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Federal Court Judge: "And what Law are you basing this argument on? "
Darryl Kerrigan: "The Law of bloody common sense! … A man’s home is his castle … You can’t just walk in and steal our home.” (The Castle, 1997)
Do courts really protect your property rights?
The Castle is a 1997 Australian comedy filmed in 11 days on a very small budget that gained widespread acclaim at local box offices, grossing over $10 million. The theme - a man’s home is his castle – went beyond the proverbial expression of personal privacy and security, as the main character, Darryl Kerrigan, fought to protect his home from government possession.
Darryl Kerrigan’s “law of common sense” is becoming an increasingly rare commodity today when it comes to dealing with personal property rights. Not just in Australia, but everywhere, particularly in America. In recent years there has been a gradual, but significant, erosion of traditional protections for property rights. Property and law were born together, and will die together. Before laws were made there were no property rights. Take away laws, and property rights cease. There is a very close link between property rights and the protection of property and liberties throughout the legal system.
American founding father, and second US president, John Adams, noted that “Property is surely a right of mankind as real as liberty … Property must be secured or liberty cannot exist”. The evidence is irrefutable that the protection of property rights is the key to wealth accumulation, and a secure and stable society.
As a long time conservative and Libertarian, I’ve always believed my home is my castle. My position on all things government is that the less, the better. Notwithstanding, many argue there are big problems in government that need addressing. Two major concerns are government confiscation and litigation risk, and thus a motivating factor for asset protection planning.
In reality, the taking of assets from litigation risks is an even greater threat to property rights than government confiscation. The taking of someone’s property is rarely a good thing, and some have joined organizations with like-minded individuals who are increasingly sick of lawsuits. Maybe this has something to do with the fact there are more lawyers in Washington DC, than in all of Japan.
The right to one’s property has been enshrined in Article 17 of the Universal Declaration of Human Rights, which provides that “no one shall be arbitrarily deprived of his property”. Property rights are also contained in other various forms, for example within the American Convention on Human Rights and the Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms. Similar protections are also offered by the US Constitution which provides a level of constitutional protection for property rights through the due process clauses of the Fifth and Fourteenth Amendments and the 'takings clause' of the Fifth Amendment. Private property rights are even recognized in China, with the Central Committee of the Chinese Communist Party amending the Chinese Constitution to include such rights.
Therefore, the key issue here is whether these guarantees end up offering substantive protections, or whether in practice, they are merely symbolic and inadequate to genuinely protect property rights. Unfortunately, some courts today don't seem much interested in these conventions.
A man’s – or a woman’s – home should be their castle. And their assets, which the castle represents, shouldn't constantly be subject to appropriation by another person, an organization, or a group.
A big threat to property rights is the litigation-gone-crazy culture, which continues to grow transferring ownership of assets from one individual to another. The USFEF estimated that there are now over 40 million lawsuits filed every year in the United States, and that works out to 1.3 lawsuits every second of every day of the entire year. Only six years ago when an earlier version of this newsletter was sent there were only 15 million lawsuites filed every year.
Ninety five percent of all US cases are filed in state courts, with 257,000 pending appeals filed. The US Court of Appeals pending was 58,951. And 795,000 bankruptcy cases were pending. The US Supreme Court receive approximately 7,000 requests each year, and will hear roughly 80 of those cases. And the list of new and pending lawsuits grows each year.
Today, more American employees sue their employers than ever before. Debtors are filing more lawsuits against creditors for their collection tactics. There’s been a significant increase in employment discrimination lawsuits. Class action securities lawsuits have soared in past years.
Sixty percent of all doctors over age 55 have been sued at least once - and all doctors will eventually be sued - according to the AMA. Even the record industry continues to escalate lawsuits against music fans for Internet file sharing. And a mother sued New York City for $900 Trillion for taking her kids away, even though the Family Court held that she was mentally unstable and suffered from hallucinations and delusions. I know $900 Trillion would make me feel better too. It seems someone else's money always makes plaintiffs and their lawyers feel good.
