I understand your comment, but it is not correct. A judge has no control or say over a FAPT in the Cook Islands. They cannot bypass anything since they have no authority or control. Even the IRS and FEC and SEC could not even accomplish that. And they tride and failed every time. See the cases below. If the trust is needed to be triggered, and cross the bridge, and you are facing a large enough lawsuit that it makes sense to trigger it, you will not care about the actual property, but the "cash/equity" in it. That is what you protect when you are talking about asset protection of any asset. You ability to live and pay bills and maintain your life. You would then strip all the equity out of it and it is now protected by the Cook Islands. A judge has no authority or control over that. That decision would be made before a judge would have time to "freeze" any domestic assets or transfer. Litigation takes a long time. Any asset owned in the US can be protected with a DAPT and a FAPT. It is a matter of control. If under a lawsuit, you want to place the assets in the direct protection of the FAPT, not domestic. If just Domestic, they can be frozen or seized since it still is under the control and jurisdiction of the US Court and judge. A FAPT is specifically used to hinder a judges ability to try to bypass the trust. The DAPT portion of the trust would no longer have any assets in it, they migrated and the transfer would be done, to the FAPT portion of the trust, and the offshore trustee would already automatically be triggered, and nothing the US judge can do about it. This has been well established in case law with some very famous cases like US vs. Grant, SEC vs Slow, The Anderson case. For over 40 years judges and courts have been frustrated by the power of the FAPT, but they even admit their is nothing they can do about it. These were all super creditor government cases where they could not even reach the assets once in the Cook Islands. This is why the Cook Islands Trust has always remained the world global standard. But, it is not needed, until it is needed. You keep it in reserve. You trigger it tactically when the timing makes sense. But if you were to trigger it, you would not care about the actual real estate itself, but the cash and equity in it. When creditors have nothing to collect they will come to the negotiating table very fast. And cases get settled very cheep. Pennies on the dollar. Over 30 years we have drafted over 3,000 of these, and had to trigger over 100, and a judge has never been able to do anything about it. Every attorney and firm realizes once it is triggered they get nothing. and so settle, very favorably for the client with the trust. And if you look at it in an asset protection standpoint, if the assets are safe in the Cook Islands, and not in the hands of the person suing you or the governments hands, you are now better of with it, and you DO NOT move the assets back until the case is fully settle.
@Lamontis Gardner reas David Greene’s book.
Another great question to think of and ask is: “Does crossing the bridge o fa BT create a fraudulent transfer? The question really is, does waiting until after the threat has materialized to cross the bridge create a fraudulent conveyance? Lane Kawaoka of Simple Passive Cash Flow asked this question and I was so happy that he did I started asking it for other people who did not think about asking it. After all, fraudulent transfer arguments are a big tool the other party will try to argue.
The answer is that a conveyance occurs with the change of ownership to the assets. When the Bridge Trust crosses the bridge there is NOT a change in ownership, since the Bridge Trust already owns the assets previously held in the U.S. Therefore, by definition, crossing the bridge does not qualify as a ‘conveyance’ and hence would not be a fraudulent conveyance. Perhaps the more important question is, what would happen if a court did determine that crossing the bridge was a fraudulent conveyance anyway? I would look at what the impact on the trust assets would be, and once the Bridge Trust becomes a FAPT, any challenge to this would have to be heard in the High Court of the Cook Islands. Therefore, the effect would be that even in the case where a judge made such a determination, the Bridge Trust would still be effective.
You have the legal and ethical option to move you assets offshore if that tactical advantage calls for it. But not the obligation to do so.
The Bridge Trust is firmly planted in both the U.S. and solidly planted in the Cook Islands. When you cross the bridge, there is no conveyance or change in ownership. No U.S. Court has ever ruled that the creation of an Offshore Trust is in any way illegal or immoral. But the courts have in fact ruled that the trusts were established “for the legitimate purpose of protecting family assets.” Reichers vs. Reichers, No. 21833-94. There are very few cases where a plaintiff has actually tried to extract assets out from a Cook Island Trust. And in Every Case, they failed to force an extraction. If and when the Bridge is triggered, the Offshore Trust that was pre-established gets triggered, and the Cook Island Trustee, takes over as trustee. Still no conveyance of any assets since it is the Bridge Trust that owns the assets.
