Written by David S. Lesperance
As the wags say, “Tax lawyers are usually people who don’t have enough personality to be accountants”. It was with this in mind that I tried to go out of my way to inject a certain level of reativity and levity into a recent presentation that I gave to a group of international tax lawyers in New York City. Here is the result.
Enjoy!
The videos are also on the right sidebar.
Written by David S. Lesperance
Within the last month, I have seen a tremendous upswing in the number of individuals who are retaining me as a response to recent events in the Middle East and North Africa. They range from local nationals to Arab expats to International expats and they each have their own reasoning behind their desire to “have a back-up plan” for their families and their fortunes. In brief here is the reasoning:
1. Local Nationals: This group ranges from wealthy business owners to high income professionals. Even if they support greater democracy in their home country, they are frightened by the unrealistic expectations of the protestors that throwing out the existing regimes will instantly bring financial prosperity and employment. As one new client said, “Any country is just four missed meals away from revolution. My fear is that the protests have left many protesters on the brink of financial disaster. They expect instant prosperity after a regime change and when that does not happen and they get hungry they will start looting my neighborhood. The fact that I was in the square handing out food and water and also protesting for democracy will fall on deaf ears, as they attack my home and my family. Therefore, I am taking the prudent precaution of getting my family the right to live somewhere else and remove more and more of my assets out of my home country.”
2. Arab and Sub-Continent Expats: Groups such as Indians, Pakistanis, Palestinians, Lebanese and Iranians, who have lived in the Gulf States for decades, are worried not only about protesters, but also that some people in their host country may take advantage of the upheavals. In the six nation Gulf Cooperation Council (GCC), these individuals live year to year on annual residence permits. This is despite the fact that they or their children may have been born in the host country or spent the vast majority of their lives living there. Their “home country” is alien to them and it is not possible to have the business opportunity or lifestyle there that they have been enjoying in their host country. Recently, I was retained by one gentleman who did not have his annual residence permit renewed despite having lived in that particular country for over 45 years and having built up a prosperous business that employed several hundred people. He was told that he had one week to leave the country. When I asked him why his residence permit wasn’t renewed, he speculated “The officials would not give me a reason but I strongly suspect that a business person who owed my company a great deal of money used his extensive connections with ‘the powers that be’ to have me ‘go away’. The scoundrel did give himself away by already being at my office when I returned from the immigration office with an offer to buy my company at a deep discount (including a forgiveness of his indebtedness).”
3. International Expats: Wealthy foreigners and highly paid executives were enticed to buy property in many gulf countries with an implied or even explicit promise of automatic permanent residence. When this promise was not fulfilled and the property market turned sour, they quickly discovered that they had few rights relating to the property and that debt default was actually a criminal offence. When this reality is combined with the economic turmoil of current or anticipated protests and disruptions, the decision to leave their new Middle East home has become a surety. However, many are reluctant to return to their high tax home country. As a result, they have retained my firm to help them locate the next oasis which balances lifestyle, business opportunity, security and reasonable taxation.
It goes without saying that these “Golden Geese” are critical to any future economic stability or recovery in the region. The “unexpected outcome” of them securing and possibly executing a “back-up plan” in response to the current pro-democracy movement definitely merits attention.
Written by David S. Lesperance
Well it looks like the U.S. President and Congress have decided to extend the Bush tax cuts for two more years for ALL taxpayers. This only happened after the President and Democratic members of Congress finally relented on their previous demand that the “Golden Geese” (i.e. top 1% of taxpayers) not be included in this extension.
So what has been the reaction of the Golden Geese?
So far, the feedback that I have received from my Golden Geese clients is that they feel like they have been granted two more years of runway in order to arrange their orderly legal departure from the U.S. tax net. This feedback is from Golden Geese of all political stripes because they acknowledge certain Facts:
1. The U.S. tax revenue model is very skewed and relies on the 1% Golden Geese for over 40% of the total federal individual tax burden. This is situation is even more skewed at the state level, read this WSJ blog;
2. The fiscal needs of the U.S. government are dramatically increasing simply because an aging population will be placing ever greater demands on Social Security, Medicare, and Federal Government retiree benefits. Banning earmarks, cutting defense spending, and other expense cuts are just rearranging the deck chairs on a ship which is on a collision course with these fiscal icebergs. The reality is that neither party currently has the political will to address the problems that will be caused by these sacred cows; and as a result
3. When the U.S. federal and state governments look for the additional money they will need, they will turn to their best customers…..the Golden Geese. This reality is confirmed by the almost universal agreement by both Republicans and Democrats that this tax cut extension was only temporary in order to avoid the risk of a double-dip recession;
Furthermore, for Golden Geese as for everyone, their perception is their reality. While the above are agreed upon Facts, the following are the perceived realities that my Golden Geese clients see:
1) If a Golden Goose wants to address a societal need or problem, government is not a very efficient means of execution. They feel that every tax dollar saved, is another dollar to put into a strategic philanthropic vehicle (either their own or outside existing ones) which will be a more effective, sustainable and accountable method of addressing the need; and
2) If an individual Golden Goose ever had thoughts of engaging in tax evasion, they know that in a post UBS world this is not a smart thing to do, as can be read on my website. Those who were foolish enough to try this in the past, read this Bloomberg article for some examples, are now paying the price in taxes, interest, penalties. In addition, the threat or realty of incarceration along with the personal humiliation of wearing the scarlet letter of “tax evader” is just too high a price to pay for these types of games.
The bottom line is that until politicians and voters tackle the three Facts outlined above, their will continue to be an acceleration of the phenomena known as “The Flight of the Golden Geese”!
