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The Judgment-Proofing of J.F. Calina
   by Ray Como   

 He was so excited, ecstatic even. He just went nuts when he called. For the last eighteen years his print shop had been on rented space. Finally, he and his sons had found the building of their dreams. It would be the only print shop for ten miles, in either direction. Over 100,000 cars a day will see their sign. Sales will double, even triple instantly! The location was perfect. The price was right. The time was right. So ole J.F. said "Go for it!" and made a firm, full price offer subject to obtaining institutional financing. All seemed to be going well until...until the lawsuit reared its ugly head.

 (now he tells me...!)

 Over the last five years J.F. Calina had been playing suit and countersuit with a former business associate. J.F. had been awarded a judgment of $6,000. The other guy appealed and countersued for $40,000. Anxiety grew. Tempers flared. Costs mounted and for years they had been sending letters over this, talking to and meeting with attorneys.

 And now? Now, my man J.F. is about to make the move of his life and guess what? He can't get approved for bank financing with this lawsuit pending. Banks say "clear it up or no deal." Title insurance companies are reluctant to insure a title-in-limbo like this one would be. And, be advised, any conveyance of realty or "personalty" made in the face of this or any lawsuit can be deemed a "fraudulent conveyance" and overturned by the courts.

 J.F. was...concerned, and rightly so. He called me again but this time to ask advice. I told him to settle with the guy or forget the big, new deal. Forget the 100,000 cars a day. Forget the tripled sales. Forget the empire he was planning to build and pass on to his two sons. Reluctantly he settled. J.F. agreed to pay $1,500 cash; he released the $6,000 judgment and the other guy dropped his $40,000 counter suit. All was well.

 Now what?

 J.F. called again. His voice sounded deliberate. He said "let's meet." We schedule a time. Quickly J.F. explained how right I'd been about judgment proofing. He explained that he had cash in the bank; cash in his IRA earning 6% and cash under the mattress. He owned his home free and clear. He owned a truck with a first lien on it. He owned $100,000 worth of printing equipment that was paid for lock, stock and barrel. He had goodwill in his print shop that was two decades old. He had cultivated hundreds of customers over eighteen years of eighty-hour weeks. I guess he's what the Clinton Administration calls "the rich" or "the privileged few" of our society.

 Anyway, he was scared and he wanted "judgment-proofed." He was anxious but he wanted to push forward "strategically." He was invested but he wanted more liquidity and higher yields. He had a will but he was dying to avoid probate, if you'll excuse the pun. Needless to say, I agreed and here's what we did:

First, we got him a home-equity line of credit. Then we deeded his home into a land trust with his sister as trustee. Then, we gifted each of his sons a one-half-undivided-interest-option—to buy the option. Finally, we recorded a mortgage (carefully couched in yet another land trust) to secure his sons' interest in their respective options.

 Meticulously, we helped him complete the loan application process and helped him get approved for his new building. Then we deeded the new building into another land trust; again making his sister his trustee with J.F. and his two sons, beneficiaries. Over the next two years we've arrange for J.F. to "gift" $10,000 worth of his beneficial interest each year until the kids own all of his equity in the beneficial interest in the trust.

 Strategically, we incorporated his printing business giving J.F. 51% interest and his sons 49% (We aren't nuts!) We capitalized the new corporation with just a tiny bit of cash. In essence, we will keep the new corporation barren of all hard assets. ('ll see why in a minute.) Clearly, the corporation will be constructed with all the bells and whistles like: Self-insured health insurance through our Medical Reimbursement Plan (MRP) Strategy; term life insurance; car allowances; credit card reimbursements; seminars, et cetera.

 Quietly, we put each piece of equipment into its own separate personal property trust. The trust will lease the equipment to the corporation thereby insulating the corporation from lawsuits that could result from ownership of any piece of equipment. And secondly, this equipment is now safe from attachment in the event of another lawsuit because each piece of equipment is in a separate trust.

 Happily, established a self-directed IRA for J.F. and we invested his IRA money into our "super-secure" real estate mortgages earning 12% and up. This move will in effect double his yield. Based on The Rule of 72, 12% will make his money double every six years. The Rule of 72 says that when you divide any interest rate into the number 72, your answer will be the number of years it will take for the money to double. Id est, 72 divided by 12% = 6 years. Get it? By the way, the formula works in reverse.

 So there you have it, the judgment-proofing of J.F. Calina. Who do you know that could untangle the maze we've crafted? How would they know to look, or even where to look? Now the questions remains—What can be done behind the scenes, privately and without giving constructive notice to the public? The answer? Lots.

 If you want more information about Self-Directed IRAs, or that self-insured Medical Reimbursement Plans (MRPs) contact us.

© MMI By Ray Como. All Rights Reserved

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