FReQUENTLY ASKED QUESTIONS

» Are Panamanian Foundations Safe?
» Why do I need Protection?
» Nevada or Wyoming? No Contest
» Why Nevada and Not Delaware?
» What is Charging Order Protection?
» Opening a Swiss Bank Account
» Escrow Account - How Can We Help You?

---

Are Panamanian Foundations Safe?

Many offshore promoters are pushing Liechtenstein Foundations, Panamanian Foundations and Panamanian Interest Foundations on the very wealthy and on US citizens. 

Many investors are taken in by the term “foundation” hoping and believing that it makes the structure a charitable foundation which is tax exempt and non-declarable to the IRS but nothing could be further from the truth. For a company entity to be tax exempt, it must be registered with the IRS under IRC §501(c)(3)., and this applies to both foreign and domestic entities.

Only donations to a licensed charity are deductable on personal and business tax returns. US citizens may donate monies to any charity or group around the world if they are registered with the IRS. 

Offshore promoters of tax schemes lure Americans and Canadians into foundations as described stating that due to the many multiple levels of nominee directors and boards which allegedly control the Foundation’s assets, that no tax reporting is necessary. These promoters’ make the claim that, because you given up control of your assets that you are not taxed on the interest, dividends, and earnings of the foundation. Again, this is not true. The IRS maintains that you are still beneficial owner and have indirect control, which equals ownership under the U.S. tax code.

Some foreign attorneys will issue an option stating that the Foundation is not a grantor trust under the U.S. rules which on the surface appears to be true and would appear that the Foundation could be classified as something other than a grantor trust. However, such statements are intended to mislead a U.S. client into believing that there is some tax benefit to such a classification.

Mr. P. Adams, Attorney at Law and a member of the American Bar Association’s asset protection committee attend a meeting of the committee and it was the determined view that these Foundations would be treated, regardless of status, as corporate business for the benefit of a US tax payer and therefore subject to all US taxes…in other words considered “disregarded”.

Promoters claim that, “The due to their design and structure their Foundation’s achieve an entity classification as other than a trust such as a partnership, corporation or disregarded entity for U.S. tax purposes.”

Bare in mind that all U.S. citizens are taxed on worldwide income and this classification does not make any tax difference. Under all options, income to the foundation will be taxed in the U.S. as earned, transfers to the entity will be reportable events, and (most) transfers of appreciated property will be deemed sales. A dangerous area of tax liability, both criminal and civil, leading to a wide range of penalties and charges.

They go on to say, “There is the option of seeking a private letter ruling from the Internal Revenue Service confirming the proper entity classification of the Foundation.” Further they say, “It means that the IRS has not classified the Panamanian or Lichtenstein Foundations and that U.S. citizens have no certainty regarding when, what, and how to file returns for a foundation and therefore are exempt”.

Panamanian and Lichtenstein Foundations are promoted as options by competitors of offshore Asset Protection Trusts and Nevis Offshore Corporations. Panama as a country is a terrific place to operate an international business, but not to incorporate there. Due to the watchful eye of the United States Treasury Department and the Federal Bureau of Investigation, offshore asset protection promoters need take a more realistic view of the U.S. criminal and taxation system, so that Panamanian Foundations one day can become legitimate Asset Protection tools for Americans and Canadians.

---

Why do I need Protection?

First, the homestead exemption does not apply to the Federal Government. Most states have a homestead statute that protects some or all of your primary residence from creditors. States like Texas protect your entire home, no matter its value, while states like New Mexico protect only $35,000 in equity.

Because these are state statutes, they do not apply to the federal government. Therefore, the IRS can seize and sell your home to satisfy a tax debt.

Second, the cash value in a life insurance policy is not protected from the IRS. If you owe money to the IRS, the Collector will require you to borrow against your whole or universal life insurance policy to satisfy the debt. If you refuse to do so, the IRS can levy your policy, forcibly taking the cash value.

Third, some retirement accounts are not protected from a levy. The IRS can seize Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA, IRAs and Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans)

For a detailed list of accounts that can be levied, see the IRS website.

