Why a United Kingdom Limited Partnership?

Posted on by

business_2172838bFor clients who wish to protect their assets, reduce their taxes, and obtain financial privacy using a corporate entity is ideal. One of my favorits is the United Kingdom Limited Partnership (UK LP).

The UK LP is easy to establish, and once established requires zero reporting since it is a truly 100% “pass through” entity. The income from the UK LP is attributed to the partners without the need to file a partnership return in the UK. If the partners are not in the UK and the income is not derived from UK business, there will be no UK taxes and thereby no reports or tax returns that need to be filed. Now since the UK has some of the best tax treaties around, this income may also be tax exempt in your home country.

In addition, as long as you are not “doing business” in the USA (this usually means making, providing, storing and/or transporting goods or services inside the USA), there will be no tax liability in the USA either, although you may end up owing taxes on the profits of the UK LP if you are a citizen or resident of the USA and depending upon how ownership was set-up.

There are many ways of setting up a UK LP depending upon the needs of the client. Let’s chat if you have any questions!

Why should you worry about asset protection?

Posted on by

DisasterTrain-e1338163025954Bad things can happen to good people. We work hard, do the right things, and yet things can happen that can ruin everything. Sometimes it’s not our fault, and sometimes it is, but all the same a single mistake can take everything you have. A few things that can destroy everything you have been working for, and leave you and your family with nothing:

    • Simple business transactions that have been entered into time and time again without problem can become disaster due to unexpected changed conditions outside our control.
    • Errors in judgment regarding simple matters that seem unimportant at the time.
    • Business partners that turn out to be untrustworthy.
    • Mistakes committed by family and/or friends (or perhaps even by yourself).
    • Family problems.
    • Driving an automobile (even when you are insured and “protected”).
    • Business transactions with trusted friends executed with a handshake.
    • Just plain bad luck.

I have found that very smart people often don’t like thinking about what can go wrong. This is a big mistake. It is very important that you review the possible risks you face in your personal and business life. It is important that you be realistic about these risks. What are some of the “worst-case” scenarios that could happen to you?

Once this is done it is possible to determine what you need to do in order to protect your assets and insure that you and your family are protected. Not everyone is the same. Not everyone needs the same level of protection. It is for this reason that I created the Wealth Preservation Fortress®. It is modular system so that each person receives the customized care he or she needs and the protection he or she deserves without having to reinvent the wheel each and every time.

If you have any questions please do not hesitate to contact me, or you can simply request a copy of my free ebook “Building Your Wealth Preservation Fortress®.

How and Why an International Privacy Trust can Help You!

Posted on by

privacyI often advise clients to use an “International Privacy Trust” to own the business entities they form in order to provide them with greater asset protection, tax planning, and financial privacy. But I also tell them, “The only thing you want to do with the International Privacy Trust is to have it passively own the shares in those companies; no bank accounts, no contracts, no financial transactions, etc.”

This seems to cause a lot of confusion, “If the International Privacy Trust is so great, why don’t we use that instead of the US LLC, UK LP, or Belize IBC?”

A good question.

Without going into complicated legal issues it is important to understand that the “Trust” was developed through a totally different legal process than was the “Company”. Trust Law is different than Corporate Law. There are different rules that apply, and things are interpreted differently.

For example: If you set up a Trust, and you name yourself to an important position in the Trust, or in some way just maintain effective control over the officers of the trust, there is a real risk that the entire trust will be set aside as a “grantor’s trust” or worse a “sham entity”. However, if you set up a company, you can be the sole shareholder, sole officer, sole employee, chief bottle-washer, etc. and have no such problems.

Again, this is because a Trust is treated differently than a Company. This does not mean the Trust is not useful; it is very useful. It simply means you must be cautious in how you use the Trust.

A Trust is very helpful in providing arms-length ownership of assets that you want removed from your estate. A Trust is very helpful at providing added privacy and confidentiality. With careful design and execution, the Trust can be a very helpful tool.

In order to avoid the charge that the Trust is a grantor’s trust, which will result in negative tax implications, (at least under “common law” jurisdictions) certain precautions need to be taken. The client cannot be the Trustee, Sole Protector, Beneficiary, etc. of a Trust. The client also needs to be at “arms-length” distance from the Trust in all transactions; that is the client cannot have effective day-to-day control of the Trust despite what the paperwork says. By limiting what the Trust actually does, this risk is lowered, and hopefully eliminated.

