Florida Asset Protection Blog

Swiss - Liechtenstein Annuities

I had an interesting discussion with an estate planning attorney about offshore annuities. Swiss annuities are a sophisticated offshore asset planning tool because the Swiss law protects these annuities from foreign creditors, including U.S. judgment creditors. The attorney informed me that the small country of Liechtenstein has annuity laws modeled after Swiss law, and in many ways, offers better asset protection annuities

Apparently, if a U.S. debtor purchases a Swiss annuities he has limited options to direct the investment of money in the annuity. Swiss annuity monies must be managed by Swiss money managers; the client cannot choose an independent fund manager. Liechtenstein laws permit annuity owners to pick anyone they want to manage money invested through the annuity. Additionally, Liechtenstein law provides a one year statute of limitations for fraudulent conveyance which time is shorter than Swiss law.

On the other hand, Liechtenstein charges a 1% transaction fee for the purchase of their annuities. Switzerland waives any transaction fee.

There are few financial professions versed in the purchase of Swiss or Liechtenstein annuities. If you believe foreign annuities are a useful financial tool in your asset protection plan make sure your financial advisor is well-versed in all international annuity options.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Can Debtor Living Alone Claim Head of Household Exemption From Wage Garnishment?

A divorced man has two children. One child is a financially independent adult. The other child, a minor, lives with his ex-wife. The man lives alone. The man pay child support to the ex-wife. The child support covers most of the minor child’s living and education expenses. The ex-wife works and supports herself. The man asked whether a judgment creditor can garnish his wages.

A creditor cannot garnish wages of a head of household. A debtor is the head of a household if he provides most of the support of a dependent person. This debtor lives alone, and there is no dependent in his household. However, Florida cases do not strictly define “household.” The dependent does not have to live with the debtor as long as the debtor is financially supporting the dependent. In this case, where the husband is supplying most of the financial support of his minor child living with the ex-wife, I think the husband could claim an exemption from wage garnishment as head of a household.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Fraudulent Transfer to Private Charitable Foundation

Debtor inquired whether they can shelter money from a creditor by transferring the money to their private charitable foundation. The first question is whether the foundation qualifies and operates as a charitable entity for tax purposes, and if it does, the next question is whether a donation to a charity may be undone as a fraudulent transfer.

Private foundations are charitable entities set up privately by an individual or his family. The IRS has very strict guidelines about setting up private charities. Violations result in reversed charitable deductions and penalties. The charitable giver cannot have any self-dealing with the private foundation, and the foundation must have a true charitable purpose. The giver has a limited ability to be compensated to managing a private foundation. If the debtor in this case benefits from the private foundation beyond IRS limits the foundation may be disqualified for charitable deduction and the transfer of money will likely be reversed as a fraudulent transfer because of the giver’s retained benefits.

If the debtor gives to a qualified private foundation, the next question is whether the true charitable donation is reversible as a fraudulent conveyance where the giver retains no undue benefit. A debtor facing a judgment remains free to do what he wants with his money until such time as the creditor obtains a vested lien on the debtor’s property. The debtor may spend his money on frivolous endeavors such as travel, he may burn his dollars, or through money out the window of a tall building. In these examples, the money is gone, no longer identifiable, and is not recoverable. A charitable gift is traceable to the charity, identifiable, and theoretically returnable. The issue is whether the debtor had the intent to defraud his creditors in making a charitable gift so that the charity could be ordered to return the money.

I don’t know of any lawsuits against true charities for fraudulent conveyances. My impression is that a true charitable gift lacks most badges of fraudulent transfer. For example, the debtor retains no interest in the money, has no control over the money, and is making no attempt to hide the conveyance. Its possible the debtor could benefit through an income tax deduction not otherwise allowable if the same money is payable to his creditor, and in such event, a court may more likely to question the transfer. This will be an interesting legal issue if and when decided by a Florida court.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida