I clearly remember when I first really understood that my parents were responsible for my actions. 

I was 15 years old and standing in front of my high school with my friends when a kid from another clique walked up and started running his mouth a bit too much. One of my friends objected and the exchange ended with my friend punching the bully in the mouth, knocking out and actually breaking a few of his teeth. The ensuing threat of a lawsuit ended with my friend’s father, a successful radiologist, writing a large check for a substantial amount of dental work.

This was a relatively minor and commonplace type of exposure and incident; kids fight and do other stupid things, but the level of liability and the willingness of attorneys and plaintiffs to sue is at an all-time high. This heightened risk has surprisingly not been accompanied by increased defensive planning or education by most parents.

We all like to think our kids are better behaved, smarter, and more sensible than the ones we see in the news or read about, but their exposures are unpredictable and often arise from mundane activities you never dreamed would be an issue. In a previous article, we discussed Financial Literacy for Your Children and part of that discussion must include a detailed explanation of the fact that Mom and Dad are personally financially responsible for any harm, damage, or loss cause by their minor children.

In one case, a successful physician we work with left town for the weekend with his wife, and his 17-year-old daughter threw an party at their home — a pattern that happens all over the country a thousand times every weekend. Unfortunately in this case, a young man from another high school whom she had never met before came to the party and overdosed on the drugs he brought with him, tragically dying at the scene and creating a lawsuit against the young lady’s parents that sought damages in excess of three million dollars. Neither the young lady, her parents, or anyone else in the upscale community of private schools and gated multimillion dollar homes ever dreamed this was possible in such a “nice neighborhood” and the resulting claim was in excess of the limits of the homeowners liability policy the family had in place. The story is dramatic, but the dozens of other parentally liability exposures I’ve seen over the years typically come from much more mundane issues.

Here are a couple of specifics to consider and explore with your kids. This list is only a start and assumes you are adequately insured, have an umbrella in place to help shield you and that you have taken steps beyond insurance to secure your assets before the harm occurs:

1. The Family Car: Make sure your minor children are specifically named and insured on any vehicle you let them drive. You are liable for everything they do behind the wheel, whether you gave them permission to drive the vehicle or not. If they are irresponsible or if they take the car without permission you must take control of the keys and treat the vehicle like a loaded gun. Suddenly your high school senior cutting class with her friends and pilling them into to your car to go to Starbucks is remarkably less “cute.” There is no excuse for you not knowing where the car and the kids are as there is vehicle-tracking technology available for only few hundred dollars from sources as common as Brookstone.

2. Behavior Issues: Negligent Supervision and Negligent Entrustment — If your child is of a young age or is of questionable judgment and creates harm, you own it. The same holds true for others that have custody or are entrusted with supervision, so any guardian is at risk if the harm would have been prevented absent inadequate supervision. This also creates potential liability for you for the children of others you have custody of, even overnight.

3. Access to Firearms and Other Dangerous Items: It should be obvious by now, but if you have guns in your home (or bows and arrows, ATVs, jet skis, a swimming pool, prescription drugs, or anything else that can be misused) you are legally and financially responsible for not only property damage but in some states and fact patterns CRMINAL LIABILITY for the actions of your child. Given the cost of defense counsel, the litigation alone could be financially devastating not to mention the possibility of someone getting killed and the resulting costs and consequences to all involved.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Asset Protection for Your Home – Bad Legal Advice is the Norm

Mid pleasures and palaces though we may roam,
Be it ever so humble, there’s no place like home.
John Howard Payne (1791 – 1852)

A good part of the American dream and the largest single asset many people own is their home. Whether shelter or showpiece, the sanctuary it provides and the investment we make in our homes is among the largest in the Western world yet surprisingly little thought goes into protecting that investment.

In some states the equity in your home, should you be fortunate enough to have any left at this point, is completely protected by law, typically homestead statutes. In other states that protection is so low that it is virtually non-existent and requires you to take action to protect your investment. Knowing what the homestead limits in your state are and when they apply, (i.e. only in bankruptcy or only on a dwelling actually occupied by you) is a good start.

