In this day and age the topic of Asset Protection is being discussed more often than ever. Almost everyone either knows or has heard of someone who has had assets forfeited due to a lawsuit or prosecution by the IRS or other government-subsidized confiscatory agency. It doesn’t take long to realize how vulnerable one’s assets are if the proper measures aren’t taken to protect them. The climate is hostile. In these times, it isn’t a matter of if one’s assets will be attacked, it’s a matter of when and how much. Your options are to either do nothing and get taken, or take the steps required to keep what you have.

This guide will serve to provide you with an overview of the issue using a holistic approach covering Liability Encapsulation, Estate Planning and Tax Efficiency.

The American culture has been endowed with an enduring sense of private or personal property. It has been bred into the people to concern themselves with amassing assets and being able to ascribe their gains to themselves. This is a source of great pride, prestige and confidence. This is also the greatest source of vulnerability.

This attitude, which I call the “mine complex”, brings people to believe that the only way to exercise power over their assets is to own them in their own name. We as Americans love to say “this is mine”. However, having an asset titled under your own name carries with it both the benefits of ownership as well as the draw-backs of liability. Sole, legal and equitable ownership in property necessarily means you also carry complete and sole liability in any action involving or attaching to the property. Liability always flows with Equity. Because of this, the most wealthy and powerful people in the world are careful to have very little, if anything of value titled in their name.

In a judicial proceeding where property is at stake, whether it is civil or criminal, the property in question will be identified by searching out the assets attached to the name of the defendant in the action. What was “mine” can now becomes theirs.

If we want to keep our stuff, we need to learn how to divest ourselves of ownership, and consequently release liability, but retain control and benefit. This can be done by simply transferring title to someone or something else with the agreement that you will retain the benefit if not the control of the asset. This will be discussed further when we evaluate the tools available to us to implement our total asset protection system.

As previously alluded, we are living in a hostile climate in which you and your assets may come under attack at literally any time for any number of reasons – sometimes for no reason at all. From unscrupulous attorneys to unrelenting government agents, the horizon is full of opportunists biting at the chance to go after your stuff. These would-be pillagers generally belong to one of two groups: Government Agencies and Civil Litigators

In the past the only government agency most people worried about was the Internal Revenue Service (IRS). However, in this age where the ‘War on Terror’ and the ‘War on Drugs’ has taken a front seat on the government’s agenda, we are finding ourselves faced with having to defend our property against the encroachment of multiple agencies moving under false pretense using newly-granted powers provided by the legislature. These powers derive from laws like Drug Enforcement Forfeiture Laws, the USA Patriot Act and others.

When considering this, it is important to remember that these agencies can only act on that which is deemed to be within their jurisdiction. Further, if they target a person or entity, they can only attach to the assets belonging to that particular person or entity. To attach to the property of another person or entity would require a duplicated effort to establish probable cause and obtain the appropriate warrants.

Malicious, opportunistic law suits are on the rise in both frequency and severity. The United States is arguably the most litigious country on the planet. Often times even a frivolous lawsuit can wipe out a family’s savings from defense attorney’s fees.

Most such law suits are initiated by attorneys who work on a contingency fee structure which usually means the attorney will first do an initial investigation to find out what the intended target owns that is worth getting. If an attorney finds that his intended target either owns nothing or what is owned is too difficult to obtain, usually the attorney will not take the case in favor of an easier target, or require that his client pay for his fees up front. This is generally very prohibitive to most civil litigation, unless the aggressor is highly motivated, highly funded and also highly tolerant of defeat.

Over the years the United States has become increasingly more diligent in keeping tabs on its citizens, residents and visitors. The government keeps data on individuals from birth to death and everything in between. One of the most effective, passive implementations of asset protection is anonymity. Your chances of being attacked are reduced dramatically if nobody knows who you are, let alone what you own. Privacy in this regard is the first line of defense and the methods and policies of the United States government (and other cooperating governments) is making this basic level of privacy more and more difficult to attain. Learning to conduct one’s life in a manner that leaves a minimal residual fingerprint is an essential skill to master.

