Asset protection plans.

DO YOU EVER RECOMMEND THE USE OF:
1)    Asset protection plans of the sort marketed currently in the US?
2)    Guernsey, Isle of Man or other trusts?
3)    Foreign corporations & Holding Companies
4)    Liechtenstein Foundations
5)    Owning your own bank
1. Asset protection plans established in your home country are totally worthless for tax avoidance. Only under the most far-fetched circumstances will they be any good at protecting you from the claims of plaintiffs, creditors or ex-wives. You will spend a lot of money and get nothing of any value. You will probably spend time in jail for contempt of court if you try to defend a case by saying “I no longer control my money, control is with a trustee in the Isle of Man – or in Liechtenstein!” Courts simply won’t buy this and will send you to jail until you make the money being sought by your creditor (or the tax collector) appear. The best way, the only way, to protect your ass and your assets is to make your ass and assets disappear. You keep your mouth shut and arrange for the paperwork and passports to be in place. If the heat back home gets really serious, then follow your assets and make your ass disappear also preferably before you are served with process in any serious lawsuit!


2, 3, 4. The problem with trusts, foundations, corporations and so on is that they involve other people in knowledge of your sensitive and personal financial affairs. If they are local people subject to the jurisdiction of a court where you are being sued, you can forget about any secrecy or protection. Thus, asset protection plans set up in your home country are going to be useless except under the most unlikely circumstances: Lloyd’s of London once sold an insurance policy to protect the insured against death from falling space debris. The policy cost US $25 and paid US $100,000 if you were killed by a meteor falling on you from outer space. The odds against cashing in were less than winning a couple million bucks in a lottery for a dollar “investment”. As J P Bamum said, “There’s a fool bom every minute!” I would put lottery players in the foolish category. Asset protection plan buyers are in the same category. Why? Because the only thing they are protected against is an event that will probably never happen in just the right circumstances so that the asset protection scheme will really work when it is needed. Customers for these plans, or for lotteries will not quit gambling or doing what they are doing just because I say they are irrational and foolish. Some people will continue to set up corporations, trusts, foundations and asset protection schemes for all the wrong reasons. They cost a lot to set up and run. Finally, they tend to tie you in with lawyers and accountants and reduce your flexibility and capacity for independent judgment. See my section on Banking Passports for a fuller discussion of this point. The only justification for using trusts, foundations, holding companies, etc, is if you are running an active business or professional practice and need them to insulate you from some types of business related lawsuits. This can usually be done more cheaply with liability insurance or secret offshore accounts. Or trust arrangements may be called for if you are getting on in years and you have heirs or beneficiaries that can’t manage money on their own. Finally, you should shop around and get prices from several sources. The same exact “Asset Protection Scheme” that one attorney sells for $50,000, can be had from an offshore bank for US $1000.
If you are young and in good health, or if you have a child, wife or partner you trust, it is better to keep your offshore passive money in an individual “pen-name”, making advance arrangements for disposition in the event of your incapacity or premature demise. Trusts, three-tiered holding companies, Liechtenstein Anstalts and so on are just a bunch of baloney if all you want to do is have a safe place to keep passive assets!
5. Should you own your own bank or insurance company? Only if you are going into the banking or insurance business. Or if you are a swindler who will sell people worthless insurance policies, bogus bank letters of credit, loan commitments etc. A bank or insurance charter is less than worthless for merely handling passive investments. Why less than worthless? Because owning a bank always involves substantial annual running costs and annual taxes or payments in lieu of taxes, plus accounting, filing and domicile fees. For US tax purposes, a bank or insurance company owned by a US citizen and doing business abroad can accumulate tax-free profits abroad. This is the big selling point that a promoter uses to sell you a bank charter for US $25,000 or more. He just bought the charter for US $2500 or less. But the problem is, to get this tax exemption, the bank must be a real bank (or insurance company) and not just a personal holding company for your assets. A real bank or holding company has mainly outside customers and makes its money in banking or insurance. Running a bank or insurance company is a full time job for anyone and usually involves the cost of many employees and multi-million dollar risks and loans. The typical charter buyer is much like the person who buys a noble title. You hang it on the wall and say “Mmmmmmm, that’s nice”. Aside from admiring the certificate and impressing a few friends who don’t know what it’s all about; an offshore bank charter is quite worthless.