Asher Rubinstein's Recent Media Appearances on Offshore Tax and Asset Protection

Asher Rubinstein’s Recent Media Appearances on Offshore Tax and Asset Protection

First, Asher was interviewed on the Swissinfo News website, the international news portal of the Swiss Broadcasting Corporation, and was quoted in a November 19, 2009 article regarding offshore tax evasion. 

Second, Asher was interviewed by The Wealth Net (Wealthnet.com) and appeared in a November 23, 2009 article regarding offshore tax compliance. 

Finally, Asher’s article titled “Creating a Safety Net for Landlords and Property Owners”, regarding asset protection for real estate owners and investors, was published in the December 3, 2009 issue of Real Estate Business OnLine. 

Contact us for copies or to discuss.

The Drywall Problem and Asset Protection – Why and How Builders and Real Estate Developers Should Protect Themselves

The Drywall Problem and Asset Protection:
Why and How Builders and Real Estate Developers Should Protect Themselves
by Asher Rubinstein, Esq.

Real estate developers are popular litigation targets.  Builders may be sued for a host of claims, including circumstances beyond their control, such as the presence of hidden, unknown environmental contaminants.  The latest litigation threat comes via Chinese drywall used in the construction of homes during the building boom that occurred from approximately 2003 through 2008.  Chemicals within the drywall have been linked to illness, as well as damage to homes and appliances, necessitating relocation and lowering property values.  Builders and real estate developers are targets of litigation, based on their use of such drywall in the homes they built.  Builders and developers should be aware that in the event of a judgment against them, they may lose their personal assets, as well as their real estate and business assets.  Insurance will offer limited protection.  It is critical for builders to protect their assets, including their real estate and their personal property.

The Extent of the Drywall Problem
The current drywall issue is widespread.  Thousands of homeowners have already filed complaints against builders, as well as with the government.  The Consumer Products Safety Commission (CPSC), a federal agency, is conducting the largest investigation ever in its history, targeting drywall.  The problems have been reported mostly in Florida, Louisiana and Virginia; however, homes around the country (and in Canada) may be effected.  The building boom earlier this decade resulted in a domestic drywall shortage which led to the importation of Chinese drywall in many states.  It is estimated that some 60,000 homes may have been built with Chinese drywall.  One report claims that more than 10 million square feet of Chinese drywall was imported into southwest Florida alone during the housing boom.  There is currently one class action pending against a drywall manufacturer in China, although American-made drywall is also suspected of causing injury, and American drywall is also being investigated by the CPSC. Domestic drywall manufacturers such as National Gypsum and Georgia-Pacific have also been sued, along with suppliers such as Venture Supply, Inc. which was forced to close its business. The builders and developers who unknowingly built homes using such drywall are now facing numerous lawsuits.

To make matters worse, many insurance companies are now denying homeowners’ claims for damages suffered because of contaminated drywall.  Insurers such as Citizens Property Insurance Corp. (the largest home insurance company in Florida) are also dropping coverage of homeowners who file claims based on drywall.  Citizens is not paying for damages related to drywall because insurance policies specifically exclude “builder defects”.  Nevermind that the builder did not make the drywall, but merely bought it and installed it, unaware that the drywall manufacturer produced and distributed a dangerous product.  If homeowners are suffering damages that are not being covered by their insurers, homeowners now have even more cause to sue the builders and developers.

Impending Insurance Crisis
We can look to the medical industry as a guide for what happens when negligence litigation targets a class of defendants.  At a time when medical malpractice insurance policies are becoming smaller, plaintiffs’ malpractice awards grow larger and larger.  Insurance companies are not writing new policies and are not renewing existing policies.  Many jurisdictions have allowed insurers to increase premiums exponentially.  As a result, the medical community is facing a drastic, widely-publicized “insurance crisis”.  Doctors have staged “walk-outs” to protest the insurance crisis.  Some have chosen to close their practices, move to other jurisdictions or even leave medicine altogether, rather than endure a barrage of lawsuits and inadequate, expensive insurance coverage.

