Robert D. Gillen, Esq., is happy to
share the insights he has developed in asset protection
planning. Click on the Frequently Asked Question you wish to
learn more about:
Who Should Consider Lawsuit and Asset
Protection Planning?
Any person who has a positive net worth that they wish to
protect from future lawsuits or any professionals who have
exposure to professional liability should consider how their
lives would be affected if they lost everything tomorrow.
Those who are interested in protecting what they have
already earned from future lawsuits and creditor claims
include doctors, lawyers, accountants, architects, home
builders, land developers, business owners, owners of rental
properties, executives, persons sitting on any board of
directors, retirees and virtually anyone who desires to
preserve their accumulated wealth for their and their
family’s use. Other common uses of this type of planning are
for those who anticipate selling or who have recently sold
their business, those who are considering marriage or
remarriage, or anyone who anticipates receiving a
significant inheritance.
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How About Those Who May Have Exposure
to Lawsuits?
Today’s society is very litigious indeed. Some of most
common types of lawsuits arise from failed marriages,
automobile accidents and business activities. With the
divorce rate over fifty percent, we can safely estimate that
half of us will end up divorced at least once. Since
virtually every person of even modest means has one or more
cars, we can also foresee a large number of personal
lawsuits being filed as a result of car accidents. In the
areas where my two offices are located, the average age is
around forty and a middle executive earns about $150,000 per
year. Should you have an automobile accident, the claim for
lost wages alone would be over $3,750,000 assuming that
executive would work to age sixty-five and have no increase
in his or her salary. Business claims have been increasing
over the past years and no business is free from claims
based on slip and falls, assaults in parking lots, sexual
harassments claims, injuries on business premises,
malpractice and negligence claims, just to name a few. Even
those who have sold their business find that the new owners
change the chef, menu, business operating practices or types
of goods being sold, and then when the business fails, the
sellers are being sued by the buyers to obtain the purchase
money back based on the representations or warranties
contained in the contract.
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Are Retirees and Those In Low Risk
Professions Safe from Lawsuits?
No. Those who have retired or are in a low risk profession
will still be confronted with personal lawsuits including
auto accidents, divorces, slip and falls, and workers
falling off the roof or getting injured on your real
property. Anyone fortunate enough to have acquired a net
worth in excess of one or two million dollars certainly does
not want to have their financial security jeopardized and
realize that it may impossible for them to replace the lost
wealth in the number of working years they may have left. In
addition, the business opportunities that they pursued
earlier in their careers will most likely not be available
if they have to start over again at age forty or fifty.
These individuals are more concerned with protecting what
they have already accumulated than any other objective.
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Why is There a Need for Asset
Protection Planning?
The past several decades have brought an explosion of
litigation from simple tort cases, to complex medical
malpractice, product liability and environmental claims. Not
too far back, people would never consider suing their family
physician; however, today people are always looking for the
easy dollar and will file suit against anyone for virtually
any reason that they or their attorney can dream up.
Who would have thought that a lawsuit for coffee being
served too hot would result in a verdict of three million
dollars and a settlement around one million dollars? The
United States has over 70% of all attorneys worldwide and
94% of all lawsuits. This has created a sense of entitlement
where everyone believes that they should be compensated by
the court system for anything that goes wrong in their
personal or business lives. This entitlement attitude has
resulted in a Robin Hood situation where we take from the
rich to give to the poor. No one sues poor people because
they don’t have any money to pay the claim, so the vast
majority of lawsuits are directed against successful and
affluent individuals who, at best, will lose some of their
wealth just trying to defend a lawsuit and, at worst, will
have a judgment entered against them which will result in
the loss of their accumulated wealth. The problem continues
to grow and is fueled in part by contingent legal fees and
the fact that in the US each side pays their own legal fees.
This provides no deterrent to a claimant with a questionable
claim as they don’t have to pay their attorney and if they
lose they are not held responsible for the other side’s
legal fees and expenses either.
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Do Doctors Really Get Sued a Lot or
is this a Myth?
This is definitely no myth. Physicians of all types are now
being routinely sued many times for matters they have little
or no control over. The typical doctor can expect seven
lawsuits during the course of his or her career. Any one of
these suits could easily wipe them out financially since
most doctors cannot obtain malpractice insurance in excess
of one or two million dollars at any price. Worse than being
sued a lot is the prospect of losing the lawsuit and having
to pay the judgment. The average malpractice award in 1999
was just under $4 million dollars. Since most doctors only
carry one million dollars in malpractice insurance, their
personal assets will be used to pay the judgments. The
malpractice awards have since escalated drastically and in
2002, the two largest medical malpractice awards were $94.8
million and $91 million yet the non-economic portion of the
awards which would have been subject to a cap was only
$760,000. The major portion of both of these awards was for
lifetime care. Two years later, in 2004, the highest medical
malpractice award was $111.7 million dollars and no punitive
damages were included in this award. The largest 2005
medical malpractice award was $606 million for the family of
a Texas man who died from a chemotherapy overdose and the
second largest was $212.58 million for brain injury to a
newborn during a vaginal birth after Caesarean. The medical
community is truly in a crisis situation. Medical
specialists such as surgeons, neurosurgeons, cardiologists,
obstetrics and gynecology, as well as any doctor who treats
minors, will be confronted with more claims, higher awards
and a far larger chance of having the jury award exceed the
limits of their insurance, putting their personal savings,
house and other assets at risk.
