Today's comment is by Mark Nestmann L.LM, Wealth Preservation & Tax Consultant for The Sovereign Society and President of The Nestmann Group.

Lots of people contact me because they're interested in protecting their assets. Yet, in setting up "asset protection plans" for clients, I always caution them never to refer to it as, well, an "asset protection plan." 

Why it that? It's because "asset protection" has a negative connotation, especially in the United States.

Whatever You Do, Don't Say "Asset Protection"

For that reason, when you set up an asset protection plan, there needs to be other reasons for your plan to exist other than just asset protection. If you can prove that these other reasons actually exist, then the asset protection part of the plan has a much better chance of holding up in court.

Here's an example. Let's say that you decide you want to set up an "asset protection trust." You consult with a trust company in, say, the Cook Islands, and the company obligingly sets up a Cook Island international trust.

What have you accomplished? Yes, you now have a trust in the Cook Islands, with one of the world's strongest asset protection laws. But it also looks like you set up a standalone structure that screams "deadbeat" to U.S. judges.

Understanding and Avoiding the "Anderson Fiasco"

One of the most famous examples of jailing a debtor happened in the Anderson case.  Mr. and Mrs. Anderson were allegedly engaged in a Ponzi scheme. The Federal Trade Commission (FTC) sued the Andersons in federal court and obtained a US$20 million judgment.

When the Andersons claimed that they couldn't pay the judgment, the FTC obtained a court order requiring the couple to repatriate US$8 million in assets from their Cook Islands trust.

The Andersons failed to obey this order and the judge jailed the couple for civil contempt. A federal appeals court affirmed this decision.

The judge released the Andersons from jail only after they:

• Appointed a company controlled by the FTC as the new trustee for their trust
• Amended the trust to remove the FTC from the definition of "excluded persons" under the trust deed
• Resigned as their own trust protectors

It Doesn't Have to Be This Way

Let me assure you: This was truly the worst case scenario. You don't have to go to jail to protect your assets. There are plenty of perfectly legal domestic and offshore plans you can use to shield your assets. But the most important thing to remember is: Make sure asset protection isn't transparently the sole purpose of your plan.

Returning to your example, let's say after consulting with a qualified attorney in the United States, you jointly decide that a Cook Islands trust should be part of your asset protection plan.

Only, instead of having the trust being the only element of the plan, your trust exists as part of a larger structure that accomplishes other goals.

For instance, an integrated structure that includes a Cook Islands trust might also contain your last will and testament, a living trust, and possibly a domestic limited partnership. At your death, your residual assets "pour over" from the will into the living trust.

Properly structured, this configuration serves several purposes that are completely unrelated to asset protection:

• Provides convenient access to non-U.S. investments
• Doubles the estate tax exemptions for a married couple
• Provides the opportunity for valuation discounts for gift tax purposes through gifts of limited partnership interests
• Serves as the primary estate planning device after your death

Depending on your particular needs, many other elements can be brought into this structure.

The important point, though, is that asset protection is no longer the only exclusive purpose for your plan. Asset protection is simply a byproduct of a more diversified plan, because the assets will be safely tucked away offshore, safe from creditors.

Don't Wait! Take Action Now Before It's Too Late

The time to set up this type of plan isn't after you've received notice of a lawsuit. You should form it when there are no pending claims against you, or that you even know about.

If you wait until after you have claims against you or a pending lawsuit, then a court can later declare your plan was intended to "hinder, delay or defraud" creditors. This makes the asset transfer a voidable "fraudulent conveyance" in the eyes of the law.

Please make sure you speak to a qualified asset protection attorney to find out if this is the best time for you to set up this type of plan. This way you can ensure your actions won't constitute a "fraudulent conveyance."

Bottom line: It's not hard to avoid an Anderson-type fiasco. Simply make sure your plan has other legitimate purposes besides asset protection. Plus, by properly structuring your plan this way, you can secure additional perks like investment diversification and estate planning while getting the asset protection you desired all along.

MARK NESTMANN,
Wealth Preservation & Tax Consultant and
President of The Nestmann Group
www.nestmann.com

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Eh Gad! Do the Politicians Spot
Another Mythical Scandal?

Throughout my long lifetime American politicians have used class warfare as a tool in their efforts to stir up class envy and gain votes.

The formula is always the same: Create a hated straw man, attack it, then promise to right the mythical wrong. The theme is always "rich vs. poor," "corporations vs. the people," "them vs. us," and so forth, ad nauseam.

No better example of this crass demagoguery can be found than the reaction of some of the Democrat Party's "leaders" to a recent Government Accountability Office study.

According to IRS figures, 72% of all foreign corporations doing business in America and 55% of all U.S. corporations paid no U.S. federal income taxes in at least one year between 1998 and 2005.

