Estate Freeze Update

New Law – New Opportunity

The complete interview is available to view at www.protectyou.com.

Howard and Douglass had a frank conversation about some key issues associated with asset protection planning and offshore trusts, including:

• What is asset protection? What is an asset protection trust?
• How have the recent events associated with Swiss banks affected offshore trusts?
• Who should engage in asset protection planning?  When, if ever, is an offshore asset protection trust implemented too late?
• How can real estate and other immovable assets be protected? How can businesses be protected?
• What is a fraudulent conveyance / transfer? Will a client go to jail for engaging in asset protection?

Watch a preview of the show:

Howard and Douglass shared their experiences as asset protection attorneys, and brought up some interesting points relevant to attorneys and potential clients alike.

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For more information on asset protection planning or offshore trusts, contact the law firm of Donlevy-Rosen & Rosen, P.A. at (888) 412-8844 or at their website, www.protectyou.com.

THE JAMIE SOLOW CASE -

WHAT REALLY HAPPENED:

A Return To Debtors’ Prisons?

INTRODUCTION. The Jamie Solow contempt incarceration case has caused a lot of people to write a lot of articles and offer a lot of opinions – most of which are completely inaccurate. The author, Howard D. Rosen, is one of Mrs. Solow’s attorneys, attended court hearings, testified, and can state with accuracy what actually transpired in this case. You’ve all heard the expression that “bad facts make bad law”, but the Solow case represents an example of the court and the SEC ignoring the facts and ignoring the law.

IGNORE THE FACTS & THE LAW. Instance after instance of the district court judge and the SEC ignoring the facts and ignoring the law can be found in the court’s January 15, 2010 opinion holding Mr. Solow in contempt and ordering his incarceration. Here are a few examples:

1. The term “POD” describing one or more financial accounts was used throughout the opinion, and it was stated that “the SEC believes that “POD” means ‘pay on demand’, and is an authorization for a person other than an account owner to withdraw funds from the account.” The SEC stated that Mrs. Solow had set up POD accounts for Mr. Solow (and that he therefore had access to such funds).The court accepted this as if it were a fact. The SEC’s “belief” came from thin air, based on nothing. If the SEC had taken the time to contact any financial institution, they would have learned that the designation “POD” means “pay on death”, and is merely an ambulatory probate avoidance technique – a commonly used “do-it-yourself” method of transferring assets outside of probate on death.

2. The court stated: “There is no evidence before the Court that this joint bank account was held as tenants by the entireties (TBE).” The Solow court then proceeded to cite the Florida Supreme Court Beal Bank case (See, APN Vol. X, No. 2) which held (creating law in Florida – not evidence, LAW) that “many financial institutions do not provide married couples with the opportunity to declare their intent to establish a tenancy by the entireties, however, there is a presumption in favor of a tenancy by the entireties when a married couple jointly owns personal property.” Emphasis supplied. The Florida Supreme Court then stated that it would take an affirmative act of the account holders to counter that presumption. Translation: Even though the Florida Supreme Court (the highest arbiter of Florida law) has supplied a presumption that spousal joint accounts are tenancy by the entireties accounts, the Solow Court found “no evidence” to that effect. How about Florida law? The court’s attitude toward state law TBE protection is clearly evidenced by this statement: “This Court does not have to recognize the protections of tenancy by the entirety created by State law.” In fact, it is well settled that state law creates and defines property rights, not federal law. Result oriented?

3. Statutes of limitations were consistently ignored by the SEC and by the Solow court. For example, the couples’ most valuable asset, their Florida homestead, was acquired by Mr. and Mrs. Solow as tenants by the entireties in 2002 (prior to any wrongdoing alleged in Mr. Solow’s case). The 2002 acquisition date, well beyond any statute of limitations, was conveniently ignored by both the Solow court and by the SEC. A return to the Statute of Elizabeth?

