT in a state that does?  For example, what would happen if a resident of Florida, a state which does not have an asset protection trust law, creates a Wyoming DAPT?   Comment 8 refers to Section 10 of the UVTA, which dictates that the law of the debtor’s residency would apply to govern the transaction.  Thus, the transfer of assets into a Wyoming asset protection trust would be governed by Florida law.  In the eyes of the Commission, a transfer of assets to a Wyoming DAPT would constitute per se “actual intent” and would therefore be voidable under Section 4(a)(1). b. Debtor Resides in DAPT State What would happen where a debtor residing in DAPT State “A” forms a trust in DAPT State “B”? Assume, for example, a debtor residing in Wyoming decides to settle a Delaware asset protection trust, which is expressly permitted under Delaware law.  Does the per se “actual intent” rule render the transaction voidable in this context?   The plain text of Comment 8 suggests only that the Wyoming state legislature contemplates the use of its own asset protection trust legislation; the comment is silent on the use of another state’s legislation.  Accordingly, there are four potential inferences that can be drawn: - A narrow inference that the Wyoming DAPT is the exclusive means by which asset protection planning is permitted by the Wyoming legislature;  - A moderate inference that use of a Delaware DAPT for asset protection planning would be permissible, provided Delaware’s DAPT legislation is substantially similar to Wyoming’s DAPT legislation;  - A broad inference that asset protection planning in this context is permissible, and therefore the use of a sister-state’s DAPT is permitted by the Wyoming legislature; and - A maximum inference that, by authorizing the use of a DAPT, the state legislature intends that per se “actual intent” not be imputed in any form of asset protection planning whatsoever.  If we apply a broad inference, then the use of a Delaware DAPT by a resident of Wyoming should be permitted.  By contrast, if we construe the inference in a narrow manner, then the use of any other state’s asset protection trust law would not be protected from the consequences of §4(a)(1) and its per se “actual intent” rule.  If we adopt the moderate inference that use of another state’s DAPT law is permissible, then we must further ask whether it is sufficient that Delaware recognizes self-settled spendthrift trusts, or whether Delaware’s statute must match Wyoming law point by point.    Moreover, what if the Wyoming resident settles a Belize or Nevis asset protection trust, where the trust laws may be similar but other aspects of the legal system (e.g., non-recognition of foreign judgments) are radically different?   The UVTA commentary offers minimal guidance in divining the intent of a state legislature that sanctions the use of in-state asset protection trusts.  Yet, some of the most popular domestic asset protection trust jurisdictions are states with low populations and a palpable desire to attract trust and banking business from out-of-state residents.  Alaska and Delaware became the first two states to enact laws recognizing the enforceability of self-settled spendthrift trusts, explicitly promoting their use by out-of-state residents. Wyoming is not terribly different.  If, for example, Wyoming intends that out-of-state residents be able to avail themselves of asset protection trusts within the state, is it reasonable to infer that Wyoming does not object to its own residents being able to avail themselves of the benefits of Alaska or Delaware asset protection trust law? In Favor of Maximum Inference We believe that the appropriate inference to be drawn is the maximum possible inference:  That a state’s enactment of a DAPT law should be regarded as the state legislature’s expression per se “actual intent” under the UVTA not be imputed in any form of asset protection planning.  While this is an incredibly broad inference, it reflects the reality that DAPTs do not exist in a vacuum.   In order to engage in proper DAPT planning, it is often essential and customary that the DAPT be integrated with underlying or associated entities, such as LLCs, corporations, foundations, and a variety of sub-trusts.  Many times, direct transfers are made to these subsidiary or affiliated structures in lieu of transfers in trust, whether for convenience or out of necessity.  A creditor has a compelling incentive to rely on the UVTA commentary to assert that the direct transfer to the underlying or associated entity is a per se “actual intent” transfer not protected by the state’s enactment of a DAPT law.  A creditor may also interpret the UVTA commentary to argue that, while the DAPT itself is protected, satellite holdings by the DAPT are not similarly protected.  This creates an unworkable conflict between DAPT legislation and the UVTA.  We think the better argument is that, by authorizing DAPTs, the legislature has discarded the UVTA’s per se “actual intent” rule for all forms of asset protection planning. Given that most states do not have DAPT legislation, Comment 8 raises the possibility that the legislative intent behind Section 4(a)(1) may not be entirely consistent among the states. Because the laws of different jurisdictions differ in their tolerance of creditor-thwarting devices, choice of law considerations may be important in interpreting Section 4(a)(1) in a given jurisdiction.  