Asset Protection & Becoming Judgment Proof

Herein, you'll find asset protection ideas that were written by Adam Starchild, the author of over twenty business books during the past twenty years. These are not mere theory, but proven ideas that work. No teaser copy here - he provides complete working samples, including names and addresses, in the belief that once something works for you, there is an incentive to buy the book to learn other techniques. The only names and addresses given are ones of unquestioned legitimacy that he won't be embarrassed to have readers ask him about some years in the future. They are editorial recommendations, not advertising.

Why Asset Protection Is Needed By Ordinary People

We now have lawsuits being filed at the rate of one hundred million cases a year. Many of these suits have nothing to do with right and wrong, but instead, are predicated on the desire of one party to extract wealth from another party. In many cases, this desire is not for real wealth but only a desire to extract small payments as "nuisance" settlements because it is cheaper to pay than to fight.

If we assume that one is lucky enough to make it through the legal maze without becoming a target, then at the time of death the government under today's law would take a portion of a family's wealth as the transfer is made from mother and father to children.

For many people the threshold issue in asset protection is: do I need it? Many people believe "this won't happen to me, it can't happen to my business, my family is safe, because we don't do anything that's dangerous." The reality of life in America is that you don't have to do anything dangerous; all you really have to do is be in the wrong place at the wrong time. Ordinary people have extraordinary problems. In many cases these problems are not problems of their own doing, they were simply matters of circumstance.

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Using Tax Havens in Asset Protection

Many times people place corporations, trusts, and family limited partnerships in tax havens. Depending upon the value and nature of the assets to be protected, this can be well worth the extra cost. The idea is that once a claimant has won their suit in the United States, they would then have to begin a new suit in the foreign country or countries in order to collect on the assets, in addition to whatever built-in protection there is through using such devices such as foreign limited partnerships. Obviously if the foreign partnership owns U.S. real estate, not much has been accomplished, because it is too easy to attach the real estate itself and proceed in a U.S. court, ignoring the foreign judicial system. But if a family limited partnership registered in Guernsey has bank accounts in Luxembourg, an expensive nightmare has been created for the creditor, who may find it not worth proceeding, or who may be interested in negotiating a much lower settlement just to get something.


If you want to gain a good understanding of how the government views tax havens, read Tax Havens and Their Uses by United States Taxpayers by Richard Gordon. Frequently referred to as "The Gordon Report," this was a 1981 U.S. Treasury Department study prepared at the request of Congress. It gives considerable detail and examples of the uses of tax havens. Recently reprinted after being unavailable for over a decade, anyone interested in tax havens who has not studied the work will find much still useful information in it.

For a basic introduction to tax havens, read Using Offshore Havens For Privacy and Profit.


NOTE: In using tax havens for asset protection you are not necessarily using either their tax advantages or their secrecy provisions. You are simply using them as a tax neutral place to base these entities, while still paying your taxes and being able to disclose the assets should you need to in a lawsuit. By using tax havens for this purpose without being concerned with using secrecy provisions in the laws of the haven country, you don't put yourself in the position of committing perjury and you haven't created some flimsy plan that falls apart as soon as there is the inevitable leak in your secrecy shield.

For similar reasons you are using the haven for its tax neutrality, to avoid adding foreign taxes to your situation, not as a way to avoid U.S. taxes.

Of course in some cases, with careful planning, it is possible to achieve U.S. tax savings as well.

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Asset Protection Using Swiss Annuities

Saving for a secure retirement has never been more difficult. U.S. taxes severely penalize savings, and efforts to cut taxes on savings are routinely derided by economically ignorant politicians as "giveaways" to the rich.

And if you still manage to put money aside, despite punitive taxes, where do you invest it? Banking systems are tottering in both the United States and Japan. Nor can insurance companies necessarily be trusted anymore - as anyone who bought annuities from California's First Executive Life can bitterly attest.

And even if you manage to save and invest successfully, a third barrier looms between you and secure retirement - a lawsuit could easily wipe out everything you own. In the United States, especially, anyone who looks like he might have money is at risk of being victimized by a frivolous or vengeful lawsuit - with potentially devastating consequences.

If all this makes a secure retirement sound like an impossible dream, take heart. There is a way that you can save on your taxes and protect your hard-earned assets against seizure by creditors. Not only can you avoid the kinds of risks that brought down the customers of First Executive Life, but you can protect against the ravages of inflation as well.

Best of all, it's a totally private form of investment. Absolutely nobody need know about it -- not the government, your nosey mother-in-law, or even the hostile lawyer you may someday have the misfortune to confront.

This amazing form of investment is the Swiss annuity.

And if you're worried about inflation, you can denominate your annuity in Swiss francs. One cumulative result of follies in Washington, D.C. is that the U.S. dollar has lost 90% of its purchasing power since 1949.

In contrast to the U.S. dollar, Swiss currency is still substantially backed by gold. Thus, the Swiss franc is the world's sweetheart currency. Its value has risen from US$0.23 in 1971 to over US$0.80 in 1995.