Now, a big question and new concept for people learning about asset protection trusts and domestic (DAPT) and FAPT and the hybrid Bridge Trust (BT) is the concept of a ‘Migration Provision.’ What is this, and how can an Asset Protection trust be a FAPT yet classified as a DAPT? And no its not new. Its been in existence for over 30 years.
So the way a FAPT can meet the criteria to be classified as a DAPT yet still keep the power and strength of a Cook Islands Asset Protection trust is through what asset protection attorneys call a “migration provision.” We are maintaining compliance with IRS section 7701 known as the ‘court’ test and the ‘control’ test.
In the case of the Court Test, offshore trusts can be drafted so that the U.S. and a foreign jurisdiction supervise the trust. In the event of a legal crises, the trustees have the option to allow the trust to migrate to the foreign jurisdiction. Only at the time of migration does the trust become a foreign trust for asset protection purposes. This is done by dropping compliance with IRS 7701 and the trust is now purely a FAPT.
The same type of migration provision applies for the Control Test as well. During times of normal operation, a U.S. trustee (you) can act with respect to trust assets without any consent from a foreign trustee. In the event of a crisis, i.e. a lawsuit that threatens trust assets, a resolution by the trustees can effect a migration of the trust to the control of foreign trustees. (You) are no longer named as trustee while the trust is Foreign.
The Bridge Trust is unique. It is a FAPT, but the IRS classifies it as a DAPT, so long as IRS compliance is maintained. It’s not offshore until it’s needed to be. And you want that. So it is more flexible. You get the benefit of both a domestic and foreign Trust together. Being classified as domestic keeps down unnecessary IRS asset disclosures and filing. And it’s cheaper on annual maintenance cost.
If you ever are attacked and you and your attorney decide that it is in your best interest to have to trigger the bridge and cross it to the offshore jurisdiction, you already have the foreign option available in your back pocket. You would drop the domestic components of the trust and the trust is then purely foreign until the threat goes away. At that point, you would have to make the additional IRS FAPT disclosures and the maintenance cost would increase, while purely foreign.
You are investing in real estate. You are going, or should, understand the difference between these two concepts. Collection defense and debt relief are better known or understood as asset protection and bankruptcy. They are somewhat related, but they are also very different.
Starting with ‘debt relief’, it does what its name says, relief from the debt itself. Or payment of the debt in full. Once paid in full, you are relieved from any more obligations. Or you can settle it for less than a full payment by negotiating with creditors. This is called a ‘settlement.’ Unfortunately, the option most people actually think of first is bankruptcy.
Bankruptcy is another form of debt relief. Its function is to relive you of your debt through a legal process. In its simple form, the person who declares bankruptcy basically is saying that their debt exceeds their assets and once all of the available assets are used, you should be relieved from any further debts. When this happens, the bankruptcy is ‘discharged’ and you get a fresh start.
Now, in my litigation experience, bankruptcy is at times an appealing option when you are facing a creditor because of the ‘full relief from debt’, especially if the debt exceeds the assets you have. BUT, however attractive bankruptcy appears, it’s not an easy process, especially since the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005 passed. It makes it harder to use bankruptcy and gives more rights and remedies to creditors. And you need to get a court and bankruptcy trustee or judge involved and a lawyer. I seldomly recommend bankruptcy as a first course of action. Especially when the amount of assets you have exceed the debt. Even worse, bankruptcy can actually undo most forms of asset protection. So the debts you have must be considered very carefully before jumping off the bridge of bankruptcy.
Now on the other side we have collection defense. This process does NOT actually focuses on relief from the judgment itself, but from keeping the judgment creditor away from your assets. We are trying to make the assets unavailable to the creditor. One method is through having assets reclassified as an exemption. Most creditors try to avoid going after assets classified as exempt.
