UBS Agreement - The End of Secret Swiss Bank Accounts

As we all heard this week UBS entered into a settlement with the U.S. Internal Revenue Service (IRS) was an upsetting blow for banking confidentiality. The issue on everyone’s mind was would UBS be in breach of Swiss banking confidentiality legislation if it were to meet the United States’ demands to hand over the names of 52,000 account holders. The Swiss Bankers Association said it expects the final agreement will be consistent with Swiss law but will it?

A day or two after the settlement it set off a worldwide fire storm to wit, a Swiss banking executive and a lawyer were charged with conspiring to defraud the U.S. and echoed a warning that the IRS is now looking beyond UBS in its international tax enforcement efforts. The banker, is Hansruedi Schumacher, and was a former regional market manager for UBS’s North America international business who later headed UBS’s cross-border business. At some point in 2002, Mr. Schumacher left UBS to conduct private banking with Zurich-based Neue Zuercher Bank, or NZB. Also, Swiss lawyer Matthias Rickenbach of the firm Rickenbach and Partners traveled regularly to the U.S. to conduct banking and investment activities (seminars) with U.S. clients.

Schumacher and Rickenbach supposedly helped their clients obtain offshore credit cards and created sham loan documents and used other nominee tactics. In addition, they purportedly falsified bank documents to generate the appearance that the assets of their U.S. clients belonged to Swiss citizens, and they falsified documents to disguise their U.S. clients’ repatriation of offshore funds as inheritances from foreign citizens; a huge no-no. One of the clients named is Jeffrey Chernick, who pleaded guilty last month to charges of evading taxes on $8 million in assets. See article here:  Jeffrey Chernick

It appears there is a worldwide currency hunt as this set off an inferno as other countries revenue authorities started their hunt for unreported monies. For instance, in the UK the Tax Chamber of the First-tier Tribunal has ordered over 300 banks to give details to the UK tax authority, HM Revenue and Customs (HMRC), about their customers who hold offshore accounts.

HMRC’s launched an amnesty theme recently which is along the lines of the IRS and reportedly netted some 60,000 individuals who were said to have come forward. About GBP400m in additional tax was raised, but a more ambitious revenue target of GBP2bn has been set.

In Ireland all is not shamrocks and pots of gold as the Revenue Commission set its sights on any undisclosed assets and. The Revenue Commission stated in a brief that taxpayers have until September 1, 2009, to deliver a Notice of Disclosure to the Revenue regarding trusts and offshore structures. Any follow-up disclosure and payment of tax due must then be made by October 31, 2009.

Then in Italy, in a television interview, the General Manager of Italy’s Revenue Agency, Attilio Befera, disclosed that there were 170,000 cases singled out within the Agency’s investigation of undeclared funds held abroad by Italians. In particular, he mentioned that the Agency has obtained 500 foreign bank account holder names from a Swiss lawyer recently arrested in Milan.

What is going on and can we invest outside of the United States without feeling like we are up to something illegal? Will they make investing abroad illegal or create so much difficulty it is not worth it, only time will tell but it feels like the land of the free is not free unless you flee.

Under IRC Section 7623 or the proverbial “Whistleblower Rewards” code, we are wondering if UBS qualifies not, despite involuntary disclosure of accounts. This code rewards 30% of the delinquent tax and if the 4,450 accounts are estimated to be worth $15 billion, then UBS could get $450 million approximately which would offset the settlement payment they have to make. What if someone made a career as a whistleblower? Wow, a couple $100 million for being the wealthiest rat on the planet.

Let us know how you feel about this assault on foreign accounts and if you have one and need assistance on making it compliant please contact my offices.

James Burns, Esq.

Tax Free Retirement Cash Flow

Overfunding is a strategy that focuses on accumulating cash in the policy rather than paying for the death benefit which is the payout to your loved one’s when you pass away. This approach leverages the highest policy premium that is allowed with the lowest life insurance death benefit so that your cash accumulation exceeds your policy net insurance costs over at least 10 years. There are fundamentally 4 steps to determining the combination of maximum premiums and minimum death benefits necessary to selecting the most leveraged indexed universal life policy:

4. Finally, you must pay close attention to the maximum premiums allowable under the  Internal Revenue Code which is referred to as the seven-pay premium limitation.[1] As long as the total premiums for any seven-year period are equal to or less than the maximum allowable premiums for the seven-pay test,[2] you’ll be able to access the cash values in the policy at any time, tax-free and relatively liquid.