This sort of financial conservatism is also your guarantee against the sort of catastrophe that ruined customers and policyholders of U.S. insurance companies that went belly up in the 1990s. In the 130-year history of the Swiss insurance industry, not one company has ever closed its doors or failed to meet its obligations.

A Swiss annuity also offers excellent asset protection. Under Swiss law, an annuity cannot be seized by any court-ordered collection procedure instigated by creditors. So even if you were to become a victim of a lawsuit in litigious North America, your creditors could not enforce a judgment against your annuity in Switzerland.

Of course, one way to avoid being sued in the first place is to avoid looking like an attractive target. Remember, lawyers typically take these cases on a contingency basis. So you have to look like your pockets are deep enough to make it worth their while.

If you don't look like you have a lot of money, you have virtually nothing to worry about. No fee-hungry lawyer will waste his time trying to squeeze blood from a stone.

Unfortunately, there is no financial privacy at all in the United States today. Any insurance salesman, Treasury agent, credit-rating agency employee or private investigator worth his salt can find out virtually to the last penny exactly what you've got and what you owe.

A Swiss annuity, however, may be one of the world's few remaining totally private investments. Nether the fact that you own an annuity nor the earnings gained from it will be reported by Swiss insurance companies to the U.S. government or any foreign authority.

U.S. citizens are required to report their ownership of foreign financial accounts - such as bank and brokerage accounts - to the Internal Revenue Service if the sum of the accounts totals $10,000 or more in any calendar year. Swiss annuities, however, are legally exempt from this reporting requirement, because they are not a bank or brokerage account.

A single-premium Swiss annuity combines the privacy of Swiss banking with the safety of an annuity.

Another advantage is that there are no up-front fees. So all the money you put in goes to work right away. Furthermore, you can withdraw your funds at any time. (You are, however, subject to a withdrawal fee of SFr500 if you cash out before the end of the first year.)

Profits earned in your Swiss annuity are free from Swiss taxes. And under U.S. law, corporate pension plans, Keoghs, or Individual Retirement Accounts (IRAs) can be invested or rolled over into Swiss annuities. The minimum investment required for Swiss annuities is $20,000.

Swiss annuities are one of the best investment vehicles you can find if you value safety and stable returns on your capital. For more information, contact:

JML Jurg M. Lattmann AG
Swiss Investment Counsellors

JML Swiss Investment Counsellors is an independent group of financial advisors. Since 1974 they have specialized in Swiss franc insurance, gold and selected Swiss-bank managed investments for overseas and European clients. The group serves over 20,000 clients worldwide with investments through JML of more than 2 billion Swiss francs. Their services are free of charge to you because they are paid by the renowned companies with which you invest your money. The commissions and fees of these institutions are standard, and all transactions are subject to strict regulation by the Swiss authorities.

All of their staff are fluent in English, and understand the special concerns of the international investor. They know about all the many little details that are critical to you as a non-Swiss investor, and have answers to your tax questions and other legalities.

A lot more information on Swiss investing and annuities is available at Fortress Switzerland.

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Corporations

Forming a corporation is one of the most valuable and versatile steps you can take in promoting your financial well being. The number one reason for forming a corporation is protection from personal liability.

Incorporating your business separates your corporate assets from your personal assets so your personal assets are usually not at risk.

A Delaware corporation is an extremely flexible tool for organizing your company and its assets favorably. A Delaware incorporation may provide an optimal legal structure no matter where it is located, the type of business conducted or the size of the company.

The benefits of incorporation vary from state to state. Delaware is nationally recognized as "The Corporation State." Over 50% of the Fortune 500 companies are incorporated in Delaware. Delaware is a "corporation friendly" state. Delaware offers a favorable system to maximize the benefits of incorporation to a small businessman. It is your legal right to incorporate; no special status is needed.

For more information on a highly-recommended service that can form a corporation for you in Delaware contact The Company Corporation®, the largest direct incorporation company in the U.S.

Of great importance, you should know that an independent contractor doing business as a corporation stands the lowest risk of being audited by the IRS. The major reason for this interesting statistic we explained a moment ago; the IRS is much more likely to audit a payor firm where it has the possibility of reclassifying as "employees" a large number of workers supposedly operating as "independent contractors." That approach gives the IRS lots of back taxes and penalties. An audit at the level of the payee/worker would catch only one worker in reclassification, a waste of time and energy from the IRS viewpoint.

Independent contractors receive a Form 1099 at the end of the year. Like the W2, this form reports to the IRS the amounts paid, but in the case of the report on 1099 there is no tax withheld.

Form 1099 is required for payments over $600 per year, to individuals, partnerships, and other unincorporated entities. Certainly, receiving only one Form 1099 would bolster an IRS argument that an individual was an employee rather than an independent contractor -- so it is important to develop a variety of income sources (in addition to the good business sense of diversifying one's income).

There is no Form 1099 filed for payments to corporations, and as a practical matter this helps the incorporated independent contractor step aside from the entire independent contractor vs. employee debate. A corporation, by definition, cannot be an employee. And the fact that no Form 1099 even appears in the IRS computer next to the individual's name keeps one from even being swept into a random sampling of independent contractors for audit.