 The key is simple: You do not need to hold personal title to your home to use, control and enjoy it the way you want to.

We see many physicians and other business owners transfer their primary residence to a spouse, child, or other relative for safekeeping, a common amateur mistake that fails to protect the asset in any competent way. All this achieves is the substitution of your liability for that of another individual that drives a car, interacts with public in some way, and may have their own professional liability issues. Even worse, if that person has only one or few assets, the home you transferred to them may be the only asset they have available to satisfy any kind of liability or judgment. Example? A physician in the Northwest does some Internet “research” (yikes!) and decides to transfer his paid-for $2.9 million home to his adult college-aged son to protect it from his professional liability. Within a year the son was involved in a car accident that killed another driver, the family home was his only asset.

Another common error involves the assumption that your home, or any other asset, is protected by having it titled in your Revocable Living Trust. As the first word implies, the trust is revocable during your lifetime and you can be ordered to convey it to a judgment creditor by the courts. Having your home adequately protected by an irrevocable trust on the other hand is a better option and may allow you to keep mortgage interest deductions and capital gains benefits in certain scenarios. These tools must be chosen appropriately and by experienced counsel as they have serious tax, title, and use implications that will affect your rights to use and hold the property.

Many estate planners use tools like qualified personal residence trusts (aka QPRTs) that are not age- and use-appropriate outside their intended purpose, making a real gift of your home to your heirs. Make sure you are working with counsel that understands that you may want to upsize, downsize, or equity strip the property to make an investment of some kind and that the tools they are proposing you will allow you to do so. Having your money in a “safe” is worthless if you can’t get it open when you want it.

Likewise, business attorneys often make the mistake of using “business” tools for “personal” assets, such as putting the home you live in into an LLC (or limited partnership, corporation, etc.) under the false impression that this somehow protects it. To be protective the vehicle has to meet all formalities of business entities, including separate bank accounts, records, and tax reporting. Further, it needs to have a legitimate business purpose, like property management or real estate investing and if you live in it you need to pay commercially reasonable rent to the entity that owns the home.

Given this only partial list of the details and hurdles involved you can see that, “Put your personal residence in an LLC,” is both bad and incomplete advice for most people and such a transfer to a corporate entity can also cost you the capital gains benefit and mortgage interest deductions if not handled the right way.

Asset Protection only attorney Ike Devji has over eight years of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

How to Pick an Asset Protection Lawyer – Key Due Diligence Questions and Caveats

By Ike Devji, J.D.

The last four years has created an explosion in the Asset Protection planning field due to both the large number of people who have finally realized that their wealth is more finite and fragile than they ever imagined and the litigation boom that inevitably follows tough times. Unfortunately, this new found interest in Asset Protection and the large number of people seeking to profit from has created a more puzzling and fraud-ridden landscape for legal services consumers than ever before.

It seems every attorney that has attended even a single continuing legal education (CLE) class on Asset Protection now feels qualified to implement tools and strategies that have far reaching and potentially fatal effects if misused or not completely understood. While I myself take CLE classes in a variety of areas outside my very narrow practice field, I do so simply to be generally educated and to help me spot issues for clients so I know when to get them help from qualified and experienced counsel, not to try and keep work I don’t know how to do inside my firm.

As one simple example, the thought of litigating a divorce case for a client despite the fact that I have a general understanding of the marital property laws in my state would be ridiculous. Not only would it jeopardize my client but create a substantial liability for me, especially since I have a roster of exceptionally qualified help in this area at specialty firms that will serve my client better in that area than I could ever hope to. 

Even worse, attorneys that I have personally met with and discussed issues for planners or co-counsel opportunities who flat out told me that they don’t practice in this area at all are going back to their offices and adding “Asset Protection” to their websites. A review of the websites of many small and mid-size law firms that have recently tacked this area onto their websites will reveal that that their “expert” is also listed in a number of other categories, like estate planning (at least this one is close), contracts, employment, real estate and etc. what this tells me as an attorney is that they don’t have enough work in any single category to have a focused practice and will handle anything that comes across their desk. This is appropriate for some simple, general legal issues, but not Asset Protection planning.

