The largest US financial institutions are on government life support. Smaller banks are collapsing under the weight of plunging real estate values and worthless loans. Other than 

 debt, with near-zero interest rates, there aren’t many safe places left to park your savings. In this toxic financial climate, does it make sense to look to the traditional banking havens in Switzerlandribbean? It depends ou are looking for; there are several advantages to the specialized private banking available in some off shore locations, but there are risks to consider as well. 

The strongest argument for off shore banking is the availability of asset protection benefits. In most cases, accounts can be held in the name of a trust or a formed in a jurisdiction with favorable finance laws. For example, sometimes our firm advises clients to use a Delaware LLC for tax reasons but eslish the bank account in an overseas location. Or we might create the LLC or trust outside the US because of favorable rules that protect these structures from creditors. However, although these arrangements can confer substantial asset protection benefits, some of their purported advantages should be viewed with a critical eye.

Foreign banks have government deposit guarantees that vary by country. Deposits in US banks are insured by the FDIC up to $250,000 and can be combined within a family to increase those limits. Switzerland has increased its guarantee to the equivalent of about $85,000 and also allows combination accounts. You should avoid financial institutions with significant and unknown exposure to loans or other risky asset classes. The overseas private wealth management banks, unlike the commercial banks, generally make few, if any, loans and earn their fees solely from advisory and custodial services. These institutions are generally the safest bets for off shore accounts.

Accounts in countries with strict bank secrecy laws provide enhanced privacy. In the US, your records and the details of your financial life are widely available because there are very few legal restrictions on banks’ ability to sell your personal account information to third parties. The banks in countries with strict secrecy laws are prohibited from these practices; revealing any customer information is a crime in most circumstances. That said, violations can still occur: an employee of the largest bank in Lichtenstein recently sold thousands of customer records to the German government, which was investigating tax evasion by some of its wealthy citizens. In another case, the giant Swiss bank UBS allegedly promoted a variety of tax schemes to some of its wealthy US clients involving the use of “secret” Swiss accounts. The US is now prosecuting the bank, and it’s likely that the names and accounts of these clients will be turned over to the authorities. Although, the privacy of overseas accounts can be a valuable tool in limiting access to your bank records, this protection has definite limits, and all reporting and disclosure requirements should always be strictly followed.

Can you make more money overseas due to higher interest rates or investments that earn more than current opportunities in the US? Just like in the US, the rate will vary based on the level of risk. Interest rates on dollar-denominated investments will be similar to US money market rates. In fact, if you’re offered a return greater than you can get in the US, chances are it’s a phony deal. Many off shore banks, along with their US counterparts, funneled investor money into the scheme with promises of unusually high and consistent returns. As I write this, Stanford Financial Group, a multi-billion dollar institution, is accused by the SEC of a massive fraud, offering bogus high-yielding CDs through its off shore bank. It’s likely that investor losses will be substantial. In these times, since the amount of risk in any investment can’t be accurately calculated and therefore can’t be accurately priced, the highest degree of skepticism should be applied to any investment opportunity.

For those seeking asset protection and privacy advantages, overseas banking may be worth investigating as a part of a strong financial plan. However, with a global financial crisis at hand, exercise extreme caution before opening an account with any bank, and certainly avoid investments with promised returns that exceed rates that are generally available in the market.

Robert J. Mintz, JD, is an attorney and the author of the book 

Asset Protection for Physicians and High-Risk Business Owners

. To receive a complimentary copy of the book, call 800-223-4291 or visit 

Articles

The largest US financial institutions are on government life support.

Gimme Shelter: Are Financial Safe Havens Truly Safe Anymore?

The turmoil in the financial markets combined with a steep recession is hitting most of my clients pretty hard. Some have lost more than half of their retirement savings from the plunge in both stocks and real estate values. And many are concerned about the impact of the economy on their practice. 

	Much of our legal work now involves fi guring out whether there are any particular risks and potential dangers that we should be guarding against. Specifi cally, are there areas of your practice or outside investments that might increase your lawsuit liability risks? How should we structure business activities and personal assets to protect against the fi nancial risks that are now posed? The first step is to accurately identify and evaluate the extent of any new risks that come with the changes in the economy.

	If you are an active investor in a business or real estate project, your liability risks are magnifi ed by the current circumstances, particularly if you made a substantial real estate investment within the past few years. Now, with falling prices and a frozen credit market, many are agonizing over the decision of whether to pump in more money to carry the deal or to call it quits and walk away from a rapidly sinking investment. Even if you walk away, you’re still on the hook for the full amount of the loan, and most lenders are not going to let you walk away. What we’ve seen in our practice is that when the value of a property is less than the loan amount, the lender will generally pursue any defi ciency, unless specifi cally barred by state law (read “Protecting Against Real Estate Losses” at 

). Should you put in more money now and hope the market comes back or walk away and fi ght it out with the lender? A big part of that decision may come down to the strength of your prior legal planning.

	Even if you’re not actively involved with an investment, it’s a good idea to understand what responsibilities you may have if things go wrong. What type of entity holds the investment: a corporation, limited partnership, or limited liability company? Have you personally guaranteed any loans? Do you have an obligation under the operating agreements to contribute additional cash if needed? Make sure you have a good handle on the current operations of all of your investments and are clear about potential risks and your obligations.

	Your malpractice liability probably doesn’t change much, but look into whether your liability insurer is still on solid fi nancial ground or has been hurt by the stock or credit markets. Many of our clients are experiencing slower payments, more delaying tactics, and more denial of coverage. Some of my clients are oncologists who front enormous drug costs every month on fairly tight margins, and they feel that any additional cutbacks or payment delays will seriously impact their practices. Even physicians without insurance concerns may face a decline in demand for discretionary treatment. Consider whether your practice is vulnerable to a squeeze in cash fl ow and whether you may need to increase your borrowings, if available, or out-of-pocket contributions.

	In a tough recession, business profits decline and potential obligations and liabilities increase. Before problems arise, make sure that appropriate legal planning insulates you from personal liability to the greatest extent possible. That means choosing the proper entity. General partnerships usually provide the least protection and expose you to the greatest amount of risk. A LLC, in many situations, has the best level of protection with the fewest requirements and formalities.

	Make sure that personal assets exposed to a risk of loss from bad deals are insulated and shielded from potential claims. Many strategies can accomplish this result, and you can see an outline of the basic planning in our previous articles (read “Asset Protection Strategies” at 

). The goal of a sound legal structure should be to avoid jeopardizing accumulated (and future) savings from a business deal or something in your practice that ends up with unforeseen losses and liability. Discuss with your attorney whether your legal planning is up to date and appropriate for these tough times.

.To receive a complimentary copy of the book call 800-223-4291 or visit 

The turmoil in the financial markets combined with a steep recession is hitting most of my clients pretty hard.

Robert J. Mintz, JD

Articles

Gimme Shelter: Are Financial Safe Havens Truly Safe Anymore?

Asset Protection for Hard Times