Fourth, a payment plan, installment agreement or any other arrangements with the IRS to stop collections against you is not a right. When you owe money to the Collector, the IRS can levy your paycheck and bank accounts, and take most of your paycheck and all of the money in your bank, until you and the IRS agree on how much you can afford to pay each month.

If you have no assets, and your income and allowed expenses indicate you can pay the IRS $1,000 per month, it does not matter how much you owe…$30,000 to $300,000…you will pay $1,000 per month until the debt expires.

If you have assets that you refuse to turn over to the IRS, such as life insurance, retirement accounts, money sitting in corporations, etc., and the IRS is not willing to go after them in court, the Collector simply denies your installment agreement and grabs what it can. Court battles and seizures of homes make the news, but they are in fact very rare. Most of the time, the Collector simply makes your life miserable until you pay.

Fifth, the IRS is willing to litigate and money is no object. The Internal Revenue Service has an army of lawyers in every state and employs about 1,500 tax attorneys in total. If you are going to go to battle with the Collector, be sure you have the talent and budget to do so!

Sixth, time is not of the essence…the IRS has the memory of an elephant and time to collect. There are a number of important statutes of limitations that apply to the IRS, and they are often very long. For example, the IRS usually has 3 years to audit you, and sometimes 6 years for a substantial understatement. The IRS has 6 years to charge you with a crime, and 10 years to collect money from you after a debt has been assessed. In special circumstances, this collection period can be extended another 10 years.

Seventh, your most important asset may be sitting in jail. While you can create a complex offshore structure that hides your assets from the IRS, the Collector might respond by finding a judge willing to hold you in contempt until you repatriate the assets. While in jail, most citizens find their lost assets and pay the government.

Eighth, filing bankruptcy doesn’t help most who owe money to the IRS. In order for a tax debt to be discharged in bankruptcy, your tax returns must have been filed for at least 2 or 3 years (various statutes apply). This usually means that the IRS gets to grab what it can for 2 or 3 years before you file bankruptcy. Very few who qualify for bankruptcy can withstand this assault long enough to wait out the collection period.

Ninth, if you leave the United States, you give up your Social Security, Medicare, top quality medical services, and the other benefits of living in one of the richest nations in the world. If you have a tax debt, have not committed a crime (or are not prosecuted for a crime), and select the right country in which to live (certainly not the U.K. or France), the IRS might not be able to find your assets and might not be able to collect.

In 8 years as a tax attorney, I have had many clients consider leaving the country. In the end, they all decided to stay and pay their taxes. Going on the run from the Collector is a life choice that very few are willing to make.

Again, moving out of the US to hide from the IRS assumes you are not charged with a crime…I am not considering fraudulent conveyance statutes or extradition in this article. If you do leave, be sure to file your US tax returns. Failure to file a tax return is a crime. Even if you are not prosecuted, you will have trouble renewing your U.S. passport if you do not file your tax returns.

Tenth, everyone runs scared from the IRS. Most governments and banks around the world want nothing to do with the Collector and will not protect you when times get tough. If the U.S. escalates your case to a criminal investigation and puts a real effort behind collecting from you, they will succeed! It will not be “cost effective” for a bank to lose a U.S. securities license or their ability to transact in U.S. dollars, in order to protect you. Considering the amount of money the U.S. spreads around these days, the same is true of most governments around the world.

---

Nevada or Wyoming? No contest

Promoters of Wyoming incorporation have started to make brazen claims that Wyoming offers better asset protection benefits than Nevada.  This is a fair comparison for analysis, since the claim can be measured against the standards set by Nevada in three specific areas of corporate asset protection. Corporate protection consists of three separate factors. The relative asset protection strengths or weaknesses of state corporate law result from how state statutes or case law addresses each of these factors:

Factor #1: Indemnification.  The protection of indemnification applies to such persons who act, fail to act, make decisions or fail to make decisions on behalf of the corporation.  The degree to which an individual is indemnified and “held harmless” or not for their actions, decisions, or failures is state defined by the strength of the indemnification under the “Duty of Care” standards that are applied to the person(s) making corporate decisions and actions thereof.

