          
          
          
                         The Art of the Impossible
          
          
               The solution to the riddle of asset protection
          requires a discussion of tax and estate planning.  The
          laws that have evolved to protect creditors from
          certain common and prohibited acts by debtors require
          having an overall plan that has benefits besides
          protecting yourself from lawsuits.  If the plan only
          was designed to protect against lawsuits, the courts
          can set it aside on the grounds that it was an attempt
          to defraud future creditors.  
          
               By making the extra effort to set up your
          structure correctly, you will find that income and
          estate tax savings will far exceed the cost of creating
          the plan in the first place.
          
                So first lets examine what you cannot do to
          protect yourself from lawsuits.
          
          
          Badges of Fraud
          
               All 50 states have laws that guard against the
          common practice of dodging judgments by transferring
          assets.  Example: Dr. Paul gives Mrs. Paul all of his
          assets.  He tells his judgment creditor "all I have is
          yours, but..."  This does not work.  Any transfer made
          for less than valid consideration can and will be
          undone.  The transferee (Mrs. Paul) will be treated as
          a trustee for the transferor (Dr. Paul).  The court
          will unzip the transfer and the value of the asset will
          be available to satisfy the judgment.  Any transfer
          that leaves the transferee insolvent or substantially
          unable to pay his current creditors may be treated as a
          fraud against the creditors.  However, there is no
          prohibition on the transfer of assets to a different
          form of ownership, such as into a corporation or
          partnership.  There are several tests that determine
          that a transfer does not have the badges of fraud, and
          the transferor must pass all of them; in this case a
          transfer is guilty until proven innocent!  As part of
          an estate plan it is permissible to transfer assets to
          a family limited partnership provided that you receive
          back an equal value of the partnership itself.  In
          other words, instead of owning $1,000,000 of real
          estate in fee simple which is easily attachable by your
          creditor, owning $1,000,000 of limited partnership
          interest is not a fraud on creditors; any resulting
          difficulty in attachment is a result of the laws of
          partnership and does not wear any badges of fraud.
          
          
          The Thin Corporate Veil
          
               The use of a corporation to shield one from
          liability may be crucial and effective.  Too often,
          however, forming a corporation is only useful as a
          first line of defense.  Too many individuals mistakenly
          rely completely on this maneuver.  The first problem
          with it is that the corporation may be penetrated
          (piercing the corporate veil is the legal term),
          exposing all officers, directors, and even shareholders
          to direct and personal liability.  Many minor failures
          on the corporate owner's or officer's part may lead to
          its failure in asset protection.  Such failures
          include, but are not limited to: 
          
               1) Failure to capitalize the corporation -- did
          you really pay for the stock?
          
               2) Failure to hold annual meetings -- did you stop
          treating the corporation as a separate entity?
          
               3) Commingling the corporate bank accounts with
          your individual check book - do you occasionally (or
          frequently) use the corporate checks or credit card to
          fund personal expenses?
          
               4) Failure to file all necessary corporate papers
          with the state - have you ever done business in
          California with your Nevada corporation, or in New York
          with your Delaware corporation?
          
               5) Failure to keep all incorporation papers
          current - have you filed your corporate reports with
          your state of incorporation?
          
               6) Failure to file tax returns - your inactive
          corporation didn't need one?  Well, now it does!
          
               7) Failure to hold corporate meetings - do your
          corporate minutes reflect the type, change in, and ebb
          and flow of your business?  
          
               If you cannot correctly answer all of the above,
          then your corporation may not provide the shelter you
          expected of it.  
          
          
          The Folly of Corporate Control
          
               Over the years substantial abuses have been
          visited upon shareholders of corporations by
          "insiders."  As a result any majority of shareholders
          have the right to force the sale of the corporation,
          its dissolution, distribution of assets, etc.  As a
          share of stock is an item of personal property, similar
          to a bank account, certificate of deposit, or cash, it
          can be ordered sold, or, in effect, transferred to the
          creditor, to (partially) satisfy a judgment debt.  Thus
          a person who hides behind corporate ownership may soon
          find himself the former owner, or, the president voted
          out of office.
          
          
          Worthless Insurance
          
               Less than one in a hundred readers of this report
          have actually read their insurance policies.  Insurance
          companies are in business to make money.  They do this
          by limiting risks.  Probably only one in five know
          where their policies are to read them if they wanted
          to.  Most insurance covers you for only a portion of
          the risks that you assume.  For example, if you are
          sued for unlawful discharge of an employee (average
          verdict: $300,000) are you covered?  Does your
          automobile coverage protect you when you drive your
          vehicle off-road to a picnic site?  The fire that
          started in your bushes and spread to your neighbor's
          property - are you covered?  Are your limits adequate,
          or were they set years ago and never adjusted?  Make
          sure that you have a separate Umbrella Coverage policy
          that fills in the cracks left by your other policies. 
          Many people in the United States have recently found
          that the coverage afforded by their medical plans was
          no better than the financial well-being of their now-
          defunct insurance companies.  After the savings and
          loan mess, are we absolutely sure that the insurance
          industry is fiscally sound?
          
          
          