4. Both the SEC and the court cast an evil implication on transfers that Mr. Solow had made to Mrs. Solow at numerous times beyond the statute of limitations in his case. Any married person knows that spouses routinely transfer assets between themselves with no evil intent. The court found that, by making these transfers (again, beyond the statute of limitations – which was ignored), Mr. Solow created the impossibility which he now claimed prevented him from satisfying the judgment. In so doing, the court ignored the law of civil contempt (See, APN Vol. XVII, No.1), and used its contempt power to punish Mr. Solow (several times in open court the judge indicated his disdain for Mr. Solow, even to the point where the judge stated that he wanted to incarcerate Mr. Solow). The US Supreme Court, in Maggio v. Zeitz (See, APN Vol. XVII, No.1), stated “…but no such acts (referring to acts of the contemnor which made compliance with the instant court order impossible), however reprehensible, warrant issuance of an order which creates a duty impossible of performance, so that punishment can follow. It should not be necessary to say that it would be a flagrant abuse of process to issue such an order to exert pressure on friends and relatives to ransom the accused party from being jailed.” Emphasis supplied. By the way, this is exactly what the Solow judge did: he sought to force Mrs. Solow (by incarcerating Mr. Solow) to join in the sale of the couples’ homestead property (which she had refused to do prior to Mr. Solow’s incarceration).

5. Mr. Solow was ordered to show why he was unable to comply with the court payment order. Mr. Solow in fact did show, in great detail, why he was unable to comply with the court order including, disclosing transfers made to Mrs. Solow, many years earlier – beyond the statute of limitations on fraudulent transfers, and properties owned as tenants by the entireties, also so owned for many years beyond the statute of limitations (which would require Mrs. Solow to execute a deed together with Mr. Solow in order to transfer the properties). The SEC ignored Mr. Solow’s TBE argument (yes, ignored – the SEC did not offer a counter legal argument). Instead, the SEC offered as its response a non sequitur argument citing the inapposite Lawrence case – a case with facts so different and so distinguishable that a realistic comparison could not be made in good faith by a competent lawyer.

THE FACTS. Enough examples of the chaos and comedy of errors which are this case. Now for the real facts (no attorney client privilege is broken here – only those matters testified to in open court by Howard Rosen, Esq. and Patricia Donlevy-Rosen, Esq. are discussed).

In early February 2008, Mrs. Solow retained the law firm of DONLEVY-ROSEN & ROSEN, P.A. (“DRR”) to protect her assets (and only assets which had been owned by her for a period beyond the statute of limitations on fraudulent transfers). She wanted to protect those assets because a jury had returned an adverse verdict against Mr. Solow a few days earlier. Her concern was that if she predeceased Mr. Solow, all TBE assets, in particular their homestead property valued at almost $6million, would pass outright to Mr. Solow, and then to his creditors. It was explained to the court that this was Mrs. Solow’s main concern – she wanted that value to pass to her children.

To accomplish this goal, DRR helped Mrs. Solow implement an offshore trust and arrange a mortgage loan on the homestead property (See, APN, Vol. XI, No. 3). The proceeds of that loan were transferred to Mrs. Solow’s trust. Mrs. Donlevy-Rosen testified that those proceeds could not have been spent, nor could they have been distributed to Mr. or Mrs. Solow, but rather, under the terms of the loan agreement, were required to be transferred to Mrs. Solow’s trust.

The loan transaction infuriated both the SEC and the court. Howard Rosen testified that this transaction in no way put the SEC in a worse position (i.e., did not make it any more impossible to reach the property than it already was) than they would have been in if the transaction had not been undertaken, because the subject property was long-term (acquired in 2002) TBE property, and it was not reachable in any event by the SEC. Mr. Rosen testified that the loan transaction would only impair the SEC’s ability to collect its judgment if Mrs. Solow died before Mr. Solow – and, since she was still very much alive, the issue was moot. In one ear and out the other. Example: the court stated: “Like the defendant in Lawrence, Mr. Solow divested himself of his assets in anticipation of the judgment that was about to be entered against him.” Remember, the homestead was acquired in 2002, and other significant assets had also been transferred to Mrs. Solow well beyond the statute of limitations ! How could that (transactions occurring 6 years before the judgment, and years before the conduct resulting in the judgment) be viewed as being “in anticipation of the judgment”?