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How to Keep The IRS
-- and Other Snoops --
Out of Your Safe Deposit Box

A safe deposit box is a veritable necessity for keeping things like offshore bank books, precious metals certificates, bearer securities, cash, coins, etc. Yet a safe deposit box can create its own problems.

One obvious problem is that upon death of the boxholder, the bank is required to deny access to the box until a properly appointed executor and an IRS agent open the box. The IRS will presume that all assets are the property of the deceased, so that if you are holding assets that you have given in trust to your children, they will become part of the taxable estate - or worse, they may be applied to some debt of the estate. Unreported foreign accounts could even be seized as being part of a crime. IRS agents tend to assume criminality, and you are no longer available to provide an alternative honest explanation.

But there are other safe deposit box problems that are at least as important as dealing with the box upon death. For example, if the box is in one name only, many banks will not honor a power of attorney to let somebody else have access to the box in an emergency, unless the power of attorney is signed in person in the bank. If you are in a foreign hospital, and need to authorize your spouse to open the box, this could become a major problem. Even if the bank will accept a notarized power of attorney, there may be problems in arranging for a foreign notary to visit, then having the notary certificate authenticated by the U.S. Embassy or Consulate, and sending it to the bank.

The solution is to form a corporation to hold your principal safe deposit box. The corporation can change the names of the people authorized to access the box simply by furnishing the bank with an updated resolution form. And a box belonging to a corporation is not frozen by a bank because of the death of a natural person, even if that person is the sole person then having access to the box.

To do this properly, we recommend that the corporation be used only to hold the safe deposit box. This provides the maximum privacy, because the corporation has no activities to cause it to be audited or investigated. Under federal law, even an inactive corporation must file a tax return, but a corporate return showing no income can be filled in each year without having to pay an accountant to do it. (Usually after three years of zero income returns, the IRS sends out a form letter saying there is no need to file further returns unless the corporation begins to have income.)

The other obligation that must be met is to ensure that the corporation is in good standing, so that you don't have a crisis in which the corporation no longer exists because the annual reports were not filed. Delaware is the best state for this, because an inactive corporation only needs to file a simple annual return and pay an annual fee to the state (and an annual fee to its Delaware registered agent.)

Privacy can be maintained by having the registered agent file the annual return with the state, signing it as "incorporator," which keeps the list of officers off the state records. Most large corporation services will not provide annual report filing services, but the one mentioned below will do so. To be entirely safe, one can even leave the registered agent with funds to prepay the state fees each year, thus ensuring that there is no accidental termination of the corporation because of a late payment.

Since the holding of a safe deposit box is not deemed to be conducting business by any state, the Delaware corporation is not required to qualify to do business in the state in which the box is held, thus improving privacy and keeping the existence of the corporation out of the public records in your own state.

Keeping the IRS away is not the only reason to have a corporation hold your safe deposit box. It also keeps a personal creditor from being ableto have the box frozen by a court for an inspection of the contents, which can easily happen during a lawsuit or other claim against you.

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Gold Certificates Provide Portable Privacy

A gold certificate provides you with an attractive alternative to investing in physical metal, and offers a way to transfer assets out of the country.

The Mocatta Delivery Order (MDO) is a title document representing ownership of a specific, numbered unit of gold, silver or platinum. With origins dating back to 1671, Mocatta is the oldest bullion trading firm in the world. As one of the world's most experienced precious metals organizations, Mocatta created the MDO to satisfy the highest criteria of privacy, safety, liquidity and flexibility.

You can choose storage in either Wilmington, Delaware or Zurich, Switzerland. During the storage the metal is fully insured under a Lloyds of London insurance policy.

The certificate is issued in your name (or the name of a corporation or trust, if you prefer) and identifies the physical gold, silver, or platinum owned. MDOs offer transfer of ownership features that enable the owner to sell, assign or collateralize the metal easily, yet provide the protection of non-negotiability, since a lost document can be replaced, unlike a bearer security. Since the order is non-negotiable, it does not have to be reported if it is taken in or out of the United States. There is no reporting of the purchase to the IRS. An MDO can be issued in the name of a family limited partnership or offshore trust, or assigned to one of them as a means of transferring ownership of the metal when the asset protection entity is created.

Asset Strategies International was founded in 1982 by two of the former senior officers of Deak-Perera, at the time the nation's oldest and largest precious metals and foreign exchange firm. The principals, Michael Checkan and Glen Kirsch have been in the precious metals/foreign exchange business for a combined total of 50 years. They are well known in the financial newsletter industry and at one time or another have been recognized as a "recommended vendor" by many of the writers in the newsletter industry.

Asset Strategies International helped the Government of Western Australia create the Perth Mint Certificate Program.

These asset protection ideas were written by Adam Starchild, the author of over twenty business books during the past twenty years, including Keep What You Own: Protect Your Money, Property, and Family From Courts, Creditors, and the IRS.


Adam Starchild has been named December 1996 Author of the Month by Paladin Press.


© 1997 Adam Starchild

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