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Articles >
Asset Protection > Article |
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Could You Lose All You Own? |
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By Ray Chodos and Adam Chodos, Esq., CPA |
 Often
we hear news reports about a jury awarding a plaintiff millions in
damages. It seems, even when there was no intent, that liability
judgments are based on defendants wealth rather than wrongdoing. Our
legal system makes it easy for potential plaintiffs to bring lawsuits and
class actions due to contingency fee arrangements: instead of paying a
lawyer by the hour, the lawyer keeps a percentage of the award if he
wins. Contingency fees may encourage litigation because the plaintiff
bears no risk or costs in suing (lawsuit lottery). Consider the expansion
of "nuisance suits" in which a plaintiff sues and uses the embarrassment
and cost of defense to extract a settlement. The United States is host to
95% of lawsuits filed worldwide. Could your family be sued for something
you weren't directly involved in, and lose everything? In light of our
litigious environment it has become increasingly important for those of
substance to understand how to protect wealth.
Negligence in hiring case (Texas, August, 2000):
The plaintiff was driving home when an 18-wheeler pulled out in front
of him. The Plaintiff collided with the truck at about 25 mph and
suffered multiple injuries including a head trauma resulting in cognitive
and vision problems. The lawsuit alleged the trucker made an illegal and
improper turn, failed to have working running lights, and the owner was
sued for negligent hiring as the driver had a colorful driving history.
After deliberating for two hours, a jury found the trucking company
negligent and awarded $4.6 million. What was the trucking companys
liability insurance maximum coverage? How many businesses can sustain
such a judgment and survive? Not all claims are covered, not all risks
are insurable, and some judgments will exceed policy limits.
Jury awards Tucson woman $450,000 who stepped into hole at a park
(Associated Press, April 2001).
Five years after spraining an ankle tripping into a hole at Reid Park, a
Tucson jury awarded a 26 year old woman $450,000. An assistant city
attorney calls the award astonishing. The attorney for Michele Nations
says the case hinged on the city's responsibility to post adequate
warning about burrowing squirrels and to provide a safe alternative to
dodging holes.
What can be done?
Claims and attachments (a legal means to take your assets) seem to
follow asset ownership; the more you own the greater a target you
present. Is there a way to enjoy and control assets without actual owning
them? An asset insulation entity that derives protection characteristics
from state law may be quite useful. Because state law varies, some states
have more favorable regulations; you can choose the jurisdictions laws
that best suits you. Just as corporations form their companies in certain
states (usually Delaware) to benefit from more favorable corporate laws,
legal entities can be created in your state of choice. There are no
requirements to reside in, do business in, or even maintain substantial
assets in your chosen state.
For larger estates or those with greater risk exposure, the ultimate
in asset protection is an asset insulation entity combined with an
offshore self settled trust. Trust laws of several countries, such as the
Cook Islands, are written to be legally attractive to U.S. estate owners.
While assets remain in the United States and are controlled by the estate
owner, an offshore trust can own all the non-controlling equity
interests. The obstacles a claimant must overcome act as a deterrent to
litigation. A claimant must engage a foreign licensed attorney to
litigate the claim in the foreign country where the entity resides;
contingency fees are prohibited requiring a plaintiff to pay full legal
fees. As a further deterrent; there is only a small time window in which
to bring forth a claim. If the plaintiff loses, he must pay the legal
fees of both sides. The probability of a successful legal attachment is
minimal. Most complaints are settled when attachment judgment options are
removed. WPG, LLC does not advocate or support asset protection intended
to avoid legitimate liabilities, or for defrauding anyone.
Since 1997, Alaska and several other states have enacted trust
legislation designed to emulate off shore asset protection laws. The
onshore laws are quite favorable and there is appeal to utilizing United
States laws, however, there has been insufficient case law upon which to
rely as yet (2002). We have yet to be tested in the courts. While less
likely to be effective in an aggressive plaintiff pursuit than offshore,
they merit investigation. Ultimately when all we own is at risk, the
offshore advantages are difficult to disregard.
Asset protection has become an integral component of comprehensive
financial planning for families of substance and their professional
advisors. While this specialty is not new, the litigious times in which
we reside warrant awareness of perils and safeguards that cannot be
ignored. |
 Explore
asset protection for my family |
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Ray Chodos and Adam Chodos, Esq., CPA are members of
the Wealth Preservation Group LLC, a Greenwich, Connecticut based planning
organization specializing in wealth preservation, business succession,
executive benefits, interacting with the legal and accounting communities.
[www.WealthPreserve.com] |
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Divorce and Your Finances The 7 Most Costly Mistakes |
| Each
year there are nearly 1 million divorces in the United States, or about
50% of all marriages1. The real tragedy, however, is the financial
devastation that occurs to many individuals after their divorce. |
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House rich, but cash poor? |
| For many senior homeowners, the
prospect of living a longer life only gets better with each new
advancement in medicine. But these medical "miracles" don't come
cheap, and the rising costs of institutional health care exceed even
the most aggressive inflation estimates. |
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How Being
At Fault While Not Financially Responsible Works |
| While sitting at a traffic light
waiting for the green light, you are slammed from the rear by a
drunk driver who never saw you and didn't even attempt to stop.
Clearly, you are an innocent victim with no fault in the accident. |
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