Case Histories
At Klueger & Stein, LLP we've helped people in many types of situations protect assets they might have lost if we hadn't been there for them. These are real-life case histories and only the names have been changed. Can you find a story similar to yours?
Choose a case from the following list and read the details in the box below.
Individuals & Business Owners
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Medical Professionals
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Safeguarding your business: Building Protection
The company is a successful California-based home builder. Over the past few years, following many construction defect lawsuits, the firm found it more and more difficult to carry liability insurance. Coverage was just too expensive. Eventually, the decision was made to stop carrying insurance coverage altogether.
Without insurance coverage, the company-and possibly its owners-were exposed to future lawsuits. Asset protection for the company and its owners was the best alternative to insurance coverage.
The company's operations had to be restructured so that the liability arising out of any one building project would reach only a limited amount of the company's assets, if any. A separate legal entity was established for each construction project. Their protection was enhanced further by having different entities own the real estate and do the development work.
An additional layer of entities further insulated the individual owners from the liabilities of the business. The ownership of the personal assets of the owners was further restructured.
In its first test, this protective structuring worked as planned-seeing the level of protection it faced, the plaintiff dropped a potential class action lawsuit and accepted a surprisingly low settlement offer.
Protecting your home: The Unfortunate Widow
The woman was 84 and a widow. She had been living in the same house for 30 years, and it was fully paid off. She had virtually no savings, and lived off her Social Security benefits.
She was involved in an automobile accident and was sued. The plaintiff asked for $200,000 in excess of her insurance coverage. She was in danger of losing her home.
Representing the woman on a pro bono basis, we transferred the ownership of her house to an irrevocable trust. Seeing this, the plaintiff ceased its efforts to pursue our client in excess of her insurance limits.
While the woman is not a typical asset protection client, her case is an excellent example of an important point- you do not need to be uber-rich, or rich at all, to engage in asset protection planning. We all have assets worth protecting. Whether your home equity is $200,000 or $2,000,000, the emotional attachment and the need to protect it is the same.
Protecting financial investments: In the Wake of Enron
The board member of a publicly traded company found just how dramatically the Sarbanes-Oxley law and the events of Enron have changed the business world. Even though his company was being cleanly run, with the new business environment he was concerned that he was still exposed to significant personal risk.
Because there was no way to insulate him from personal liability under Sarbanes-Oxley, the focus of our planning was on protecting his assets, principally his family home and an investment account.
His family had been residing in their house for the past ninety years and the prospect of losing it was unbearable. The first step in our protection planning was to transfer ownership of the home to his wife as her sole and separate property. She then contributed the home to an irrevocable trust. This structure afforded an insurmountable level of protection for liabilities directed against him, and even provided a significant level of protection against any liabilities that his wife could face.
To protect his investment account, we showed him two primary options: transfer the ownership of the account to either a limited liability company or to a foreign trust. To maximize the protection of the account, he opted to transfer the ownership to an irrevocable trust governed by the laws of New Zealand.
Protecting a family business: Assisting Assisted Living
The mother and son owned six assisted living facilities employing approximately 60 full and part-time employees. Some were salaried, others paid on an hourly basis. When they fired an incompetent employee, the employee returned the favor by filing a wage-and-hours lawsuit, alleging underpayment. Because employees were not required to keep time sheets and the law in this area favors employees, the owners were anticipating a judgment in favor of the employee.
Even more than this isolated lawsuit, their greatest fear was a class-action lawsuit that they were sure the plaintiff's attorney was considering. It was important to terminate this lawsuit quickly and establish to the plaintiff's attorney that there was no pot of gold at the end of the litigation rainbow. To do this, they had to implement asset protection planning... and quickly.
Our firm developed and implemented an asset protection plan for them within four days. Two days later, the plaintiff's attorney was apprised of the owners' new asset ownership structure. Although the plaintiff could have challenged the implemented planning as a fraudulent transfer, for some reason they chose not to. It is possible that the plaintiff's attorney, who was working on a contingency basis and anticipating an easy kill, did not want to go through protracted and expensive litigation challenging asset transfers. Even if the challenges were successful, the plaintiff may not have been able to recover the transferred assets. Our clients were very grateful.
Protecting business owners: When Liability Isn't So Limited
Bill and Don each own shares in a building-supply company with Bill owning 75% of the stock and Don owning 25%. Years ago, they had been told that doing business in corporate form affords the owners a certain degree of asset protection. The problem: that is true if the lawsuit arises out of the operation of the business. But it isn't true if the lawsuit is aimed at Bill or Don personally.
Bill was involved in a minor automobile accident. He was surprised when we informed him that if the plaintiff obtained a judgment against him, nothing would prevent the plaintiff from obtaining his stock in the company making him the controlling shareholder.
Our solution? We converted the company from a corporation to a limited liability company. The result is that there are no shares for the creditor to attach and no possibility of a creditor of one of the owners to seize the assets of the business or otherwise get involved in its operations. Unlike corporate stock, interests in LLCs are protected from claims of creditors in virtually every state.