The Solow court stated: “..an inability defense is unavailable where the inability was created by the defendant himself.” This is exactly the opposite of the Supreme Court ruling in Maggio (see above). The Solow court constantly made an effort to distinguish between a mere money judgment and a disgorgement order (as in the Solow case). The court stated that the latter brought the court’s “equity” jurisdiction into play. Presumably this means that the court can ignore all prior law, ignore all the facts, and do whatever it wants to do.

Important facts, yes actual facts, to note:

1. Mr. Solow did not create an offshore trust; this was not an offshore trust case. This is asignificant factual distinction from Lawrence.

2. Mr. Solow routinely transferred assets to Mrs. Solow during their marriage as many husbands do. Most sizable transfers were made prior to the existence of the facts giving rise to Mr. Solow’s SEC case.

3. Mrs. Solow created an offshore trust funded with assets she alone owned for many years beyond the statute of limitations on fraudulent transfers (yes, received from Mr. Solow). This is another significant factual distinction from Lawrence.

4. Neither Mr. Solow nor Mrs. Solow had any power over the offshore trust (as Lawrence did).

5. Mr. and Mrs. Solow did execute a mortgage on their TBE homestead property, which would have only impeded the SEC’s ability to collect its judgment against Mr. Solow if Mrs. Solow predeceased him (still alive).

6. Statutes of limitations exist to provide certainty for parties’ transactions, regardless of how offensive those transactions are to a court. Even a bank robber can eventually escape prosecution if the statute runs.

7. State law creates exemptions and defines property rights. While a federal court may ignore exemptions, it cannot ignore the very nature of a property right, even where the “creditor” is the United States in a criminal forfeiture proceeding. See, U.S. v. One Single Family Residence With Out Buildings Located At 15621 S.W. 209 Avenue, Miami, Florida, 894 F.2d 1511 (11th Cir. 1990).

8. The judge stated in open court that he wanted to incarcerate Mr. Solow.

Query: Have Debtor’s prisons returned to the United States? .

U.S. TAX COMPLIANCE

FOR

FOREIGN ACCOUNTS:

How Does The UBS Disclosure Agreement Affect Offshore Trusts?

INTRODUCTION. On August 19th the U.S. Internal Revenue Service announced that the Swiss bank, UBS AG, the United States, and Switzerland had reached an agreement under which the U.S. would file a request under the U.S. – Swiss tax treaty to obtain certain data regarding U.S. taxpayers (about 4,450 accounts). The Swiss government would then direct UBS to supply the account data to the Internal Revenue Service. This matter relates to U.S. citizens or residents who have unreported foreign accounts – regardless of whether those accounts are held within a foreign trust or in the individual’s personal name. We have received many inquiries asking how this affects our firm’s asset protection and offshore trust planning strategies. The good news is that our clients who are following our written compliance instructions should not be affected in any way.

WHO MUST REPORT FOREIGN ACCOUNTS? Every citizen (regardless of where residing) OR resident of the United States (the technical term is “U.S. person”, and includes entities, although we are only discussing individual requirements in this issue) who has a financial interest in, or has signature or other authority over, any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship on Form TD F 90-22.1(“Report of Foreign Bank and Financial Accounts”, referred to as the FBAR). The box on Schedule B of Form 1040 (asking the foreign account question) must always be checked if the taxpayer has any foreign account, even if the FBAR is not required to be filed because aggregate value of the taxpayer’s foreign accounts does not exceed $10,000 at any time during the calendar year. Note that the FBAR reporting requirement is established based upon the value of the account, not whether the account generates income. Thus, a foreign account in which the only asset is a non-dividend paying stock, would be subject to the FBAR reporting requirement if it exceeded the value threshold. If in doubt, it would be better to err on the side of reporting all such accounts.

DEFINITION – FINANCIAL ACCOUNT. This term includes any bank, securities, securities derivatives or other financial instruments accounts. Such accounts also generally encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). The term also means any savings, demand, checking, deposit, time deposit, or any other account (including debit card and prepaid credit card accounts – an IRS hot button!) maintained with a financial institution or other person engaged in the business of a financial institution. Individual bonds, notes, or stock certificates held by the filer are not financial accounts nor is an unsecured loan to a foreign trade or business which is not a financial institution.