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Isn’t this Why I Have Malpractice and
Liability Insurance?
Yes, insurance is always the first line of defense and part
of virtually every asset protection plan; however, claims
can, and frequently do, exceed the amount of available
insurance which means that you must pay the remaining
judgment from your personal savings, investments or equity
in your house. In addition many insurance companies
themselves are unable to pay the large jury awards which are
being given and end up closing down and filing bankruptcy.
Another problem encountered with insurance is that no “all
risk” policy exists and even when you are sued, you may find
that the insurance policy has a stated exception for that
type of claim, thus relieving the insurance company of
having to defend or pay the claim; once again forcing you to
pay the claim from your accumulated wealth.
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What is the Best Asset Protection
Solution?
The most protective solution is the asset protection trust.
Asset protection trusts can be created offshore in countries
which have more favorable legislations pertaining to
lawsuits or can be created in the United States. Currently
there are about thirty countries and eight states with more
favorable asset protection laws. Most advisors are still
leery of using domestic asset protection trusts as no
significant court has yet ruled upon their effectiveness.
Offshore trusts, on the other hand, are outside the reach of
US courts and the laws in many offshore jurisdictions are
far more favorable than the laws in the US which help
promote litigation.
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Can You Describe How an Asset
Protection Trust Works?
Sure, but before I do that, you have to understand that the
laws are substantially different outside the United States.
Some of the most favorable countries have laws that prohibit
contingent legal fees, that require the losing party to pay
the prevailing party’s legal fees, require a cash bond for
the plaintiff to be able to file their claim which bond can
be used to reimburse your legal fees if you prevail, have
shorter statutes of limitations, more stringent burdens of
proof and, most importantly, shorter statute of limitations.
Anyway, back to your question, once these more favorable
laws are considered, it is simply a matter of choosing a
country with laws more favorable to you and then creating a
trust under those laws. Should someone want to sue your
trust, they will need to file suit in the country where your
trustee is located and the more favorable laws of that
country will typically govern the litigation. The trustee’s
job is to protect your assets from future creditor claims
and to assist in this, the trustee may establish one or more
limited liability companies or family limited partnerships.
Once your assets have been transferred to your protective
structure and the required time has passed, the trust assets
will be out of reach of your creditors. The laws in these
various countries and the eight states are not the same and
need to be carefully examined to make sure that you will be
getting the highest degree of protection possible.
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Do I Need to Transfer All of My
Assets Offshore?
No. While some believe that a higher degree of asset
protection is obtained by physically moving assets offshore,
most clients prefer to have their trust create a US (or
offshore) limited liability company (LLC) that will name
them as the manager. They can then keep the assets in the US
with their favorite banks, brokers or trusted financial
advisors and have successfully separated ownership from
control.
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What Are the Income, Estate and Gift
Tax Consequences?
Another excellent question! With a properly drafted asset
protection trust, the trust will be “tax neutral’ and will
not increase or decrease any income, estate or gift tax.
This is absolutely essential to the planning process as the
loss of part of your estate in the form of taxation on
transfers to the structure would defeat the purpose of
creating the asset protection structure in the first place.
Fortunately, it is not difficult to properly plan for this
tax neutral result for assets going into or out of the
structure.
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When Should Someone Start this Type
of Planning?
Due to fraudulent transfer laws, it is imperative that this
type of planning be completed PRIOR to the existence of any
claims. Notice that I said “claims” not “lawsuits” or
judgments”. This is because the fraudulent transfer laws in
all fifty states provide that you can’t transfer your assets
out of your name with the intent to hinder, defraud or delay
a creditor. You are also prohibited from incurring debt or
making transfers which would render you insolvent. The
existence of a possible claim may defeat your ability to
pursue this type of planning and you would therefore be wise
to start sooner rather than later, especially if the skies
are clear and no lawsuits are pending or threatened. The key
is advance planning.
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Does this Mean that if a Claim is
Possible, I Can’t Even Start an Asset Protection Plan?
Not necessarily. This is a fact-dependent situation which
needs to be thoroughly examined. We recognize that some
clients, such as doctors, may always have possible claims
against them and in these instances, we need to investigate
the claims, as well as the client’s assets and the existence
of insurance, and depending on those factors, may still be
able to proceed with the planning. However, it is far more
preferable to be able to proceed at an earlier time when no
possible claimants exist.
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What is My Next Step if I Want to
Proceed?
Contact Robert D. Gillen via phone or email to schedule a
time for a telephone or office consultation to discuss your
specific situation and any questions or concerns you may have. The cost
of the initial consultation, which may last two to three hours, is $850. The fee is applied to the cost of the asset
protection planning if you elect to proceed within thirty
days of your initial consultation.
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