Buhay Petiks

Diversification of investments and property sanctuaries may be overrated. Go ask Warren Buffett who said that diversification is merely a protection against ignorance: it makes very little sense for those who know what they are doing. It is possible that Twain may have literally referred to farm (chicken) eggs and baskets. But even in the figurative sense, watching the basket always makes sense from the standpoint of asset protection. You may have heard your mother echo the words of Cervantes instead of Twain. Diane Kennedy in Loopholes of the Rich (2001) advises that if you have businesses that could create liability, such as commercial buildings and apartments, you may consider separating these assets. For example, you have three office buildings, you could form a limited partnership for each of the three structures to curb liability exposure. That way, if a lawsuit arises. from one of the buildings, the others would not be at risk.

Debt problems are symptomatic of our “buy now, pay later” consumer society. Many people are now buried in debts up to their eyeballs. Being in heavy debt with no apparent means of repayment creates chronic psychological pressures (Beckley, No Down Payment Formulas, 1985). An overemphasis in posteriors rather than posterity will make one vulnerable to predators in the same manner a complicated conglomerate of legal structures may end up causing severe confusion and anxiety. Prescott explained that a properly designed structure that functions because of its sound legal principles is more protective than one that is overly complicated. Debt-defying acts may send you to jail if you abscond with your property to the prejudice of your creditors. Fraudulent or culpable insolvency is a crime in the Philippines. Extreme circumspection must be observed by anyone engaged in asset protection planning. “He sows hurry,” wrote Robert Louis Stevenson, “and reaps indigestion.”

Generally, asset protection planning consists of the issues pertaining to the use of insurance, entity selection, the manner of holding title to assets and the protection of retirement plan assets from creditors (Prescott, supra) . At the nucleus of asset protection law is how you hold title to your properties, how you organize your business and when you should make your move to insulate your assets. Leaving your properties unprotected is like furnishing a house that is totally exposed to the elements with no roof or walls. For every hard-working Filipino, the acquisition of properties is an uphill climb. The home is a special asset that should be given special protection other assets do not have. How you hold title to your home will determine if there is adequate insulation to your special asset. In the United States, some people put the house in trust, hold the house jointly or give away the house with a life estate. When someone gives away his house, he may include a provision that states that he retains an interest in the property for the remainder of his life. That interest may take the form of a life estate where he has a lifelong right to live in the home as well as to receive any income or benefits that may accrue from the property. A life estate does not mean that you own the property; it means that you have an interest that ends when you die.

It is too late to protect your assets once a lawsuit is imminent. Once someone threatens to sue you or once you are deeply embroiled in litigation, your attempts to protect your assets may be mistaken for a simulated scheme to defraud your creditors. Take the true-to-life Philippine case of brothers Ishwar and Choithram. In 1966 when real estate values were relatively low, Ishwar who was based in New York, USA, entrusted Choithram with $150, 000.00 to be invested in real estate in the Philippines. With his brother’s money, Choithram bought two pieces of real estate in Ortigas where he built buildings to be rented to other companies.
In a move tQ claim the property as his own to the detriment of his brother, Choithram assigned and transferred all of his brother’s interests in the business to his daughter-in-law (Nirmla). To protect his assets in case his brother won in court, Choithram transferred his shares of stock in two corporations to his children. Being Nirmia’s agent, he also mortgaged the properties that were the subject of litigation for $3 million in favor of a corporation organized in the Cayman Islands with a capital of only one hundred dollars ($100.00). The Court saw these moves as a ploy to place these properties beyond the reach of Ishwar, a potential judgment creditor. These surreptitious moves were ruled as a grand scheme to render ineffective any judgment that may be rendered against Choithram. The mortgage to a shell corporation organized in the Cayman Islands is void. Choithram (as industrial partner) and his brother (as capitalist partner) should share equally the fruit of their joint venture. But Choithram should pay moral and exemplary damages and attorney’s fees because of his devious machinations and evident bad faith and malice in attempting to dispose or dissipate the properties to deprive his brother of any possible means to recover any award the court may grant in his favor. The Register of Deeds was ordered to cancel the annotation of the mortgage on the titles of the land.

If you choose an inter vivos (living) trust as an instrument of asset protection, bear in mind that your living trust cannot transfer property it does not own. An essential step in making your trust effective is to transfer ownership (title) of property to the trust’s name.
Some lawyers recommend a transfer of title to the trustee. Others say that it is better to transfer title to the trust’s name because trustees may change but the trust name remains the same throughout the trust’s existence. So when the trustees change, no new transfer of title is needed. For purposes of transferring title into the trust’s name, there are two types of property — those with ownership (title) documents and those without. Many types of property do not have title documents, including all kinds of household possessions and furnishings, clothing, jewelry; tools, most farm equipment, antiques, electronic and computer equipment, bearer bonds, cash, precious metals, and collectibles. You may transfer these items to the trust simply by listing them on a trust schedule. You may need one or more beneficiary clauses to actually give these items to beneficiaries. After the trust document has been signed and notarized, it is vital that you formally re-register ownership of all items of trust property, which have ownership documents (title papers) into the trust’s name.
The types of property owned by the trust which must have title documents re registered in the name of the trust include real estate, stocks and stock accounts, bonds, corporations, partnerships, money market accounts, bank accounts, mutual funds, safety deposit boxes, and vehicles. Once control over property disappears, the dignity; security and independence people worked so hard to acquire will eventually disappear as well. The law offers safety nets that may allow you to formulate strategies to skirt a financial calamity. Corporations, limited partnerships and trusts will limit the liability of individuals. These legal structures and other advanced methods of asset protection should be in place as early as possible if you wish to protect your life savings. Many people engage in basic forms of asset protection that include titling properties as tenants in common, placing titles of real estate in the name of the children and in the name of the spouse, a trusted friend or a close relative. Many of these methods will crumble in the face of judicial challenge once fraud is shown.