The Monthly Tax and Asset Protection
Newsletter of Klueger & Stein, LLP

January 2008

The following are two real cases that we handled for clients last year. Only the names have been changed to protect the somewhat innocent. While these cases do not represent our most interesting or most challenging work, they represent a very commonly seen fact pattern.

No Good Deed Goes Unpunished

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 in October of 2007 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, his 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 to then transfer the ownership of the residence into an irrevocable trust. Dr. Mehta obtained a bank loan and then deposited the loan proceeds into a Swiss investment account. He was able to maintain a positive spread on his bank loan versus his investment return.

Dr. Mehta then moved the contents of his domestic investment account into the same offshore investment structure as the loan proceeds. Because that can be easily done without selling the underlying securities, there were no tax consequences to the transfer.

In the short period of October to December 2007 we represented 24 clients in exactly the same position as Dr. Mehta, i.e., real estate developers with outstanding personal guarantees and upside down projects. Personal guarantees ranged from as little as $500,000 to as much as $130,000,000. We believe that this trend is likely to continue well into 2008 and urge you to discuss asset protection planning with your clients engaging in real estate building and development.

The Importance of Driving Carefully

Mrs. Wilson is the mother of a 17-year old (Eric) who apparently enjoys street racing. Several months ago Eric critically injured a third-party during a street race. The plaintiff will be pursuing Mrs. Wilson on the theory of negligent entrustment. Mrs. Wilson has a very significant net worth, comprised mostly of real estate and cash.

We are in the process of transferring the ownership of Mrs. Wilson's real estate and cash into various proprietary structures. (While we are happy to disclose most of the structures that we commonly use in asset protection, such as LLCs and irrevocable trusts, the structures used to protect Mrs. Wilson's assets are proprietary and therefore, confidential).

In 2007 we represented 12 clients in exactly the same position as Mrs. Wilson. Like Mrs. Wilson, none of them expected to become defendants in major lawsuits based on their kid's driving ability. So please, make sure your kids drive carefully, maintain sufficient automobile and umbrella insurance, and act to protect your assets before the accident takes places. Playing catch up is a lot more costly and a lot less effective.

Klueger & Stein, LLP
16000 Ventura Boulevard, Suite 1000
Encino, California 91436

Email: info@lataxlawyers.com
Tel: (818) 933-3838
Fax: (818) 933-3839