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Kleinfeld says... |
"Asset Protection for High Net Worth Clients needed now more than ever" |
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Every day we see new faces coming into our offices from all parts of the globe. What drives then to venture far from their local or national comfort zone? Mostly, it seems the desire to make a lot more money. Enhancing net worth and increasing cash flow are the basics of business life. As the movie character Gordon Gekko said, ‘Greed is good’. Except for those deeply into religion and politics, the rest of us know that self-interest is a powerful motivator to action. After making money, comes the desire to keep it.
We know that few outside people can be more successful at generating money than someone in their own business. Investing that money takes a separate skill set than earning it. Keeping it from being economically bled to death by taxes requires specialised knowledge, which is also why people do indeed ‘vote with their feet’ by fleeing high tax jurisdictions in favour of low tax places. All of this is part of the need for planning to protect wealth for use during life and to support our families and business partners from becoming destitute because our hard earned wealth is lost through bad investments, taxes, estate problems or the ravages of the litigation system.
I think I have made this observation many times - the idea of safeguarding assets from risk is certainly not a new concept. In days of old, knights on horseback with swords drawn, attacked or defended castles, and if the attackers were successful they carted off the spoils. Nowadays, it is lawyers driving their Mercedes to the courthouse and using a Mont Blanc pen as the weapon of choice that are the barbarous hordes at the gates. And when they get through, they don’t even leave the charred ruins.
This is a war in every sense of the word. I am fond of quoting Sun Tzu who wrote the seminal work on the philosophy of war, some 2,500 years ago, entitled The Art of War. There in Chapter 4, ‘Tactics’, he observed that the great Generals always set their defences first, placing themselves beyond the possibility of defeat, and waited for the opportunity to defeat their enemy. Later Chinese commentators observed, ‘that which depends on me I can do; that which depends on the enemy cannot be certain.’ It is this tactic of making ourselves as legally invincible as possible first that allows us the ability to wait to then attack the enemy when they are most venerable, if the opportunity ever arises. This is the basic principle upon which asset protection planning is based.
Is there any serious doubt that there is an explosion of litigation worldwide? The bookstores are full of books on the phenomenon of the litigation industry, and the headlines in newspapers and on radio, television and cable channels nearly overwhelm us with the latest shocking lawsuit story. And the risk exposure from losses due to investments, or business, or family difficulties, is so widespread as to be self-evident. The ravages to wealth of the tax system are unquestionable. All of which should lead a rational person to demand the planning for the protection of their assets as a method of survival in world of volatile risks.
What I find amazingly perplexing is that a significant proportion of very successful people who carefully analyse every business proposition – or every restaurant cheque – and spend a small fortune on lawyers, accountants and other professionals for advice, (even planning in minute detail their golf and fishing outings) do virtually no planning for what they will do if and when they lose a lawsuit. Think abut it. Are you being sued now, or if not, who is threatening to sue you in the next few weeks?
Similar to the philosophy of Sun Tzu, asset protection planning involves organising your personal and business wealth in advance, in a manner that protects your affairs from creditors without compromising unduly your investment, tax estate, and other personal goals and objectives. You cannot hide assets, nor can you evade tax, but you can protect assets from creditors. Being successful means not only making money but keeping it from being taken away from the unknown, unexpected, and unintended risks that are an integral part of everyday life.
The concept of asset protection is much broader and more encompassing than the products being sold by the brigades of seminar hucksters. The risks to wealth are so broad as to include nearly every endeavour of your daily life. Individuals create risk as they can, to be kind, misbehave whether they are inside your business or family or outside. Human beings are quite capable of all kinds of behaviour that may involve dishonesty, fraud, antisocial behaviour, or malicious actions. Everyday we also try and protect our property from non-people hazards, such as hurricanes, floods, earthquakes, fires and explosions. Simply, the hazards of everyday life break down into two basic divisions which require separate planning efforts and structures: those problems related to dealing with people, and problems that are not related to people.
Asset protection planning is no longer limited to local or provincial concerns. Vulnerability is not limited to just the place you are in at this moment. The fact is that the world that now exists is no longer limited by on the borders of nations or states but is affected more by regional influences and those of the world at large. Producers, servicers, and consumers speak a vastly different language than politicians. Those who create wealth speak the idiom of the global economy rather than the appeals to populism and fear.
We live in a borderless marketplace which, as a consequence, creates risks on a far larger scale than has ever been experienced by mere individuals. This heightens the risk exposure to losses from an ever increasing variety of business and personal activities. Everyone is nearly equally at risk everywhere. The need for asset and people protection is a global concern.
So what then is risk? Risk involves the uncertainty as to whether a loss will occur. Clearly then, the ability to plan for the occurrence of risk and its consequences involves some understanding of the nature of risk exposure, frequency and severity of result. Consider, for example, the occurrence of death. The frequency is once and the severity is 100%. It is the ultimate risk.
Dealing with risk requires the implementation of risk management techniques. It can be reasonably foreseen that a malpractice may happen, that a fire will break out, an auto accident can happen, a promissory note may not be paid, a spouse will want a divorce, or a family member will have personal problems. Risk of all kinds can be anticipated even if the specific occurrence has not yet happened. The dynamic nature of risk requires a scrutiny of current and past activities and relationships. Understanding then the nature of exposure to risk enables the application of risk management techniques which are the essence of asset protection planning.
Many professionals have concerns dealing with ethical or moral obligations to those who may be affected by their clients planning to protect assets. Whether it is fear of their own lack of expertise, bias based on personal views, or other reasons, any number of planners object to people seeking to put their economic reserves beyond the capacity of creditors to effectively (or should I say efficiently) collect. What is lost in this fuzzy and irrelevant logic is the fact that fights over money is just that, fights over money. It is, however, neither a moral play nor particularly an ethical dilemma. The ethical question in this situation is what duty does a professional have to a third party who is adverse to his client’s interests?
Far from being a hallmark of professional virtue, failure by a professional to properly advise a client on ways and means to lower or eliminate risk exposure to protect the wealth of the client may be an ethical violation and also one which creates exposure for the professional to liability. Is their some reasonable doubt that where a client comes to seek the advice from a professional as to the availability and consequences of various protection manoeuvres and the professional fails to fully inform the client of legally available alternatives, then that professional has likely breached his duty to his client? A professional has a 100% duty of loyalty to his client and no duty (excepting criminal actions or ones that could result in death or great bodily harm) to a third party adverse to his client’s interests. As to civil liability, it seems clear that where there is no duty to a third party, then there can be no breach, proximate cause or damages, and therefore no liability.
As the world closes in and the exposure to losses increases, it is clear that asset protection planning is now as important as it was in the days when building a castle was the best protection plan. Every action, or inaction, inseparably carries with it a risk of some kind of economic or personal loss. Risks once recognised can be planned for. One of my clients put it in perspective when he said, ‘Golf is optional to life and financial security. Asset protection is not’.
www.rra-law.com |
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