Recent numbers released by The Washington Post suggest that Mitt Romney’s presidential hopes may be on life support due to his standing in swing states Ohio and Florida.
I am no spin doctor from Washington so I can’t verify the pulse of the Romney campaign. I am, however, a former sportswriter from Texas and I see a Republican challenger with as much chance against Barack Obama as Dallas quarterback Tony Romo had last night against the president’s hometown Chicago Bears.
Which is to say, no chance at all.
Why? Well, you don’t win in many headlines when you shoot yourself in the foot under a national spotlight. Romo piled up five interceptions on Monday Night Football; Romney has, politically, done the same with gaffes like the 47 percent soundbite and the tax return controversy.
But Randy, you might say, every candidate and every quarterback make mistakes! True enough, miscues both athletic and political are to be expected. What ultimately separates winners from losers comes down to how they respond to adversity – at least, to how the media thinks they respond.
Do you know who has the most interceptions in NFL history? Brett Favre. Until the end of his career when his public image tarnished, Favre was one of the most beloved players in the league. Nobody cared about his mistakes because often the risks he took paid off. For over a decade the media gave him the benefit of the doubt.
In 2008, then Democratic nominee Barack Obama faced widespread inquiry about his birth certificate and political qualifications. But he was even more charismatic than Favre and scored points every time he stepped in front of a camera. The media gave him – and, to a lesser extent, still gives him – the benefit of the doubt.
Team Romney has experienced less generosity. Whether it’s due to media bias or simply a lack of public relations finesse – or a more likely combination of both – they haven’t been able to allay the concern of the public. Take Romney’s estate planning for instance.
As CEO of Bain Capital, Romney capitalized on the offshore asset protection advantages allowed by the company’s financial model. The media tracked the paper trail and suddenly Romney’s tax avoidance strategies were the subject of national ethical inquiry. And guess what? They still are.
I can’t speak to Romney’s other mistakes on the campaign trail or to how he could have better dealt with the tough questions regarding his offshore wealth, but I can talk about how Romney could have focused on effective domestic asset protection instead. Admittedly, that would not have precluded the media from prodding him about his finances but it would be easier for him or anyone else to justify the size of American, rather than Swiss or Cayman, accounts.
I have already written about learning from what Romney did right in his estate plan. While today’s post does not focus on learning from what he did wrong per se, it introduces an important PR-friendly alternative to Romney-styled offshore asset protection: the Domestic Asset Protection Trust.
This will take more than one post to discuss, so let’s start with some basic fundamentals.
A domestic asset protection trust is something of an umbrella term which that may cover a diverse variety of legal structures set up in this country. (An off-shore trust is a reference to a trust set up in a foreign country, not Hawaii or any U.S. protectorate.) Any trust that allows funds to be held on a discretionary basis qualifies as an asset protection trust. This type of trust is used by the beneficiary for mitigating, if not outright avoiding, the negative consequences of taxation, divorce and bankruptcy. Because asset protection trusts are set up for such explicit relief purposes, the government closely monitors and limits their efficacy to keep from losing a detrimental amount of tax income.
Fourteen states currently have some form of a domestic asset protection trust on their books. I would list them here, but I would then start singing that Johnny Cash song about everywhere he’s been and you don’t want to endure that. Each state has differing requirements for trustees and amounts under management. They also have differing requirements for time before the funds placed in a trust can be free of a claim.
Despite the variation from state to state, the domestic asset protection trust (or self-settled spendthrift trust) retains a few core qualities regardless of jurisdiction. Such a trust features:
- the grantor as the trust’s beneficiary.
- an irrevocable status.
- an independent trustee.
- no mandatory distributions of (1) income or (2) principal (distribution is reserved for the discretion of the trustee).
- a spendthrift clause.
These are by definition the minimum requirements for a trust to qualify as a self-settled spendthrift trust. There are, as I mentioned, additional requirements depending on the state, some of which are shared by many of the 14 states that currently allow such domestic asset protection options. We’ll get into that in our next posting.
Now there are challenges associated with using these types of trusts. Issues of which to be mindful include the fact that the trustee is subject to U.S. jurisdiction; the trust is subject to the Full Faith and Credit clause of the Constitution; attempts to “import” laws favoring the laws of the appropriate state are untested; and Federal Courts may ignore state law.
However, these obstacles aren’t insurmountable and the asset protection enforcements are imperfect. But it may not be Better in the Bahamas, either.
In this Friday’s edition, we’ll try to slice and dice a few of the state domestic asset protection trusts so you can get a sense of where their strengths and weaknesses lie as compared to one another and to their offshore equivalents.
Until then, good luck and good hunting.
Miss last week’s series on estate planning advantages remaining in 2012? Check out the first post: Why You Need to Plan Before Going Over the Fiscal Cliff.
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If you’re interested in discussing the merits of the self-settled spendthrift trust, the nuances of the Full Faith and Credit clause, or the list of reasons why I’ll never get behind Tony Romo, find out how to get in touch with us at: TheFisherLawOffice.com.
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