Another risk is the accusation that the Trust is just the “alter-ego” of the client, or a “sham entity” which will result in the entire Trust being set aside. Again, this is when the client for one reason or another is deemed to have effective day-to-day control over the actions of the Trust. Again, limiting the actions of the Trust to only passive actions such as holding shares in business entities removes this as a reasonable risk to be concerned about.

So, I advise my clients to have an International Privacy Trust that DOES NOTHING OTHER THAN own the shares of the business entity they establish. The client gets the benefit of having an effective Trust that removes the assets from his or her estate thereby providing legal and legitimate asset protection and tax benefits, but can still take an active role in the business with the business entity which is owned by the Trust. This is often referred to as a “hybrid” entity approach.

If you have any questions, please feel free to contact me.

The Attorney-Client Privilege

Posted on by

I usually write about Asset Protection, Tax Planning and Financial Privacy, so I thought I would discuss a somewhat related topic; the Attorney-Client Privilege. The Attorney-Client Privilege is a legal concept that protects certain communications between a client and an attorney and keeps those communications confidential. This privilege is “owned” by the client, and it protects the communications even if the client is only a prospective client.

attorney-client-privilege-tulsa-oklahoma-lawyer

For a communication to be considered privileged (that is protected from disclosure) three (3) things must be established:

  1. The holder of the privilege is a client or a prospective client;
  2. The communication is made confidentially with a licensed attorney or subordinate; and
  3. The communication is made with the intent securing legal advice and/or representation.

This privilege is one of the most important concepts in Western legal studies. However, it is also one of the most misunderstood issues even among lawyers.

As with all rules, it is in the exceptions that we find the heart of the matter.

The communication must be with an attorney. There is no such thing as an Accountant-Client Privilege. If you describe a troubling situation regarding past tax returns with an attorney, the attorney will most likely be required to keep the communications confidential. Even upon subpoena the attorney would be required to refuse to answer questions. However, an accountant in the same situation may be required to report what the client said to the authorities as the accountant’s foremost duty is to the taxing authority.

A communication is only privileged if it was intended to be confidential. Speaking in front of 3rd parties destroys the privilege, so attorneys and clients should avoid those elevator conversations. No one wants to hear what you are saying anyway!

The communication is privileged, not the facts. So if you toss a bloody knife onto your attorney’s desk and ask, “What should I do if I just killed my wife with that knife?” the question is privileged as is the possible answer, but the fact that you had a bloody knife in your possession is not protected.

The privilege does not apply in the face of an ongoing or prospective criminal activity or conspiracy. Telling your attorney about your criminal activities in the past may be protected, but if you describe how you intend to continue with such activities the attorney may have a duty to the courts to inform the authorities. A very troubling situation to be in if you are an attorney. If the attorney is not careful he may be considered an accessory or even a co-conspirator to a crime if he fails to disclose the information, or he may be held in violation of his duty to the client if he discloses it inappropriately.

The privilege can also be waived by the client. Remember, the privilege is “owned” by the client. If the client chooses to disclose the content of the communication that is privileged, well it is not privileged anymore. Now this raises an interesting issue (at least to me): to what degree does a partial disclosure of privileged communications waive the remaining undisclosed communications? Under some rules partial disclosure by a client waives the entire privilege, and under other rules partial disclosure only serves as a narrow waiver regarding the exact facts that were disclosed. For instance, let us say that the client files a grievance/complaint against the lawyer. Obviously, the lawyer has the right to defend himself. In Texas, this waiver of privilege is limited to those communications that serve to defend the attorney’s interests, and does not serve to waive the privilege in regards to other forums. However, if the client discloses confidential communications in open court before the Federal Courts, this disclosure may result in a broad and universal waiver of ALL communications between the client and the attorney. OUCH!

The Attorney-Client Privilege is a powerful right that gives people the ability to speak candidly to their attorney even if they do not end up retaining the attorney. But it is not as simple as some believe, and it certainly does not cover everything you say to an attorney. As always, caution is the rule!

The Philosophy of Learned Hand

Posted on by

Learned Hand was perhaps one of the greatest legal minds in American History. Although not a Supreme Court judge, his analysis on and off the bench influenced a generation of legal scholarship. And what a fantastic name!!!!