The proliferation of lawsuits based on defective drywall will result in increased insurance costs for builders and real estate developers.  If the medical industry is any example, insurers will soon balk at assuming these new risks.  One example from the litigation wave against builders and developers based on injuries from mold: State Farm, the largest U.S. home insurer, has eliminated coverage for mold in most states, and Allstate, the second largest insurer, has made its coverage for mold more restrictive and limited.  Like the medical malpractice situation, declining coverage for mold-based liability has already been termed a “crisis”.  Builders and developers will no doubt feel the pinch from both sides, as targets of lawsuits and as they pay more and more for decreasing coverage.
Builders must protect their assets from potential drywall liability.  The days of huge insurance policies serving as reliable umbrellas are gone.  There are, however, viable alternatives available to those who plan ahead.

Solution: Asset Protection
In light of the litigation and insurance risks facing builders and developers, the need for asset protection has never been greater.  Builders’ real estate holdings, as well as their personal assets, are at risk.

The best way to fend off a plaintiff is to discourage the lawsuit in the first place.  Typical contingency fee lawyers start out with the expectation that they are bringing an action against a wealthy, deep pocket real estate developer.  The sooner they learn that the builder has no attachable assets, the sooner the strategy will change and the lawyers will take whatever they might get from an insurance settlement.  After all, “one third of zero is zero”.  The process brings insurance back to doing what it is supposed to do – cover the builder, rather than invite the lawsuit.  Domestic asset protection (for example, a family limited partnership, or FLP) will, if properly established and maintained, be 100% effective against all future claims.  Such asset protection should discourage future lawsuits and give defendants significant leverage to force favorable settlements within the parameters of their insurance coverage.  Additionally, proper asset protection allows builders to reduce liability coverage to reasonable levels.  One caveat: it is imperative that builders protect themselves before the commencement of a lawsuit.

Separate and Contain Potential Liabilities
The Revised Uniform Limited Partnership Act (RULPA), which has been adopted as statutory law in all fifty states, provides that the assets owned by a limited partnership are not owned by the individual partners.  Therefore, those assets cannot be attached by the personal creditors of a partner.  If a real estate developer contributes real estate to an FLP, the properties are no longer owned by the developer (although, he may still control those assets as General Partner).  Thereafter, creditors of the builder may not attach those assets merely because they have a personal judgment against him.
As part of an asset protection plan tailored specifically to the builder and his holdings, each asset should be individually evaluated for its exposure to liability.  In general, each parcel of real estate should be placed into a separate FLP.  The reason for treating each real estate asset individually and placing each one in its own FLP is to isolate the litigation exposure of each asset.

“Equity Strip” the Property and Protect the Proceeds
Domestic asset protection via FLP’s is extremely effective against future claimants, but may not be as effective with respect to pre-existing claimants.  In such cases, a property developer may not be completely protected by domestic asset protection and may have to utilize international asset protection strategies.  International asset protection strategies are effective primarily because they involve the physical transfer of an asset to a safe and secure foreign locale where the asset is beyond the jurisdiction of U.S. courts.  Money, for example, may be wired offshore in order to be completely protected from U.S. creditors.  Real estate, however, cannot be moved offshore.

Although it is physically impossible to transfer real estate to a foreign jurisdiction, a builder may protect the real estate by turning it into cash and then protecting that cash by transferring it offshore.  This can be done by either selling or mortgaging the property.  The equity is thus separated from the property, i.e., “equity stripping”, and then protected.  The proceeds of the sale or mortgage can be protected offshore through a number of effective strategies, such as offshore asset protection trusts or investment in foreign deferred variable annuities.
If the real estate is mortgaged and the proceeds are protected offshore, a claimant will be frustrated because any judgment it may receive would be subordinate to the security interest of the mortgagee.  As with other effective asset protection strategies, the claimant will be more inclined to settle upon terms favorable to the builder, rather than receive nothing.

