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Interview with Rob Lambert
Thinking of
placing money offshore to reduce your tax liability? Think carefully.
Not only is it a misconception that Americans can avoid taxes by
placing money offshore but also certain offshore stock accounts
can have dire consequences for the unwary investor.
"Offshore accounts
are taxable for U.S. citizens, period," says asset protection specialist
Robert Lambert, President of Asset Protection Corporation. "U.S.
citizens are taxed on worldwide income."
That means
if even your offshore trust or international business company is
domiciled in a tax haven, it is still subject to U.S. tax laws.
Offshore tax
havens such as the Bahamas, Belize and the Cayman Islands have gained
legendary status as places for wealthy individuals from CEOs to
drug barons to shield their money from U.S. tax laws. The countries'
banks are eager to attract new funds, offering maximum privacy in
return.
However, the
reality of tax havens may not live up to the legend.
"The myth of
the tax break is perpetuated by the companies that are offshore
and by unscrupulous promoters here," says Jay Adkisson, a U.S. attorney
and editor of a web site on offshore planning.
The U.S. government
doesn't restrict moving money offshore, but it does want to know
how much money is moved and when (to keep track of money
laundering) and it wants to know that it is receiving the appropriate
taxes on any dividends, interests, or gains made on moneys invested
offshore, says Adkisson. "In other words, the U.S. generally doesn't
care if you move assets offshore -- so long as you comply with all
reporting and tax requirements."
But understanding
U.S. tax law as it relates to foreign accounts and transactions
is just the beginning. Investors also need to know how an offshore
trust or corporation operates, how these entities must be reported
to the IRS, and how they are taxed.
If that weren't
concern enough, experts warn the lack of regulation in the offshore
industry makes it fertile ground for fraud. Rogue companies, many
of whom advertise on the Internet, are eager to swindle careless
investors striving for tax haven nirvana. Ever hear of the Dominion
of Melchizedek? It earned the dubious distinction as the first nation
in cyberspace. And it sells bogus bank licenses.
Nonetheless,
offshore accounts make sense for several reasons, including confidentiality
from claimants, ex-spouses and other parties and for asset protection,
where money in a properly structured account is protected from future
claims.
"The reasons
for moving assets offshore range from the mystique of being offshore
to legitimate concerns for asset protection and preserving wealth
for heirs," says Adkisson.
Do you need to protect assets? How much you have determines level
of security.
Rob Lambert
lost every penny in the 1980s, so he started Asset Protection to
tell other people how to protect themselves.
By Susan Decker
You've worked
hard to get where you are. And you've accumulated a home, a couple
of cars and a substantial amount of money. But a business failure,
or a lawsuit by someone who claims you injured them, could take
it all away. How do you protect yourself and your family? The answer
could be as simple as putting your home or business in the name
of your spouse and children, or as complex as an offshore trust.
In the 1980s, Rob Lambert overextended himself buying real estate
in the spiraling New York market. When property values took a dive,
he lost every penny he had. "I didn't have the brains to take a
portion of the money I had made and put it into a protected environment,"
he says. He started Asset Protection to tell others how to protect
their assets. Lambert, who wrote Asset Protection Trusts, also owns
a recording studio in West Hollywood, Calif., with his wife, country
singer Kelli Lidell.
Fear of
lawsuits
Today, fear
of lawsuits and a desire to protect a home and fortune -- of whatever
size -- is driving a rise in the number of lawyers, financial planners
and accountants who specialize in protecting people's assets. The
American Bar Association's lawyer locator service lists 236 lawyers
specializing in asset protection.
"People are
seeing what the risks are. They see the news about outrageous verdicts,"
says lawyer Robert Mintz of Del Mar, Calif., who has specialized
in asset protection for 20 years.
The biggest
jury verdict in 1998 involved a Texas businessman who claimed his
partners pushed him out of the firm he founded. A jury awarded him
$1.5 billion, according to Lawyers Weekly. Such outsize verdicts
usually are reduced on appeal or by settlement. Still, there is
reason to be concerned.