The last eight years of my national legal practice have been devoted exclusively to Asset Protection law. In that capacity I have been fortunate to help protect a client base of thousands of clients representing billions of dollars in safely protected assets. This very concentrated practice has also provided a good understanding of the plans and planners at work in this specialized field and I have seen the very best and very worst of the plans being sold across the country.

In the worst cases we are asked to appraise the protective value of existing poorly implemented plans using bad tools, jurisdictions or both by either lay-people facing a threat or their experienced litigation counsel that know that my associates and I practice in this area and want a real appraisal of the system that they have in place and its protective value. Unfortunately, this 11^th hour stress-testing is often limited to an informational exercise as many of the good, valid legal moves and tools are outside the reach and use of the client at that point because they are already in trouble and the kind of changes needed to make their planning useful would constitute fraudulent conveyance.

20/20 HINDSIGHT BY LAWYERS

Another common issue I experience is being approached by a potential client who is concerned about their wealth and the level of exposure they have. After a thorough review and the delivery of a specific written plan to protect them by myself or other qualified counsel they often go back to their existing legal team (that allowed them to get where they are today without protection) to get their input. What is stunning is the number of attorneys who will review an expert’s plan, make a couple of minor comments or changes and then say, “Yes you need some more planning, we can do that”.

What puzzles me is that if the lawyer and client had a long relationship and the lawyer was privy to all the details of their business, liability, assets and etc., knew the client needed additional planning and was qualified to deliver it, why did they wait years and until their client took action on their own to try and jump in and do work outside their skill set and practice area? If your lawyer did not know enough to do it or at least suggest considering Asset Protection when you were first qualified based on your assets and liabilities, they probably don’t know enough to put it in place for you now.

DUE DILLIGENCE QUESTIONS TO ASK AN “ASSET PROTECTION LAWYER”

#1: Are you a lawyer or part of a law firm that will keep our discussion privileged?

Remember that dealing with “promoters” or LLC Mills does not provide the skill set and training required. More importantly, if you are not dealing with a law firm that allows all your communications to be attorney privileged everything you do is discoverable with a simple subpoena, including all emails and other communications.

#2: How many clients have you done this specific type of planning for?

An East Coast law firm has nearly plagiarized the website of my associates. On it they claim to serve thousands of clients and be a top asset protection law firm. Closer examination of the site reveals that they have a dozen plus distinct practice areas and are simply representing that client base as if all of it is with Asset Protection clients.

#3: What's the average net worth of your clients?

It’s important to deal with a lawyer and firm that has a depth of experience with businesses, assets and families like yours. Knowing what your liquidity needs are and not using outdated estate planning tools that are not income, business and age appropriate (like using a QPRT for a 33 year old) are common amateur mistakes we see other lawyers make. Also, be aware that a number of different specialties now classify themselves as “Asset Protection” planners when it was formerly used only for the kind of pro-active, defensive legal planning I am focusing on in this article. The field now includes elder care lawyers, annuity and insurance salesman and variety of other folks that may have good products and services, but are probably not what you are looking for. If your planner is an Elder Care planner, as one example, they are probably not equipped to handle and as familiar with the needs of a high net worth business owner, physician, or high visibility individual like a professional athlete or entertainer.

#4: Where do you work?

Having a law firm that works nationally is a good hedge. It’s important that they understand the protection available by statue in your locality and give you a plan that will stand up to attacks in any jurisdiction. It’s also important that it is portable so it can travel with you if you move and flexible enough to allow you to do business and own assets in more than one jurisdiction, i.e. something as simple as a vacation home in another state or a life insurance policy with a high cash value that could be lost in a lawsuit.

#5: How many types of law do you practice and how long has Asset Protection been part of your practice?

See my more detailed explanation of this concern at the opening of this article. Make sure you are comfortable with their experience level. Lawyers are increasingly specialized and while many of have a good general knowledge of a variety of concepts and issues we tend, like all professionals, to be good at only one or two on a good day.