This runs counter to the purpose of a uniform law, and it suggests that the UVTA commentary is not at all synchronous with the state legislatures that have enacted DAPT legislation. The Analog of Limited Liability Enterprises Under the UVTA, engaging in asset protection planning through the creation of a self-settled spendthrift trust is per se “actual intent,” which renders voidable asset transfers in those states that do not have an asset protection trust law.  Does the per se rule apply to the use of other asset protection and liability limiting devices?  For example, every state openly permits the formation of a limited liability company in order to shield against unanticipated future creditors of the business.  Is the mere act of forming of an LLC voidable under Section 4(a)(1)?  Comment 8 tells us that the transfer of assets to capitalize an LLC is not per se voidable under Section 4(a)(1). According to the Commission, the state legislature  – by enacting a comprehensive LLC law – must anticipate that the LLC will be used in “ordinary circumstances.” The commentary goes on to define “ordinary circumstances,” offering the example of a group of entrepreneurs organizing and capitalizing a new LLC when they do not anticipate personal liability or financial distress. The negative implication is that if those same entrepreneurs were to reorganize an existing business as an LLC under clouds of personal liability or financial distress, the reorganization would be arguably voidable under Section 4(a)(1). As the name suggests, the limited liability company aims at limiting liability to cut off potential creditors. This is no different than creating an asset protection trust at a time when there are no known creditor issues.  Nevertheless, the formation of a limited liability company is not considered a per se transaction performed with “actual intent” to avoid potential creditors, whereas the formation of an asset protection trust is. It is noteworthy that the commentary to the UVTA does not focus on the residence of the owners when forming a limited liability enterprise.  Consider a group of New York residents who contemplate forming an LLC and avail themselves of Delaware law in order to limit their creditors to a charging order as the sole remedy.  Should the New York UVTA be applied to treat capital contributions to the Delaware LLC as per se actual intent fraudulent transfers?   By availing oneself of another state’s LLC law, does one more closely resemble the individual who sets up an out-of-state asset protection trust? Reconciling the Differences The disparate treatment between asset protection planning and business entity planning evades simple reconciliation.  The most sensible conclusion is that the per se actual intent rule should not apply to any structure or legal protection that is authorized under the laws of one’s state of residence.  The formation of limited liability business entities is blessed by statute, as are domestic asset protection trusts in many states.  Unfortunately, the UVTA commentary does not look beyond the broadest categories of legal planning.  Since LLCs are creatures of statute, one may avail oneself of an LLC without triggering the per se actual intent rule.  At the same time, there is no clear guidance if the LLC owners avail themselves of another state’s LLC statutes for greater or different protection.  The UVTA commentary indicates that a resident of a non-DAPT state should not be permitted to benefit from setting up a DAPT where authorized in another state, but does that mean that forming an out-of-state LLC should also be considered evidence of per seactual intent? The UVTA presents an unworkable ambiguity:  Should a Tennessee resident be charged with actual intent by forming an asset protection trust in Delaware rather than her home state?  Should a New York resident be charged with actual intent by forming an LLC in Nevada rather than New York?  Should the courts of Wyoming regard ALL forms of asset protection planning as exempt from per se “actual intent” under the UVTA merely because the Wyoming legislature has enacted a DAPT law? In our view, the per se actual intent rule yields incongruous results if a vague desire to shield assets from potential creditors triggers its application.   It is noteworthy that the language of Section 4(a)(i) references a “creditor”:  The statute presumes an existing creditor whose presence gives rise to the “actual intent” driving the debtor to engage in the voidable transaction in the first place. However, if the debtor is not actively engaged in avoiding a known creditor, then the same legal result should entail whether the debtor is engaged in asset protection planning or starting up a limited liability enterprise.  Put more bluntly, the UVTA commentary should scrap the per se actual intent rule for DAPTs and instead rely on the traditional facts-and-circumstances analysis to detect a voidable transaction when a debtor is engaged in trust or LLC planning. In the meantime, residents of non-DAPT states would be well advised to focus on the use of in-state LLCs in lieu of DAPTs if there is an express need to keep the planning domestic.  