In essence, a life insurance contract that fails to meet the seven-pay test will be classified as a modified endowment contract (MEC). The seven-pay test is not met if the accumulated amount paid at any time during the first seven years is more than the total of the net level premiums that would normally have been paid on or before such time if the contract provided for paid-up future benefits after payment of seven level annual premiums

Want to see if this is a fit for you? If you’re healthy it may very well be a great tool in your arsenal to slay the bailout dragon for your retirement.

Invest Like the Wealthy and Wise

When a judgment is won against a person for a particular amount, the first choice is cash. The next choice would be the quick sale value of real estate, including forcing foreclosure on your home. One of my colleagues still does this work to this day and while he does not enjoy having people removed from their homes, he has to get paid along with his client and that means every asset is up for grabs.

If the bank and other friendly creditors own the property then there is nothing to turn over. At the end of the day, the creditor or their counsel is looking for how much equity you have in the home.

If you are in business or have a sizable estate, you may want to keep your equity lean so that it is off the negotiation table. Stripping equity makes sense on so many accounts. First, we’ve all heard the cliché that it is unwise to have all your eggs in one basket. Why? Because if you drop the basket with all your eggs they are all finished. The old adage is not just for the sake of it but is a wise wealth-making concept. Do you think the folks in Laguna Beach whose homes slide down the side of the hill were better off if the home was completely paid or outside of that home earning interest somewhere or invested in another piece of property? I hope the answer is obvious to you that you would want it outside of that now demolished home so that you had access to it.

Where should I put it you ask? Many readers are using real estate in multiple jurisdictions and this makes sense. You should not keep more than 10% of your equity in the properties unless that would not pencil out properly in having the renter cover your loan. The other significant asset many clients are using is savings grade life insurance because this contract can be structured to not provide for creditors of the beneficiary during a period when you are under attack. You can also put a large amount into a single premium immediate annuity (SPIA) that is irrevocable and you divest your control over it while it pays directly to the insurance company to fund your tax-advantaged savings account, better known as the investment grade life insurance.

If you’re not sure about investments, you can also get personal equity lines from family and friendly companies. A good idea is to get a loan from family members, create a functional promissory not that has flexible payments and higher interest rate for the premium of having the flexibility e.g., pay in lump sum 5 years from now. Then they put a deed of trust on the property and that encumbers a portion of the equity.

This process involves:

A friendly third party that holds a lien on your property.  This friendly party may be a corporation, which you control.  The “friendly” corporation places liens against your real estate and other immovable assets to strip the valuable equity.

HIGH ASSET PROFILE

Before:

Appraised Value $200,000

- $40,000/Mortgage             

+ $160,000 = Equity (at risk)

Now this same asset with an equity strip.

After:

Appraised Value $200,000

- $40,000/Mortgage

- $150,000/ Lien

+ $10,000 = Equity

Real estate is immovable.  Therefore, there are specific challenges to reducing the amount of equity accessible to abusive creditors.  We reduce the equity, through equity stripping.

This process works wonders along with a Delaware Series LLC because you can have a property seeded in one of the Series and another Series that has its own bank account and name as a creditor on the property with a filed deed of trust on the property. You have to create a credible document to substantiate the financial substance but this is done all the time with businesses and real property to keep the ownership reduced.

What if I lose a case and a creditor finds out I control the entity that has a lien against the property. This is one of the little risks but is difficult to lose as long as you run your entity like it has a real business purpose and respect the transaction like it is a true arm’s length dealing.

You can always use a global solution as many of my clients have using a foreign bank to take out up to 90% of the available equity and then settling the money on a trust that has an agreement with the bank to oversee it. The capital never transfers out of the jurisdiction, costs about 1.5% per year on the loan amount to maintain, offers a rate of return on the CD that offsets other fees so it is a wash but it protects property like nobody’s business. There are so many interesting ways to provide for estate taxes, create wealth abroad that is legitimate and protects the money that we can explain them all in this article but we invite any of Rick Stuart’s readers to request an appointment if they have any concerns in their financial and estate planning strategy. Even that little hairline fracture left untreated over time can have cataclysmic results in your financial planning structure.

James Burns

Law Office of James Burns