Jurisdiction is a term used to explain the right and power to interpret and apply the law and the territory within which power can be exercised. Every Nation has associated with it its own jurisdiction. Further, a single nation often has several jurisdictions within it. We will discuss three general jurisdictions which include Statutory , Common Law and Offshore.

Within the external boundaries of the United States there are two general jurisdictions: Statutory and Common Law.

All government agencies operate under statutory schemes created by legislature. All persons and entities that derive benefits from or owe their existence to this statutory operation are subject to all the laws and penalties proscribed by statute.

It is within the Statutory Jurisdiction where we may access agency services and institutional banking and finance centers in the United States. Also, it is within this jurisdiction where one may be involved in any regulated industry or commercial enterprise. Further, it is within statutory purview where taxes are levied and licensing is often required for various activities.

The Common Law jurisdiction, also known as original jurisdiction, is the root of all law in the United States of America. Notwithstanding the proscriptions outlaid above, the Common Law and Constitution is the supreme law of the land; and if one chooses to operate in this jurisdiction, care must be taken to avoid tainting one’s efforts through statutory association.

It is within the Common Law Jurisdiction where all of our unalienable rights and privileges are found and can be exercised to their full potential. Amongst these rights is our unlimited right to contract. This is important, as the federal government is specifically barred from impairing the obligations of contracts (see Article I, Section 10 of the United States Constitution).

The Offshore jurisdiction is a bit of a misnomer, for it includes all jurisdictions external to one’s home Nation. In the case of the United States, all jurisdictions external to the United States are considered to be offshore. Canada would be offshore by this definition even though there is no body of water that separates it from the United States. When you go offshore, you play by a completely different set of rules - their rules. There are many offshore jurisdictions that are as hostile, if not more so, than the United States. However there are some jurisdictions that are much better. A good rule of thumb is to simply go where the super-wealthy go (e.g. U.S. senators, etc.) and that will take a lot of the guesswork out of it. Panama comes well-recommended in this case, but there are a few other jurisdictions out there that are as good for differing reasons.

Generally, offshore jurisdictions are inherently independent from others, unless one jurisdiction engages in contract, or treaty with another. This has been a prevalent practice between many of the more well-known jurisdictions which are offshore to the United States. When looking for a good offshore venue to domicile an asset, it’s best that this jurisdiction has the fewest such treaties as possible with any jurisdiction with which you’d prefer not have an association.

Panama has no mutual legal assistance treaties (MLAT's) for sharing of banking information with any other nation and does not recognize court rulings from other countries involving crimes which are not also crimes recognized by Panama. In fact, revealing banking information to third parties is a crime in Panama, punishable by imprisonment. There is no such thing as "piercing the corporate veil" in Panama apart from activities falling under the narrow purview of serious criminal activity. Also, Panama Corporations can offer Bearer Shares , allowing shareholders to maintain 100% privacy and confidentiality.

Panama's circulating currency is the U.S. Dollar, and Panama has no currency exchange controls or currency restrictions so funds can flow in and out of the country freely. Panama continues to maintain what is considered to be the most solid banking and corporate book secrecy laws in the world, which are engraved in its constitution. With Britain's proposed regulation for removal of bank and corporate book secrecy in the UK offshore territories, it is clear that Panama remains the most secure offshore financial center - where privacy and confidentiality is not only respected, but vigorously protected by constitutional law.

Currently operating out of Panama are well-known companies such as Federal Express, DHL, Sears, Price Costco, Bell South, Kansas City Southern Railways, Continental Airlines and American Airlines, to name a few.

The selection of a jurisdiction that is in harmony with one’s business and estate planning goals is often called choosing a “Flag of Convenience”. This term is descendant from the world of maritime commerce where a ship carrying cargo from one place to another may adopt the flag of a particular jurisdiction because of its particular advantages such as tax or docking fees.

