Dear Colleague~

With the holiday season now upon us, we wish to thank everyone who has worked with us for helping to make 2009 a prosperous and productive year. We also wish to inform you of some of the exciting developments we have in store for 2010.

We will be starting off the year with the largest-ever expansion of our marketing outreach. We are pleased to announce that Southpac Group has agreed to serve as the lead sponsor for the 44th Annual Heckering Institute of Estate Planning. Hosted by the University of Miami School of Law, the Heckerling Institute is the largest law conference in the United States. Southpac's new role reflects our growing commitment to serving the American legal community.

Building on this past year's success, the 2010 Southpac Offshore Planning Institute will continue with an expanded schedule and even more cutting-edge topics designed to enhance your knowledge and expand your practice. Scheduled again at the Wynn Las Vegas, the Southpac Institute program will now include full sessions on captive insurance planning, in addition to programs on asset protection planning and offshore banking. We are currently working on speakers for next year's conference and will keep you posted.

Finally, we are pleased to announce that the Zurich office (Southpac Group Switzerland GmbH) has assumed the marketing services previously conducted by MDI Offshore Advisors. Attorneys and accounting professionals will be able to look to the experienced and able staff in our Zurich office to assist them with asset protection, offshore banking, and insurance structures. Our consulting team will also be visiting more countries and conferences this year in response to the growing popularity of our services, particularly in Hong Kong and Singapore.

2009 originally promised, and subsequently proved, to be an exciting year in the asset protection and offshore planning business. As the global economy begins its long and arduous climb back up from the abyss, we can only expect 2010 to get even more interesting.

~The Consulting Team at Southpac Group Switzerland

December 2009

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UPCOMING EVENTS

Join Us in Orlando!

Southpac to be Lead Sponsor for the 44th Annual Heckerling Institute on Estate Planning

Orlando World Center Marriott

January 25-29, 2010

Southpac is pleased to be announce that it has agreed to serve as a leading sponsor for the 44th Annual Heckerling Institute on Estate Planning. The event will take place at the Orlando World Center Marriott, and this year's conference spans an entire business week: January 25-29, 2010.

With an unrivaled level of sponsorship at the 2010 conference, conferees will enjoy learning about the many services of the Southpac Group in virtually every venue of the conference. Southpac has worked with the conference organizers and the host hotel to even have information on the Southpac Group integrated into the hotel's operations. Throughout the course of the week, guests at the hotel will have the opportunity to learn about Southpac's complete suite of offshore planning services.

The Heckerling Institute is hosted by the University of Miami School of Law and is the largest law conference in the United States. If you are planning on attending the conference, please take a moment to stop by the Southpac booth and introduce yourself. For more information on the conference and to register, please visit http://www.law.miami.edu/heckerling/.

BREAKING NEWS

Asset Protection = Taxpayer Victory in Estate Freeze Case

Estate of Samuel P. Black, Jr. et al. v. Commissioner

On December 14, 2009, the U.S. Tax Court issued a ruling representing an astounding victory for classic discounted valuation planning. In Estate of Samuel P. Black et al. v. Commissioner, 133 T.C. No. 15 (December 14, 2009), a family limited partnership was set up by a decedent and his family to hold a significant stock position. Prior to his death, the decedent sold his stock to the FLP. The decedent's objectives in setting up the FLP were to (i) consolidate and protect the family's stock from the claims of divorcing spouses, creditors of insolvent family members, and other potential claims, and (ii) minimize estate taxes.

At issue in the case was whether the FLP had been established and funded for a legitimate and significant non-tax purpose, and whether the decedent's sale of stock to the FLP was a bona fide sale and for adequate and full consideration. If the FLP and the transactions with the FLP were respected, the stock sold to the FLP would not be includible under IRC Section 2036, and the FLP limited partnership interests would instead be includible at their discounted value.

Finding a set of "unique circumstances," the Tax Court determined that the FLP had been established and funded for a legitimate and significant non-tax purpose: asset protection. The court then found the sale of stock to the FLP to be a bona fide sale and for adequate and full consideration. Thus, the stock was not includible in the estate under IRC Section 2036. Rather, the limited partnership interests were includible at a measurable discount.

Estate of Black represents a landmark decision in the area of family limited partnerships and discounted valuation planning. If asset protection considerations are sufficiently integrated into the design of a family limited partnership, the precedent established in Estate of Black should permit clients to exempt from 2036 inclusion assets sold to an FLP.

