Asset Protection

While this article is titled the "wealthiest" a lot of the concepts spoken of apply to the everyday person. We help you not only protect your assets but make them very difficult to find should that be necessary. 

http://www.forbes.com/sites/toddganos/2013/09/01/what-are-the-wealthiest-families-doing-about-asset-protection-part-i/

There’s a type of attorney out there that preys on wealthy families.  These attorneys whip up fear about the litigious nature of our society, bleeding heart juries, and slip-and-fall plaintiffs who are out to make a buck.  These particular attorneys typically have a one-size-fits-all solution.  Maybe it is a family limited partnership or an asset protection trust, but the story is much the same.

On the other hand, there are attorneys and accountants and other professionals who are skilled at assisting families protect their assets . . . or assisting families with the broader discipline of risk management.  These professionals take a comprehensive approach and their solutions will be tailored to specific circumstances.  This is the first of a series of articles on the subject of asset protection and risk management.

“Asset protection” has been a catchy term for a number of years.  For some, the term is interchangeable with “risk management.”  Within a family office, the terms are related but are seen as different.  Risk management usually refers to the comprehensive approach to identifying, assessing, and providing for all risks that threaten a family’s wealth.  Asset protection usually refers to the structuring of assets so as to minimize potential losses and is within the broader framework of risk management.

What are the risks that wealthy families face?  While the range of risks present in the world is great, the primary risks that concern wealthy families are typically grouped into business liability, personal liability, risks to assets, and health care risks.  How wealthy families manage their risks is decidedly different from how lower asset families manage their risks.

Fundamentally, there are four things any person or family can do with the risks they face.  One can avoid a given risk.  Whether it is a risk associated with operating a publishing business or driving a car or downhill skiing, one can simply chose to not expose oneself to those risks.  Don’t operate a publishing business.  Don’t drive a car.  Don’t go downhill skiing.  Of course, as a matter of practicality, there are some risks that one can’t avoid.

Family Business Entities

Families with operating businesses are already familiar with some mitigation techniques.  These might include worker safety programs, the adoption of operational best practices, or even being selective regarding customers/suppliers with whom one works.  A more nuanced business risk mitigation strategy might include the drafting of business contracts in a manner that limits the opportunity for litigation and limits damages.  An even more nuanced mitigation strategy in business might include choosing a specific jurisdiction for business organization – say, Delaware.  This would allow the business to choose the governing law of its contracts.  This would also allow the business to contractually identify the venue for litigation or arbitration as opposed to being stuck with the jurisdiction in which the business operates – say, California.  Of course, this can also be a double-edged sword.  While the foregoing focused in on the mitigation of business risks, a family might extend mitigation strategies to each type of risk.

Asset protection, which we loosely defined as the structuring of assets so as to minimize potential losses, is a form of mitigation. Non-operating business entities – that is, those that hold investment assets – are often used to consolidate the management of a family’s assets and for asset protection.  Such a business entity might be a limited liability company, limited partnership, or other structure.  Such a business entity might hold liquid securities, investment real property, etc.  Assuming that one follows all of the legal and financial formalities regarding the organization, liabilities and legal claims that arise within the business entity will be able to look to only the assets of the business entity for satisfaction.  For example, an individual who slips and falls on real property held by a family limited liability company would only be able to assert a claim against the assets of the entity.  Subject to cost, a family would ideally establish a separate business entity for each investment property it owns as well as a separate business entity for securities.

The general discussion that applies to operating business entities also applies to investment business entities.  But, it doesn’t end there.  Let’s say a family member is sued individually and a creditor seeks to obtain title of the family member’s interest in the family business entity via a charging order – whether the business entity is an operating business or for investment.  The governing document of the business entity – operating agreement, partnership agreement, by-laws, etc. – might specify that, in such a forced transfer, the business entity has a first right to purchase the interest from the family member at some low price.  Let’s take it a step further.  Let’s say that the creditor does not obtain title but receives a court order that directs the family member to ask for a distribution from the business entity.  The governing document of the business entity might specify that only a 100 percent vote of interests can force a distribution.  All of this depends on the law of the business entity’s jurisdiction of organization.  Things are complex and nuanced indeed.

Part II will focus on asset protection within trusts.