#6: How many doctors do you protect?

This is obviously a doctor specific question, but an important one if you are a physician or the advisor of a physician doing due diligence on their behalf. In my experience with a client bas that includes thousands of doctors we have learned that medical professionals of all types including MD, DDS and DC have unique needs and specific technical and legal exposures that only get more onerous as their success grows. Make sure the planner you are dealing with understands those unique issues and is trained well enough to be another set of eyes on your behalf for a holistic check-up of your wide array planning needs.

#7: Can you provide any professional recommendations?

This can be tricky for lawyers, especially those who practice in sensitive fields where people value their privacy like Asset Protection as opposed to say, a real estate lawyer. Nevertheless, they should be able to provide at least a couple of professional references that speak specifically to their experience in this field or from related professionals outside their own firm that refer clients to them for this specific service.

#8: Have you written anything on this topic that outlines your tools and strategies?

If your planner is even marginally qualified to work in this area with you they should have extensive educational materials that describe the tools they use and what each tool does. If they can’t educate you about the tools they will likely do more harm than good, as part of our job as planners in this area is to educate our clients on what works best, why and how to use it going forward. No matter how much support a firm offers they can’t be with you 24/7 so they better be able to train you.

#9: Can you provide a specific written plan that outlines costs, results and requirements?

Every firm prices its services differently, and that’s OK, but they should be able to show you in writing what result they are going to attempt to achieve ( I say attempt because there is no such thing as certainty in the law, all we can do is follow proven best practices supported by law and experience with others. Anyone who tells you their system is undefeatable and “will” never be broken is lying, or worse, stupid) for a specific price.

#10: What kind of on-going support and education do you provide to your clients and at what cost?

Hiring an Asset Protection lawyer is one step in a holistic multi-step process with many pieces, not a one-shot magic bullet. If you pay someone in my business to build you a “Legal Vault” that is capable of containing your life’s work, they better be there to help you put the assets in it, use it the right way, teach you to lock the door and show you how to open it when you need your assets or use of them. Merely getting a box of legal papers on its own is not going to serve you and your family well. Be wary of the fees involved to use the plan, in addition to what it costs to set up. Ask specific questions about accounting, compliance and tax status and reporting burdens, many of the best Asset Protection tools and plans are explicitly tax neutral. Finally, be clear about how accessible your planner is going to be going forward and at what cost. Many hide huge fees on the back end to lure you in up front.

This list will doubtless be fluid and expanded as other issues prove outside the experience of clients and advisors. For now, consider it a starting point on your journey to financial security and to having your own “net worth insurance” policy in place.

ABOUT THE AUTHOR:

Attorney Ike Devji has over eight years of Asset Protection only legal experience and helps protect a national client base of thousands of clients comprising over $5 billion in personal assets. This client base includes several thousand doctors and a wide variety of high net worth business owners, C-level executives and other affluent individuals. He is a frequent teacher, speaker and author on this subject and has dozens of bylines in publications ranging from WORTH magazine to Advisor Today and Physicians Practice. To learn more about him visit www.ProAssetProtection.com .

The Common Traits of Long-Term Wealth

By Ike Devji, J.D. | May 24, 2011

I have been fortunate to work with some of the most successful people in America through the course of

my career. All of them excel at something; medicine, business, real-estate development, science, and

even the arts. What this vastly diverse crowd has in common (besides money) though are a set of traits

that have made them not only good at what they do but wealthy and successful by any standard in a

long-term and predictable way; here are a few of the most notable ones:

They Work Hard: Nearly all of them are the source of their own wealth. That is, they get up every day

and commit themselves to the practice of some profession with skill, passion and diligence. They always

strive to be smarter, more informed about their market and more skilled at what they do than the day

before.

They Never Take Their Market Position for Granted: They understand that in a down economy discount

solution, product, and service providers emerge in every market. They know competitors will be selling

price first and many consumers won’t see the differences until they have been poorly served. They make

sure their marketing efforts, network, and professional relationships are as important and well-nurtured

as they were before the reached their current level of success. “Good Enough” is not part of their

vocabulary.

