Asset Locating
Locating Hidden Assets & Other Areas To Be Aware Of

After you have located an "Obligor" the next step is to find the assets so they can be seized and liquidated. Many of the same methods that are used to locate the obligor can be used to locate assets.

Tangible Personal Property
These are things like vehicles, equipment, inventory, phone systems, computers, bank accounts, stocks, bonds, paid-up insurance policies - items of value a person buys or comes into possession of by one means or another. Except for personal property that must be licensed, like vehicles and boats and airplanes, "ownership" of an item is usually determined by "possession". Proof of ownership may be a sales receipt or a canceled check or a bill of sale. Most everyone agrees: possession, especially long-term possession, is nine-tenths of the law.

Intangible Personal Property Includes items such as patents, royalty agreements, promissory notes, contracts, accounts receivable, wages, or other income.

"You can get the information you need with a subpoena. It's always better to go after information with a subpoena. Sue the guy and ask for all his records. Bank applications, a lien on the house. It's public information or it's information obtainable with a subpoena. Get that and start tracking."

• As a means of locating a person.
• To learn about a person's wages and income: these assets can be "attached" or "garnished."
• Before filing for divorce, to learn exactly what property and possessions are owned and by which parties.
• If you are a business person considering investing in a new venture, or are thinking of taking on an investor, or going into a joint venture, or considering a merger. . . You should certainly conduct an assets investigation.

• Divorce proceedings records
• Probate records

Asset location has been a necessary resource to lenders, investors, the government and creditors for years. The largest creditor in the United States is undisputedly the Internal Revenue Service (IRS), where auditors, field agents and CID agents have for years attempted to locate assets to satisfy levies, liens, tax fraud or tax evasion matters. Other government consumers of asset location services have included the Federal Depository Insurance Corporation, bankruptcy trustees, Resolution Trust Corporation, Small Business Administration, student loan authorities, the state departments of revenue and more.

When is an asset considered "hidden?" When it has been moved or transferred intentionally, to defraud, hinder, or delay a creditor (or, in cases, a spouse); when it has been moved beyond a rightful owner's reach. The most common hiding places for assets are: Under aliases, With relatives, friends, and partners, Home mortgages, Universal life insurance, Savings bonds, travelers & cashiers checks, Safety Deposit Boxes, in Dissolved corporations, Stockbroker accounts, in Collectibles & Antiques, Offshore/foreign accounts, Overpayments to IRS, Sweetheart lawsuits, Overpayments to credit cards, using cars, yachts, aircraft, jewelry and other investments under $10k..

Most of the time, we find, hidden assets are of the liquid variety -- in bank accounts, stock and bonds, mutual funds. Other venues include real property like houses and land, as well as vehicles. Less frequently, defendants try to move assets out of the reach of creditors, litigants or "enemies" by hiding these assets cleverly in such places as life insurance, annuities, offshore accounts, mortgage or credit card pay-downs, or most commonly, by transferring assets to a spouse, friend or business entity.

The most sophisticated asset-hiding schemes involve transfers to living trusts or offshore trust accounts. Assets that are transferred deliberately to avoid payment to creditors, litigants or other parties are generally called "preferential" or fraudulent transfers. If these transfers occur in anticipation of or shortly before or during litigation or bankruptcy, they are reversible in most states under the Uniform Fraudulent Transfer Acts (UFTA). There are completely legitimate ways to shield and transfer assets away from creditors, but these trust or estate plans are set up by asset protection or estate professionals well outside of the duress modes of litigation, bankruptcy or judgments.

The Art of Financial Discovery and Asset locating is particularly potent in the hands of a seasoned professional.  Most of the time, the person skip-tracing has already gathered a dossier of their own, profiling the subject's financial status and character. Financial research preparatory to the asset search obtaining such documents as loan or mortgage applications, tax returns, credit reports (where FCRA permitted). Telephone records, and useful data can be obtained in the subject's trash (Note: digging in someone's trash for information may be against the law in some areas) and many other methods are used to obtain information.

Some use this initial information as the starting point, along with searching public records for information in such areas as employment, age, education, lifestyle choices, region & places frequented, financial & character history, and even as a means of discovery very private information. Trained skip-tracers will attempt to obtain as much data as possible about the subject's habits, interests, employment, and affairs.