Inasmuch, it is wise when choosing a venue to analyze the advantages and disadvantages of domiciling particular assets in particular jurisdictions. One jurisdiction may be better for banking and investments while another may be better for Taxes or Liability. The offshore landscape can also change from year to year, regime to regime or by a number of other factors in the political and economic climate. Because of this, it is wise to stay abreast of what is going on around the world at all times. Multi-jurisdictional Efficiency Usually, it is a good idea to use multiple jurisdictions in order to architect a more comprehensive, total system of protection. By leveraging the strengths of each jurisdiction and avoiding their weaknesses, you can build a system that, once assembled, is greater than the sum of its individual components.

In order to assemble a total asset protection system, it is imperative that you have the right tools available. There are many organizations and individuals touting various asset protection schemes. Some of them work to an extent. Others do not work at all.

The first layer of protection is anonymity. No matter how secure or vulnerable your system is, if nobody can find it, it’s safe. The next good characteristic is its resistance to judgments and liens. If an entity in your system cannot easily be attached, then that is good. The final consideration is tax liability. An entity with little or no tax liability is ideal. It is a mixture of entities in the various jurisdictions discussed above that comprises the tools necessary to build our system.

The easiest to fall to a litigation attack would be the statutory entities (e.g. corporations, LLC's , LLP's , etc.) by virtue of their dependency on the government for their existence. A statutory entity, such as a corporation, owes its existence to provisions in State and Federal statutes that govern it. These statutes can change at anytime. This is not good. Statutory entities are by far the worst asset protection tools available when used by themselves. They are better than using an individual, but not by very much. Consider the three characteristics of a good asset protection system listed above. Corporations (and like entities) cannot be anonymous as they are publicly registered with the Secretary of State. Corporations are easily liened and levied and judgments can stick to them like flies to honey. Corporations can also be indicted by information without a grand jury. There is also built-in double tax liability on corporations by statute that makes a corporation 0 for 3 on the asset protection scale.

This is not to say corporations and other statutory entities aren't useful. They are great for use as a statutory interface as well as for liability encapsulation which limits liability to only the assets that are directly owned by that specific statutory entity. However, a corporation (or like entity) should not be the only tool in your tool box. If all you have is a hammer, then all your problems will have to be nails. Unfortunately we don't live in a world where all they throw at you is nails so you can handle them with your hammer.

Common Law entities (e.g. corporation soles, trusts, etc.) are much better than statutory entities in nearly all categories. Firstly, a properly constructed common law trust is never registered with any government and as such can maintain a fair amount of anonymity. Common Law trusts have no tax liability as they are considered non-entities by the IRS. Trusts can be liened and judgments can stick if the trust is pierced as ‘abusive,’ but it's not as easy to do if structured properly. A trust, although very handy and versatile, is still just another tool and can't do it all on its own.

A Trust is a contractual relationship which arises whenever a person or corporate entity, called a Trustee , is compelled at-law to hold property (whether real or personal, and whether by legal or equitable title) for the benefit of some other persons who are termed Beneficiaries , or for a lawful purpose in such a way that the real benefit of the property accrues to the Beneficiaries of the Trust.

A Trust must have a Settlor or a Creator who establishes the Trust to take over the legal ownership of property or assets. The Trustee is an individual or entity to which legal title to and fiduciary responsibility for the assets is transferred. A Trustee must supervise, manage, invest and distribute the assets in accordance with the Trust contract. The Trust contract, sometimes called a ‘Trust Deed’, states the terms and conditions under which the trustee operates. A Beneficiary is the intended owner of the assets placed in the trust. The protector is a guardian who ensures that trustees carry out the wishes of the Settlor or Creator.

