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Archive for Hale Stewart

Non-Qualified Deferred Compensation: The “Substantial Risk of Forfeiture” Requirement

Hale Stewart, Tax Advisor

Income for tax purposes is defined in the broadest possible terms.  §61 states it as “income from whatever source derived.”[1]  The case law adds further clarification and detail. Glenshaw Glass defined income as “undeniable accessions to wealth, clearly defined, and over which the taxpayers have complete dominion.”[2]  The latter term is central to a properly structured non-qualified deferred compensation (NQDC) plan.  If the taxpayer has any control over the plan’s income, he will have to include the total income in his annual income.

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Non-Qualified Deferred Compensation: Additional Definitions

Hale Stewart, Tax Advisor

In this post, I’ll take a look at several more definitions related to non-qualified deferred compensation (NQDC) plans, beginning with the definition of “plan:”

“The term plan includes any agreement, method, program or other arrangement, including an agreement, method, program or other arrangement that applies to one person or individual.”[1]

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Non-Qualified Deferred Compensation: Timing and Constructive Receipt Issues

Hale Stewart, Tax Advisor

It’s doubtful that anybody in the Financial Services industry is unaware of qualified retirement plans such as 401(k)s and IRAs.  Knowledge of them is required to pass licensing exams and every firm includes them in sales literature. Non-qualified plans (NQDC), however, are less well-known, largely because they are more complex and appeal to a far smaller group of potential buyers.  Although their application is narrower, in the right circumstances NQDC’s can provide clients with tremendous advantages.

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Should You Still Use a Foreign Asset Protection Trust? Maybe – A Very Qualified Maybe

Hale Stewart, Tax Advisor

Over the last few months, I’ve documented a series of cases where courts forced grantors of a foreign asset protection trusts to disgorge assets despite placing this fund into a “bulletproof” offshore structure. Those who continue using FAPTs offer the following rebuttals to the case law.Over the last few months, I’ve documented a series of cases where courts forced grantors of a foreign asset protection trusts to disgorge assets despite placing this fund into a “bulletproof” offshore structure. Those who continue using FAPTs offer the following rebuttals to the case law.

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A Brief Overview of the Judicial Reasoning That Has Thwarted Foreign Asset Protection Trusts

Hale Stewart, Tax Advisor

As I have documented previously, there are several cases where courts have ruled against the grantors of a foreign asset protection trust, thereby nullifying the asset protection benefit. In this post, I want to briefly sum up the judicial reasoning used by the courts to thwart these trusts.

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Another Nail In The Foreign Asset Protection Trust Structure

Hale Stewart, Tax Advisor

This is the fifth entry in my series on foreign asset protection trust failures. It shares a number of facts with the other cases. These are:

  • A less than savory character. Bilzerian was convicted of securities fraud.
  • A lengthy legal process. This August 2000 decision was the last in a series of hearings and trials that started in the early 1990s.
  • An offshore asset protection scheme: The taxpayer had a Cook Island trust.
  • Fraudulent Transfer issues: Bilzerian established and funded the trust during the trial.
  • The taxpayer argued the court couldn’t hold him in contempt because it was impossible to comply with the court’s disgorgement order.

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Does Lawrence Spell The End Of FAPT Duress Clauses?

Long ago, drafters of foreign assets protection trusts (FAPT) realized that courts might hold grantors in contempt because they wouldn’t repatriate assets from a foreign jurisdiction into the U.S. To prevent this outcome, drafters included a “duress clause” in a FAPT document. This clause states that should a court threaten a U.S. grantor with contempt, he will not only be stripped of any power to control the trust, but will also lose all trust benefits.  This should allow the US grantor to argue that compliance with the repatriation order is impossible. The Anderson case, which I discussed in my last post, dealt a serious blow to this strategy. Lawrence v. Goldberg – the topic of this post – adds another nail in the “duress clause” coffin. Read more

The Foreign Asset Protection Trust Failures Continue In Solow

Long ago, attorneys that drafted foreign asset protection trusts (FAPTs) recognized that a court could eventually force their client to disgorge assets. They used several strategies to prevent an actual payout. A “duress clause” – which I discussed in my last post – was one such tactic. Another was to place assets into a family member’s name — a tactic was used in Solow. But like the taxpayer in Lawrence, Solow lost, invalidating this structure. Read more

Controlling The Contract Drilling Process

Hale Stewart, Captive Insurance

I thought it would be inappropriate to continue my “Hurricane Harvey and Captive Insurance” series while Florida was dealing with Hurricane Irma. But now that the worst is over, I wanted to continue my train of thought. Last week, I showed that controlling the claims process is an incredible advantage to owning a captive. This is especially beneficial during a large catastrophe because your captive won’t be flooded with non-parent company claims, slowing down the settlement process. Read more

Hurricane Harvey Captive Insurance Ruminations

The Importance of Controlling the Claims Process

I live in Houston, Texas. And while the last few weeks have been understandably difficult, I could not be prouder of my city or state. Watching the first responders work tirelessly for days was awe-inspiring. Seeing large numbers of people risking their lives to help rescue their fellow citizens was one of the greatest acts of selflessness I have personally witnessed. Kudos should also be given to numerous city, county, state and federal employees who swiftly and efficiently responded to the disaster. Read more

Captives Lead the Way In Underwriting New Risks

I divide the insurance market between “third-party insurers” and “captives.” The former are large, publicly-traded insurance companies. “Asset-liability management” — the science (or art, depending on your perspective) of timing the payment of liabilities with investment income — forces this group of companies to favor predictable risks. For example, suppose an insurer has a claim payable in 12 months. Their investment department will purchase an asset that will mature when the claim comes due. Unpredictable risks complicate this relationship, explaining why the large insurers shy away from these policies. Read more

FTC v. Affordable Media: Foreign Asset Protection Trust Failures

Hale Stewart, Asset Protection

High net worth individuals are loathe to transfer assets to any entity over which they have no control. This fact creates an unresolvable problem when forming an offshore asset protection trust: so long as a U.S. person can exert even a modicum of control over a foreign entity, a U.S. court has sufficient grounds to rule that a U.S. based debtor can repatriate assets. More importantly, failure to comply with a repatriation order could lead to contempt citation against the U.S. debtor. The facts of Federal Trade Commission v. Affordable Media typify this problem. Read more

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