If the LLC laws of one’s state of residence are not sufficiently protective, though, then a foreign asset protection trust (FAPT) offers a viable solution:  While FAPT planning may be regarded as per se actual intent, the negative consequences of a voidable transaction under the UVTA normally do not have any bearing whatsoever on a properly-established FAPT, the assets of which should be held beyond the reach of a court in any UVTA jurisdiction.   By equal measure, in the context of LLC planning, residents of DAPT states who wish to form an out-of-state LLC may wish to consider utilizing an in-state DAPT to hold the out-of-state LLC membership interest.  This takes advantage of the inference, argued above, that the enactment of a DAPT law may be a legislative green light to engage in a broader set of transactions that serve an asset protection planning purpose, all of which may be arguably exempt from the per se “actual intent” rule of the UVTA commentary. Conclusion The legal landscape for domestic asset protection planning is chaotic under the UVTA.  It is impossible to expect consistent rulings among the fifty states concerning whether the use of a DAPT is a per se “actual intent” fraudulent transfer given the many possible variations discussed herein.  Moreover, the UVTA commentary draws into question the viability of using out-of-state LLCs for business planning, much less as a device for asset protection. Treating asset protection planning as evidence of per se “actual intent” to deprive the creditor of the opportunity to reach the transferred asset is a highly fact-intensive, "I know it when I see it" argument that is no less suspect than LLC planning. As a result, it is impossible to truly define legal behavior when the legal standard could change at any time based on the person’s perspective.  At a minimum, residents of states that do not provide for DAPTs should instead rely on the LLC as a potential planning vehicle.  By using an LLC formed in the same state in which one resides, the per se “actual intent” rule no longer applies.  If one seeks to go out of state to avail oneself of greater trust or LLC protections, then it may be safer to go out of country altogether and select a jurisdiction that is indifferent to the claims of creditors brought against a trust or LLC established in that jurisdiction. Read the full article

[speiserlaw]

When Is An "Offshore" Asset Protection Plan Not Really Offshore?

Introduction In their youth, my children used to love playing "hide and seek" with me. My youngest daughter would make me count to 10 and dash under a nearby piece of furniture or a blanket. Despite her best efforts at hiding, it was always amusing to see a hand or a foot emerging from underneath or behind her hiding spot. She was absolutely convinced that she was hidden from view... but what did she know? She was a child, and what was logical to her was that I could not possibly see her if she could not see me. Occasionally, when I am asked to review a client's existing offshore asset protection plan, I am reminded of the games of hide and seek I played with my daughter. The client may be absolutely convinced that their existing offshore asset protection plan is solid and doesn't need to be amended or updated because it was put together by "a high-priced lawyer." The plan documents, however, tell a different story. While appearing to be an offshore structure with assets tucked under a foreign asset protection blanket, there is, unfortunately, a hand or foot sticking out that can be seen (and seized) by a U.S. judgment creditor. While it might be reasonable for a client to assume that an offshore asset protection plan set up by a lawyer is actually offshore, there are many way in which the structure can become domesticated. This can happen intentionally (by design) or by mistake. For example, there are times when a client may choose to have their offshore structure hold liquid assets in U.S. banks or brokerage accounts. This may done for convenience and ease of management, or for psychological comfort where a client new to international banking is skittish about moving large sums of money overseas. There is nothing wrong with this approach, provided standby arrangements and proper offshore solutions are also put in place. We see cases, however, in which the client (and sometimes their lawyer) has no idea that the structure was never properly established or funded offshore. The consequence of these mistakes is that the intended benefits of offshore protection planning may be illusory, and the client's assets may remain exposed to unanticipated creditor attack back home. In effect, the client's "offshore" asset protection plan may not be offshore at all. A profound challenge with many "offshore" asset protection plans is that they really are not offshore at all. This often comes at a surprise to the client, and – more alarmingly – to the lawyer who drafted the plan as well.-Stephen E. Speiser, Esq. Framing the Concern: What Is An "Offshore" Asset Protection Plan? There are three basic elements to an "offshore" asset protection plan: (i) the legal structure (trust or business entity) must be formed outside the U.S. in a safe jurisdiction; (ii) the assets must be successfully migrated to the offshore legal structure; and (iii) legal control of the structure must be vested in persons or trustees who are not subject to U.S. jurisdiction. That is the theory. Whether this is accomplished in actual practice will depend on the structure used and the type of assets in need of protection. 