Barbara Sadler: Asset Protection for Real Estate

There have always been detractors to Asset Protection Trusts for real estate. Most have been less than fully informed or have had an alternate agenda or product to promote. However, there is thoughtful analysis out there and one of my esteemed colleagues, whom I highly respect, comments regularly on why he believes the Foreign Asset Protection Trust doesn’t work.

In a recent installment, he cites the Arline Grant Case, which he points out has been touted by asset protection attorneys as a success story. The facts are that Mr. Grant established 2 separate trusts, one for himself and another for his wife Arline, in 2 separate offshore asset protection jurisdictions. He then proceeded to do 2 things.

Stiff the IRS for $36 Million bucks,
And then Die.

Firstly, stiffing the IRS for $36 Million should already tell you that this is not the kind of case either side should be citing as precedent. The IRS is no usual creditor and $36 Million is no usual amount. (And I was not one of the people who trumpeted it as a ‘success’). Much like the Anderson case, having the U.S federal government as the Plaintiff and having amounts in the tens of millions of dollars are simply bad facts that make bad law.

Nevertheless these are the facts and through the U.S. Court’s the IRS has aggressively pursued Arline to the point where Arline will be held in contempt if the Trustee does transfer any assets into the United States to anyone. Score one for the IRS.

But this post is not really about the Arline Grant case. While it is interesting, it is hardly a representative model for how I see real people with similar plans use them. I have been creating asset protection plans since 1997 and therefore have thousands of reference points from my own clients to comment on how these plans are really used. There are 3 primary ways my clients use their planning:

Reduce Fear of Lawsuits: Way #1

The first, and by far most important, use of the planning has little to do with academic arguments of technical correctness or backward looking judgments. It is more simple and more important. My clients use their planning to reduce stress caused by fear of the legal system.

While this may sound intangible, the benefits are very real. Our clients consistently report to me that they feel more free to engage in their work, and their life because they do not feel like they are risking everything they have worked a lifetime for over a mistake or a bad outcome. They have a lower level of overall stress, are happier to go to work, and produce more as a direct result.

It is a very similar feeling to the difference between driving your car without insurance, and knowing that you have insurance. This simple knowledge directly affects how enjoyable that experience really is.

Deter Frivolous Lawsuits: Way #2

While analyzing a case like Arline Grant is interesting, the planning is far more likely to be “used” in a much different way. I have had hundreds of calls from clients saying “Doug I need to use my plan”. What this means most often is that the existence of the plan itself is used to:

Discourage or deter the attacker from further action, and/or
Remove the Assets from the reach of the attacker, and/or
Dramatically strengthen the negotiating position of my client, and/or
Reducing the massive stress which the uncertainty of a lawsuit brings, allowing my clients to function during the 2-5 years an average case goes on.

Notice I did not say: Thwart a court from pursing the assets, such as Mrs. Grant has attempted to do. Why? Because in my experience with many cases over the years, I have had a total of 0.0% (Zero) that have made it through our protection to force an extraction of assets from a client.

We’re not saying it is not possible and won’t happen, it happened to Arline (albeit in very extreme circumstances). What I am saying is that arguing over issues that have a less than 0.01% chance of occurring is missing the forest for the trees. These cases that get all the press are the most extreme exceptions and typically represent people that are guilty of bad behavior. Concluding that Asset Protection Planning “doesn’t work” is not just throwing the “baby” but the whole family out with the bath water! Unfortunately all the successful cases don’t get all the press because the result is a lawsuit that is not filed or is settled quietly under favorable terms.

Get Your Financial Planning in Order: Way #3

The third way in which my clients use their planning may be the most important of all. They use it as a catalyst to get their financial and legal house in order. Most people DO NOT want to address their estate or death planning. It makes us all face our mortality and this is easy to push away. We just don’t want to think about it.

However, with Asset Protection there is a more pressing motivation. They DO want to keep what they have and continue to enjoy it. I know this is true, because 80% of the clients who come to me have not yet done even a simple estate plan. And yet they are calling me about Asset Protection.

Asset Protection Planning allows them to address the estate planning issues. I often work with local estate planning counsel of my clients who are very thankful that their clients are finally “getting this done.” And it doesn’t end there, the process has them looking at their insurance, investments, business structures, real estate. Basically, everything they have gets reviewed. All because the client is motivated to protect their assets!

Grow Your Personal Wealth: One More Way!

And if that is not enough there is a final way in which my clients tell me they have paid for their planning over and over again. THEY SAVE MORE. Because they feel protected, AND they have a dedicated place in which to save, they tend to focus more clearly, and put away more money. It’s like putting a Piggy Bank in your kids room instead of a “change drawer” The Piggy Bank will always end up with more money in it. And over 20 or 30 years of working life that is a lot of change!

These are the real world ways in which my clients use their asset protection every day of the week, every week of the year, and every year they have.

So what about Mrs. Arline Grant? Has her offshore planning failed? Ask yourself. The IRS still doesn’t have their money. The U.S. Courts haven’t been able to compel Arline to bring anything back, and Arline is still alive and free.

My prediction is that, just like in the Anderson case, somewhere down the line a “settlement” will be reached, both giving the IRS some money and leaving some for the family. I seriously doubt this would be the case if the planning had not been offshore.

Free Consultation with a Utah Asset Protection Lawyer

If you are here, you probably have a legal matter you need help with, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.