Posted by Rich-CA on August 15, 2008 at 09:15:09:
In fact the article refers to it as a “fund” several times and investment funds are heavily regulated including the ability of a judge to appoint a receiver to take the assets out of the hands of those accused of mismanaging it.
Wealth Protection Example - Posted by Caliban Darklock
Posted by Caliban Darklock on June 23, 2008 at 13:07:34:
I was shown an example of a wealth protection strategy the other day, which left some questions in my mind. In essence, it’s a delaying tactic.
You put your deed in a land trust, and anyone who wants to know who owns the deed has to petition the court. At the petition, your registered agent shows up and says “as I understand it, if the LLC that owns the deed in the trust is itself owned by a Nevada LLC, this procedure must take place in Nevada”. The judge agrees, and now the procedure goes to Nevada.
In Nevada, the registered agent shows up and says “as I understand it, if the Nevada LLC that owns the LLC that owns the deed in the trust is itself owned by an international business company, the procedure must take place in Florida”. The judge agrees, and now the procedure goes to Florida.
The example now turns into a handwave with “ultimately, when you get to the end of the chain, there’s a holding company”. The purpose of this is apparently just to be a tremendous pain in the arse for anyone trying to sue the owner of some particular property: he has to go to court three times before even getting to the name of the company that owns the property, which he’s probably trying to find so he knows whether it’s worth the effort of a lawsuit. In essence, it operates as a signaling device, so once he gets to the second layer he thinks “if it is this hard just to find out who owns the property, how hard is it going to be to sue this person?” - although I’d expect the prospective plaintiff is also thinking “man, there must be a really big pot of gold at the end of this rainbow”.
But in the purely technical sense, we have a holding company that owns an IBC that owns a Nevada LLC which owns (say) a Montana LLC that owns the deed to a Montana property contained in a Montana land trust. As I understand it, when there are multiple properties involved, each trust contains one and only one property. One Montana LLC owns no more than X amount of real estate in trusts - e.g. a million dollars worth - which is in turn covered by a million dollar umbrella policy for that Montana LLC.
The question I have is how many Nevada LLCs and IBCs are involved in this strategy. Does each and every Montana LLC need to be owned by a DIFFERENT Nevada LLC? Does each Nevada LLC in turn need to be owned by a different IBC? Or, at the outside, can the holding company own one IBC which owns one Nevada LLC which owns all the Montana LLCs (or, for that matter, all the LLCs from any other state)?
I’m not asking for advice on whether this is a GOOD strategy or the RIGHT strategy, just a better description of how this strategy is implemented when it’s employed. Alternate structures would also interest me. I’m not looking for legal advice, so wherever you have to stop short and say “this is the line where you simply must speak to a lawyer” is fine - I just want to have a clear understanding of what I’m planning when I eventually DO speak to a lawyer.
Re: Wealth Protection Example - Posted by James (Ala.)
Posted by James (Ala.) on July 03, 2008 at 11:24:31:
Maybe the topic changed and I missed it, but I don’t see the connection between your original question and the newspaper article.
The investors in the article were asking for a receiver: someone to oversee THEIR funds that Estate Financial was screwing around with. Your orignial question talked about multi-layers of ownership of a piece of real property in order to make the owner’s identity harder to discover. (Though, I think Interrogatories would blow away any cover like a puffy cloud riding on a warm, summer breeze.)
The best asset protection strategy is lots of insurance–and the more you have, the more aggressive the lawyer will be that your ins. co. will bring in.
James (Ala.)
Convoluted trust example - Posted by John Merchant
Posted by John Merchant on June 26, 2008 at 18:09:38:
This is a great example of why I think lawyers are generally right in saying that trust law is way too complicated for laymen…and most lawyers don’t care enough about trusts to spend the time it’d take to bring themselves up to speed on the subject.
And few clients are willing to pay their lawyers to really do them a great job of asset planning using trusts so the incentive is missing.
There are some recent examples of “Trust Experts” who tried to hide their assets from the courts et al and who got busted big time.
Find and read Dr. Brown’s case in TX a year or so back where this Dr. who tried this game, and tried to hide her assets from a patient suing her for med. malpractice, had her trust penetrated by the TX court and lost her property to a J holder despite that Dr’s self-proclaimed “trust expertise”.
I’d start with Google and put in “Dr Brown TX Trust” and that’ll probably bring it up.
It’s far simpler to just put REI property into an LLC.
Sure, the LLC can be seen online in most states and anybody can see who its owner is, but still, if somebody gets hurt or killed on an LLC’s property, that LLC is going to be the “person” sued and it’s not so simple to get through the LLC and to its owner and owner’s other assets.
FYI, if I were suing any trust, I could with a few written interrogatories (a formal, legal discovery procedure recognized by all trial courts in every state)establish who trust owner and beneficiary is, etc…and no trustee is going to risk court’s wrath and contempt power by refusing to answer fully.
Re: Wealth Protection Example - Posted by Caliban Darklock
Posted by Caliban Darklock on July 03, 2008 at 13:45:43:
“I don’t see the connection between your original question and the newspaper article.”
There isn’t one. The purpose of the newspaper article is simply to identify the reality that assets can be and are frozen before judgement in some cases.
The newspaper article isn’t a perfect example of my concern; it’s just a very recent case which shares one critical similarity, the freezing of assets. It doesn’t share the similarity of a predatory plaintiff searching for someone to sue without valid grounds, because those cases don’t tend to make the news.
“Interrogatories would blow away any cover”
Let me lay out the steps of the activity that concerns me, restating that this is an extremely unlikely event which will probably never happen to most investors.
First, an unethical individual we’ll call “Bob” identifies a target that could be sued for a large amount of money.
Second, Bob files a groundless suit in court, constructed in such a way that he can productively ask for preliminary injunctive relief freezing major assets of the target. (This is one of the main areas where choice of venue matters: there is a four-part test for injunctive relief, and some courts require all four to be satisfied, while others - Louisiana comes to mind, although I can’t swear to it - divide the test into two pairs of requirements. If the request satisfies both tests of either pair in such a jurisdiction, PIR can be granted.)
Third, Bob stalls and delays the proceedings by any and all “reasonable” means, maintaining the freeze on those assets as long as possible.
The ultimate goal is to convince the defendant - an innocent defendant - to settle out of court and end the injunction. By writing Bob a comparatively small check, the target of this suit may restore the operation of his business and avoid further disruption to the operations of that business.
The asset protection system I’m examining ONLY provides protection during the first step of this process. Once you reach the second step, you’re completely correct: an interrogatory will slice through all those layers of protection with no difficulty. But in the first step of the process, Bob has not filed an action, and therefore cannot file an interrogatory because he is not yet entitled to discovery.
What he CAN do is petition the court to revoke the land trust that conceals the property’s ownership. This is frequently a very simple process; he claims to have “cause to sue”, without necessarily identifying that cause, and the judge revokes the trust. Armed with this new information, Bob can now make a better determination of who the other party to this suit should be and how to structure his action for maximum disruption to the defendant’s business.
This is the weak point in the chain. By tracing the chain of ownership from this one property, Bob can determine how the associated business can be most disrupted. My aim is to make THIS process - the identification of property ownership without filing an action - difficult and time-consuming for Bob, so he’ll go chase some other target.
If we get to step two, we’ve already lost, and the only thing left to do is figure out how big a check we’re willing to write for Bob. The insurance company probably won’t even enter the picture, because they’d be trying to minimise the size of that check, not the duration of business disruption. Since the case is ultimately meritless and will be lost, their best course of action is to win the case and pay nothing, no matter how long it takes - which is the worst possible choice for the business.
More importantly, any interrogatories Bob may write in the discovery process are simply part of step 3: prolong the action as much as possible.
Let me be perfectly clear that I do not expect this to happen to me or my business in the Real World. My concern is with the drafting of a business plan that covers this contingency, which is disproportionately weighted in the minds of many investors. Currently that business plan states “an asset protection plan will be established to reduce or eliminate this risk”. This is a little too generic for my taste, and I’d like to be more specific, so I’m researching options.
Re: Convoluted trust example - Posted by Caliban Darklock
Posted by Caliban Darklock on June 27, 2008 at 08:46:01:
I was unable to find the Brown case in the first eight pages of results on Google or Windows Live search. Are there any more specific search terms you could suggest?