The evidence presented in this case was to some degree anecdotal, with substantial reliance on witness testimony concerning personal family matters. Contrast that with a modern-day FLP in which an offshore asset protection trust owns the limited partnership interests: Under Estate of Black, transactions with the FLP stand a far better chance of withstanding scrutiny under IRC Section 2036.

We expect the decision in Estate of Black to resonate in the estate planning industry for years to come. Practitioners are more likely to recommend the implementation of an offshore asset protection trust as standard practice in estate freeze strategies. Having an offshore APT hold FLP limited partnership interests should give significant comfort to IRC Section 2036 concerns.

If you would like to obtain a copy of the Tax Court's ruling in Estate of Black, please e-mail us at enquiries@southpac.ch.

PRACTICE POINTER

Attorney Liability for Fraudulent Transfers

Periodically, attorneys ask us whether they could be held personally liable for counseling a client in offshore asset protection planning. Over the years, a body of case law has developed to establish that offshore asset protection planning is perfectly legal when conducted under appropriate circumstances. A few critics aside who cast aspersions on all things offshore, the reality is that offshore asset protection trusts represent the most cost-effective asset protection devices available today, and the attorney who fails to counsel a client on the availability of this planning option could face malpractice liability. At the same time, attorneys must take care to ensure that they do not invoke civil or criminal liability as a result of efforts made on behalf of their clients. Furthermore, partly as a result of offshore asset protection trusts, frustrated creditors increasingly seek to expand the scope of their target wherever possible.

Most states permit a creditor to allege a claim of civil conspiracy to include the lawyer and the client. In order to establish a claim for civil conspiracy, the creditor must usually demonstrate an underlying civil tort, with a fraudulent transfer being the usually-cited tort. Correspondingly, without the civil tort, there can be no claim of civil conspiracy. For example, in Professional Collection Consultants Inc. v. Griffis, 2004 WL 759302 (Cal.App. 2 Dist., 2004), a California appeals court recognized a civil conspiracy claim predicated on an underling fraudulent transfer. Because the underlying claim must itself be a tort, it is likely that the creditor must prove damages proximately caused by the tort, in addition to the tort itself. See, e.g., Mehrtash v. Mehrtash, 93 Cal.App.4th 75 (Cal.App. Dist.2 2001).

Even in those states that do not recognize a claim of civil conspiracy, the attorney can still face discipline for having facilitated a fraudulent transfer. For example, in Florida, the state supreme court has previously ruled that the claim of civil conspiracy does not exist under Florida's version of the Uniform Fraudulent Transfer Act. Freeman v. First Union Bank, 329 F.3d 1231 (Fla. 2004). However, the Florida state bar has previously suspended one of its members for having counseled a family member to engage in a fraudulent transfer. Florida Bar v. Rood, 622 So.2d 974 (Fla. 1993).

Particular care must be taken if the client has already suffered a judgment. In at least one Federal court case, attorneys have been held liable for civil conspiracy even when a fraudulent transfer has not been alleged. In Morganroth & Morganroth v. Delorean, 123 F.3d 374 (6th Cir. 1997), a law firm sued its former client and his attorneys for unpaid legal fees. The plaintiffs demonstrated that the fromer client's attorneys intentionally and knowingly aided their client to avoid a court judgment previously entered in the plaintiffs' favor.

Best practices suggest that an attorney engaged in asset protection planning should first perform due diligence on the client. In addition to the standard documentation that one might request (e.g., a notarized copy of one's passport and a utility bill), the attorney should obtain a statement of personal net worth from the client. A client's income should also be analyzed to assure the planning attorney that sufficient resources will be available to help the client meet recurring or readily anticipated obligations. Upon receiving a completed affidavit of solvency from the client, the diligent attorney will perform a perfunctory examination of public records to measure the client's credibility. Many times, a simple Google search may reveal litigation conveniently omitted from the client's affidavit of solvency.

Even if the client is subject to litigation or has suffered a judgment, many times there are still viable planning options available. Asset protection planning still plays a role for the judgment debtor, preserving assets for existing creditors while ensuring that unanticipated future creditors are not able to recklessly seize the client's remaining net worth.

Please call the consulting team at Southpac Group Switzerland if you have questions about attorney civil liability or if you are engaged in planning for a client subject to litigation or an existing judgment.