They are Team Players: They look for every way to add value and collaborate with other top service

providers in their field so that they are a natural part of every project or client they are involved with.

They associate with other best-of-class teams and attend professional education and networking events

on a regular basis.

They Are Proactive, Not Reactive: They take preventative care of their health, business, and known

liabilities and plan to avoid problems, not manage them. They understand that a small amount of time

and resources directed at these issues now will save them vast amounts of energy and money in the

future and gives them the greatest number of options. They understand that preventing an illness,

whether physical or financial is almost always better than treating it.

They Understand Wealth is Finite and Fragile: They live very well, but also “well within” their means.

They are willing and able to adjust their lifestyles and spending to adjust for market realities and income

fluctuations. They have money in the bank, not just on their wrists, and can handle fluctuations is cash

flow and earnings as well as most common unplanned expenses without panic or liquidating large assets

at a bad time in the market. They get that an important part of wealth is “having some.”

They Prioritize and Do “Boring” Things Before Spending on Lifestyle: They buy life, health, and

disability insurance, get estate and asset-protection planning, stick to savings and investment plans and

other things that often have a hard time competing with new cars and vacations. They are financially

disciplined and meet the mental commitments they have made to their families and future wealth and

success before meeting today’s “wants.”

They Create Success Maintenance Teams: They identify top professionals in various areas, create

relationships with them and act decisively to implement their suggestions and expertise. They have

control of their egos and understand that as bright and successful as that are, they are better off being

surrounded by experts in areas outside their field. They know “what they don’t know” and are willing

and able to delegate responsibility to others and let go enough to be free to do what they are best at,

which is never everything.

They read Physicians Practice regularly: And other sources of information that present a wide range of

expert guidance and stimulate critical thinking. They know that their learning is a lifetime process and

they never stop.

This article originally appeared at www.PhysiciansPractice.com the nation’s leading practice management resource, where Ike Devji is a regular contributor. It is reprinted here with permission.

Two recent articles caught my attention and brought into focus many of the topics I write about and address through planning for Physicians across the country.

The first was a nationally published article on the highest paying jobs in the United States that ran in various incarnations in a variety of news sources. That article listed a number of professions and the average income from each of those professions. The second article was local, but is of the type published in every major metropolitan city in the United Sates, the real estate report on the “Most Expensive Homes Sold”, in this case in the Phoenix-metro area.

 What both lists had in common was a large number of doctors. In the first instance, by profession or specialty, and perhaps worse, in the second case, by name, location and the exact price paid for a series of painstakingly detailed and photographed seven figure homes in some of the city’s most desirable neighborhoods. As I casually perused the list I was pleased to see the name of a client, then a friend and finally a relative. Being an Asset Protection attorney however, that pleasure quickly turned to concern over how those homes had been purchased, the degree of unforeseen exposure and the level of detail disclosed.

Of the three, only my client had purchased the home through an appropriate legal structure, in this case an irrevocable trust, as opposed to the revocable living trusts that the majority of the families on the list had used, doubtless unaware that their, “Stunning 8.950 square foot Mediterranean with custom finishes and imported marble, etc, etc.” was completely exposed to a lawsuit or most other liabilities.  A few others had used LLCs and my experience from years of practice told me that many of those LLCs were thinly purposed single-member LLCs that likely lacked defensible, legitimate business purpose, especially if the LLC owned a home that functioned as a personal residence. Put another way, only a couple of the 20 people on the list had appropriate counsel and training or had put enough “tactical” thought into how they approached the preservation of this asset that in many cases was listed for the public as a “cash sale” and how that asset could be breached.

I completely defend your and your family’s right to buy and own anything you want and enjoy the fruits of your labors and education; in fact I do it for a living.  However, wealth is finite and fragile and must be nurtured as carefully and proactively as possible. This is especially true in tough economic times like we now face. Doctors must understand that merely being skilled at your profession, being right or being careful is not enough and that they carry the burden of perceived wealth, which itself draws both good and bad attention. That perception is acutely increased by the visibility of your wealth in many cases, intentionally or unintentionally displayed by your zip code, your vehicle, and in other details right down to your watch and the vacation pictures in your office.