Another option, is to separate the assets from the debt. By using some of the legal tools available to attorney's like creating companies, LLC's, partnerships and using asset protection trusts you can place your assets out of the direct reach of a creditor, while still maintain use of those assets.
This is why asset protection has proven to be very effective in keeping creditors away from your assets.
Now, the creditor is still going to knock on your door and make your life more difficult by trying to collect. Generally, you are not going to be able to just make them magically go away. The GOAL of asset protection when we are talking about collection defense is DEBT RELIEF! This is done most of the time by the fact that the creditor cannot easily reach the assets to get what they call a “positive - settlement.” Once the creditor discovers that you have no bank account to seize and no real estate in your name to place a lien on, they become a lot more flexible and magically are open to talking about discounting the judgment and settling.
The thing to remember is that all this takes time. Creditors need to go through their own processes and prove to themselves that they can’t collect before the consider other options. And then you, the person in dept often are in a rush. And when you are in a rush, you send the message that you are vulnerable and anxious. You need to just relax, have your asset protection system in place, and let those creditors bump up against your legal defensive tools. This will improve your negotiating position.
So you can see that bankruptcy is not always the best first choice and it actually has some negative implications on asset protection and the two really don’t t mix. They really are like oil and water. Instead of laying all your assets on the table in front of a bankruptcy court and hopping for the best outcome, a properly constructed asset protection trust or system focuses on actually protecting your assets directly from collection. The outcome tends to be a lot better because the creditors choose to settle with you. A properly drafted plan like the a (FAPT) Cook Islands Trust or its hybrid Bridge Trust are virtually impenetrable to a judgment creditor.
Just make sure you consider all your options before filing for bankruptcy and talk to an asset protection specialist. Better yet, have an asset protection plan and system in place before you ever need it. Make sure to vet that attorney.
What is an asset protection trust? Who needs them? Where do you set them up? Lets jump into this.
Lets start with the need for asset protection and why asset protection works. Asset Protection works by removing the economic incentive for a person, and that person’s attorney to pursue you in a court of law. The best way to protect your assets is to take legal steps to make you unattractive to potential predators. But not all systems and planning is equal. But something is always better than nothing.
You are on BP because you are investing in Real Estate or want to invest in real estate. And most are looking for cash flow. The goal of asset protection is to have it actually work. To accomplish the goal it was created for. The legal system has changed over the last 30 years. But for the worst. It’s no longer about “justice” but redistributing your wealth from the ‘haves’ to the have not’s. Since 1977 law firms were given OK to advertise and that opened the floodgate to pursue more litigation and a legal industry driven by sales and profit. We are also fighting a Court Judges Practical Authority. The power a judge actually has to make decisions.
A judge has very broad powers to reaching your assets, including seizing them, placing a lien on them, foreclosure, ordering a sheriff sell, clearing title to enable a clean sell and even wage garnishment.
The problem is, judges, even without legal authority to do this, do these things by exercising their practical authority. And this can be done in direct contradiction to established statutes and case law. The result is that the court’s practical authority just took your asset or real estate with no legal authority.
So the solution to combat all this is to hinder a judge’s practical authority over your assets, so that they cannot circumvent legal processes. This is done with asset protection planning, and having asset protection trusts set up in very strong jurisdictions like the Cook Islands. Outside of the U.S. court and creditors control.
When you are setting up an asset protection trust you can create them either domestically in the U.S. called a (DAPT) or offshore in another foreign country called a (FAPT). The route you take will depend on how much protection means to you, why, and what State you live in.
The Cook Islands Asset Protection Trust was created in the 1980s. Since then, it has remained the Gold Standard for Asset Protection around the world. The reason is because it is simply the best home court advantage. The Cook Islands statutory do not recognize any other jurisdiction’s court orders and, the statute of limitations in the Cook Islands is only one year, making it very difficult for a creditor to file their lawsuit on time. What ‘statutory non-recognition’ means is that any U.S. court judgment is completely worthless in the Cook Islands. The offshore trustee will tell any creditor with another country’s judgment that their judgment is not recognized in the Cook Islands. The person suing you would have to start all over and sue you in the Cook Islands, assuming that the claim is made within the one year statute of limitations, and they would have to prove their case by the highest legal standard in the world: the murder standard “beyond a reasonable doubt.” The plaintiff (person suing you) also would have to front ALL the court costs including flying in a judge from New Zealand. And if they loose, they pay your legal fees, which they most likely will by having to prove the case “beyond a reasonable doubt.”
