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When it comes to asset protection, keeping investments "secret" does not benefit investors, and may even place them at risk of fraud.
A variety of dangerous myths about asset protection planning continue to persist in the medical community, in some shocking cases because of the misinformed input of professional fiduciaries like CPAs, investment advisers, and even attorneys. Regardless of the source, wrong is wrong; I will examine one of these fatal misconceptions here.
Asset protection involves secrecy:wrong.
I've addressed the issue of secrecy and some of the most common reasons doctors' asset protection plans fail before, but it's always part of the mix in bad planning. Attorneys love "privacy," that is anything that allows a client to hold assets in a way that takes time and effort to discover, but we believe there is no such thing as "secret," and explain that secrecy really means:
1. You are willing to hide something;
2. You then hope that no one finds it or asks about it;
3. You are willing to risk it being taken by any judgment creditor if found; and
4. If they don't find it you are willing to lie about it under oath - we lawyers refer to that as "committing perjury."
The majority of the fraudulent plans we see doctors conned into involve secrecy. In many cases this so-called secrecy involves tax evasion - as we've seen with doctors who were wrongly told that having an offshore account that no one knows about is asset protection. It's not: It's actually quite accessible if it is in your own name and also criminal tax fraud if you don't report it. A recent example was two major European banks, including Credit Suisse, which recently pleaded guilty to tax fraud.
I warn clients that tax and asset protection planning are in many cases kept explicitly separate for this reason; to avoid any compromises to the defensive strengths of a plan based on a loose thread in the tax plan that wrapped it. More importantly and on point, all planning should have legitimate business purpose, including records and tax reporting. This proves the separate nature of the assets and shows that they are legally distinct from your personal and medical practice assets and liabilities. Plans involving secrecy often complete omit this vital component and can't be proven to have all the legal rights and protections you hope for. As a specific example, a simple well-drafted LLC with separate books and assets may be substantially more defensible that some exotic high-dollar trust structure that omits key badges of legitimacy in the eyes of the courts.
In other cases, secrecy actually protects the planner from the fraud they have perpetrated on you, by selling you a worthless bill of goods, like a "pure trust," a.k.a. "constitutional trust," which is a common scam that is not only tax fraud, but in many cases involves selling or gifting assets to a trust that gives the trustee, usually the plan promoter or one of their cronies, power over your assets - including the power to rob you of them. Worse, since you may have voluntarily (knowingly or not) entered into a plan that involved tax fraud, your options are fewer and often onerous when you seek the help of the courts and law enforcement. It is like calling the police to report that you were robbed during a drug deal.
When considering your own asset protection planning options get the advice of experienced legal counsel that actually does the work every day. Relying on the academic opinions of misinformed business reporters, promoters, or non-attorney advisers, including highly educated and credentialed financial planners and CPAs, can be dangerous no mater how good their intentions. They won't have actually done the work and used the tools with sufficient experience to be good guides, nor do they have any professional oversight or responsibility for the results.