I’m not particularly concerned about someone with a legitimate claim; we’d just happily submit that claim to our insurance, and that’s that. I’m not worried about concealing assets from the tax authorities or the government, either. I’m worried about concealing them from predatory litigators, whose aim is to create a long-term business disruption you’d rather settle out of court than fight.
I’m mainly conducting a cost/benefit analysis here. If a chain of five companies can reduce this risk to near-zero for all of my properties, that’s a reasonable investment; a couple thousand dollars I pay once is cheap for peace of mind. But if this chain of companies has to be established over and over, for every property, and every single purchase needs a couple thousand dollars and papers filed in four states… well, that’s just stupid, and I can throw this strategy out the window as a waste of time and money.
I would think, but the law is not - Posted by Rich-CA
Posted by Rich-CA on June 27, 2008 at 18:50:07:
always logical, that the state where the property is located would be where to file the lawsuit or the state where the owner is located. I would prefer the location of the asset identified as being sufficient for payment of the judgment, should one be won. A court will have the jurisdiction to deal with any real property located within its jurisdiction regardless of the ownership which means that the approach would require 2 steps.
I see no reason the person filing the lawsuit would have to chase jurisdictions from state to state along the paper trail of ownership. The two steps should be sufficient.
Importance of venue - Posted by John Merchant
Posted by John Merchant on June 29, 2008 at 10:50:54:
Any lawyer looking into representing a plaintiff is going to do a good bit of court shopping so as to find the best court & jury scene to fit him and what he’s wanting to do for his client.
I’ve seen some mighty convoluted scenarios played out where the lawsuit was filed in some state or county that the P’s lawyer wanted to be in but the venue of which was thereafter bitterly fought out, sometimes all the way to a state or US Supreme Court.
And often, the solid settling of the venue issue(what county in an intra-state action; or which Fed District Court if if’s a Fed Diversity Action between citizens of two different states)really determines the ultimate value of the lawsuit on the merits.
e.g. there are some counties that have become famous (or infamous, depending on which side you’re on) for handing out humongous damage suit verdicts.
So of course a p’s lawyer is going to do everything he can to have his case tried or set to be tried, in those counties…and conversely of course, the insurance co. lawyer will do everything he can to get it out of that jurisdiction into a “more reasonable” locale.
Re: Importance of venue - Posted by Rich-CA
Posted by Rich-CA on June 29, 2008 at 11:53:01:
Like the hot coffee case in LA county, a place famous for astronomical awards against companies that are later reduced or thrown out on appeal.
I understand the vast gap between law and logic, but when trying to prepare an “asset protection” scheme based on convoluted venues, unless the judge is really crooked or biased (which is how court shopping came into practice) then a logical supported argument should carry some weight. Assuming, like the original post, that a trust for some land in FL owned by an LLC in NV which is held in another trust in, say CA, would require the venue be moved from state to state is an unlikely scenario and hardly worth the expense to set up. However, I would expect some limits to venue shopping for something where, say, a slip and fall happened in Fresno and the lawsuit was filed in IL, where the owner lived in AZ and the P lived on MO. I would think that you should not even have to appear for a case filed in a court that had no jurisdiction over either the place of the injury, or the location of either the P or D unless the lawyer dreamed up some wild scheme to be able to choose such a venue. I could see filing in LA for something that happened in Fresno, of filing in the P’s home state because that is where P lives, or filing in D’s home state for similar reasons, but are the justifications of using a venue with no reasonable ties to the event or parties really all that common that people need to do the same things for “asset protection”?
Even so, a judgment in any venue can attach itself to a person’s credit report but can a person with such an entry get it removed by a court in his own state by proving that the court had no jurisdiction in the first place? Is the legal system really this out of control?
Re: Importance of venue - Posted by John Merchant
Posted by John Merchant on June 29, 2008 at 12:19:34:
“Even so, a judgment in any venue can attach itself to a person’s credit report but can a person with such an entry get it removed by a court in his own state by proving that the court had no jurisdiction in the first place?”
Nope. Once a J is final anywhere in USA, and its appeal process is done, then it is considered “res judicata” (the thing’s done)and no other court anywhere can undo it.
This is why there’s so much legislation in every session of every legislature and Congress…trying to rectify and remedy what somebody (usually a special interest group such as trial lawyers or the insurance industry) considers weak laws that have allowed such outlandish and really nutty Js.