1. An Offshore Legal Structure Establishing an offshore legal structure for an asset protection plan should be a relatively straightforward task. Typically, the plan will utilize a foreign trust or foreign limited liability entity (such as a foreign LLC) to hold assets outside the U.S. For example, a California resident may want to use a Belize trust to hold assets beyond the reach of U.S. federal and California state courts. Setting up a Belize trust is a relatively straightforward process: The client enters into a trust agreement with a licensed Belize trust company, and the trust is then registered with the Belize authorities. Yet we sometimes find that the client or their attorney has done something that undermines or eviscerates the "offshore" benefits of the asset protection plan. For example, we frequently encounter "offshore" trust structures in which the client or another U.S. resident is the controlling trustee and/or where the client is unaware that their assets are actually being held in the United States. Such a structure is not really "offshore." Rather, it is a domestic asset protection plan that has the potential to perhaps one day be moved offshore. Whether the structure can be effectively migrated offshore after a legal attack occurs here in the U.S., however, will depend upon the facts and circumstances that exist at that time. We know from experience that once a legal claim arises or litigation formally commences, a client's planning options become materially constrained. 2. Migrating Assets Offshore In the above example, the California client has an offshore trust... a trust registered in Belize. However, to properly evaluate the trust structure, we must ask two questions: - What are the assets of the trust? - Where are those trust assets located? Fundamentally, an asset protection structure can only protect those assets that are transferred into the structure. All too often, we are surprised to learn that the law firm that set up an offshore trust never advised or assisted the client in funding the trust. If the trust is not funded, the client has accomplished nothing. Assuming the trust has been properly funded, we must then look to the location of the trust assets. Ideally, an "offshore" asset protection trust will hold assets outside the U.S. In our example of the California resident who sets up a Belize trust, the foreign trustee might open an offshore bank account to hold cash. How much cash should be transferred offshore? That will vary based upon the circumstances and needs of each client. For example, one client may want to fund the offshore trust with most of their liquid assets, while another may want to just have sufficient funds on hand to pay for lawyers in the event a creditor brings a claim in the offshore jurisdiction. Each type of asset has its own planning nuances that should be carefully considered in the asset protection process. For purposes of this discussion, we can assign assets into several broad categories: - Highly Liquid Moveable Assets: This category would include cash and publicly traded securities (stocks and bonds). These are normally easy to migrate offshore. - Moderately Liquid Moveable Assets: Investments in certain mutual funds, hedge funds, and similar structures can be shifted offshore, but they are subject to restrictions that require additional consideration. - Illiquid Moveable Assets: Ownership interests in closely held domestic business enterprises, such as a family-owned business, can be moved offshore, but they require very careful evaluation and may sometimes need to be further protected with some complimentary domestic asset protection planning. - Immoveable Assets: Real estate and other immoveable assets cannot be migrated offshore. Instead, we must rely on domestic asset protection strategies to protect such assets. While the solution may be domestic, these solutions must be designed to work in conjunction with your offshore asset protection plan. We refer to these broad categories in asset protection planning because it helps us to set our expectations. When we consider whether an asset protection plan is effectively "offshore," we expect to see that Category 1 assets (Highly Liquid Moveable Assets) have been migrated into an offshore holding arrangement, such as a trust bank account or an investment account held by a foreign business entity (and owned by the trust). We have different strategies for asset categories 2, 3 and 4. For example, if we are protecting a Category 4 asset such as real estate, the foreign trust or LLC should not take direct title to the real estate. Instead, we expect that a different planning technique will be used to help protect the real estate, such as a loan secured by the real estate and used to fund an offshore trust. The planning techniques and solutions available are myriad and varied. Are the Assets Really Offshore? In the previous section of this article, we said that an "offshore" asset protection plan requires: (i) a foreign legal structure and (ii) assets that have been migrated offshore in one form or another. We further observed that, while the foreign legal structure should be a straightforward