Patterns of success emerge among those who are good at both making money and those who are good at keeping it; two very distinct skill sets. What costs more of your time and money; replacing ten or twenty years of earnings or making the time and allocating the resources to protect your life’s work and all that you have yet to earn?

-        You have a high level of professional and personal liability and statistically face multiple lawsuits during your career;

-        As an American doctor you are among the highest income earners and highest net worth individuals in the world, even you feel like “just a working person”. Know your value on the lawsuit food-chain;

-        Act and think in a way that is tactical, that is forward looking and defensive, or even better, preventative;

-        Be conscious of the visibility of your wealth and the reactions it creates. Stealth wealth is typically longer term;

You have the legal power and resources to implement planning that can protect the majority of your life’s work in a safe, legal way. Choose to be protected

This article originally appeared at www.PhysiciansPractice.com the nation’s leading practice management resource, where Ike Devji is regular contributor. It is reprinted here with permission.  See it in its original context here: http://www.physicianspractice.com/blog/content/article/1462168/1862596#

By Ike Devji, J.D. | May 10, 2011

A recurring liability I address in asset-protection planning for doctors surrounds the sale or purchase of a medical practice.

Most conflict and losses that arise from the purchase of a medical practice result from a combination of mismatched expectations between buyer and seller, a lapse in due diligence by either party, or the failure of one of the parties to understand or honor the terms of the sale. These issues often expose sellers to costly litigation that consumes their newfound liquidity and buyers to the loss of their investment and income stream. 

Most sales seek to maximize the sale price of the practice for the seller and his agents and brokers. This puts buyers into an environment where he is often left shopping blind, and without the due diligence and fiduciary representation that they might commonly employ in buying a home, as one example. In this analogy the realtor would help you identify a geographically desirable area, help you pre-qualify as a buyer, find a home with your desired features, and help provide comps that will illustrate exactly what the price of the home should be based on the market. Surprisingly, many medical practices of all types are purchased without this same level of due diligence by the buyer.

Fortunately a new emerging specialty in the medical practice sales space involves specialized representation for buyers outside the traditional, seller-oriented business broker channels. I turned to attorney Trisha Lotzer and Ross Landreth of Physis, Inc., a specialty Phoenix-based consulting firm that works in this area, for more insight.

“Mergers and acquisitions in the context of medical and dental practice sales and formations have unique issues and hurdles,” says Lotzer. “What most buyers are presented with is a set of numbers and claims that are often unsubstantiated and either intentionally or unintentionally misstated. Part of the issue is the lack of a clear formula in the marketplace that can adequately account for intangibles like goodwill, a part of most practice sales. Another issue is that determining the validity of claims of revenue is difficult given varying accounting and record-keeping practices.”

Physis provided some startling specific examples of issues experienced in its representation of buyers. In one case, a practice that claimed to have 3,000 case files turned out to have only 1,500 that were active. In another, a doctor’s office that was up for sale stopped marking files as “active” a year before the sale of the practice, drastically reducing the ability of the buyer to understand what they were buying and what its real revenue potential actually was.

“Part of the problem is that buyers often cut a deal to buy a practice largely on their own, involving legal counsel and other professionals only after the deal has been negotiated,” says Landreth.

And Lotzer adds, “That’s true, the buyer’s lawyer typically gets the contract only after it’s been written, largely by the seller and their broker who has a mandate to maximize the sale price of the practice for their client, regardless of actual value. We feel it’s important to both be a part of the negotiation process and help write an agreement that fully supports the intention of both parties and the real numbers.”

It’s important that the numbers and accounting are verified independently, and use real math and commonly accepted accounting and valuation standards including details like the number of active patients a practice claims to have as a source of recurring revenue. This not only makes financing easier to justify and obtain and more realistic, it avoids costly mistakes that inevitably lead to litigation and more expenses for all involved.