Asset Investigations Part 3 of 3

In this last installment of asset investigations I'll talk very briefly about businesses and/or LLC's, Inc, PLLC etc.

What we have seen in the past with professional debtors is scores of, for the sake of this blog we will say they are LLC's, and bank accounts associated with those LLC's.

In many instances over the past several years we have seen one individual have multiple LLC's which are all owned by other LLC's making the path back to the one individual very time consuming, difficult and costly to you the client.  This may not seem like a big deal to most of you so let me give you an example below;

XYZ, LLC of Arizona would be owned by John Hopper.
ABC, LLC of Delaware would be owned by XYZ, LLC of Arizona.
ABC, LLC would be owned by CBA, LLC of Nevada and so on and so on.  The end result is they are all owned by John Hopper.

All of these LLC's can have their own banking accounts and not just your average checking and savings.  I'm sure by now you can see where this can become a nightmare to put the pieces together.  If their is a single mistake made by an investigator the chain can be broken potentially costing you the recovery of your judgement.  

Once you have a schematic of your debtors LLC's the real work and strategies come into play.  It is vital that your private investigations firm and your attorney have a comprehensive plan in place prior to executing any recovery efforts in these types of complex recovery cases.  To you that means you don't want your team to prematurely submit garnishment paperwork to one particular state which may require a domesticated judgement (thus notifying your debtor you're about to garnish him/her should it be required) taking sometimes weeks to do when you are at the same-time submitting garnishment in the state your judgment was issued allowing for an immediate garnishment.  What this may do is, again, notify your debtor you are about to take his assets allowing him/her the time to fraudulently transfer funds and possibly having to start the investigation over completely.  The timing is critical.

As I stated in Part 2 of this series I do not want to go into too much detail giving an average debtor the ability to became a professional debtor.

As always should you want more information on this topic or would like me to further explain some of our processes at JB National Investigations please let me know!


John Hopper
Director of Investigative Services
john@jbnational.com
www.jbnationalinvestigations.com

Comprehensive Background Investigations

As promised we want to continue the conversation from our Background Checks, The Good, The Bad and The Ugly.

JB National Investigations' Tier 1 Background Investigations are at a minimum at least as rigorous and many times, more comprehensive than a police cadet "new-hire" screening.  There is no doubt some of you have no idea what this process is so let me explain.  I must warn you, this is pretty dry content, for that I do apologize, but I wanted to express how detailed our Tier 1 Backgrounds can be.

The entire process starts with a background packet that the candidate must complete in its entirety.  This packet should list their history from a minimum 18 years old to current.  This packet asks questions about education, any police contact, all drug use, financial history including credit report, minimum 8 references, alcohol consumption, "undetected" crimes, orders of protection, employment history with references, DMV records for a minimum 3 years preferably 5, gambling questioner, military records, discharge type, marital status, registered sex offender status, and family history.

As stated the above asks very specific questions in each individual section.  These questions become very important later.

After we have received the completed packet, the information provided is verified as much as is able to be.  The information that can not be verified through a third party source prior to interviews should be addressed during subsequent interviews.

Once the candidate is deemed hirable (or whatever the case may be), by you the client, we strongly recommend drug screening.

Once we have gathered and documented all pertinent information the candidate will be called in for an initial interview.  During this interview the entire background packet should be addressed section by section.  Any inconsistencies should be addressed and questioned during this initial interview.  This initial interview could take from 1-5 hours (in rare cases longer) depending on the particular individuals history.

Depending on what the subject and/or candidate is being engaged to do, the above may have provided enough information to make a decision.  As stated in the previous blog you really have to weigh the risk to your business or assets as to whether or not to further
invest.  Really knowing who your new-hire, business partner or whatever the case may be is vital.

Should this individual have substantial responsibilities to either you, your business or the public we highly recommend a complete Tier 1 investigation.

The next step in our process would be reference interviews.  We at JB National Investigations really like to do these in person if possible.  An investigator with any real experience will tell you that  interviews and/or email exchanges never truly get the whole story.  Investigators don't get a "feeling" if reference is really telling the truth or covering for their "buddy" if not done in person.  A simple line of questioning is conducted with most if not all of the references the subject has supplied.  This "simple" line of questioning always leads to other follow up questions and most importantly other friends, colleagues or acquaintances that the investigator can interview.  These are the most important interviews that can be done.  Good investigators never count on interviews that their subject wants you to interview for obvious reasons.