In a famous ruling concerning the duty of the individual regarding the law, he clarified the traditional rule that people do not have a duty to go beyond the written meaning of the law. That is you should only have to guide your actions by the rules laid out by the law, and not by the unwritten intentions of the lawmaker or your own subjective intentions. In Helvering v. Gregory, 69 F. 2d 809, 810 (2nd Cir, 1934), aff’d 293 U.S. 465 (1935) he stated that:

 “[A] transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

“Over and over again Courts have said there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor, and all do right, for nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”

In this ruling Learned Hand made it clear that the government has no right to expect taxpayers and citizens go beyond the mandates of the law and do what is best for the state. It is enough if what they do is within the technical boundaries of the law. The individual need not guide every action by the consideration of what is best for the government.

This was the basic sentiment that drove the American Revolution and the Founders: The Government is the Servant of the Citizens, not the Master.

Sadly, our sentiments have changed. Contrast Learned Hand’s statement with the “sham transaction doctrine” as approved by the court in Jacobson v. CM, 915 F. 2d 832 (2nd Cir, 1990):

“Transactions that are entered into solely for the purpose of obtaining tax benefits and that are without economic substance are considered shams for Federal income tax purposes and purported indebtedness associated therewith will not be recognized…. [A] sham transaction [is] a transaction that is lacking in objective economic reality and that has no economic significance beyond expected tax benefits.”

No longer is working within the law enough. No longer is it enough to dot every ‘i’ and cross every ‘t’. Now the taxpayer/citizen must act with subjective intention of doing what is best for the government; paying taxes. Now the government has the right to not only examine WHAT you did, but they can now examine WHY you did it!

As World War II was drawing to an end, and Learned Hand looked back on his generation and the terrible destruction that had taken place, he wrote:

 “What do we mean when we say that first of all we seek liberty? I often wonder whether we do not rest our hopes too much upon constitutions, upon laws, and upon courts. These are false hopes; believe me, these are false hopes. Liberty lies in the hearts of men and women; when it dies there, no constitution, no law, no court can save it; no constitution, no law, no court can even do much to help it. And what is this liberty which must lie in the hearts of men and women? It is not the ruthless, the unbridled will; it is not freedom to do as one likes. That is the denial of liberty, and leads straight to its overthrow. A society in which men recognize no check upon their freedom soon becomes a society where freedom is the possession of only a savage few; as we have learned to our sorrow.” Learned Hand, P. 190, The Spirit of Liberty (1944).

When Going “Offshore” Should be Avoided

Posted on by

Many people come to me saying that they want to go offshore to protect their assets and reduce their taxes, but are often not ideal candidates. I try to explain that I do not offshore-financial-advicehelp people go “offshore”. What I do is help people protect their assets, reduce their taxes, and obtain greater financial privacy, all in a legal and ethical manner. Offshore structures are just some of the tools that sometimes come in handy to reach these goals.

For many people, “Going Offshore” is not just the wrong tool to use to accomplish these goals, but for many it is a very dangerous and unwise tool. As I described in my prior article, “What is Jurisdiction?”, the point of going “offshore” is to take advantage of another jurisdiction that may provide more friendly laws and regulations in regards to taxes, asset protection and privacy.

However, just setting up a foreign company and then doing business inside the old jurisdiction will not work. You need to be in a situation where some or all of your business can be successfully transplanted to that new more friendly jurisdiction. Examples of “offshore” friendly businesses are: importing/exporting, software design (particularly if you are already using offshore technicians or have significant offshore clients), Internet services, financial services, entertainment industry, and other types of intellectual property. If you do not have a business that lends itself to “going offshore” then it would be wise to focus on more cost-effective domestic alternatives.

If what you are doing is entirely defined as “US Source Income” (that is you are making, providing, storing, and/or delivering a product or service inside the USA from resources located inside the USA) then there is very little reason to “go offshore”. Setting up a foreign company that is going to do business inside the USA will require the foreign company to submit itself to the laws and tax regulations of the jurisdiction. Far from reducing taxes and protecting assets, this often results in some very negative tax consequences and subjects otherwise safe assets to US liabilities. It is for this reason that most non-US companies and investors usually establish US companies to act as affiliates and/or subsidiaries of the non-US structure.

So the bad news is that “going offshore” may be unsuitable for many if not most US taxpayers.

The good news is that there are a lot of reasonably priced alternatives that can still help to protect your assets, reduce your taxes, and obtain greater financial privacy.

