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Offshore Asset Protection Trusts Often Risky and Expensive
Some financial planners and attorneys recommend so-called asset protection trusts for wealthy lawsuit magnets such as doctors or lawyers. But this advice is highly controversial when the assets involved are held in IRAs.
J. Ben Vernazza, a certified public accountant with Overseas Oversight Group in Aptos, Calif., says his firm has created offshore asset protection trusts designed to put clients' IRA assets out of the reach of potential creditors.
"It is in the structure of what the IRA owns, and who owns it, where you can get asset protection," Vernazza said. "We feel our position is on solid ground."
Other experts disagree. Bill Norman, a Century City tax and estate planning attorney who sets up offshore and domestic asset protection trusts for clients, refuses to include IRA assets in such trusts because of uncertainties in the law.
Robert L. Sommers, a tax attorney who runs the Tax Prophet Web site, says American courts can tap offshore trusts if the person who created the trust continues to live in the U.S.
Creating asset protection trusts is tricky, because California law considers the transfer of assets to such a trust to be fraudulent if the transfer is done because of a "pending, threatened or claimed" liability--such as the filing of a lawsuit.
If no lawsuit is pending, Beverly Hills tax attorney Chuck Rettig wonders why anyone would bother with the expense, hassle and uncertainty of an offshore trust.
"Buy an umbrella [personal liability] policy and/or errors and omissions insurance instead, and you"ll sleep better at night," Rettig says.