Conclusion
It is clear that the risks facing real estate developers, including new theories of tort liability, in addition to traditional areas of concern, all offer compelling reasons for builders to properly protect the assets they have worked hard to acquire.  In addition to their real estate holdings, developers must give thought to protecting their personal assets.  Proper asset protection strategies offer builders and developers piece of mind and provide the protection their properties need to withstand the inevitable attacks.

Think You Don’t Need Asset Protection?

Think You Don’t Need Asset Protection?

It’s no secret that America is a litigious country, which is why our asset protection legal counsel has been utilized by myriad clients for close to twenty years.  Clients are concerned with protecting assets from varied threats.  For example,

Sadly, in many cases, the lawsuits are without merit.  People look to sue on the flimsiest of legal theories.  Quite often, lawsuits are initiated because the plaintiff sees the defendant as a “deep pocket”.  In many cases, the litigation is nothing more than a “nuisance suit”: little legal merit, but the defendant pays something to the plaintiff just to make him go away.  Many lawsuits are begun with the sole goal of obtaining a settlement from an insurance company.  (Nevermind that the insured has to battle in court, pay legal fees, and deal with the personal and psychological consequences of the litigation.)

Further illustrating this point is the website http://www.whocanisue.com/.  This website presents a catalog of potential legal claims, from dog bites to viagra to defective breast implants, nursing home bedsores to bad plastic surgery.  Are you angry and in need of some money?  Perhaps you might file a lawsuit against someone.

It is the job of our legal system to act as a filter, allowing legitimate lawsuits based on real liability and actual injuries, and weeding out frivolous legal claims.  Often, our legal system works, but often enough, it does not.  Fortunately, our legal system also allows for careful, defensive strategies to protect your assets from the threat of litigation.

Creating a Safety Net for Landlords: Protecting Assets From "Scaffold Law" Claims

Creating a Safety Net for Landlords:
Protecting Assets From “Scaffold Law” Claims

by Asher Rubinstein, Esq.1

Ownership of real estate carries with it the threat of litigation from tenants, guests or even passers-by.  In 2002, New York City changed its law, increasing property owner liability for injuries sustained on sidewalks (notwithstanding that the City owns the sidewalks).2  Moreover, property owners also face liability based upon lead paint, mold and other environmental risks.  Now an additional threat exists based upon a newly strengthened New York State “scaffold law.”

“Scaffold Law” Increases Property Owner Liability

For years, property owners have known that Labor Law § 240(1), more commonly known as the “scaffold law,” imposes liability on a property owner for elevation-related injuries to a worker on the property.  Elevation-related injuries are defined by the “scaffold law” as those involving the use of scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces and ropes.  The most common injuries covered by Labor Law § 240(1) are falls from scaffolding or ladders, or when a worker is injured by a falling object.  Because most multi-family buildings must utilize scaffolding and ladders, this law has broad reach.  Most importantly, this liability is absolute; i.e., the owner is liable even if he did nothing wrong!

Further, the duty created by this statute to provide safe working conditions is nondelegable.  When a duty is nondelegable, a person may not transfer that obligation to another party to avoid responsibility.  Thus, under the “scaffold law,” the property owner may not transfer the responsibility to provide safe working conditions on his property to, for example, a contractor.  Therefore, the property owner himself is held liable for injuries covered by the law even though the work was performed by an independent contractor over which the property owner exercised no control.  For example, if a managing agent hires a painting contractor as part of a renovation project and the painter’s employee falls from a ladder and is injured, the injured worker can seek recovery from the property owner under Labor Law § 240(1), irrespective of the painter’s workers’ compensation insurance or even the owner’s lack of wrongdoing.

A recent New York State Court of Appeals decision, Sanatass v. Consolidated Investing Company, 10 N.Y.3d 333, 858 N.Y.S.2d 67 (2008), expanded the scope of the “scaffold law.”  That case held that a property owner was liable even when the contractor was hired by a tenant in direct disregard of a lease provision prohibiting the tenant from altering the premises without the property owner’s permission.  The lease provision in Sanatass required the tenant to obtain written permission from the property owner before the tenant performed any alterations to the property.  The tenant employed a contractor without permission from the property owner.  An employee of the contractor was injured when an air conditioning unit, which was being hoisted to the ceiling, fell on top of him.  The employee won a judgment against the property owner, notwithstanding the tenant’s breach and notwithstanding that the property owner was not even aware that the contractor was performing work on the property.

