How She Broke All the Rules and
Still Came Out on Top

Today's comment is by Mark Nestmann, our long-time Privacy Expert, Wealth Preservation & Tax Consultant and President of The Nestmann Group. 

One of the best ways to protect your long-term savings is with an offshore trust — especially if you're vulnerable to lawsuits in the future.

Once your assets are properly set up in an offshore trust, a contingency lawyer can't touch them because the assets don't really belong to you anymore. Your assets now belong to the legal entity, the trust. So if God forbid, you ever lost a lawsuit, no lawyer can attach that trust's assets to your overall net worth.

However, like with most things, there's a right way — and a wrong way — to form an offshore trust. A Florida resident named Mary Morris found out the hard way.

Mary just became the latest poster child on how NOT to form and use an offshore trust. Yet, in spite of her mistakes, her offshore trust STILL saved her a cool US$1.5 million. Let me explain.

Mary's Sordid Story

Just a few short months ago, Mary was languishing in the Palm Beach County Jail. It looked as if she might remain there indefinitely unless she came up with US$2.5 million for child support payments and attorneys' fees.

Now Mary's out of jail, and it cost her only US$1 million...in spite of very poor asset protection planning.

Here's a brief summary of the very convoluted story:

Back in 2001, Mary and then-husband Leland Morris divorced. Leland won custody of their two children, but feared Mary would run away with the kids in violation of the divorce decree. So he offered Mary a US$1.5 million "bonus" payment if he became their primary caregiver. But, if Mary contested the agreement, she had to repay the bonus.

However, in 2003, Mary challenged the divorce decree and demanded more money. But apparently the judge wanted to prove the contracts you sign actually have meaning, so he ordered Mary to pay Leland US$1.8 million — the bonus plus US$300,000 of attorneys' fees.

Mary didn't pay. And, she didn't bother showing up for a court hearing to explain why. The judge issued a criminal contempt citation, ordering her to jail until she came up with the money.

Before deputies could pick her up, Mary disappeared...for almost five years. But in January 2008, Mary reemerged. Shortly thereafter, she traded in her jet-set lifestyle for a Palm Beach County prison cell. By then, the amount due had grown to US$2.5 million.

The Wrong Way to Form an Asset Protection Trust

And here's where the story gets interesting. In the midst of litigation with Leland, Mary formed a Cook Islands offshore trust and transferred virtually all of her assets to it.

She claimed that the money now belonged to the trustee, and that she had no way to repay the judgment. And, presumably in accordance with the terms of the trust, the Cook Islands trustee refused to satisfy the judgment.

Mary's transfer of assets to the trust arguably constituted a "fraudulent conveyance." I've spoken about these before. A fraudulent conveyance is an effort by a debtor to "hinder, delay, or defraud" a creditor. And, back in Palm Beach County, this didn't make the judge assigned to the case very happy. That's particularly true because, for the past five years, Mary has lived outside the United States on trust distributions.

It's therefore not surprising that when Mary reemerged in January 2008, the judge in the case promptly ordered her jailed. Subsequently, Mary and Leland's attorneys held a series of meetings on how to resolve the impasse.

They finally came to an agreement. If Mary could somehow persuade the Cook Islands trustee to release US$1 million, Leland agreed not to seek the additional US$1.5 million.
Mary contacted the trustee and asked it to convey US$1 million to satisfy the agreement. And, guess what? The trustee complied and transferred the US$1 million to the custody of the court. Mary is now free and presumably a lot less contrary than before.

Don't Go to Jail to Protect Your Assets

If nothing else, Mary's tale demonstrates that an offshore trust is one of the most effective means to protect your assets. Her tale of infamy also proves the correct way to set up a trust. To do this properly, you must give your trustee full legal domain over your assets, long before you have any legal difficulties.

If you don't give up control over your assets, or form the trust after a liability arises, you may have some explaining to do in front of a judge.