In the U.S. we also have an asset protection trust called a Domestic Asset Protection Trust (DAPT). They were created 10 years AFTER the Cook Islands. They were originally started in Alaska, and since then roughly 17 other states have enacted some form of Self settled Spendthrift legislation. The benefit of DAPT’s are that they are less expensive than there purely foreign counter parts, but the downfall is that they fail on effectiveness, cost and control. Sadly, DAPTs will give you a false sense of security. Recently, a pattern in court rulings has been recognized where DAPTs are being pierced and their choice of law clause is being ignored.
The foundation of the U.S. legal system is the U.S. Constitution, which has the “full faith and credit clause.” This means that every State must give full faith and credit to the judicial proceedings and court orders of each and every State. These are just few recent high-profile cases where the courts disregarded the DAPT jurisdiction: In re Huber (2013), Dhal vs Dahl (2015) and Toni 1 vs Wacker (2018). The problem is residents of one state are using the asset protection of other states like Nevada, which they are not a resident of. This will not work. This is what happened in Kilker v. stillman (2012). A CA resident set up and funded a NV DAPT. He was sued 4 years later, and the CA court disregard the choice of law clause because he was not a resident of NV. The case was upheld in the Court of Appeals. What the asset protection take away from these cases mean is that the only true gold standard of asset protection that has withheld over 40 years of challenges has been the Cook Island Asset Protection Trust. Even against super creditors like the IRS.
Now, most people do not need a purely foreign asset protection trust. For most, this is just going to be over kill. And DAPT, though weakened, does have benefits, such as reasonable costs and less IRS reporting disclosures.
The good thing is that you can actually combine the best of both worlds. You can have the flexibility of a DAPT with the strength and power of the Cook Islands in reserve by using a “Bridge Trust.”
The Bridge Trust was created over 30 years ago. You are using a (FAPT) Cook Island Trust and connecting two countries together with a bridge. Then you simply cross the bridge from the U.S. to the sanctuary of the Cook Islands if or when you are ever in need.
Like all Asset Protection Trusts, the Bridge Trust is an Irrevocable tax neutral grantor trust. The trust is also a Self Settled Spendthrift trust. What this means is it is created by you, for you, as your own beneficiary. And since it is a grantor trust, you still retain some of the powers in the trust. Why you want the trust to be irrevocable is that if you are ever challenged and the judge orders you to bring the assets back to be collected on, you can’t. And you cannot be held in civil contempt for not being able to comply. For the purposes of IRS reporting and disclosures, the Bridge Trust is considered a domestic, not foreign trust, because it is specifically drafted to meet the two-part test of USC section 7701. The Bridge Trust does not require foreign IRS tax filings or asset disclosures, and the trust costs and annual maintenance fees are lower compared to fully foreign offshore trusts.
In short, if the Bridge Trust provides the flexibly of a DAPT and the strength and power of the Cook Islands for your asset protection.
The way this asset protection structure works is with LLC's created to hold your real estate and other assets that may be a cause of a potential liability, anything that has a motor, or has a key or can go boom. Next, an Asset Management Limited Partnership (AMLP) is created that acts as your asset holding company. The AMLP holds the bulk of your assets like cash, stocks, bonds, and receivables. All your LLCs are going to be held inside the AMLP. You are the general partner of the AMLP. This gives you control / use and enjoyment of the assets in the holding company.
The final step is the asset protection Trust. The Bridge Trust is going to be the minority limited partner of the AMLP, this is the non-controlling interest, but it is the ownership interest of the AMLP. This separates “ownership” from “use and enjoyment.” The Bridge Trust owns the AMLP and the assets, while you enjoy the use of the financial assets minus the liability.