The easiest and simplest of these is the good old tried and true “S Corporation” which combines limited liability protection with a convenient “pass through” tax treatment. A favorite of small businesses and investors for decades, the S Corporation provides adequate asset protection by segregating the liabilities of the business from the assets of the owners. Establishing an S Corporation is simple and even a Limited Liability Company (hereinafter an LLC) can be used for those like me who think the LLC is simply the greatest thing since sliced bread. In addition the S Corporation can provide significant savings in “self-employment” taxes (the 15.3% you have to pay for Social Security and Medicare). Instead of having to pay the self-employment tax of 15.3% up to the $113,700 cap (for 2013), you can give yourself a modest salary, and take the rest of the profits as profit distributions. Although you will have to pay taxes on the profit distributions, the savings of 15% can add up very quickly and is a safe and secure way of saving taxes as long as you pay yourself a “reasonable” salary with withholding. For additional privacy you can use a Revocable Trust to own the shares and appoint a nominee officer to be named in any official papers, thus obtaining near anonymous treatment.

For most small businesses an S Corporation is all they need to protect their assets and significantly reduce their taxes. However, if the operations of the business require significant investment of capital and involve significant exposure to liabilities, additional efforts may need to be taken to insure necessary protection is in place. For such situations we have developed the “Advanced Corporate Fortress”. This combines three (3) US entities that are used together to limit the exposure of the business assets to liabilities, and to maximize the tax savings of the owners. First a C Corporation is established that will stand alone as a taxable entity. All assets of the business will be placed into this C Corporation for protection. An LLC treated as a “disregarded entity” will be established to do anything that involves any exposure to liability. Although the LLC will be owned 100% by the C Corporation, it will have little or no assets that could be seized by a potential litigant. Finally an S Corporation is established to provide management and possibly employee payroll services for the LLC. In summary the C Corporation holds the assets of the business behind its protective wall, the LLC acts as a shield to protect the C Corporation since the LLC will be exposed to any and all liabilities but has no assets, and the S Corporation helps further protect the owner’s interests and reduce the owners taxes as described above. There are also several other advanced strategies that can be used to take advantage of the fact that the C Corporation has a very low initial tax bracket, thus allowing you to place some income into the C Corporation at a reduced tax rate and then lending it out to the S Corporation which can then deduct the interest payments on the loan as deductible expenses thereby further reducing the taxes of the owners.

Now for some people, none of this is necessary. They have no business and are only concerned with protecting their assets. For these people the “Personal Preservation Fortress” is ideal. It is simple yet provides extremely powerful protection. The Personal Preservation Fortress uses two entities to provide the ultimate in asset protection. An LLC is established to hold all the assets of the individual(s). The individual(s) will receive 99% of the shares of the LLC. An Irrevocable Trust is established naming someone other than the owner(s) of the LLC as beneficiaries (this is usually children, grandchildren, pets, etc.). The Trust will receive a 1% interest in the LLC and nothing else. Here is why this system works: creditors can only take what you have. If all you have is a partial interest in an LLC, then the creditors can only take that. Now in most states creditors who seize an LLC interest of less than 100% receive only an “assignment” of that interest, not the interest itself. As such they cannot vote the shares, and they cannot demand distributions from the LLC. This is because the LLC is treated as a partnership and most states provide protection to the other partners from being forced to accept as full members involuntary additions to the partnership. Although the creditor cannot vote the shares and cannot demand a distribution of income or assets, the creditor may be liable for demands of additional capital. That is the creditor may be required to pay additional funds into the LLC in order to maintain its economic position. Finally, if the LLC produces taxable income this income does not need to be distributed to the members, but the members still must pay taxes on the income. So the creditor would have to pay taxes on income earned by the LLC which the creditor did not actually receive. Finally, the only remaining voting member of the LLC is the Trust, which is “influenced” by the owners who act as members of the Trust Committee. The Trust Committee can remove the Trustee if the Trustee fails to satisfy the Trust Committee. As you can see, this is a very unpleasant situation for a creditor to be in, and you can expect them to start negotiating on reasonable terms. The best part about this system is that it applies to all creditors including the dreaded Internal Revenue System.