proposition, migrating assets offshore may require the use of different planning techniques for different categories of assets. Let us now return to our example, a California resident who has established an offshore asset protection trust in Belize. Suppose further that the trustee has opened an offshore bank account in a reputable offshore banking jurisdiction. Let's further assume that the trustee also moved the California resident's stock and other portfolio investments into a reputable international brokerage firm in a foreign jurisdiction as well. Are the client's funds and investment portfolio now fully protected "offshore"? Maybe. Let us consider the offshore bank: Many international banks and brokerage firms have branches and offices here in the U.S. This could be a serious problem since those branches and offices may subject the offshore bank (and the client's accounts) to U.S. jurisdiction. If the foreign bank holds the client's funds in United States Dollars, can we safely say that the dollars are being held offshore? Well, unless an armored car delivers paper currency to hold in a foreign bank's vault for the client, those United States Dollars may remain in the custody of a correspondent bank here in the United States. Let us also consider the securities held in the client's investment portfolio. Even if that investment portfolio is nominally held by a foreign bank, most publicly-traded U.S. securities remain with custodians back in the United States. Stock certificates, even if delivered to an overseas custodian, may still be vulnerable if a sophisticated creditor convinces a U.S. judge to order the certificates retitled in favor of the creditor.

3. Offshore Control

Assuming one has (i) established an offshore legal structure and (ii) implemented offshore custody of assets, one more element must be analyzed to determine just how "offshore" the asset protection structure is: (iii) Whether legal control of the structure is vested in persons who are not subject to the jurisdiction of courts here in the United States. The theory here is that, in the event of creditor attack, a judge may order the person who controls the asset protection structure to repatriate the assets to the United States under threat of being jailed for contempt of court should they refuse to do so. A number of lawyers and law firms market canned asset protection trust arrangements in which the client or a designee controls the trust from here in the United States. The theory is that, if a creditor attack emerges, the client or the designee could promptly liquidate the trust and send the funds offshore. This strategy, however, relies heavily on timing – hoping that the client acts promptly to move assets on the eve of litigation – and on finding a bank in a foreign country that is willing to receive funds that may subject it to litigation and/or having to respond to court proceedings. In our experience, a potential customer who wants to open a bank account on the eve of litigation is usually considered radioactive. So, in practice, this strategy often fails and has produced a number of particularly disastrous outcomes. A more common strategy is one in which the client oversees a portfolio of assets through a domestic business entity, such as a limited partnership or LLC, that is under the client's managerial control. Ownership of the domestic business entity is often titled in the name of an offshore trust. The theory here is that, if a litigation threat arises, the quick-acting client can direct the distribution of assets from the domestic business entity over to the offshore trust. This also assumes that the offshore trustee has opened a bank or brokerage account that is capable of receiving the assets on short notice. The use of a domestic business entity resembles the use of a domestic trust in several ways. First, the client effectively controls the domestic business entity just as he or she would a trust. Second, both the domestic business entity and the domestic trust rely on the client being able to quickly move assets offshore in advance of a controversy. Yet, there are some important distinctions, which exceed the scope of this article, that make the domestic business entity superior to the domestic trust. Another popular planning technique involves the use of a foreign business entity. Just like the domestic business entity, the foreign business entity is managed by the client, however, ownership is held by the offshore trust. The benefit of this arrangement is that the client does not need to move any assets because the assets are already offshore. In the event a legal threat should arise, all that is required is for the client resign as the manager of the foreign business entity thereby giving up control of the structure. Should that occur, the offshore trustee will step in to manage the foreign business entity until the legal threat subsides. In all three examples – the domestic trust, the domestic business entity, and the foreign business entity – a client may opt to control the assets and keep them onshore when the asset protection plan is first implemented. This planning solution is viable provided the client remains vigilant to the risks discussed in each of these examples, and implements the planning required to mitigate those risks should a litigation event arise.