"People are
probably of the belief they won't be sued. Unfortunately, that's
not the case," says Don Griffin, a director with the National Association
of Independent Insurers.
Forty-one percent
of people involved in auto accidents in 1997 retained a lawyer,
and "it doesn't take an exorbitant award to devastate a person's
finances," he says.
Some unscrupulous
people use asset protection tactics to hide from creditors or to
try to duck the Internal Revenue Service. But there are many more
legitimate uses, says New York attorney Gideon Rothschild, chairman
of the Bar Association's committee on asset protection.
"If I'm a gas
station owner who can't get insurance for environmental claims,
and I sell the station, does that mean for the rest of my life my
assets are exposed?" he asks. "People should know there are legitimate
steps they can take at the right time to protect themselves."
The "right
time" is before a lawsuit is filed. If a judge thinks you set up
a trust or put property in your spouse's name to avoid paying a
debt, you could be in trouble.
Protecting
yourself
Some strategies
to discuss with an expert:
* Insurance.
Insurance usually is the first line of defense from a lawsuit, experts
say. Standard homeowner's and professional malpractice policies
cover general liability and provide a lawyer to defend you when
someone falls on your property or claims you were negligent in your
profession.
A separate
"umbrella" liability policy that kicks in when regular insurance
benefits are exhausted will handle most big claims.
* The law.
No creditor can get at money that's due you under an employer-provided
pension plan. That's protected by federal law.
Beyond that,
rules on what a creditor can force you to give up to pay a debt
or a judgment vary from state to state.
Some states
protect your home, 75% of your income and any retirement accounts.
* Titling.
If you think you might be sued, put assets in the name of a spouse
or family member who is at lower risk of lawsuits. This works for
small amounts but can cause problems with estate taxes if the amount
gets too large.
Also, you can
lose control of assets that are legally in someone else's name.
Joint ownership usually is a bad idea for a variety of reasons.
If you get sued, everything that is jointly owned can be taken.
* Businesses
and real estate. Limited partnerships and limited liability companies
split ownership in an attempt to keep creditors from seizing businesses
and real estate. A basic family partnership involves giving each
member of your family a share of a business, with no one having
a majority share.
Kansas accountant,
Vernon Jacobs, runs an asset protection newsletter. His small publishing
company is split among family members. If a creditor comes after
him, "they have to deal with my wife and daughters."
* Trusts. Offshore
trusts are popular because a judgment from U.S. courts may not be
recognized in another country. But they are controversial. Some
states also have enacted protective trust laws, but they haven't
been tested in court.
"I think asset
protection is being oversold and over marketed. People are sold
an offshore trust for $20,000 when they are better off with an umbrella
(insurance) policy," [assuming they can get proper coverage....
which they can't at any price, says Rob Lambert] says Jay Adkisson,
an Irvine, Calif.-based asset protection lawyer whose Web site (www.quatloos.com)
exposes scams involving asset protection.
Behind most
asset protection is a simple premise -- the less money available
to someone who might sue you, the less likely you are to be sued.
A $10 million malpractice insurance policy or a fat bank account
can get lawyers salivating.
Shrink the
pot, and fewer will bother to sue.
Anyone with
some money saved needs some level of protection. How much depends
on how big your bank account is. A lawyer, financial planner or
accountant should be able to help you decide how far to go.
Interview with Rob Lambert on the issues of Fraud in the Asset Protection
Community
Nowhere to
Hide
From the June
14, 2000 issue of Time Magazine, pg 248
…"Putting
your assets in a trust, in banking friendly nations such as the
Cayman Islands is becoming popular. And it can protect assets if
you get sued. But foreign trusts do not excuse you from paying
taxes. Yet that's exactly the tip you'll get from thousands
of websites offering "expert" advice on moving your money offshore.
If the site recommends a "pure" or "constitutional" trust, steer
clear." Read about this and other traps
and scams.
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