Lots of well established law on venue and anytime the plaintiff is even near out-of-bounds on his chosen venue or jurisdiction, you can bet that he’s going to be well challenged by experts on the subject.
And of course if you or I are sued in some state or jurisdiction where we really haven’t appeared or done anything, factually or legally, original jurisdiction of “the person” (us) doesn’t exist, the P cannot get legal service on us and we’re thus under no obligation to appear and the court cannot enter a J against us.
BUT PLEASE, if any reader here gets sued, get it your lawyer quickly so he can look at it and determine if the P has done it correctly and if you really will have to enter an appearance in that court to protect yourself.
If there’s even an outside chance you can get nailed in that court, it’d be best move to file an answer and appearance in that court so you can get your “day in court” and be heard.
It’d be extremely chancy and risky to just say “oh no, they can’t nail me there” and forget it…this is how Default J’s happen when often times they shouldn’t as the court might not have had good jurisdiction over the Defendant and that D could have got the suit tossed if he’d only shown up and/or contested it.
That really s*cks - Posted by Rich-CA
Posted by Rich-CA on June 29, 2008 at 15:48:52:
It would be better if we dissolved the whole system and used trial by combat instead. At least your opponent would have to actually face you and not just try and sneak a judgment in through a friendly but logically irrelevant venue.
In other news. how would this affect those trying to set up equally convoluted “asset protection” schemes? If you can’t be protected from a lawsuit filed in a place you have never been in, then the additional “layers” of “protection” by these paper games of trusts and LLCs would really have no effect on the results since, as the original poster said, the P would not have to file in any of the jurisdictions where ownership was held, but could come up with a legit reason to file wherever was convenient to his case.
Asset Protection… from whom? - Posted by Caliban Darklock
Posted by Caliban Darklock on June 30, 2008 at 12:45:32:
Well, the problem with that is… I could pick up my CPA and throw him across the room with one hand. Does that mean he shouldn’t sue me? 
There are two kinds of lawsuits: suits from people you have injured, and suits from people trying to injure you. I’m really only worried about the latter, which are really just a very tiny minority of lawsuits filed in this country.
What I’m trying to protect against isn’t someone who has a legitimate claim; as John quite rightly observes, this is not very well-received by the courts, and chances are you’ll end up doing more harm than good. I’m concerned about blackmail by court.
The way this works is that a plaintiff with no legitimate cause for a suit files a suit anyway, and drags out that suit as long as possible while attempting to freeze most of the defendant’s assets. Since this costs the defendant a lot of money, there’s a very strong incentive to simply give the plaintiff money so he’ll drop the suit and go away.
Before doing this, the prospective plaintiff goes out looking for information on prospectice defendants, so he can get the most bang for his buck - freeze a lot of assets, cause a lot of loss, and probably collect a bigger check faster. What I’m interested in doing is making this process more trouble than it’s worth for them, so they’ll go bother someone else… but because it’s such a miniscule risk, it needs to be a similarly miniscule investment, preferably one-time.
Freeze assets? Cold day in H*** - Posted by John Merchant
Posted by John Merchant on June 30, 2008 at 13:09:27:
No way a plaintiff can “freeze assets”* until he has a final court judgment, and then only by some diligent and expensive legal discovery…so that’s hardly a legitimate worry.
Recent court decision in Dallas TX where a sued MD (on a malpractice action) actually tried to hide her RE assets, but a Dallas court made her 'fess up and proceeded to take those properties back and then away from that good doctor.
So with RE, it’d be easy enough to chase down, trace recorded title and ownership.
*Oh sure, if that plaintiff had LOTS of money he could try to enjoin the defendant from disposing or conveying his assets, but the attorneys fees, surety bond and and court costs for an injunction suit are 99% of the time conclusively prohibitve.
Re: Freeze assets? Cold day in H*** - Posted by Caliban Darklock
Posted by Caliban Darklock on July 01, 2008 at 10:11:50:
Yeah, it never happens, except two weeks ago:
http://www.sanluisobispo.com/news/local/story/390070.html
Why, that’s a real estate investor working on behalf of other investors. That’s precisely the kind of business I’m building. Maybe I need to examine that as a potential risk of this business.