It’s important to view this separate representation in the right context, which is not an adversarial but rather a cooperative one. Sellers and their brokers should understand that separate buyer representation, required by law in many forms of legal transactions, will lead to greater surety for all parties. It can reduce seller and broker liability, help brokers find real, pre-qualified buyers more easily, and help ensure that a seller receives all the proceeds of the sale as intended for any sale that’s not an all-cash deal or that involves an earn-out in some form.

This article originally appeared on www.PhysiciansPractice.com, the nation’s leading practice management resource, where Asset Protection only attorney Ike Devji is a regular contributor. For more information on Attorney Devji, please see: http://www.proassetprotection.com/about-your-asset-protection-lawyer-2/

By Ike Devji, J.D. | April 19, 2011

In the world of physicians’ legal and financial planning there is no term as simultaneously oversold, feared, and misunderstood as “offshore.” This is especially true at tax time, as all doctors and their practice managers have been bombarded by the promoters of various tax savings schemes that range in skill from “genius” to “criminal.” The legal jeopardy of using these tools the wrong way has been well illustrated by the recent crackdown on U.S. taxpayers including thousands of doctors who have been caught up and exposed by in the recent UBS scandal, as just one notable example among many.

As someone who has used these tools with doctors on a weekly basis for nearly a decade, I have seen a variety of approaches implemented with varying degrees of success. The following are core issues you must understand to use these powerful tools effectively and legally.

TAXES — All U.S. taxpayers have a duty to report any and all offshore accounts. The U.S. operates on a system of worldwide taxation, and while in certain limited cases money actually earned offshore may be tax exempt (see your CPA) it almost always carries a corresponding duty to report the income. If your primary motivation is to move money offshore and grow it free of taxes or at a lower tax rate, you are looking at the wrong strategy and creating a liability.

SECRECY — Secrecy is never part of any competently drafted offshore plan. Further, secrecy relies on the hope that you can open a “secret account” and no one will know about it and be able to reach it. It also relies on your willingness to lie about the existence of the account if you are ever asked about it in court or discovery proceedings, also known as perjury, which itself has substantial legal penalties.

TITLE — Who holds title to any offshore bank accounts is also crucial in effective use of the tool. If you hold title personally, including through a family member, or through a revocable trust in any form, assume the funds are accessible to a hostile party almost as easily as if they were located here in the U.S. From an asset protection perspective, using an irrevocable trust with an offshore third party trustee that is immune to U.S. court proceedings and a bank experienced in such matters in a protective jurisdiction is crucial.

THE BANK — Any serious offshore planning involves the use of a bank to be the custodian of funds. I advise that those seeking the protection these plans require use reputable first-world, (typically European) state-owned, and insured banks. New banking jurisdictions are emerging and there are reputable banks in most of the developed world, but few of them have experience in dealing with the issues you are likely concerned about. Further, international banks that have U.S. offices are not considered protective in any way; an experienced lawyer would simply move on the assets through a domestic branch. As an example, not only did the physicians that moved money to illegal unreported accounts through UBS commit tax fraud, they didn’t protect the money in any real way.

JURSIDICTION — Another vital issue is the jurisdiction of the account and the entities you are relying on to mange and protect it. Some offshore jurisdictions have laws and decades of history and infrastructure that specifically support the use of offshore trusts and accounts for legitimate purposes. A whole new group of jurisdictions would like to play in this arena and are aggressively promoting their laws, banks, and trust companies. While only time can sort out which of these jurisdictions are truly safe and politically and economically stable enough to trust with your life savings, I can tell you that few of us that practice primarily in this area would ever let our clients be a part of this “test.”

If you are considering offshore planning, keep these issues in mind and make sure the organization you are working with is staffed by experienced legal and accounting professionals with the resources necessary to do more than sell you a bank account and the proven infrastructure to help you achieve legitimate goals.

This article originally appeared at www.PhysiciansPractice.com the nation’s leading practice management resource, where Ike Devji is regular contributor. It is reprinted here with permission.

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