Written by David S. Lesperance
A US hedge fund client who had been toying with the idea of setting up a personal and business back-up plan finally hired me this week. What was the “tipping point” for him in moving forward? Specifically he cited the recent subpoena request made on several high profile hedge funds, including Steven Cohen’s SAC Capital [READ MORE HERE] seeking information about their relations with outside researchers regarding pretty routine “channel checking” due diligence procedures [READ MORE HERE]. He noted that in light of the Madoff case, the power to issue subpoenas to even junior SEC officials to go on “fishing expeditions” had been vastly increased. While his fund had not been served in this round of requests, he did indicate that at a previous hedge fund he worked at, he had seen first-hand the enormous costs to answer a general subpoena. Millions were spent on legal fees to review a room full of documents; determine which may be relevant; and then have endless meetings with officials to discuss why certain documents were produced and why others were not. In addition to legal fees, the disruption cost and loss of reputation (Investors thought “Where there is smoke there must be fire!”) was incalculable. At the end of that fishing expedition, no charges were ever made but the damage to the fund had already been done. His conclusion is that, for hedge funds and many other types of businesses, operating in the US was becoming Kafka-like and financially unviable. His solution, just like his computer system, he was going to set up a “back-up plan” for himself, his family and his business.
My discussion with him prompted me to revisited a recent issue of The Economist which had a cover story article [READ MORE HERE] which underscored this reality for my American clients. The article examined why this was happening and concluded that the high US incarceration rates run counter to the claims of being “the land of the free”. Violent criminals aside, there are often cases where prosecutions and punishments are grossly disproportionate to the social ill they are trying to prevent. High net worth US citizens are often the targets of unfair civil lawsuits with the simple intent to push them into an out of court settlement to keep the legal glare away from media and shareholders. I often quote the statistic that over 90% of civil litigation worldwide occurs in the US and it always creates a jaw-drop moment. Now they also have to look at government actions which may have more to do with abuse of power or making a name for an elected official as “law and order” than with any genuine attempt to protect society from wrongdoing. Having the IRS place a neon target on your back is distraction enough. If the SEC or other government agencies can also subpoena at will, the exit gates out of the US may become as busy as the entry gates to the prisons.
Written by David S. Lesperance
Did you know that of the 25 most expensive disasters throughout history, half of them have occurred since 2001? And most of them have occurred in the United States. In years past, we could count on an extreme natural, manmade or financial catastrophe taking place every 5 or 10 years. Now they are occurring with frightening regularity every year or so.
According to Erwann Michel-Kerjan, there are many factors that make our world today riskier than generations past, and this risk is much more different on many levels. For example, the cost of catastrophes are accelerating. Think of this: Hurricane Hugo cost $1 billion in 1989, and just 16 years later, Hurricane Katrina cost $150 billion! The BP oil disaster? To be determined.
The speed of transportation is faster than ever, and we live in a world with instant communication, but this forces us to make faster and faster decisions. Everything we do is “just-in-time”. But we also have an increasing worldwide dependency that has resulted from globalization. This dependency has led to a “weakest link” situation, in which one problem can bring down the whole system. Local risks are becoming global risks.
What do you think? Are you seeing these risk factors affect your life? It is clear that we live in a time with new and major risk factors, but it is up to you to take control of managing your own risk.
An effective Passport Portfolio will allow you to diversify your residences and citizenships in such a way that you will be able to deal with threats caused by increased taxation, litigation and loss of mobility.
It is a fact that progressive tax systems like those in the U.S. have resulted in a situation where the top 10% of taxpayers contribute well over 90% of the total personal tax revenue. The top 1% alone contribute over 40% (to see more on these facts, see Action America). There is urgent government financial needs caused by these continual and explosively expensive disasters. Imagine paying for these catastrophes along with servicing government debt. Add on the ticking time bomb of fixed entitlement programs meeting an aging population. Governments desperately need money and they will turn to their best customers for that revenue. That means you!
In a country like the U.S., where over 90% of the world’s civil law suits are filled, if you are considered upper middle class, let alone wealthy, you are a target. Also in a modern world where over half of the next generation’s marriages will result in divorce it is essential to implement robust asset protection strategies to avoid a family going from shirtsleeves to shirtsleeves in even two generations. However these strategies are only effective if you also pay attention to which jurisdiction has authority over you and your assets. Even the world’s best drafted pre-nuptial is useless if you have residence connections in the wrong jurisdiction. Just ask Tiger Woods.
Having the ability to live, work or travel anywhere in the world is a benefit that most people do not appreciate. Until it is denied to them. A simple minor criminal traffic offence or being mistakenly included on a “no-fly list” can be life altering if you have not created a proper Passport Portfolio. Imagine your vacationing child being asked for their passport, the evening after your government has just taken a military action which is not popular in that country. You may think these are just remote possibilities but remember you don’t get fire insurance because you think there is a high probability of a fire. You get it because you know that if a fire occurs, the resulting damage is total and devastating.
Investors understand the necessity of protecting wealth by having a diversified investment portfolio. Having a Passport Portfolio allows you to protect your assets and your lifestyle by diversifying your residences, citizenships, and domicile. Just as the decision that your ancestors made to immigrate to your present country had a life-altering effect on your life, the decisions you make in this area will have the same effect on the lives of the generations that follow you.
When people survive a near death experience, they stop and figure out what is important in their lives. After the current financial crisis struck, a similar reevaluation has taken place. As a result, interest in a properly constructed Passport Portfolio has moved from the esoteric to the essential.
Having a Passport Portfolio is like having a parachute in a plane that is flying into an ash cloud. The plane may not end up going down, but it would be foolhardy not to be prepared for that possibility.