Finally, there is a unique structure that combines the benefits of an Individual Retirement Account with a tax-free entity:”The IRA Rescue Plan”. This program was initially established to assist people with large amounts of IRA money earning low rates of return who wanted to invest in unconventional investments that would otherwise be prohibited or difficult with a traditional IRA. First, the funds in your current IRA must be transferred to a more cooperative Custodian (conventional Custodians like banks, brokers, etc. only make money when you trade or keep your funds in their institution). We then establish a LLC following the dictates of an important US Tax Court ruling and have the IRA Custodian buy 100% of the shares of the new LLC. The client is then appointed President of the LLC, and does whatever he or she wants to do with the money (subject to basic good faith business limitations). The IRS requires that certain rules be maintained regarding distribution of funds from the LLC to the client, but these rules essentially involve reasonable compensation to insure that the client is not “defrauding” the LLC and thus unreasonably avoiding taxes and penalties on the IRA withdrawal. The long and short of it is that the IRS does not want you to transfer the funds from your IRA to an LLC, and then raid the piggy bank and avoid paying the withdrawal fees and penalties. If care is taken, funds can be paid to the client. Now, not only do we have the IRA funds in an entity managed by the client totally free and clear of the IRA limitations as to investments, the LLC is also a tax exempt entity since all profits of the LLC “pass through” to the IRA which pays no taxes on interest, dividends and/or capital gains. Furthermore, the IRA is one of the few entities to withstand the recent changes to the Bankruptcy Code. Funds in an IRA are still safe from creditors, and the LLC, being owned by the IRA, is thus protected.

As you can see, there is an amazing number of options available for people who may find “offshore” planning too risky, or who simply do not fall into a category whereby they could benefit from “going offshore”. If anything, the choice may be too much to deal with. But that is a good thing. Having plenty of options on how to protect your assets, reduce your taxes, and obtain greater financial privacy is a consumers dream come true. If you have any questions please do not hesitate to contact us.

The USA is a Great Place to do Business!

Posted on by

With all the bad press going around, I thought now would be a good time state the obvious: The USA is a Great Place to do Business… If you can figure out how to get started here.

The USA:

  • has advanced pro-business laws and regulations making it easy to start a business and form a company,
  • has state of the art banking and financial access at very reasonable terms,
  • has a dynamic economy,
  • has a spirit of rugged individualism, and
  • can offer foreigners privacy, tax reduction, and advanced asset protection.

But most people need a little help getting started. Specifically, they need help getting a US Bank Account opened and operating. Since 9/11 this has become a much more difficult process. But it is not impossible. In fact, it can be quite easy.

Contact us if you would like some help.

What is Jurisdiction?

Posted on by

I thought I would discuss the important issue of “Jurisdiction”. This is because I have been hearing a lot about some countries enacting “draconian” anti-offshore rules and regulations. I thought I would explain how and why most of these stories are rather apocryphal and mostly just propaganda to scare people into submission.

Here is a fairly good definition of jurisdiction:

‘In law, jurisdiction (from the Latin ius, iuris meaning “law” and dicere meaning “to speak”) is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility.’ (Wikipedia)

Now if, let’s say, Australia (or the USA, or the UK, etc.) says in its propaganda literature produced by the tax authorities that new laws are being enacted to do away with “illegal offshore tax dodges”, I want to explain why people should not be too terrified. If done properly, systems can be created that will legally remove the transactions from the jurisdiction of that country making the hyperbole meaningless.

I would like to try to explain what Jurisdiction is by using an allegory.

Let us pretend that there is an odd little country named OustMuensterMark. No one really knows quite where this place is, but it is a fairly backward place. It is ruled by a rather mad Baron named Ruprecht the Red. Ruprecht recently enacted a series of tax laws which require any company doing business in OustMuensterMark to pay roughly 150% of its net profits in taxes, and require the officers to submit their eldest children hostage to the Secret Police. Although the taxes are punitive, there are so many loopholes and exceptions to the tax rules that business manages to limp along in the country, but the place is far from prosperous.

Now let us further pretend that you have a little company chartered and operating out of Florida. Your company’s name is “Wingnuts R Us, LLC” and you sell wingnuts. Every month the Museum for the Science and History of Torture and Decapitation of OustMuensterMark orders $5.35 in wingnuts to be used to tightly enclose their numerous and ever growing display cases. Are you now bound by the laws of OustMuensterMark? Should you be forking over all your money to either Ruprecht’s Tax Collection and Torture Agency or to tax attorneys in OustMuensterMark? Perhaps you should hand over your eldest child to the Secret Police? I think it is fairly clear that your sale of wingnuts to the Museum does not bring you under the jurisdiction of Ruprecht the Red. Have no fear!