The result after Sanatass effectively treats property owners as insurers and will translate into more expensive insurance premiums and a significant increase in the potential for lawsuits.  In Sanatass, the Court made it clear that even the lack of ability by the property owner to ensure compliance with the “scaffold law” is irrelevant to his liability.  In Sanatass, even though the property owner did not know that the tenant hired a contractor, and even though the work was performed in direct violation of the lease, the property owner was still strictly liable for the injury to the worker.

With the new interpretation of Labor Law § 240(1), owners of real property can expect more lawsuits resulting from elevation-related injuries on their property.  This expansion of property owner liability comes at a time when property owners are already facing significant legal challenges, such as lawsuits resulting from slips and falls, and from the presence of lead paint, mold and other toxic substances.

Considering the litigation risks and changes in the interpretations of the law, it is clear that property owners must take steps to protect their assets from potential plaintiffs.  Property owners can protect their real estate holdings, as well as their personal assets, by employing various asset protection strategies.

Domestic and International Asset Protection Strategies

Perhaps the best way to discourage a plaintiff from bringing a lawsuit in the first place is to ensure that the property owner has no attachable assets.  The sooner a potential claimant learns that a property owner has no attachable assets, the sooner the claimant will forego his plans to initiate a lawsuit and agree to an insurance settlement.  This process brings insurance back to doing what it is supposed to do — cover the property owner rather than invite a lawsuit.

Domestic asset protection will, if properly established and maintained, be 100% effective against all future claims.  For example, ownership of real estate within a family limited partnership (FLP) should discourage future lawsuits and give property owners significant leverage to force favorable settlements within the limits of their insurance coverage.  However, it is imperative that property owners engage in asset protection before the injury occurs and a lawsuit is commenced.
The Revised Uniform Limited Partnership Act (RULPA), which is the law in all fifty states, provides that property owned by a limited partnership is not owned by the individual partners.3  If a property owner transfers property to an FLP, the property is no longer owned by that person (although the former owner, as General Partner of the FLP, still controls the property).  A creditor with a judgment against the property owner may not attach FLP assets to satisfy the judgment.  In most cases, each parcel of real property should be placed into a separate FLP to isolate the litigation exposure of each asset.  If all of the owner’s assets are held in FLPs, a claimant can do nothing more than settle with the insurance company.

In cases where a property owner is faced with pre-existing claimants, domestic asset protection may not be completely effective.  However, international asset protection strategies can be effective in such situations.  Although it is impossible to transfer real estate to a foreign jurisdiction, a property owner may turn the property into cash and transfer the cash offshore.  This can be accomplished by either selling or mortgaging the property.  The proceeds of the sale or mortgage can then be protected offshore by using strategies such as offshore asset protection trusts or investment in foreign deferred variable annuities.  The claimant will be more inclined to settle upon terms favorable to the property owner rather than pursue litigation in a foreign jurisdiction, without contingency fees, where the burden of proof and statute of limitations will be against the claimant.

Conclusion

The increasing risks facing real estate owners are clear and compelling.  Now property owners may face claims based upon injuries which, as in Sanatass, they are powerless to prevent.  Property owners must give thought to protecting their real estate holdings as well as their personal assets.  Proper asset protection strategies offer property owners a viable safety net for their property when faced with inevitable litigation arising from real estate ownership.

1. Asher Rubinstein is a partner at Rubinstein & Rubinstein, LLP.  His practice concentration is asset protection and wealth preservation.  He may be reached at (212) 888-6600 and via www.assetlawyer.com.
2. We discussed changes to the sidewalk law in our article titled “Turning Property into a Fortress: The Increasing Need for Property owners to Protect Their Assets”, available here or contact our office for a copy.
3. See, e.g., New York Revised Limited Partnership Act §§ 121-701 et. seq.

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