A word of advice. Always conduct investigations "Skip-Tracing" only for legal purposes in a legal manner, and in a professional way. In any legal search, asset information and the like, it is typically to be used to support civil or criminal legal proceedings. Once a search proceeds in the legal arena, it may be followed up with subpoenas for information or restraining and attachment notices. Asset locators can also find waivers, releases and disclosure agreements that are a normal part of most loans, leases and litigation. Most asset locators will attempt to determine exact whereabouts and physical location of property; the exact title or legal description; account numbers (if applicable); and approximate worth or balances. Account numbers are important so that the justice system doesn't subpoena the wrong account. The balances are useful to monitor for fraudulent conveyances.

You Have To Be Careful When Searching For assets. For Example, Collection Attorneys could may be sued and some could go to jail for hiring an investigator to find out information about a debtor's bank accounts, under a bill that was introduced in the House. Currently, a variety of laws make it difficult to get information about debtors from banks by prohibiting lawyers and their employees from (1) telling the bank that the debtor owes a debt or (2) obtaining the information under false pretenses. Under the bill, a lawyer could be liable for: (1) actual damages sustained by the bank or the debtor as a result of the lawyer's actions or (2) any compensation the lawyer received as a result of the violation, whichever is greater, plus reasonable attorney fees.

A lawyer could also face criminal fines and/or up to five years in jail. These penalties could be doubled if the attorney was also engaged in other illegal conduct involving more than $100,000. States would be permitted to sue for statutory damages of up to $1,000 per violation and attorney fees. The bill is H.R. 30, the "Financial Information Privacy Act of 1999," sponsored by Rep. James Leach, R-Iowa.

Professionals and other individuals holding substantial amounts of assets exposed to litigation and creditor risks may try to protect their personal net worth through the conveyance of gifts to trusts such as the Multi-Generation Trust (MGT) and the International Offshore Estate Planning Trust (IOEPT). When using the MGT, the grantors assign their spouses and children as beneficiaries. They contribute gifts into the trust using both their own unified credit equivalent of $600,000 and that of their spouses to the extent available. Additional yearly tax-free gifts are made to the trust equal to the amount of the available yearly per donnee (donation) exclusions.

The IOEPT, on the other hand, has been used by individuals when they prefer to be both the controller and the beneficiary of the funds. This trust is protected from creditors and not included from their estate for federal estate taxation.

It has become exceedingly difficult for business people and professionals to conduct their affairs without exposure to the hazards of litigation and creditors arising both inside and outside their businesses.

There are methods by which professionals and others with significant amounts of assets at risk use to protect their personal net worth. An important fairly new private letter ruling from the IRS highlights the International Offshore Estate Planning Trust, perhaps the most flexible of these methods

Litigation Proliferation Professionals and their insurers and other high net-worth individuals appear to be deep pockets of last resort, readily available to compensate individuals, entities, or public bodies for any loss, real or imagined. In addition to tort liability arising out of professional practice, other liabilities arise out of the business activities or personal affairs of the professional or high-net-worth individual. To finance daily operations, professionals and individuals borrow substantial sums from the banks and other creditors, loans which the individual members of a firm may be required to guarantee. Individuals also face claims by creditors that arise in the ordinary course of their personal lives or perhaps out of unfortunate investments made in happier times with borrowed funds. Some claims may arise merely from "status." Most notorious of these are environmental claims whereby bare titles owners or lessees of real property may be liable to state and Federal agencies for unlimited costs of alleged pollution clean ups.

It is beyond the ability of any individual single-handedly to divert the current stream of litigation. However, those who are aware of the problem have minimize exposure to attack by the manner in which assets are held. Many loopholes exist and are available for those who love "Technicality" & understand how to manipulate the system. Simply put, we should owe no man anything.  If you can find any information that would help bring about Fairness, and Equitable Justice, and it is something that may help preserve Integrity, Honor Morals, and Ethics, "Foursquare," then a skip-tracer should do their best to find it and help bring it about.

Investments in Exempt Assets; Gifts and Fraudulent Conveyances are commonly used as a means to hide assets . You will need to know how it is done if you want to know where you can get the information you need to locate what your looking for.