Then either two things happen. Either you die, at which point your assets distribute as defined in your revocable living trust. Or, should there be a crisis (lawsuit), the Bridge Trust is triggered, and the assets cross the bridge to the safety of the Cook Islands. You are removed as the trustee, and the offshore trustee takes over with the trust protector looking over the offshore trustee. When the threat is resolved, the assets transfer back domestically with no penalty or IRS problems since the trust is a grantor trust.
The name of the game of asset protection is being proactive. Getting the system set up and in place before it is needed. Before you are being attacked.
Start with something. Even if just a traditional LLC. Then as you grow and hit that $1 MM net worth mark, and or have a high-risk profession like a doctor, dentist, business owner, or your investing and cash flowing with equity then you scale up to stronger forms of protection. Find lawyers that special in asset protection, not just dabble in it or do it on the side. Vet that attorney, ask for references in the exact planning you are looking for, and if they have been challenged, and those results.
Remember, Gross value is vanity, net is sanity and cash is king; and its not a matter of what you have but what you keep.
@Scott Trench
The area that you know the best and that you can get the best deal in. Or the network of agents and syndicators and investors that you surround yourself with that you trust.
And where the asset or investment fits the specific need of your portfolio.
As you review your portfolio annually and reposition assets yearly your needs and what you’re looking at weather its real estate or whatever Will change and based on that need will dictate the investment type and you should know your market better than anybody else and able to find deals.
@Paul Bommarito I think you essentially have to do as much research as you can, and then just jump in the deep end and learn to swim. Failure is going to happen you learn from your failure. Everybody has fear it’s just what do you do with it. Don’t let your fear stop you or paralyze. Just realize you’re going to make mistakes, learn from them and I’ll make the same one twice and keep going. Lock out the external noise and constantly learn. You can’t be afraid to lose to succeed, and you can’t become an investor if you’re afraid of a loss, it’s all part of the game. You just need to make sure your system turns out more success rates and failures and that’s just about evolving and constantly learning and improving
@Ahmed Youssef It’s an interesting thread for sure. And a great learning experience.
First realize it’s turnkey. It’s going to come with a premium and sometimes attitude. How’s the location etc? You have your appraisal and metrics, stick to them. Not every deal works for you. Don’t force it. The good thing is they r letting you know their terms. Try negotiating. Or walk and find a better deal. I personally tried turnkey and it’s not for me or my style of investing. It’s a good thing to learn. Sometimes, with turnkey you might be asked to pay above the appraisal. What do your numbers say? Do your evaluation and stick to your guts and math. It all depends on the deal and cash flow. Take the evaluations deal by deal. With turkey you’re really not buying to add value it’s already been done so you’re paying for that premiums. Or possibly consider turnkey is not for you to come in and credited investor and invest in syndications with some of the great syndicators on the site. And remember when you’re dealing with turnkey they’re not used to and generally only deal with people all cash not with investors using lenders.
@Roy Jones I like s-llc and use them but only recommend them for people who live in a state that recognize the S-LLC and the asset that might blow up and have liability on it is located in a state that recognize S-LLC. States are now drawing lines in the sand with how they view asset protection and competing against each others. Remember, if you get sued in a state, you are going to sued with the tort and damage laws of that state. In non S-LLC states I would create an LLC in that State, and then you can grow into an asset management limited partnership (AMLP) and place that LLC into it to smooth-line taxes etc. Then as you grow to a HNW client, you can then add an asset protection trust to the minority ownership portion of the AMLP, And keep in mind, a S-LLC is just a LLC. LLCs veils are easily pierced by any new attorney who passed the bar exam. They are more used as entry level protection and a deterrent to hopefully drive up litigation costs and cut some of the legs off of any money the PL will get. they are good, they get the asset out of your personal name, which is what you want, but you also have to look at perception and what a judge will say if you are challenged in court in a state with no S-LLC legislation. they won't give two cents.