Tag Archives: Asset Protection

What They’re Saying About Asset Protection Trusts

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Earlier this week there was a fairly in-depth colloquy between Oregon trust and estate attorneys that was broadcasted on the Oregon Bar Association’s listserv.  Below is a selection of the various comments – unattributed.

First, the question from John Doe attorney:

Greetings:  I have been asked to consult with Client on setting up a trust to “protect assets.” Client says the intention is to put client owned real property into an irrevocable trust prior to starting a new business to “avoid scrutiny.”  I’m not sure what the client’s real hot button concern is at the moment.

My opinion of such trusts is generally that, in order to get the asset far enough out of grantor’s control to make it effective, grantor has to endure too many negative consequences to make it worthwhile.  Do any of the assembled masses have particular thoughts or experience you are willing to share on the topic?

If there is a particular reference that anyone would suggest, I would be grateful to be pointed in that direction too.

And here are the responses:

1. There are ways in which an irrevocable trust can offer protection, and there are DEFINITELY tradeoffs, as you correctly note.  As a starting point, I would read this article from Forbes on the Mastro bankruptcy (up here in Washington State), and consider how his asset protection plans did not work out so well.

2. Interesting case. There are a number of similar examples across the country where people on the cusp of financial oblivion take desperate measures to stash enough to preserve the good life. That said, asset protection planning is a hot topic and is becoming a big practice area all across the country. People read about it and it appeals to them in concept, although they don’t know very much about the execution. [John Doe's] client seems to be concerned about protecting personal assets from claims of potential future business creditors. Much of that can be accomplished with careful entity structuring for the new business. Maybe that’s all that is needed here. Continue reading →

Can They Take My Retirement? Basic Asset Protection Explained

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Over  time we accumulate assets. We borrow money to buy a home and repay it.  The home usually appreciates in value (except for recently). Some of  us buy CDs or stocks, bonds, and life insurance. Or we contribute to an  individual retirement account (IRA) or a 401k.

These assets can be protected from creditors to some extent.    Continue reading →

Hazelrigg files Bankruptcy Schedules

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Last week Tom Hazelrigg filed his bankruptcy schedules.  Here is TEP’s analysis:

First, there is one ginormous blanket lien, held by SamE Investments (Sammy Lee) for $7,000,000, securing all personal property.  Will SamE Investments to Tom Hazelrigg III, be as Harry Dorrsers was to Mike Mastro?  We’ll see if SamE fares better than Dorrsers did.

Second, it looks like there was a transfer of $7,000,000 worth of Chihuly art to Dan Kirby within 90 days of the bankruptcy.  Is this linked to the SamE debt?

Continue reading →

Doctors: PC (Professional Corp.) or LLC (Limited Liability Company)?

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There was an interesting conversation on the Oregon Trust/Estate attorney Listserv, which started with this question:

For a new physician starting a solo medical clinic, is there any preference for the PC over the LLC?  Are there better ways to structure the entity?  What if there were multiple physicians?  Any difference in your advice?

Here are a few responses, unattributed:

Response No. 1:  … these may not be the issues you are concerned with but a few differences. A PC may make a subchapter S election but it is not automatic. If you are a PC and a member who takes any profit you must draw at least some of your income through payroll. and there must be a reasonable basis to the amount drawn vis a vie [sic] work and/or dividend draws or the IRS can reclassify your income.

[I]f those issues do not matter to your client then have them describe the type of corporate structure they want. do they intend to move members in and out when hiring and firing, do they intend to ever have any offshoot businesses ie clinics with specialization or a legally separate billing department. if so look to see if they can have one entity own the others and any restrictions on doing so.

[T]here are some record keeping issues as well but often I recommend a corporate structure based on what the client is willing to do themselves vs what they want to hire someone to do where their formalities are concerned. the benefit of llcs is you do not need to be as formal as a traditional corporation. but for some clients they are better off treating their structure more formally to later prove clearly the alter ego and avoid suits against their personal assets.

I know there are some out there in Oregon that say you simply cannot pierce the corporate veil ….  However, I have done it in several cases and personally I think it is a risk that should be discussed upfront during formation.

Response No. 2:   Usually I form a PC and make an “S” election for tax purposes.  This way, you limit self employment tax exposure, etc. You also get the corporate liability shield as well.  Typically, doctors make enough money in a year where it is worthwhile to make an “S” election. Continue reading →

Bargain at Lenders’ Expense

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Here’s the situation:  Borrower stops paying his condo association dues (and perhaps his mortgage too).  The condo association then starts a condo lien foreclosure lawsuit.  The Lender receives notice of the lawsuit, but … it happens to be a securitized trust that is not very responsive, or some other entity like MERS (Mortgage Electronic Registration Systems) was slow to forward notice of the lawsuit to the lender.  The lender may fall asleep at the wheel, or figure that its deed of trust cannot be trumped.  The lender need not worry, right?  Because it can always step in  and “redeem” the property by paying the condo lien amount to the buyer in foreclosure, up to one year from the sale.  WRONG!  Summerhill Village Homeowners Association v. Roughley, 166 Wn. App. 625 (2012) holds against lenders in this situation, relying on the “you snooze, you lose” rule.  Or perhaps more appropriately put the rule is this:  Lenders lack redemption rights in a condo lien foreclosure.  Start with ten or fifteen thousand dollars and start frequenting Sheriff’s sales.  You could pick up a bargain, like Plumbline Profit Sharing Plan did in this case.

Rigby Files Brief in Linda Mastro Appeal

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The brief is well written (here it is), with two basic arguments.  First – and the lead argument – is that Linda Mastro essentially loses the right to appeal by virtue of having left the jurisdiction and taken property that belongs to the estate.  She can’t willfully refuse to obey the court, while at the same time, expect to receive relief from it.  This is called the Fugitive Disentitlement Doctrine.  See Wengin Sun v. Mukasey, 555 F.3d 802 (9th Cir. 2009).  It appears this doctrine is usually applied in criminal cases, but Rigby cites authority that it has also been applied in civil cases.

The second part of Rigby’s brief is simply that there was sufficient evidence presented at trial to support the court’s judgment that the rings, gold, Rolls Royce, etc. was not Linda Mastro’s separate property, and thus is properly included in the bankruptcy estate.

Here’s what we think will happen:  The District Court will apply the Fugitive Disentitlement Doctrine, and affirm the Bankruptcy Court’s judgment.  By doing this, it will not need to address whether the facts at trial supported the judgment.  If the Court gets to the issue of whether the facts support the judgment, we think Rigby is on shakier ground.  While there is a lot of contradicted testimony by Linda Mastro on the jewelry, and indeed, her credibility is lacking, a gift is a gift (and from what we’ve seen, that’s what it was), so long as it was made when Mike Mastro was solvent.  Do we really believe that Mike Mastro intended to keep an interest in jewelry he gave his wife?  The evidence that Rigby cites is Mike Mastro’s having controlled the jewelry for awhile, but that seems weak to infer that he had an interest in it.  It sounds more like a bailment, if anything.

We keep coming back to how Linda can appeal, yet also be on the lam.  If Mike Gossler is unable to reach Linda does his ethical duty require that he file an appeal on her behalf to protect her interests?  Or if she’s incommunicado, can he ethically represent her interests, without receiving her specific direction?  Or is she in communication with Gossler, directing the appeal from afar?  And is he getting paid?  If so, with what money?  Our experience opposing Mike Gossler in litigation has shown us he is good, professional and ethical.  We assume whatever the facts, he’s doing what he should do under the circumstances.