Helping You Choose The Most Beneficial Methods Of Asset Protection

At Famulary. Masterful Attorneys, our lawyer and staff use a variety of asset protection techniques. Each approach has pros and cons. Depending on your needs and the complexity of your estate, one or more methods may be recommended.

Please review the below types of asset protection vehicles and reach out to our attorney for more information: 503-863-2732. We handle these and other types of estate planning and asset protection matters for people throughout Oregon, including the communities of Beaverton, Salem, Corvallis and Portland.

Boston Trust

The "Boston trust" (formal legal term is "lifetime special power of appointment trust") is an irrevocable trust that uses centuries old property law in a new way. Essentially, the grantor of the trust makes a completed gift for property law purposes (but not necessarily for gift tax or income tax purposes) to the irrevocable Boston trust and at the same time the grantor gives a trusted individual(s) a power to appoint the trust property to an individual or class of people. At this time, the grantor is unable to enjoy the trust property (because he has effectively gifted it to the trust), but the property is also out of the reach of future unforeseeable creditors. However, the power of appointment holder can potentially appoint the property in a way that could benefit grantor at a future time. This trust has many possible variations.

  • Example: Grantor settles a Boston trust with $1 million with his children as beneficiaries and his brother as the power of appointment holder. Years later, a future unforeseeable creditor obtains a large judgment against grantor. Said creditor is unable to reach the $1 million in grantor's Boston trust. Later, grantor needs $300,000 to pay off his mortgage, and so when his brother hears of grantor's need, he appoints trust property to grantor's wife to pay off the mortgage.

Offshore Trust

Since introduced to the world in 1984, U.S. courts have been attempting to strangle the effectiveness of the offshore trust. While doing some damage, the U.S. courts have had limited success because a U.S. court obviously has no jurisdiction over a person, property or company located offshore. Thirty years of case law has left us with some guidelines. Among other things, for an offshore trust to be effective, the property must be transferred offshore (can't put California investment property in an LLC and transfer LLC interest to offshore trustee — must sell California property and transfer cash to offshore trustee to be invested). The grantor of the offshore trust has access to the trust property as long as no creditor is in pursuit of the trust property. If a creditor is attempting to collect on a judgment against grantor, then the trustee of the offshore trust must not permit grantor access to any trust property until the statute of limitation for collecting on a judgment has passed.

Example: Grantor settles an offshore trust with $5 million cash. Trustee invests the cash. Grantor takes distributions of principal and interest of trust property periodically, as he sees fit. Years later, grantor makes a poor business decision, forcing him to declare bankruptcy. Offshore trustee withholds distributions of trust property, and the bankruptcy trustee is unable to access offshore trust property, leaving it for a future date for grantor or his children.

Home Protection Trust

This is an arrangement where an individual settles an irrevocable trust, sells his house to the trust on an installment sale, and then leases the house back from the trust. The trust contains tax provisions that will not trigger capital gains tax liability. The trust can be drafted so that the grantor can sell the house in the trust at a later date.

  • Example: Grantor, father of three children, settles a home protection trust with $5000 seed money, and sells his $500,000 house to the trust. The trust must make payments of approximately $3,200 per month ($38,400 per year) to grantor, and grantor must make fair market value lease payments of $2,500 (or whatever fair market value is) a month to the trust. Trustee makes the monthly $3,200 payment, and grantor makes his monthly $2,500 payment. In order to cover the $700 difference the next month, grantor must gift $700 (or an annual lump sum of $8,400), which ultimately is returned to him through the installment payments. (Although transferring this money around may seem redundant since the grantor will be getting the money back from the installment sale, it is absolutely necessary in order to prevent a court from naming this arrangement a sham.) Later, an unforeseeable future creditor obtains a judgment against grantor but is unable to put a lien on grantor's house because he does not own it — the irrevocable trust owns it — the grantor is merely leasing it.

Equity Stripping

This technique has been around for a while (although often improperly implemented by "real estate gurus" and others). Equity stripping is where a person moves the equity from an asset (business, real estate, accounts receivable, etc.) to a statutorily protected safehold such as a Swiss life insurance policy or annuity (both of which permit the policyholders to take loans while using the principal as collateral). For more information on this technique, please call us for a free consultation.

Lifetime QTIP

One spouse (here, let's say the husband) settles the lifetime QTIP trust. The terms of the trust are essentially this: Trustee shall distribute to my wife, Jane, as long as we are married, all income in payments made at least quarterly. Trustee shall have sole discretion to appoint trust principal to Jane. Trustee shall not appoint income or principal to anybody other than Jane. When Jane dies, the remainder of the trust property shall be distributed (as husband-settlor desires).

  • Example: Husband settles lifetime QTIP trust with $1 million for his wife and names himself as trustee. Years later, when an unforeseeable future creditor obtains a judgment against husband, creditor is unable to reach funds in the lifetime QTIP trust. If husband needs more money, he can appoint trust funds to his wife (which would indubitably benefit husband).

Privacy Trust

A privacy trust can enable a person to own a piece of real estate anonymously. Although not exactly "asset protection", a privacy trust can help deter potential creditors when they are investigating whether or not to sue you. We can help purchase your home through the careful use of a revocable living trust and a third-party trustee. A privacy trust may be right for you if: (1) you don't like it how anybody can "Google" your name and find out where you live; (2) you don't like it how any person can take your address and find out how much you paid for the house, and often can access your floor plans from the county website; or (3) you have other reasons to own real estate without the whole world knowing about it.