Again once this process is complete a through review of the case file should be completed and an update given to you the client to decide whether or not to continue with the hiring process or further engagement of the subject.  Interviews often provide enough information to decide to disengage and move on to another candidate.

The second to last step of this process is a voice stress analysis and/or a polygraph.  We prefer voice stress.  Voice stress in our opinion tends to be more accurate.  The background questioner and interview comes in to play once again.  The subject is essentially asked the same question line again only this time technology helps to determine whether or not he or she is being deceitful.  Once this step is complete our job is almost done.

At this point you would be receiving a complete written report on your candidate.  This report should be easy to understand, fact based and have your candidates life from A-Z documented.  All issues, if any, will be clearly spelled out, the results of the voice stress analysis will be documented and any recommendations from JB National Investigations would be included.  One of the recommendations may be a psychological test and/or interview.  Again this would depend on what the candidate would be responsible for.

This type of background investigation is not for everyone or every business.  You should consult with your attorney about liabilities of the candidates responsibilities, risk to you and whether or not this type of background would help mitigate future risks.  This type of work can be expensive, but if you are risking millions you should know who you are handing the keys to your kingdom to!

Feel free to email any questions you may have or visit our website at www.jbnational.com



Thank you for reading!  I truly hope it was informative.


John Hopper
Director of Investigative Services
JB National Investigations, LLC
john@jbnational.com

Background Checks; The Good, The Bad and The Ugly.

Background checks are something that we at JB National Investigations take very seriously.  There are probably thousands of companies who claim they can complete this vital task for you but, what we have found is a lot of these companies are simply not performing as they should.

I'm sure if you are reading this you have seen searches like Intelius, beenverified.com and the like.  Can you have a "background" completed for $4.95?   Absolutely.  Is this a background check that you want to risk your business or assets to?  NO!

What those types of searches are is name matching and/or other identifier matching search.  It will run your subject through a database but will only return what is publicly available.  What this means to you is their system or database has collected information from all of the known public sources into one place.  These types of reports are mass produced (usually by computer program with no human input) and totally unverified. This sounds like its really all you need right?  Not exactly, let me further explain.

Almost all private investigators in Arizona, and in the country for that matter, use one of two database providers.  So essentially they all have access to the same information when it comes to background checks.  What sets good firms from bad firms is what they do with that information.  If a firm is telling you they can turn around a background that same-day, or possibly next day, you are probably not getting a thorough background check.  What they are doing is simply taking the information you have supplied them and running your individual through a database.  Usually they won't even attempt to verify any information that the report contained or worst case will not understand how to properly read the criminal report provided.  As horrible as these types of backgrounds are they do have a place.  They do serve the purpose of identification, previous addresses, whether or not they have liens or judgments and give an investigator a good starting point for a proper background investigation.

Now that I've told you what a bad background check is let me explain what JB National Investigations can offer as well as any other firm that takes background investigations seriously.

As stated above all background investigations start with known facts, i.e. the initial database report.  Anything additional that you the client can provide will only enhance the investigation.  The first step in any background investigation is verifying what you already know or have in front of you.  For example if the initial report shows a criminal violation steps should be taken, by the firm you have chosen, to verify the crime including date of offense and disposition of that offense if any.  Are they on parole/probation, have they paid their fines, upcoming court dates if any etc.  Best case scenario is obviously is no criminal record.  One caveat to the above is there are times that city courts do not share their information to database services.  It may be necessary for your investigator to physically walk into the municipal court to ensure there aren't any past or current criminal charges.


Depending on your business or personal needs the above steps may be enough for you to make your decision.  However if you are risking any meaningful sum of money, assets or business ventures we highly recommend completing a comprehensive investigation.

I will talk about JB National Investigations Tier 1 Backgrounds and other steps that should be taken if the risk dictates the time and effort in another blog soon.


As always if you have any questions feel free to contact me anytime.


John Hopper
Director of Investigative Services
JB National Investigations
www.jbnationalinvestigations.com 
john@jbnational.com