Some of the looniest lawsuits?
Charleston, SC resident Emily Braxton filed a suit against Oprah Winfrey. Braxton claimed that Winfrey stole her Social Security funds and used them to pay the US Treasury for nuclear warfare. Braxton has a bit of a track record in the Kanawha court system, having filed numerous lawsuits in recent years, with defendants such as T.D. Jakes and George W. Bush.
In Utah, a woman following her Google Maps directions was hit by a car. This story seems quite unfortunate until you read the details. The woman, Lauren Rosenberg, followed the directions literally, meaning she walked across a busy highway. She sued Google for not warning her that crossing a busy highway might be dangerous.
And remember the E-Trade milk-aholic talking baby commercial named Lindsay? Of course, Lindsay Lohan jumped to the conclusion that this character was referring to her. She sued E-Trade for the $100 million suffering that the commercial caused her. E-Trade claimed that the name was picked due to its popularity. Apparently the case was settled for an undisclosed amount.
Any wonder why smart, forwarding thinking individuals take steps to protect their assets before they are sued? It is an unfortunate reality that private property rights are regularly being undermined by the actions of others at all levels today. The court system has become a convenient institution to appropriate hard-earned assets from others.
Your Castle, Your Assets
It is for these reasons the evolution of legal strategies has grown more sophisticated to protect individuals from capricious claims. As a first step, in our point of view, all individuals with any measurable assets should proactively take full advantage of the various legal structures and alternative means of ownership, found in the laws of certain venues, which provide superior protection against frivolous claimants.
However, over time, the advantages of company limited liability from capricious claims have been diluted. For example, there are a number of methods to 'pierce the veil' of family owned companies. If successfully challenged, and the company veil is pierced, the asset protection benefits may be compromised.
Therefore, as a second step, the use of international asset protective trusts with integrated estate planning has become an increasingly accepted and successful practice.
If you are a business owner, physician or health care practitioner, attorney, accountant or other professional which requires that you maintain professional liability insurance coverage, or have acquired any measurable assets, you are perceived to be a 'deep pocket' and, as such, you are far more likely to attract litigation. Poor people are rarely sued.
The idea of asset protection is nothing new. Consider home insurance as an example. A policy is acquired when there is no expectation of a fire or other calamity to the home. Annual premiums are paid with hopes the policy will never be needed. Homeowner’s policies are closely tied to home ownership, yet they are filled with exemptions and exclusions and do not cover all perils. And too, insurance companies can and do go bankrupt, or deny coverage for many reasons.
By comparison, an international asset protection trust is established to protect assets at a time when there is no expectation that assets will need protection. On one hand it can be considered an insurance policy designed to protect assets in the event of a threat, regardless of the threat arising. The trust continues each year in the hope that the protection will never be needed.
But the asset protection trust has other purposes, including integrated estate planning, probate avoidance, privacy, international investment diversification, pre-migration planning, and ensuring a smooth transition of assets upon death, and more.
Asset protection trusts combined with estate planning and other legitimate purposes, used in an international context, is not a new concept. An international trust is a prime - and superior - example.
An international trust combined with asset protection, estate planning and other legitimate purposes, is simply an extension of long established planning strategies going back two millennium to the days when Roman soldiers were heading off to battle. Trusts have been used for centuries in the UK and Europe, designed to safeguard against threats such as asset protection against creditors, monetary exchange controls, forced repatriation of assets and confiscatory tax rates.
The only real issue is whether you should create a trust established under local or domestic venues, or instead under a more advantageous offshore jurisdiction specifically designed to offer superior asset protection.
There are a number of reasons why an international trust is widely respected in wealth planning circles as being a superior planning tool and more flexible than the local, state variety. One important reason is that an international trust allows an increased ability to retain benefits and control under the trust placing assets out of the reach of claimants.