An IBC is a corporation designed for companies and individuals foreign to the jurisdiction in which it is registered, providing a maximum of privacy, combined with a comprehensive freedom from local taxation. An IBC pays a flat government tax and operational fees each year in order to remain registered and in good standing. An IBC is tax-exempt for business conducted outside the registered jurisdiction. In some jurisdictions additional charges may be required. An IBC is like any other company or corporation subject to local law.

The IBIT is formed as a Trust in an English Common Law tax haven jurisdiction that does not compel the registration of Trusts. The ownership is controlled by bearer depository receipts for the shares of beneficial interests of the Trust. This eliminates the need for any governmental registration or filing and thus makes the Trust totally anonymous.

A Private Interest Foundation is a legal entity combining some of the features of both a Trust and an International Business Corporation. Similar to a Trust, the purpose of a Private Interest Foundation is to preserve the assets, donated by the Founder and other third persons, for the benefit of and distribution among the Beneficiaries. Akin to an International Business Corporation, a Private Interest Foundation has a distinctive legal personality and tax-exempt status. A PIF is an effectual offshore asset protection tool.

Allow me to make a brief allusion to the historical events surrounding the creation of the Federal Reserve and the Federal Income Tax. Both of these systems are interdependent on one another and were directly preceded by the enactment of Foundation law - all of which was carefully and deliberately orchestrated by the founders of the FED and IRS.

Foundation law is that body of law which defines the scope and powers of Tax-exempt, Private Interest Foundations. The specifics of these laws vary slightly from one jurisdiction to another. There are many such foundations in existence at present, but its amazing how little people know about what they are and how they work. Most people think of a foundation as simply being the name given to any organization that is involved in some sort of charity or philanthropic activity. This assumption is far from accurate. A Foundation is a unique entity at law. Foundations owe no tax duty to government and may move funds and assets in and out of its control with very little regulation, if any.

This is mainly because of how a Foundation is structured. The Beneficiary of a Foundation is multi-layered, including both unborn and living Beneficiaries. This concept is what separates foundations from other entities which only have living, present Beneficiaries. Liability flows with Equity. The unborn hold an incalculable portion of the Equity. One cannot tax or levy the unborn. Foundations are untouchable. To our knowledge, there is no record of a Foundation ever being pierced in a civil attack - ever. The situation has been looked at as recently as the Enron scandal. The Private Interest Foundation should be the foundation of any strong asset protection system. It is the point to which all equity should flow. The ideal system would be comprised of such a Foundation established in an off-shore jurisdiction. This foundation can create for itself as many International Business Corporations (IBCs) as it needs for legitimate business purposes. These IBCs can in-turn travel on-shore and open W-8 accounts as foreign entities and also brokerage accounts if necessary. These IBCs can also contract with individuals and entities to conduct certain business on its behalf, such as managing an LLC, property management (the house you live in) or asset leasing (the car you drive), or to act as Trustees for any trusts of which the Foundation is named beneficiary.

By now you have learned that in order to build an effective, total asset protection system, one must be able to leverage the tools strengths of multiple jurisdictions and leverage them together. It is this synergistic effort that allows this system to be so effective.

For example:

Let's say we have a Nevada LLC. There are 2 general partners comprising this LLC and both are Common Law Trusts. Naturally the LLC is a registered entity and as such falls under statutory jurisdiction. The Trusts are not. The Common Law Trusts have no inherent tax liability. The IRS considers them non-entities. Since whenever there are two or more partners in an LLC the tax liability flows to the partners (or a single partner can specifically elect to do so), the liability flows into a jurisdiction that owes no duty to the IRS. Likewise other sorts of liability (e.g. civil liability) are also similarly channeled. Essentially, the buck is passed until the one left holding the bag is out of the reach of whoever might be attempting to attach to or attack the asset.

Further down the line you will find that the Trustees of these Trusts are either IBCs which are owned by your PIF or your PIF itself can act as a Trustee. This completes the cascade of your equity and liability safely offshore into a jurisdiction that imposes upon you no duty.