Conclusion

As discussed in this article, we have seen instances in which people engage well-known law firms to implement offshore asset protection trusts, only to discover through litigation that their assets were never truly "offshore" and that their structure was incapable of protecting them. The good news is that funding an offshore legal structure with assets that are resilient to a creditor attack does not need to be a complex endeavor. It does, however, require legal knowledge, experience, and attention to detail. The Speiser Law Firm is the only firm of its kind to have on its staff the former managing director of the largest international asset protection trust company. We understand how foreign custodians function and the problems and pitfalls of how clients can best migrate their assets offshore. The bottom line is that offshore asset protection can offer unparalleled safety and security, but it does require that you make sure all those little fingers and toes are safely tucked under your offshore asset protection blanket. Read the full article

[speiserlaw]

The Swiss Hybrid Trust: A Primer

© 2021 by The Speiser Law Firm, P.A.  All rights reserved. Switzerland frequently ranks as perhaps the safest and most prestigious jurisdiction for investment and wealth management services, particularly for high net worth individuals and family offices.  The Swiss banking system is considered the safest in the world, with approximately one third of all wealth stored through its central bank and network of public and private banks. One lesser known benefit of banking in Switzerland is that Swiss trust law is highly protective of trusts.  Switzerland is one of only a limited number of countries to have joined to the Hague Convention on the Law Applicable to Trusts and on Their Recognition (the “Convention”). The Rise of the “Swiss Hybrid Trust” Under the Convention, trust settlors can choose the law of any country, within certain limitations, to govern their trusts.  This includes the ability of the settlor to choose the law of an asset protection jurisdiction such as Nevis or Belize.  The trust agreement may be bolstered by a forum selection clause governing disputes and the seat for trust administration.   Swiss law offers the opportunity to establish a trust in an asset protection jurisdiction, such as Nevis or Belize, and appointing a trustee in Switzerland to custody trust assets.  The resulting “Swiss Hybrid Trust” constitutes an asset protection vehicle unattainable in any one jurisdiction alone. -The Speiser Law Firm, P.A. Choice of Trust Law Under the Convention Switzerland is a civil law country.  Trusts, by contrast, originate under English common law. Because Switzerland is not a common law jurisdiction, there is no inherent trust law by which a trust may be settled. By necessity, reference must be made to the trust laws of at least one other country that has a domestic trust law. Article 6 of the Convention provides that the “trust shall be governed by the law chosen by the settlor.” This wording is intended to permit settlors to freely choose any jurisdiction’s trust law, regardless of the location of the settlor, beneficiaries, or trustee.  For example, a trust settlor residing in England may establish a trust with a Swiss trustee and governed under the trust laws of Australia. Because all trust laws are not the same, the consequence of this provision is that a trust settlor may choose the trust law that is most favorable to his or her circumstances.  For example, if a settlor seeks predictability in estate planning, that settlor may choose the laws of a country with a well-developed body of trust law governing succession planning.  Likewise, if a settlor wishes to obtain certainty in asset protection planning, that settlor may establish a trust managed in part by a Swiss trustee and governed by the laws of Belize (regarded as having the strongest asset protection trust laws in the world). Issues Under Swiss Trust Law What if the trust settlor chooses a jurisdiction that does not have a trust law?  Under Swiss law and the Convention, no trust is established.   What if the trust settlor chooses a jurisdiction that imposes certain requirements – such as trust registration – but the trust never meets those requirements?  For example, many asset protection trust jurisdictions require the appointment of a resident trustee or registration of the trust with the local government, or both.  Examples include Belize, the Cook Islands, the State of Nevada, and Nevis.  Under both Swiss law and the Convention, the trust may not be enforceable.   Some asset protection trust jurisdictions do not require the use of a resident trustee or registration with the local government.  