Watch out for Promoters and Scammers

There are many legal transferring tactics available under the code. But there are also many poorly structured plans and downright scams to beware of when seeking the right asset protection plan.

You don’t want to work with inexperienced counsel, no counsel, or promoters. There are some common issues with “do it yourself” (DIY) kits and those created by promoters; mainly that they are often based on some of the faulty logic and planning outlined above and often combine a variety of the mistakes that we’ve warned you about. Non-attorney promoters of DIY LLC kits, abusive or outright fraudulent trust structures (pure trusts, constitutional trusts, admiralty trusts and abusive private charitable foundations are just a few of many examples) have no real professional liability or oversight, nor do they have an attorney-client privileged relationship with you as a consumer. In plain English, that means every letter and email you exchange in the course of their “consultation” as these sales presentations are euphemistically referred to, should be expected to be fully discoverable by any 3rd party. Adding a final layer of risk, many of these plans are abusive from the perspective of the I.R.S. and you cannot rely upon sales materials, false (or forged) letters of opinion, or their marketing materials as a defense. You will be all alone and out-of-pocket if these issues are challenged by the I.R.S. The worst of these plans are not only defective from a creditor protection standpoint, they actually can create six and seven figure liabilities for the clients who are taken by them, and in some cases, criminal charges.

Why can’t we just insure our way to safety? This is a reasonable and common question clients and advisors often ask. In the most egregious cases of armchair quarterback misinformation, uninformed advisors tell their clients that the only asset protection they need is a good umbrella policy. This is flat out wrong, especially for the kind of successful people that need protection. Why? Because they are successful, visible and typically have assets above and beyond just the insurance policy itself, they are good targets from a net-worth perspective and litigators love people they can collect from…it’s what they do.

Transferring the bulk of assets to a spouse and/or children, especially after something has happened, will not protect assets from a lawsuit. Even if it did protect from liability, transferring assets to a spouse and/or children opens up another Pandora’s box.

Keeping in mind that there are thousands of lawsuits filed daily due to things like business disputes, employment grievances, “slip and fall” and auto accidents, consider this scenario:

Let’s suppose that a client transfers all of assets to their 18-year old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If the son “owns” a house and business, a sympathetic jury will undoubtedly take the possession away from the son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents and even friends. Also, gifting is limited to about $15K annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in having to answer the question, “Are you lying now regarding the date and validity of this transfer, or did you cheat the IRS?”  Many consumers using do-it-yourself planning discover these unpleasant scenarios the hard way.Asset Attorney Ike Devji

Co-authors: Ike Devji and Steve Savant are also co-authors of Money, the Name of the Game.