In the US, local trust laws generally restrict the benefits and control over a self created trust. Also in the US, there are trust laws restricting the trust creators from benefiting in whole or in part when one of the trust goals is the preservation of trust assets from creditors. While a trust created for the benefit of the settlor of the trust is a valid trust, it is ineffective to creditors of the settlor. Even though, for example, Alaska, Delaware, and other recently enacted local state laws are exceptions to the rule against self-settled spendthrift trusts, the trust laws in numerous offshore financial centers are far still superior. When implemented correctly, the offshore centers’ trust law protective provisions are more flexible and permissive with regard to the design of a self-settled international trust.
And these international trusts are much lower targets for a lawsuit. To the contrary, a local state trust remains subject to the jurisdiction of the local and other state courts, and can reasonably be expected to be a target in litigation if the trust holds assets anywhere of any value. It doesn’t take much effort for a plaintiff’s legal counsel to be creative subjecting a local state trust to the local court rules. This is one of the many reasons why an international trust properly drafted and implemented often avoids being named as a defendant in a lawsuit.
Another reason why an international trust is superior to a local state trust is that it erects practical barriers for the plaintiff and their lawyers. This means the mere existence of the international aspect of the trust can have an impact on how far a claimant is willing to go to pursue their claim, and how much they are willing to pay.
Other benefits of an international trust over a local state trust include conflict of law issues between US states (when multiple state parties are involved, which state law applies?); Full Faith and Credit laws (Federal laws requiring judgments in one state be recognized and enforced in another state); results orientated activist judges (increasingly a problem when judges are more concerned in results and not following the law); Fraudulent Conveyances Statutes (easy to unwind a domestic trust transfer unlike in offshore protective jurisdictions); and various 'clawback' provisions under local bankruptcy laws (which offshore asset protection jurisdictions do not recognize).
Significantly, the international trust laws of many international financial centers provide that judgments foreign to that venue are not to be given force and effect. The required burden of proof in many international centers rests on the party challenging asset transfers, and does not shift to the individual who transferred assets into the trust. The standard of proof in a claim is a much higher standard of “beyond reasonable doubt.”
What’s more, the statute of limitations for challenging asset transfers to the trust begins to run from the date of transfer and not from the date the transfer is 'discovered' by a claimant. And it is much more expensive for a claimant to pursue a claim out of state, let alone in one or more foreign countries. A claimant can also be simply scared off by the psychological barriers of dealing with foreign parties, foreign customs, and foreign legal systems.
For these and many other reasons, international trusts ultimately are superior in protecting your assets than the local state variety. The trust laws of some venues are simply more asset protective specific, and will ultimately succeed because they are legally sound, not because of smoke and mirrors or secrecy. At the end of the day, building a protective castle around your assets make good sense. Follow this link to more tips, or view our complimentary past articles.
Things happen in life when we least expect them. The ultimate goal of the international trust is weathering the litigation and financial storm better than you otherwise would, had you not engaged in the planning.
Take steps today to build your protective castle around your assets. You’ve spent a lifetime earning them, so why let them to slip away overnight?
To learn more about the use of international trusts for integrated estate planning and asset protection, start with How to Legally Protect Your Assets, 2nd edition. And to learn more about the correct way to go offshore, read Offshore Living & Investing, 2nd edition.
And if you wish to start now and learn how to proceed with a confidential consultation to review your personal situation to accomplish your objectives, then contact me.
Until next time….
David
David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)
Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272
Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328
Brisbane, Australia:
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999
(Licensed to Practice Law in U.S. States & Federal Courts; Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; & Assoc. Member Queensland Law Society, AU - Foreign Lawyer)
The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.
(c) Copyright by David A. Tanzer & Associates, P.C. All rights reserved. Except as permitted under the United States Copyright Act of 1976, as amended, and pursuant to the laws of all countries, no part hereof may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, electronic or otherwise, without the prior written permission of David A. Tanzer & Associates, P.C. Reprint in whole or part strictly prohibited unless prior written permission is granted. International Copyright protected under the Berne Convention, Universal Copyright Convention and laws of all other Copyright protected countries, and consistent with the World Trade Organization TRIPS.
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