Examples of such jurisdictions include the Channel Islands, Mauritius, and Seychelles. In such cases, a trust may be established with a Swiss trustee that elects, as its applicable law, the laws of such a jurisdiction, and the trust should generally be enforceable in Switzerland. Disputes and Foreign Judgments In a tilt toward asset protection, Swiss law permits the trust agreement to contain a forum selection clause. The forum for disputes may be different than the forum whose law applies to govern the trust.  For example, a trust may be established with a Swiss trustee and a Nevis co-trustee, use Nevis as its applicable law, and require that all disputes be adjudicated in Delaware. Swiss courts will recognize a foreign judgment concerning a trust if the judgment is rendered, among other things, in the jurisdiction named in the forum selection clause or in the jurisdiction that is the seat of the trust.  The “seat of the trust” is the place of trust administration specified in the trust instrument or, in the absence of a specific designation, its actual place of administration. Swiss law further requires that debt enforcement against a trust be taken against the trustee of a Swiss-based trust.  If the seat of the trust is not in Switzerland, then the creditor must bring its claim in the jurisdiction of actual administration of the trust.  In the field of asset protection planning, the Swiss Hybrid Trust offers a unique opportunity.  A trust agreement may stipulate a foreign jurisdiction as the exclusive forum for trust administration, requiring creditors to first proceed in that foreign jurisdiction and obtain a judgment there before that judgment may be presented and collection proceedings initiated against trust assets in Switzerland.    Advantages of the Swiss Hybrid Trust With proper planning, a Swiss Hybrid Trust containing a properly drafted forum selection clause offers a unique level of protection.  There are several compelling reasons to appoint a Swiss trustee, even for a trust that may be registered in an asset protection trust jurisdiction and administered in part by a resident trustee in that jurisdiction: - Avoiding Black Lists: Unfortunately, many countries and financial institutions refuse to do business with trusts and LLCs established under the laws of bank secrecy jurisdictions. Several Central and South American countries also bar their citizens from maintaining trusts and companies in tax haven countries. Utilizing a Swiss trustee may permit the trust to be characterized as a "Swiss trust," opening the doors to additional banks and financial service providers to handle trust assets. Also, while Switzerland offers bank secrecy and traditionally does not assist other countries in enforcing tax laws, Switzerland is not a "tax haven" in the eyes of many countries. - Gaining Access to Tax Treaties: Switzerland enjoys a network of tax treaties with approximately 70 countries, including the United States, Canada, the United Kingdom, Japan, and China.  Most notable asset protection trust jurisdictions have no such treaties, meaning that trust income and certain gains may be subject to punitive withholding taxes. - Discouraging Litigation: Swiss law allows trust settlors to select a forum for litigation that differs from that of the applicable law of the trust. Theoretically, a settlor may utilize this freedom to require litigants to appear in one foreign jurisdiction to litigate claims under the trust laws of yet another foreign jurisdiction.  Moreover, recourse through the Swiss courts, while possible, is an expensive and difficult endeavor. - Banking Services:  The best-known asset protection trust jurisdictions generally consist of very small countries.  The Cook Islands is a case in point; the jurisdiction offers a consistent body of English-derived common law and a superior reputation for asset protection trust planning.  However, with a dwindling population of fewer than 18,000 people, the Cook Islands cannot offer a deep-pocketed banking deposit insurance scheme as is found in much larger countries such as New Zealand or Australia (and none is offered by the Cook Islands government).  A Cook Islands trustee may wish to depend on another country with a much stronger banking reputation, such as Switzerland, to hold the fungible assets of the trust.  Yet, due to the high cost of compliance for foreign-based trusts, some Swiss banks will not open an account for a Cook Islands-based trust, and other Swiss banks make it very difficult and time-consuming to establish the account.  Appointment of a Swiss trustee may be required in order to gain critical banking services. - Integrity of the Trust:  Similar to the observation made in #4, above, the use of a Swiss regulated trustee lends a degree of credibility to the trust arrangements which otherwise may be lacking with trusts established in certain asset protection trust jurisdictions.  Many trust companies in exotic asset protection trust jurisdictions are closely held, thinly capitalized businesses.  