Dear Subscriber:

Every year or so I get a slew of emails and calls asking me if Asset Protection Trusts are still valid and effective tools. I am currently getting many such questions as a result of the recently published Eulich case. Like the string of Anderson and Lawrence cases, the Eulich Case is correctly decided and is NOT a death knell for PROPERLY formulated and operated Asset Protection Trusts.

First: It is always best to start with the issue of What Does this Case Deal With. Well, the answer is simple. The IRS is investigating Mr. Eulich for tax fraud. Apparently, he controls a trust with over $100 Million in an account at the Canadian Imperial Bank of Commerce in The Bahamas. The IRS sought documentation from the Bank and it refused to provide it (the Judge suggested that Mr. Eulich himself was probably responsible for this refusal).

The IRS successfully asked the trial court to order Eulich to use his best efforts to get the documentation, even if this meant filing a lawsuit against the bank in The Bahamas. Eulich refused to file the suit or take any other steps to get the documents. [By the way, I wonder why the IRS's Attorneys didn't ask the Federal Judge to fine the New York branch of CIBC, say $100K per day, until the documents were delivered. This has been used with success in drug cases several imes before. Somehow, the documents always end up in Chambers the next day, regardless of the secrecy laws of the foreign jurisdiction!]

The IRS asked the Court to hold Eulich in Civil Contempt for not taking all reasonable steps to get the documents. Upon reviewing the facts the Court held there was "clear and convincing" evidence that Eulich was not complying with the order. He was held in contempt and fined $1,500 per day. The Appellate Court upped the fine to $5,000 per day for the first 30 days and th n $10,000 per day. Bottom line, Mr. Eulich better get the documents to the IRS pretty quickly or be prepared to pay some serious fines and (probably) go to jail (an issue to be revisited 45 days hence).

BOTTOM LINE: What does this case stand for? The proposition that you had better comply with a court order from a Federal Judge: PERIOD. The Judge made a formal finding of fact that Mr. Eulich could deliver the requested documents and refused to do so.

WHAT does this case NOT stand for? First, it needs to be emphasized that this case does not concern or involve an asset protection trust attacked by a creditor in a normal court. It involves a tax cheat who sounds like he crossed the line and may be spending some time with Martha.

Remember the first rule of all Asset Protection planning: "WHAT YOU DON'T OWN CAN'T BE TAKEN FROM YOU." Assets put into an Asset Protection Trust (if it is
structured properly) are NOT yours and THEREFORE are NOT available to your creditors PROVIDED the act of funding the trust was NOT a fraudulent conveyance.
This means that a settlor of a trust needs to be very careful to be provably solvent both before and AFTER funding a trust.

Provided a trust is properly settled, the assets placed into trust are no longer the property of the person setting up the trust. These assets are off his balance sheet, without doubt. Since they are no longer the property of the person funding the trust it is clear that the protected assets are not the proper subject of a collection action. THE ONLY TIME A CONTEMPT ACTION IS PROPER IS WHEN A TRUST IS FUNDED WITH A FRAUDULENT CONVEYANCE. Please reread the previous sentence.

This case turns on the finding that Mr. Eulich has control over the documentation and has failed in his responsibility to deliver documents to the IRS. Behind all of this is the strong suspicion that he is a tax crook using an offshore trust to evade taxes. (Remember, solid Asset Protection planning will never save you any taxes ..and if somebody says it will, RUN as you are probably in the hands of a scammer!).

EACH AND EVERY CASE dealing with contempt of court involving any offshore trusts involves either a blatant FRAUDULENT CONVEYANCE (e.g. the Anderson and Lawrence cases) or an ongoing obligation (in this case, the obligation of Eulich to report to the IRS) which he disregarded. There has NEVER EVER been a case of a Settlor of an Asset Protection Trust being held in contempt when the act of funding the trust was demonstrably NOT a fraudulent conveyance. I cannot emphasize this enough. Asset Protection Trusts are for a portion of a person's net worth. He needs to be demonstrably solvent both before and after any conveyance to the trust.

Further, normally, it is a complete defense to a contempt action if the person being held in contempt can demonstrate that compliance with a court order is impossible. In this case, the Court indicated that the impossibility defense would not shield Eulich because " [he] cannot benefit from a situation that he himself created." At the same time, the Court noted in Footnote 3 that Eulich might demonstrate at the current time that he could not deliver the documents because he did not have control over them and arguably avoid the contempt order. Even though the law in this regard is cloudy at best, one thing is sure, this is a risk you
do not want to take. The only way to avoid it is to NEVER engage in a fraudulent conveyance.

So: the bottom line with Eulich... It is a correctly decided case dealing with a tax cheat who tried to hide behind a poorly crafted offshore trust. It is NOT relevant to properly done asset protection trusts. It does not concern a creditor attempting to challenge a properly funded trust. The real bottom lines: PIGS DO GET EATEN (avoid being so aggressive as to render yourself insolvent) and PAY YOUR TAXES (the era of offshore trusts shielding money from the IRS is DEAD!).

I am posting the Eulich case on my site tomorrow. You can find it using the search function. Also, I do appreciate your effort to work your way through this somewhat dry and technical (at least more than normal) newsletter. Next months will be more fun!

Very best,

Rob Lambert
Asset Protection Corporation
67 Wall Street, Suite 2411
New York, New York 10005
http://www.assetprotectioncorp.comhttp://www.trustmakers.com

If it's worth striving for it's worth protecting

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