In these situations, there's a risk that a U.S. court could order you to repatriate the trust assets for your creditor's benefit. If you fail to do so, the court could cite you for contempt, and in extreme cases, order that you be jailed until you comply. That's what happened to Mary.

In spite of her protests to the contrary, Mary persuaded the Cook Islands trustee to make a payment to satisfy a domestic judgment. The judge was 100% correct in holding her in criminal contempt. (Of course, the trustee will deny this, and state that the payment was merely a prudent exercise of its discretionary authority.)

Fortunately, by avoiding the abusive circumstances in Mary's case, an offshore trust can LEGALLY protect your assets. Indeed, an offshore trust is one of the best instruments available for asset protection today.

Want to learn more? I'll be reviewing the top jurisdictions for offshore trusts in the August issue of The Sovereign Individual, The Sovereign Society's member's only newsletter. If you're not already a member, you can sign up for a risk-free trial membership here.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

How You Can Ride The Coming Financial Shock Wave

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What's Even Better Than Trying to "Time"
the Markets Part II

As I said yesterday, readers always ask me how to time the markets. And I always reply the same: Make a long-term asset allocation game plan and stick to it.

Honestly, it's easier than it sounds. You really just need to answer three questions.

The first question is: "Are you looking for a dollar or a euro-based portfolio?" If it's the latter, you can achieve that at iron-clad foreign banks (my favorites are in Europe). Remember, unless you invest in a tax-deferred offshore variable annuity or an IRA, you can't buy offshore mutual funds. But the entire gamut of global securities is indeed available, including stocks, bonds, and foreign currencies.

Next, determine your growth horizon and risk objectives. How many years can you be invested in the market? Can you stomach a bear market (like now), or sudden market declines? If your plan is to stay invested, then consider at least a five-year plan. Stocks generally rise over a full five-year cycle, so try to stay invested through thick and thin.

Finally, determining your asset allocation is by far the most critical objective at this stage.

In other words, how much should you allocate to stocks or equity funds, hedge funds, hybrid funds and exchange traded funds? Don't forget to reduce portfolio risk by including investments that negatively correlate to stocks, like commodities and currencies.

Sitting down with a pen and paper is a good way to begin deciphering your long-term investment objectives.

ERIC ROSEMAN, Investment Director

P.S. As I said, long-term diversification is even more important during a bear market. In yesterday's testimony, Ben Bernanke told Congress that the markets are facing "difficulties." That doesn't even begin to cover it. I would say this is the worst market environment our generation has ever seen. And if you're just starting your long-term diversification plan, there are only a handful of investments I would recommend in these wicked markets — including gold. Check back Friday to get the full story on my precious metal. Can't wait? Get a sneak peak at my portfolio favorites right now.

How to Get From "Interested Amateur" to
"Experienced FX Trader"

Like many first-time currency traders, you've probably heard about the many opportunities available in the foreign exchange (a.k.a. the "Forex" or "spot" or "FX") market.

Maybe you heard this market trades 24 hours a day, 5 days a week. Perhaps you heard there's ALWAYS a bull market somewhere in the currency markets (very important when Paulson, Bush and Bernanke all seem content to drive the dollar lower with each passing day).

So let's say you've heard enough — that you're interested in trading. But how do you actually jump from being "interested in the FX market" to actually trading?

In a word: Practice.

When you start trading in the FX market, you should always, ALWAYS place practice or "demo" trades first, before you actually dip into your newly funded trading account. This way, you become familiar with how to place a buy, sell, stop order, etc., without spending a dime.

To take this first step, simply sign up for a demo trading account through your FX firm. Your broker (or "market maker") will have free software that you can download and use to place your demo trades.

Then when you're ready to place live trades, you'll use this same software. The only difference is the software will have your live account info in it. This means you will execute your trades on live servers rather than demo (fake) servers.

For more on how to place your FX trades, join The Sovereign Society at a special one-day currency seminar, coming soon to a city near you. Get all the details on our first time ever FX University right here.

SEAN HYMAN, Currency Analyst

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