The presence of a Swiss co-trustee helps to keep a check on the trustee resident in the asset protection trust jurisdiction, and to provide a backup if something catastrophic occurs to the resident trustee or the asset protection trust jurisdiction itself. Conclusion Trust settlors previously had to settle for the services of small, thinly-capitalized trust companies in remote jurisdictions in order to obtain comprehensive asset protection.  With the Swiss Hybrid Trust, trust settlors may now enjoy the peace of mind gained through use of a Swiss-based trustee and the flexibility to select the asset protection trust laws of the most litigation-tested jurisdictions in the world.  The Swiss Hybrid Trust offers a profound degree of certainty in asset protection planning.    Convention on the Law Applicable to Trusts and on Their Recognition (Concluded at The Hague, 1 July 1985).  See:  Swiss Private International Law Act (“SPILA”), Articles 149a – 149e; Swiss Federal Debt and Bankruptcy Act, Articles 284a & 284b.  Some asset protection trust jurisdictions do not require that a trust be registered or a resident trustee appointed in the jurisdiction providing the governing law of the trust.  Many of these same jurisdictions permit a trust beneficiary to apply to the courts for appointment of a resident trustee.  See, e.g., The Trusts Act 2001 of Mauritius §§ 28(2) & 28(4).  SPILA Article 21. Read the full article

[speiserlaw]

Planning for Success

The Speiser Law Firm’s approach to asset protection involves a highly structured process that begins with the performance of comprehensive due diligence on each and every client to ensure that we have a full understanding of your needs before we begin the planning process, and to make sure our planning recommendations are specific to those needs. "Success is the direct result of careful planning and attention to detail."- Stephen E. Speiser, Esq. The Preliminary Conference We begin our process with a preliminary conference to gain an understanding of your goals and objectives, to determine your litigation risk profile, and to obtain an overview of all your holdings. After the preliminary conference, we gather and read all partnership and business agreements, investment documents, financial statements, and bank records to confirm for ourselves how you hold title to your various assets and in what percentages. (Even highly sophisticated clients are sometimes mistaken as to how they hold title to some of their assets.) Following this document review, we meet to confirm all our findings directly with you, obtain and review any additional information or documents that may be needed, and schedule telephone calls with your trusted advisors, including your accountant, your estate planning attorney, and others when appropriate. Some attorneys feel that this level of due diligence is unnecessary and will often “shoot from the hip.” We disagree. Due diligence is the foundation upon which your entire asset protection plan rests. The Planning Process Once the due diligence process is complete, we perform substantive legal research on the issues and potential claims that the asset protection plan must confront. We determine which jurisdictions best serve your planning objectives, address potential conflict of law issues, ascertain how best to take advantage of any state planning exemptions, and identify all the legal strategies and structures that can be used. Only when we have completed both our due diligence and legal research, do we begin the planning process. We hold internal team meetings to debate and discuss the legal strategies and structures that will provide the most comprehensive asset protection. While we certainly express our opinion as to which strategy and structure we believe is best for you, we never put forth only one planning option. Rather, we seek to provide you with a range of options that scale in both cost and complexity, enabling you to make informed decisions based on your own feelings and expectations. Presenting Planning Options The next step in the planning process is to provide a white board presentation of the planning options we identify as viable for your situation. This can be done in person in one of the firm’s conference rooms, or presented using a virtual white board program via Zoom. We find that complex legal issues and structures can best be rendered simple and easy to understand using diagrams and other visual aids on a white board. The options are laid out side-by-side, the merits and demerits of each structure are explained, and you are encouraged to ask questions. Once we are satisfied that you fully understand the different options and structures, we turn the white board over to you to let us know what you like and don’t like, what works for you and what doesn’t. Based upon your feedback, we erase, add, and select the elements you like best. Our goal is to make the planning process a collaborative effort and to arrive at a collaborative result. Ultimately, your final plan is customized to your preferences, needs, and wishes. Read the full article