Individuals with litigation risk sometimes invest to the greatest extent possible in assets which, under applicable state and Federal laws, are exempt from the claims of creditors. Qualified retirement plans governed by ERISA are to a large extent protected in bankruptcy proceedings. (Some plans established by closely held corporations may not be governed by ERISA and thus may not be protected.) Qualified plans may include certain pension plans, profit sharing plans, 401(k) plans, and Keogh plans. Although not governed by ERISA, IRAs in some states are exempt by statute. In some states, a principal residence, no matter how valuable, is completely exempt from creditors. Certain states exempt annuities and life insurance policies from creditors. Again, remember each high- net-worth individual has most likely consulted with an experienced legal counsel to obtain advise and they probably have a list of those assets exempt under law from attack by creditors and protected in bankruptcy.

The International Offshore Estate Planning Trust is another area to be aware of. Some have created trusts governed by the law of a jurisdiction that has different rules of law. The international offshore estate planning trust (IOEPT) is just such a trust.

The IOEPT is a trust created under the laws of certain English speaking common law jurisdictions located outside the U.S. such as the Bahamas, Cayman Islands, and Bermuda. These jurisdictions uniformly impose no income, gift, or estate taxes on the IOEPT and its beneficiaries. In many ways the IOEPT is similar to the multi-generational trust and like the MGT uses the unified credits of the settler and his or her spouse, as well as their per donnee Crummey exclusions, to fund and build the trust into a very substantial asset. Like the MGT, the IOEPT is a totally discretionary trust. The trustee accumulates or may distribute income and principal to any of the named beneficiaries. Like the typical MGT, the IOEPT offers absolutely no U.S. income tax advantages to the settler during his or her lifetime. But unlike the MGT, the IOEPT includes the settler among its beneficiaries.

Typically, the IOEPT grants broad limited powers of appointment to one or more of the beneficiaries (but never the settler).

Although an IOEPT usually contains secrecy and non-disclosure provisions, thus assuring the settler of substantial privacy, corporate fiduciaries commonly request U.S. settlers to waive such provisions when the inquiry emanates from the U.S. government or one of its agencies. The IOEPT will also contain anti-duress clauses that enable the trustee to ignore requests or instructions when made under coercion, such as pursuant an order by a court that does not have jurisdiction over the trustee.

The typical trustee of an IOEPT is a bank incorporated as a trust company in the foreign jurisdiction. Although the corporate trustee may be part of a bank holding group which does business throughout the world, including the U.S., the trustee itself is usually careful to have no presence in the U.S. and not to conduct any business on its own behalf or on behalf of the IOEPT within the U.S. The trustee may hold and invest the trust corpus directly. In the alternative, the assets may be held by the trust in a corporation organized in a tax haven country (e.g. Cayman Islands), the stock of which is wholly owned by the trust or held by a limited partnership, the limited partnership interest of which are in turn held by the trust.

Maximum protection from creditors and changing local laws or governments is achieved by locating the assets of the trust in a jurisdiction different from the domicile of the trustee and by providing in the trust a mechanism to change trustees, jurisdictions or applicable law in the event of an emergency.

In addition to the trustee, the IOEPT has a "protector" who is a person or corporation but who is not a trustee or beneficiary. The protector may exercise certain powers alone, and the trustee may exercise certain powers only with the consent of the protector. Typical of these powers are those to change trustees, change jurisdictions, and add or subtract beneficiaries. The role of the protector is unique to foreign trusts. No one plays such a role under U.S. trust law.

It is said that the laws of all the various offshore jurisdictions used for IOEPT purposes, to one degree or another, provide that the settler’s creditors have no right to reach a trust even though the settler is a beneficiary. This, of course, presupposes the transfer into the trust was not a fraudulent conveyance. In some jurisdictions, however, the fraudulent conveyance law is more favorable to the debtor than U.S. law. In certain jurisdictions, statutes have been enacted precluding future unknown creditors of the settler from bringing a fraudulent conveyance attack and, in addition, statutes have been enacted requiring creditors of the settler to bring actions within a relatively short period following the actual transfer of property into the trust.

The prudent U.S. attorney will not allow a client to establish an IOEPT without first obtaining a favorable opinion from experienced local legal counsel in the jurisdiction in which the trust is organized. The opinion of local counsel will generally cover such topics as the validity and enforceability of the trust, the inability of present and future creditors of the settler to reach trust assets (assuming no fraudulent conveyance), the absence of local taxation, and whether legal issues such as those pertaining to the bona fides of transfers to the trust will be governed by U.S. or local law.