DEFINITION – FINANCIAL INTEREST. In the case of a typical asset protection trust, a U.S. person has a financial interest in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is a trust, or a person acting on behalf of a trust, that was established by the U.S. person and for which a trust protector has been appointed. Even if there is no protector, a U.S. person who creates such a trust and is a beneficiary of it would be deemed to have a financial interest.

DEFINITION – SIGNATURE OR OTHER AUTHORITY. A person has signature authority over an account if such person can control the disposition of money or other property in the account by delivery of a document containing his or her signature (alone, or together with that of one or more other persons) to the bank or other person with whom the account is maintained. A person has “other authority” who can exercise comparable power over an account by communication with the bank or other person with whom the account is maintained, either directly or through an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person, either orally or by some other means.

FILING REQUIREMENT. The FBAR must be filed annually on or before June 30 of the year following the calendar year reported. Extensions of time to file federal tax returns do not extend the time for filing the FBAR, as no extension of time to file the FBAR is available. The form is not filed with the IRS, but rather is filed with the Department of the Treasury in Detroit, Michigan, or hand delivered to any local IRS office for forwarding to the Department of the Treasury in Detroit Michigan. If the form is filed late, an explanation of the reason(s) for the late filing should be attached to the form.
AMENDMENT. An amendment of a previously filed FBAR is accomplished by checking the “Amended” box in the upper right hand corner of the first page of the form, making the needed additions or corrections, and then stapling it to a copy of the original form. A statement explaining the changes should also be attached.

RECORD KEEPING. If the FBAR is required, certain records must be retained. These records must contain the name in which each such account is maintained, the account number or other designation of such account, the name and address of the foreign bank or other person with whom such account is maintained, the type of such account, and the maximum value of each account during the reporting period. Retaining filed copies of the FBAR will help to meet these requirements. The records must be retained for a period of five years and must kept at all times available for inspection as provided by law.

PENALTIES. Civil and criminal penalties, including, in certain circumstances a fine of up to $500,000 and imprisonment of up to five years, are provided for failure to file a report, supply information, and for filing a false or fraudulent report. In addition to the foregoing FBAR penalties, civil and criminal tax penalties may also be imposed.

VOLUNTARY DISCLOSURE. The IRS has announced an offshore account amnesty program under which taxpayers with unreported foreign accounts may qualify for reduced penalties and “generally eliminate the risk of criminal prosecution”. The amnesty program closes on September 23, 2009. Interested persons can obtain more information at the IRS web site, IRS.GOV. Note: the amnesty program only relates to reporting previously unreported foreign account income, and does not apply to unfiled FBAR’s. If a taxpayer reported and paid tax on all of his/her taxable income for prior years but did not file FBAR’s, the delinquent FBAR report(s) should be filed (with the Department of the Treasury in Detroit) together with a statement explaining why the reports are filed late. The taxpayer should send copies of the delinquent FBARs, together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit of the Internal Revenue Service.

THE MORRIS CASE:

No Opinions, No Conjecture, No Assumptions,

Just The Facts…

INTRODUCTION. A lengthy legal ordeal has finally ended for Merry Morris. Much has been written about her case, most of it inaccurate, according to Merry, whom we interviewed on September 25, 2008. We want to present the truth about her case, and what better source for the truth than Merry?

Merry Morris was punished by a Florida family court for seeking that court’s help in clarifying her visitation rights regarding her two children. The punishment? $1.8 million and a warrant for her arrest when she failed to appear in court.

The facts that she had been a fugitive, later incarcerated for contempt of court when she surrendered, and that there was an offshore trust in the mix generated a big hullabaloo among commentators. A particularly outspoken nay-sayer of offshore asset protection (whom we will refer to as “JA”) proclaimed (without getting the facts straight) that Merry had been incarcerated because she had set up an offshore asset protection trust, thus proving once again JA’s position that offshore trusts don’t work (From his web site: “Yet another loss for Cook Islands Trusts.”).

SOME DIALOG. We spoke directly to Merry about her case:

Q: Merry, what was the actual cause of your incarceration?

A: Indirect criminal contempt for failure to appear in court [“indirect” as opposed to “direct” means that the contempt was not in front of the judge, i.e., such as by failure to appear when ordered to do so].

