Trusts Enable Pro Athletes To Protect Their Assets

Life throws us many curves and sometimes we end up in the rough. What can be done to straighten out those curves and keep us out of the rough in a financial sense? How can we protect what we have - no matter what life throws at us?

Each state has laws (called exemption laws) which prevent or limit another person’s ability to take certain assets from you in a lawsuit. Do these laws always work? Are they enough?

These laws do not always work - there are a number of ways they can be attacked, and they never provide complete protection - some states provide almost no protection. “Result-oriented” judges have been known to ignore these laws.

What else can you do? Consider setting up a trust.

What is a trust?

A trust is an arrangement whereby a “trustee” holds assets (cash, securities, real estate, etc.) for the purpose of preserving and protecting those assets for the “beneficiaries” of the trust (the person who sets up the trust can also be a beneficiary).

Trusts have been used to protect assets since the time of the Crusades (almost 1,000 years). Using a trust to protect your assets is nothing new. The trust can pay bills for the beneficiaries, allow the beneficiaries to use trust properties, distribute money to the beneficiaries, and so on - all of this is set out in the written trust document. The trustee is required by law to strictly follow the directions in the trust document.

Do all trusts protect assets in the same way - with the same degree of protection?

The short answer: No. There are all types of trusts. Some provide no protection at all.

What type of trust can you create which will effectively protect your assets from any financial calamity - from any lawsuit - from any claim?

First, let’s be clear on how a person who is trying to take assets from your trust (let’s call this person a “creditor”) would normally be able to do so (a creditor could be anyone who is trying to get your assets - a credit card company, a wife, an ex-wife, a girlfriend, etc.). The creditor would have to go before a judge who would either have the power to: order the trustee of your trust to pay the creditor, or grab the assets of the trust (accounts, etc.) directly.

How can this be prevented?

Simple: By establishing your trust in a place where the law will not permit the trustee to follow the U.S. judge’s order or allow the trust assets to be seized by the U.S. court.

Where would that be?

A basic rule: The trust laws in the United States have largely stripped away the protection that trusts have traditionally provided. Any trust established in the United States can be successfully attacked - the assets can be taken by a creditor. The U.S. is not the place to set up a protective trust.

Where can we go?

A properly set up offshore trust can protect your assets from ANY creditor - that’s right - ANY creditor - even the U.S. government!

How does this work?

First, and very importantly, the correct offshore jurisdiction will not give effect to a U.S. court’s judgment. That means the U.S. court judgment against you in the offshore jurisdiction is worthless.

What does that mean to the creditor?

In order to have any hope of getting at your trust, the creditor must start a new court case in the offshore jurisdiction, and hire a new lawyer in that country (his U.S. lawyer will not be allowed to represent him in that country). In most asset protection countries, lawyers cannot take cases on a contingency fee basis — this means that the creditor must make a significant personal financial commitment before his case even gets off the ground.

What’s next?

A consideration of the legal obstacles to the creditor’s attack on the trust: if the trust jurisdiction has been correctly selected, its laws will preclude many conventional legal bases of attack, and the creditor will be faced with an insurmountable burden of proof and a very short statute of limitations (in many cases, the statute of limitations will be closed) to start the case. These hurdles in the legal obstacle course of attacking the offshore trust are not the end, however. If threatened with litigation in its original country, the properly structured offshore trust can move to another favorable country – requiring the creditor to start his litigation all over again.

How does this all shake out?

Once the creditor realizes that they will never be able to collect a judgment from your trust, they will either drop the case or accept a reasonable settlement - on your terms. You go on with your life…

Can your regular lawyer do this for you?

The catch: You need a highly qualified and experienced attorney in this type of planning to represent you in this endeavor. You want to be certain that your planning will be effective.

How do you know if the attorney is the right one for this job?

You base your choice on the attorney’s experience and qualifications. Is this type of planning something the attorney does every day - or just once in a while? How good would you be in your sport if you only did it once in a while? How many trusts of this type has the attorney established? How many have been broken?

How is the attorney regarded by other attorneys?

Martindale-Hubbell (since 1868) is an international attorney rating organization which periodically performs and reports peer reviews of attorneys - you can check with them (martindale.com).

- For more information contact: Howard D. Rosen, Esq., Donlevy-Rosen & Rosen, Coral Gables, FL www.protectyou.com

This article does not constitute legal advice and you are directed to your personal legal and tax advisor for more information on the issues in this article.