One day, Ruprecht wakes up and leaps out of bed stark naked and starts running through the palace screaming, “The British are coming! The British are coming! To Arms! To Arms!!!!” The only British that are found are a few nannies on their way to work at the Royal Orphanage. After directing the thorough interrogation and torture of the unfortunate nannies to no effect, Ruprecht collapses on the floor, a victim of his own hysterical energies. His attendants put pants on him, his doctors put a straight-jacket on him, and the Thingamajig, the Legislature of OustMuensterMark, meets and finally declares Ruprecht the Red to be unfit to rule, and appoints Waldwak the Wise, an adopted child of one of Ruprecht’s distant cousins, to become the new Baron. Luckily for the unhappy state, Waldwak does not suffer from any of the mental infirmities so common in Ruprecht and his other relations. Waldwak completely abolishes the tax code and torture (putting thousands of tax attorneys and tax collectors out of work). Instead of the confusing tax code of Ruprecht, a simple 10% sales tax on goods sold inside the country is imposed and things start to change for the better. Business booms, tax receipts grow, and the Thingamajig votes to rename the country OustWaldwakMark (hereinafter OWM).

One day you get an email from an enterprising tax attorney from OWM offering to establish a Limited Liability Company for you. The email explains that your taxes will be next to nothing, and that you will be able to keep the rest of the money for your pet project of saving orphaned giraffes. You sign up and immediately notice the dramatic increase in your cash register since you are no longer paying Florida and US taxes, and you only have to pay $0.54 cents in taxes a month for the sale of wingnuts to the Museum.

At least until the State of Florida and the US IRS impound your bank accounts, factory, warehouse, cars, house, furnishings, inventory, and dental work. Although you were in complete compliance with the laws of OWM, you were under the jurisdiction of the State of Florida and the USA since your factory, warehouse, distribution center, headquarters, house, car and bank accounts were all located there. Just as the repressive and illogical laws of Ruprecht the Red had no effect upon you when you sold a few wingnuts to the Museum, neither did the enlightened actions of Waldwak the Wise protect you from the jurisdiction of the location where you are located and doing business. And simply establishing a company in OWM did not change that since the new company simply came under the same jurisdiction for the same reasons.

If only you had better understood the concept of jurisdiction! You see, the idea was not so bad, it was just the sloppy, perhaps greedy, execution of the system that was flawed. It was possible to take advantage of the benefits of an OWM Company, but you needed to structure things very differently. First of all, the Florida company should not have been terminated, but should have been kept for the purpose of managing the domestic production and sale of wingnuts. The OWM Company should have been used to manage your considerable foreign sales. The Florida Company should have sold wingnuts to the OWM Company at a reasonable profit based on wholesale prices (not retail), and then the OWM Company would have sold the wingnuts around the world out of their modest offices in OWM. If only $5.35 in wingnuts were sold in OWM, then the tax would remain at $0.54, but if $10,000,000 in wingnuts were sold elsewhere (except the USA) these sales would be tax free. Although the US tax authorities may or may not like such a transaction, as long as the initial wholesale transaction from the Florida Company to the OWM Company was legitimate and resulted in reasonable taxable gains, the additional profits earned by the OWM Company in global sales are simply outside the jurisdiction of the USA. This system is legal, ethical and completely acceptable.

Now on a more philosophical note…

How can jurisdiction be established?

  1. A nation has jurisdiction over you because you were born there and you are forever subject to its whims; or
  2. Jurisdiction is based upon an agreement between the individual and the governing entity.

In the first case, jurisdiction seems to be based upon some strange power that is imputed to a location. Rather like the saying that you can pick your friends but are stuck with your family. But this seems irrational and unreasonable. Why should an individual be subject to the jurisdiction of a particular place merely because of an accident of birth? The second choice seems more logical. You are subject to a particular jurisdiction because you “agree” by your actions and/or your presence. The agreement may be far from voluntary, but it is an agreement to submit to authority all the same. If someone holds a knife to your throat, holds your family and all your property hostage, and deprives you of the ability to go elsewhere, although it may be morally repugnant, accepting this person’s authority is all the same a choice you made even if under duress.