Under IRC Sec. 679, the IOEPT described above is a grantor trust. As may be true for the MGT, grantor trust status may be deemed a substantial advantage and may facilitate the growth of the IOEPT. However, even though it is a grantor trust, a foreign trust may not be a shareholder of an S corporation and, accordingly, a settler may not transfer S stock to his or her IOEPT. To permit transfers of S stock, many practitioners, by adding U.S. trustees and other features, have sought to draft IOEPTs that are not deemed "foreign trusts" under IRC Sec. 7701(a)(31). Avoiding "foreign trust" status for an IOEPT is akin to navigating a deep keeled boat in shallow waters. It is dangerous, there are no clearly established criteria, and the Service refuses to rule on the issue. It's best to check with IRS to get the facts.

IOEPTs are subject to certain specific reporting requirements and excise tax provisions. Under IRC Sec. 6048, an informational return (Form 3520) must be filed upon the creation of an IOEPT and upon each transfer of assets into the trust. If appreciated property is transferred and the excise tax discussed below applies, a Form 926 must be filed. Because there are U.S. beneficiaries, an information return (Form 3520A) must be filed annually. Further, even though it is a grantor trust, the IOEPT must file each year a nonresident individual Federal income tax return (Form 1040NR) adapted for use by a trust.

The IRS held the transfer would be a taxable gift and, in addition, would be excluded from the estate of each settler upon the settler’s death even though the trustee of the trust had the discretionary power to distribute all or none of the income and principal of the trust to either or both settlers as well as to any of their issue. Under the subject IOEPT, the trustee had the power, with the consent of the protector, an unrelated U.S. person, to add or delete beneficiaries. In addition, the mother of the settlers was both a beneficiary and the holder of a broad limited power of appointment. Thus over time, if circumstances were to change, the terms of the IOEPT could be varied by the mother's exercise of her power to consider changed circumstances.

Under the facts of PLR 93-32006, if the settlers' business grows to be worth $10,000,000 and then is sold, the partnership upon disposing of the underlying business can distribute the $10,000,000 to the IOEPT. The settlers would then be beneficiaries of settlers $10,000,000 trust which would be beyond the reach of their creditors and no portion of which would be included in the estate of either settler upon death.

Be Advised: I have been told that an individual and his or her advisors should be careful when considering the IOEPT as a means of removing assets from exposure because the requirements for establishing an IOEPT are exacting, it must be carefully done using the counsel of a knowledgeable attorney and preventative precautionary steps should be taken to comply with the IRS Tax Codes.

The Internet has become a valuable tool now available to skip-tracers. With the rapid proliferation of on-line databases, records, and Internet People Finders, Skip-Tracers have access to an endless array of ways they can that can obtain information on people. You can have easy access to most anything you need at the click of a mouse.  Resources that can help save time and money.  The possibilities seem endless. Using the Internet can limit the need for you to have to use outside investigators, Information Brokers, and Skip-tracing Agents.  Lets see what's out there.

Sometimes a skip-tracer will be looking for criminal action and information to free up a creditors right to recover for their loss and damages. Skip-tracers may be able help right the wrong of a transfer that is a fraudulent conveyance. The experienced estate planner is aware most high-net-worth individuals want to give their spouses and children a sense of security by making gifts to them, but the planner also knows a transfer of assets to loved ones, whether outright or in trust, carries with it two major risks. First, those who give vast sums of money to a spouse and children may find themselves without assets, without a spouse, and with unsympathetic children.

Second, transfers made when the transferor is insolvent are obviously fraudulent conveyances. Many have found that it is less obvious, but nonetheless the law, that transfers for the purpose of avoiding foreseeable creditors or hindering and delaying creditors in general may be equally fraudulent. Professionals who assist or counsel such fraudulent conveyances may be in the eyes of an aggrieved creditor joint tort feasors.

In certain circumstances, where the aggrieved creditor is a governmental entity or an agency of a government, the fraudulent conveyance may be criminal. In some jurisdictions, any fraudulent conveyance may carry a criminal sanction. In all jurisdictions, a professional who assists or counsels a fraudulent conveyance may run the risk of losing his or her license.

Bottom Line: Individuals cannot effectively enhance their own families' security by making fraudulent conveyance, but I feel some do so by making generous gifts to a trust. As we shall see, there is even a trust to which gifts are made that enhance the individual’s own security.

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