Protecting a medical practice: The Nervous Neurosurgeon
The successful neurosurgeon owns a home, an apartment building that is a highly-appreciated investment, a large stock portfolio, and his medical practice. Because he was sued for malpractice in the past, he was concerned about his continued liability exposure.
The doctor and his wife of forty years reside in California, a community property state. One of the worst aspects of community property law is that a creditor of one of the spouses can collect against both halves of the community property.
We provided a fix to this dilemma with a transmutation agreement, an agreement between the doctor and his wife to convert their community property into separate properties. We made sure that the assets that a creditor might have an easier time getting at went to the wife, who is the spouse less likely to be sued. The doctor retained the assets a creditor would find useless, such as the assets in his medical practice.
We insulated the assets going to the wife even further. The apartment building was transferred to a limited liability company and the home was transferred to a residence trust.
The Malibu Plastic Surgeon
Dr. Yakitori is a 33-year old single man. Despite his youth, he quickly built up a fabulous practice doing elective cosmetic procedures. When he visited our offices he was fearful that one of those procedures - his patient was a well-known entertainer - may have gone bad, with disastrous consequences.
Because Dr. Yakitori is single, a transmutation agreement was out of the question. Dr. Yakitori also had no qualified retirement plan. What Dr. Yakitori did have was cash, and lots of it, all sitting in Los Angeles banks and brokerage firms. We advised Dr. Yakitori that he was an ideal candidate for a foreign asset protection trust, i.e. a trust formed in a country whose laws are friendly to him and hostile to all of his creditors. FAPT's, we counseled Dr. Yakitori, are not foolproof; nothing is. But if a FAPT is entered into and funded (i.e. the assets titled in the name of the trust) early enough, a FAPT is the closest thing in the world to a sure thing.
Dr. Yakitori was concerned about transferring the bulk of his wealth to a country he has never heard of before. We advised him that initially the money could remain with his existing banks and brokerage firms, provided that the accounts should be retitled in the name of the FAPT. Eventually, Dr. Yakitori would need to move the cash offshore, but not to some small Caribbean nation. Instead, the money would be moved to a large private bank in Switzerland or the Singapore. This would allow Dr. Yakitori to take advantage of the favorable trust laws of the asset protection friendly jurisdictions while investing his money in a safe financial center.
The Unlucky Orange County Surgeon
Dr. Bates was a moderately successful surgeon in private practice in Orange County. He had the misfortune of allying his practice with several surgery centers that were later proven to be engaging in fraud and financial crimes. While Dr. Bates had no knowledge of the side activities of these surgical centers, he was prosecuted by both the federal government and the State of California for his alleged involvement.
Both the federal government and the State of California are formidable creditors with extensive collection powers. Dr. Bates, who was 62, had only two assets, his medical practice and a home with approximately $2 million of equity. He had no other assets available for retirement.
Dr. Bates was fearful that if somehow he was convicted in the prosecution he would lose all of his assets and also his ability to practice medicine. Convinced that Dr. Bates was being unfairly targeted we agreed to help him. Through a proprietary technique that we cannot disclose here, we ensured that Dr. Bates' assets were beyond the reach of the federal government and the State of California. Relieved, Dr. Bates regained his ability to sleep at night.
The prosecution lasted two years, and eventually the case against Dr. Bates was dropped, with both the federal government and the State of California admitting that he had no knowledge of the illegal activities of the surgical centers.
Sometimes asset protection planning means planning for the worst case scenario. Our clients hope that they will never have to use the structures we implement for them. That is what happened to Dr. Bates, but in the meantime, he was very grateful that we were able to put his mind at ease.
The Benevolent Father
Dr. Mehta always encouraged his children to be entrepreneurial. So when his son undertook his first real estate development project, Dr. Mehta helped him by personally guaranteeing $1 million in loans.
Dr. Mehta was completely surprised when the real estate development went sour and his son began talking about a possible default on the bank loan. Mindful of the personal guaranty he signed, Dr. Mehta retained our firm for asset protection planning.
He had three primary assets: his personal residence with approximately $1 million of equity, the medical practice, and a brokerage account with approximately $700,000 of investments.
We analyzed Dr. Mehta's situation and quickly determined that for him the best course of action was to encumber his personal residence and then protect the loan proceeds. Dr. Mehta obtained a bank loan (interest only) bearing an interest rate of approximately 5.8%. Dr. Mehta then invested the loan proceeds through an offshore structure and was able to generate a 9% rate of return on his investment.
He also liquidated his investment account and moved the money offshore into the same investment structure as the loan proceeds.
We advised Dr. Mehta that it would be extremely difficult (maybe even impossible) for the bank to reach his offshore investments. It was certainly very expensive.
The bank agreed. When apprised of Dr. Mehta's financial situation they concluded that it would be uneconomical for them to pursue Dr. Mehta's medical practice or his offshore investments. The bank did not pursue Dr. Mehta on the personal guaranty, and allowed Dr. Mehta's son to restructure his debt service on very favorable terms.
Mr. Stein is one of California's best known attorneys, teaching dozens of legal seminars each year on the subjects of asset protection and...
Mr. Klueger is one of the very few private attorneys in America who has argued a tax case before the United States Supreme Court...