History suggests that most agreements regarding jurisdiction have been formed in just such coercive ways. In a way it is only logical, since authority is something that must be imposed to one degree or another. Only in recent history has the concept of jurisdictional agreement been treated as a matter of true choice which a “free” person can choose to accept or reject. In point of fact, this right to reject a jurisdiction is the basis of most of Western Political thought. But this is still mostly philosophical. The fact of the matter is that you are bound by a jurisdiction simply because you are within the grasp and power of the authorities, and it would be foolish to ever expect such authorities to willfully relinquish that which gives them power.

What can we make of this? In most modern democratic countries it is possible to take advantage of different jurisdictions in order to protect your assets, reduce your taxes, and to obtain greater financial privacy. This is because even as they complain about the loss of tax revenue, these nations still acknowledge the ancient concept of jurisdiction. However, this must be done with attention to the laws and with proper execution. If you wish to take advantage of the low tax rates of a “tax haven” you must make sure that the transactions which you are imputing to the “tax haven” do not fall within the jurisdiction of another more rapacious government authority. Simply getting a company from another country and waiving it around like a magic wand will only make you look foolish and cause you great harm when the trick does not work.

If you would like to chat about asset protection, tax planning, and financial privacy, please feel free to contact me.

The Next Big Thing in Asset Protection

Posted on by

redtapeWell doesn’t that sound exciting?

During one of my free telephone seminars, a caller asked the smartest question: What is the next big thing we have to worry about?

When most people think about asset protection, if they think at all, they think about a risk from some nameless evil lurking just beyond their view. In fact most risks to your wealth come from much closer: family, friends, business partners, long-time associates, etc. Those are the guys who end up sticking the knife in your back. Those are the folks you have to protect yourself from. Sad but true.

However, I was asked the above question, and I must admit it stumped me a bit. I had to think a bit, and what I came up with was this:

Governmental Shakedowns in the form of enforcement actions.

With the Federal, State and Local governments all facing budget crises new forms of revenue are desperately being sought after. New taxes are political suicide, and possibly counter-productive. So the scuttle-butt that I have heard is that government agencies are looking to beef up enforcement of various little-known rules and regulations with the sole intention of obtaining increased revenue through fines.

There are so many regulations out there it is not funny. Most contain terms that allow for the government to charge punitive fines to non-compliant businesses. In the past the various agencies have decided against fines in favor of providing helpful information and warnings.

Not any more!

An example that I was told about involves the various consumer protection rules that have been instituted to protect the private financial data of consumers. The laws were aimed at banks, credit reporting agencies, loan companies, etc. However, the terms are much broader than that and include virtually all companies with employees, and thus employee data. The rules require each company to perform various evaluations, reporting, preparation, appointment of special employee contact officer, etc. Most businesses I have talked to do not even know about these rules let alone how to meet the requirements they impose upon them. Failure to comply can result in stiff fines.

So I guess the next big thing is the growing Leviathon of government. Unable to feed itself from taxes, it will start fining companies to cover budget holes. Beware.

Wealth vs Income

Posted on by

I am a bit shy about talking about the issue of wealth, since there is clearly an argument to be said that I am trying to explain to a chicken how to lay an egg. Also, I remember my father telling me: “Never talk about money, politics and religion; you’ll only lose friends.” But over the years, as I have attempted to help people to legally protect their assets, reduce their taxes and obtain great financial privacy, I have asked myself this question: “What is Wealth?”

In my opinion, the most obvious and destructive mistake is made when one confuses income with wealth. Although the two are related they are not synonymous.

Let us start with my definition of wealth: I believe wealth must be defined as assets which (1) generate income, and (2) that are relatively liquid, at least to the extent that they can be transferred to another party in exchange for some fair value.

Let us proceed with a simple review of what money can do. If you had one million dollars, and you invested those funds in prudent investments, you should be able to obtain an annual return of roughly $60,000.00 to $120,000.00 a year, or translated monthly, $5,000.00 to $10,000.00 a month. This is wealth (although depending upon your situation and needs, it may or may not be considered enough to make you “wealthy”). The funds produce income, and the assets which represent those funds can be transferred to others in exchange for fair value.