During that same time period, 57% of foreign corporations and 42% of U.S. corporations paid no federal income taxes for two or more years, the GAO found. That led to an Associated Press story with the startling headline, "Most Companies in U.S. Avoid Federal Income Taxes,'' and it also inspired leading Democrats to launch into a round of business bashing.

Eh gad! Corporations paying no taxes! What's this? Is it another nefarious plot by those greedy capitalists? While average, hard working taxpayers are left to foot the bill? Quick Congress - do something!

Of course, U.S. Senators Carl Levin (D-MI) and Bryon Dorgan (D-ND) threw their own cries in when this GAO report hit the papers. Like Claude Rains' gambling Inspector Renau in Casablanca, Senator Dorgan was shocked! Shocked! He called the GAO conclusions "a shocking indictment of the current tax system."

The Wicked Liberal of the West, House Speaker Nancy Pelosi (D-CA), piled on too and called for reform. "When two-thirds of corporations pay no taxes,'' Pelosi intoned, "American workers are forced to pay too much in taxes even as they cope with rising prices and falling wages.''

This is nonsense. If the GAO study had done a little more research, it might have commented on why so many corporations pay no U.S. taxes. The Tax Foundation found that among those companies, 85% of them also made no profits that year, so they didn't owe any taxes. When all major U.S. airlines and General Motors, among many others, are losing billions, they don't have to pay taxes. Duh!

Also, the United States continues to impose the second highest combined federal-state corporate tax rate among industrialized countries at 39.3%. So is it any wonder that American businesses go offshore where they can save on taxes?

BOB BAUMAN, Legal Counsel

I Smell Another Bailout Coming for Freddie and Fannie

Every other month, it seems, global markets are teetering on the brink of panic. Then central banks step in to calm investors. They inject the credit markets with more money while investors scramble to reposition their portfolios.

It's been nearly an impossible environment to make money in recently too. Volatility is intense and every asset class is now heading into the basement since commodities peaked in early July. Only U.S. stocks are showing gains since July 15.

Over the last 12 months we've seen four global panics triggered by solvency concerns revolving around Bear Stearns Cos., Northern Rock plc, Lehman Brothers, Countrywide Credit, General Motors and, since July, Fannie Mae and Freddie Mac.

On Tuesday, former IMF chief economist, Ken Rogoff, declared a big financial institution will collapse before the credit crisis draws to a conclusion.

This never-ending saga of financial crises has morphed into a monster. And, like a bad dream, it just doesn't go away.

The latest debacle shaking global markets upside down are mortgage giants Fannie and Freddie. Combined, they guarantee more than US$5 trillion worth of U.S. mortgages. Without them, there probably wouldn't be much of a mortgage market.

Until the housing market finally establishes a bottom, Fannie and Freddie are going to remain under pressure. Balance sheets at both companies continue to hemorrhage while home values plunge and both mortgage and refinance application numbers tank. Home prices are now down 10% year-over-year and mortgage and refinance applications are down a heavy 37% and 44%, respectively. Those figures are outright bearish and suggest investors have run out of patience with Fannie and Freddie.

Instead of playing political football and jockeying around the bailout issue, the Treasury and Congress should just bailout Fannie Mae and Freddie Mac. It's inevitable anyway. I think the Feds are waiting for the housing market to bottom before officially entering the mortgage business. No dice.

We already know Secretary Treasury Paulson has given the markets an implicit guarantee that the federal government won't allow these giants to fail.

So if that's the case, just bail them out already! Shareholders will get wiped-out in the process and the United States will officially be in the mortgage business.

Credit markets remain on edge. Stocks worldwide are plunging, non-government bond markets are reeling and most commodities remain in a vicious downtrend since hitting multi-decade highs in July.

Deflation, not inflation, is now the markets' primary focus. Housing woes are adding pressure to deflationary trends in the United States and now, Europe. Again, the main threat since July to global markets is deflation.

The federal government will bailout Fannie Mae and Freddie Mac with taxpayers naturally footing most, if not all, of the bill. If the Feds don't orchestrate a bailout soon, there's a good chance markets will crash and government bond yields will plunge. It's that serious.

The Alternative to Burying Your Assets in Your Backyard

If you're interested in protecting your assets, there are several things you can do.

• You can bury your money in your backyard or under your mattress. You can put your money in a domestic bank or money market account, and earn a paltry interest.
• You can invest in the so-called "safe" investments that your broker recommended on the NYSE (that supposedly produce meager 10% a year for a diversified domestic stock portfolio).
• Or you can house your wealth in an offshore region, for superior investments, access to the hottest emerging markets, iron-clad asset protection and financial privacy.

The choice is yours.

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