Q: ARE YOU SAYING THAT YOUR INCARCERATION HAD NOTHING TO DO WITH YOUR OFFSHORE TRUST?

A: IT HAD NOTHING TO DO WITH MY OFFSHORE TRUST.

Q: Why did you flee the jurisdiction?

A: Cold-blooded fear that I wouldn’t be treated fairly by the court. NOTE: Turned out to be a well-founded fear.

Q: Was there a connection between your ex-husband and the judge?

A: I have no way to prove it, but I am certain in my gut that there was a solidarity in the system to maintain the family court ruling. I want to emphasize that the trust was a removed third party until my ex-husband was able to manipulate the court system, and no one was interested in the rights and well-being of the children. The issue was enforcement of the judgment and they never looked at the human element. The [3 dissenting justices of the Florida] Supreme Court (932 So.2d 1007) questioned whether the clause [requiring Merry to repay the property settlement amount to her ex if she contested the post-nuptial agreement - which agreement included the specifics regarding visitation and custody of the children] was even legal, and [,whether,] without an appellate review, would be a miscarriage of justice.

Q: When you first entered into the post-nuptial agreement, what were the terms?

A: It guaranteed both [parents] joint custody, unless [the] court found that it was residential custody, I would always have shared parental responsibility. I asked the court to review [my ex's] breaching the agreement by withholding visitation, and that [request] was ruled as challenging the agreement. At no point did I ask for any more money. Our children were victims of parental alienation, similar to what Alec Baldwin is now talking about in his book.

Q: Why did you create the offshore trust?

A: To preserve capital and protect [my] interests and that of my children. As a single woman, unsophisticated in handling large sums of money, it was in my interest. My ex in-laws had always been involved in foreign banking and accounting, and so it was not a foreign concept to me.

Q: Southpac was the trustee of your offshore trust. Did Southpac have any involvement in the final settlement with your ex?

A: Yes. My ex was required to send Brian Mason [managing director of Southpac] a letter stating he had formed a trust for the children [which could then receive a distribution from the trust Merry settled,in accordance with its terms]. My son had turned 18, and I was always planning on putting some money in a trust for him and my daughter. The trustee and my ex had [previously] communicated, and Brian would not cooperate until all documents regarding the settlement of the new children’s trust were properly in place.

Q: Was Southpac a rubber stamp for you?

A: No, it would have been easier, in fact, if they were. They were never a rubber stamp.

Q: Did they do just what your lawyer told them to do?

A: No, they did what the trust by-laws [trust document] dictated they could do.

Q: So they acted as they should? To protect the interests of the trust beneficiaries and to preserve the value of the trust?

A: Yes. It’s unfortunate that it’s been misinterpreted that they were rubber stamps. Had my children not been beneficiaries when I settled it [Cook Islands trust], they would not have been able to get any funds at any time. What really upset me was that JA had said “Oh how convenient, the kids get a trust at the right time,” but, truth be told, there is no specific time to provide for your children.

Q: In fact, wasn’t this [the Cook Islands trust] a rearrangement of a prior trust?

A: Yes it was, there was nothing new.

Q: Were you happy with the ultimate terms of the settlement? The way the whole ordeal turned out?

A: Yes, I am happy to have a heavily litigated lawsuit over …I was very happy with the way Southpac handled vexatious lawyers, and, as trustees, always upheld the best interests the trust.

Q: What were the main issues here for you? Keeping the money, making sure it was not given to your ex, women’s rights?

A: Letting my children know that their interests were always utmost in my mind when the trust was settled and [that] they were not for sale. It is a US constitutional right for children to have a relationship with both parents. All this will be explained in my book. Basically I was coerced by a corrupt [U.S.] legal system. Judges are elected or appointed and, it is, sadly, a good old boys network where the highest paid lawyers win contrary to the best interest of the parties and, in my case, our children.

SUMMARY. Q: In closing, is there any statement that you would like to make?

A: “I want to make a statement regarding JA. He and his website have misinformed the public on the facts of this case. It is unfortunate that he has stressed opinion over facts.”

CONCLUSION. The Asset Protection News thanks Merry Morris for taking the time to speak to us and set the record straight on her case.