Now there are three things that are commonly confused with wealth:

1. A prestigious job with a high salary;

2. An expensive house; and

3. Ostentatious displays of wealth (i.e.; bling, expensive cars, clothing, consumer goods, etc.).

In the case of the high paying job, earning power is closely linked with the cost of living, so someone earning a “good living” in Houston, Texas, would most likely barely be able to survive on those same earnings in New York City. With that in mind, I think it is safe to say that someone who makes $20,000.00 a month would be considered “wealthy” almost everywhere.

And that would be a mistake almost everywhere since earnings from employment are not wealth, at least not according to my definition above. No matter how much you make from employment, since the job cannot be transferred in exchange for fair value, it cannot be considered a wealth building asset. That is not to say getting a high paying job is bad, only that it is not in and of itself something that can make you wealthy.

Another thing that is often confused as wealth is housing. People have a tendency to identify someone as wealthy because he or she lives in an expensive house in a nice neighborhood. Again, these people would be mistaken if the house was the only consideration. Buying a house may often be a safe and wise way of providing you and your family with shelter, particularly if the long-term cost of buying a house is less than the long-term cost of renting, but it is not a source of wealth. It is not wealth even if the property value of the house increases during the time in which you live in the house. This is because no matter how cost effective it may be to buy versus rent, and no matter how much the property appreciates in value, it cannot produce income for you while you are living in it. So, although it may be wise to put your money into buying a house instead of renting, and buying a house may result in the value of the asset appreciating, such an investment does not make someone wealthy per se.

Finally, the issue of ostentatious displays of wealth, often referred to as obscene consumption, clearly should not be confused with wealth, although often it is, if not on an intellectual level than on an emotional level. Who does not see someone driving a beautiful new car that costs more than the average house and shake their head thinking, “I wish I could afford that”? However, if there ever is something that is the very opposite of wealth, it is the barbaric display of wealth. In ancient times people would “invest” in gold and other movable items of wealth because of two reasons: the world was not safe enough for more permanent investments, and such displays could generate awe and admiration in others that would often translate into position and power. No doubt there are similar issues at the heart of ostentatious displays today, but I think it is fair to say the purpose of such displays have essentially disappeared, and as such they represent an anachronistic view of the world.

So, after all that, are we any closer to understanding wealth? And more importantly how to become wealthy? It is clear that earning a large salary will not in and of itself make you wealthy. It is also clear that owning a large and valuable home will not make you wealthy. And it should go without saying that ostentatious displays of wealth do not make you wealthy.

The answer is that the wealthy person possesses “wealth building assets”: assets which either generate “rents” (i.e., the money that is produced by the asset in question), or appreciate in value.

In the case of the person who makes $20,000.00 a month, if this persons converts that salary into an expensive home and ostentatious displays of wealth, then he or she will never be wealthy. Such a person may have a very nice lifestyle as long as the employment lasts, but nothing is being created that will create income or can be transferred in exchange for fair value. But this is exactly what most “wealthy” people do. A job will never make you wealthy since a job can never be considered an asset which generates income and can be transferred. If anything, it may be more akin to a form of slavery, particularly if the person becomes wholly dependent upon 100% of the earnings from the job to maintain a lifestyle. The only way a high salary can lead to wealth is if one of two things takes place: the person lives on a percentage of the earnings and invests the rest in true “wealth building assets”, or if the person is able to convert the job into a significant equity position in the employer (i.e., a partner). Anything else is just a mirage of wealth.

Often people will assert that investing most of their free money in a house is a “good investment” since the long-term costs of buying is less than renting. In most cases this is true. However, this does not mean that buying a house creates wealth. It simply means it is better than renting. Now if you take the excess income that you earn at your job, and invest it all in a house that may be more than you really need for your purposes of shelter, then you are most likely never going to be wealthy. You may have a very nice house, but you will never be able to get anything out of the house until such time as you are willing to move out of it. And then, if you are like most people, you will want to take the money from the house you are selling and put it into another house in which you will move into. A house may be a wise use of funds as compared to renting. A house may be a safe place to store your money since it may actually appreciate with time. But a house will almost never make you wealthy since it cannot generate income, and requires you to abandon it in order to get your money out of it.

In order to become wealthy you must have “wealth building assets” that either produce income from the nature of the property, or which tend to appreciate over time, and of course these assets must be liquid to the extent that you can sell them at fair value. If the above three items are often mistaken for wealth, I suppose the real way of becoming wealthy involves saving money, investing wisely (in something other than your house), and living frugally within your means. And that is it.

Wordle: Wealth vs Income