In the area indemnification, Nevada and Wyoming have almost identical laws.  From Wyoming’s perspective this similarity appears to be intentional given the fact that Wyoming’s statute mimics language passed years earlier by Nevada.  So, the level of indemnification available to corporate officers and directors in both states is at the highest level.  However, there is one important distinction in Nevada…this indemnification is automatic and is the default language of the state statute while this protection is an “opt-in” in Wyoming. Indemnification in Wyoming is optional not guaranteed. As a result Nevada has better indemnification provisions than Wyoming.

Factor #2:  The Corporate Veil.  The corporate veil separates the assets and liabilities of the company from the assets and liabilities of its owners thus protecting owners from business risk. 
In order to pierce the corporate veil and attach assets of individual owners to satisfy the debts and obligations of the business, a court must apply a legal doctrine known as the “alter ego” theory which establishes that the business and the individual cannot be separated.  Each state has a different set of standards defining the alter ego doctrine.  In most cases it is defined in the precedent of case law such as in California where presently 28 separate factors can be used to pierce the corporate veil. (See our report on 11 ways to pierce the corporate veil) In a few cases it is defined in statute.  Nevada defines the alter ego doctrine by statute. Wyoming uses a combination of statutory reference and case law.

Under the Nevada statute (NRS 78.747) alter ego can only be applied when all three of the following factors are present:

a) The corporation is influenced and governed by the individual;

b) There is such a unity of interest and ownership that the corporation and the individual are   
     inseparable from one another.

c) To keep the corporation separate from the individual would be to promote fraud or manifest
     injustice. This is the “best” corporate veil protection available, because it relies on the standard
     of “fraud or manifest injustice”, which requires evidence of ill intent to proceed with veil piercing.

Wyoming code (17-16-622) states that “unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation EXCEPT THAT HE MAY BECOME PERSONALLY LIABLE BY REASON OF HIS or HER OWN ACTS or CONDUCT.”  This definition “leaves open” to the interpretation of the court as to what constitutes the type of act or acts or conduct that may create personal liability.  Traditionally the doctrine of legal separation of the entity from the individual revolves around the basic tenant that “if the individual doesn’t treat the corporation like a separate entity…neither will the court.”  This general principle can be applied broadly by the court, to include numerous “acts” by the individual that fall far short of Nevada’s “fraud or manifest injustice” standard including such things as commingling funds, failure to maintain corporate formalities, undercapitalization, failure to maintain arm’s length transactions, etc. 

Thus, Nevada has a clear and distinct advantage over Wyoming regarding the strength of the corporate veil. This advantage applies to Nevada LLC’s as well for this and other reasons. 

Factor #3:  Reverse Piercing/Judicial Foreclosure.  While piercing the corporate veil can allow a creditor to “pierce” through the business to attach the assets of the owner, the concept of reverse-piercing is as the term implies. Reverse-piercing allows for piercing through the ownership to allow access to the asset of the business in order to satisfy a debt or obligation of a shareholder.  In Wyoming there is no protection in the law from potential reverse piercing.  Nevada is the only state to provide protection from reverse piercing through its application of a charging order on the stock of closely-held corporations with between 2 and 75 shareholders. 

Nevada has a unique, clear and distinct advantage regarding protection from reverse piercing.

Nevada provides “Gross Negligence” as an automatic provision for Officers and Directors which Wyoming does not have.

Nevada has broadened its indemnification statutes of Officers and Directors.

Nevada now offers “restricted cash distributions” on LLC’s which Wyoming does not have.

Nevada has not reciprocity or exchange information with the I.R.S. which Wyoming did not do.

Wyoming requires all entities to file a list of corporate assets with the state whereas Nevada does not.

Nevada is the only state that has “charging order protection” for corporations which Wyoming failed to do.

Nevada has its own business court making out comes predictable which Wyoming does not have.

Nevada has its own predictable “Business Court” which minimizes the costs and risks of business litigation which Wyoming does not have.

Nevada’s Constitution requires a legislative “Super-Majority” to increase any taxes or fees.

Las Vegas, Nevada is fun to visit with great hotels and resorts. There really is no reason to go to Wyoming except for back packing or buying a ranch. Nevada has five star accommodations whereas Wyoming is not like fabulous Las Vegas.  

Nevada is a year round destination and Wyoming has snow in the winter.

Las Vegas, Nevada is “air central” and easy to fly in and out of whereas Wyoming is a single destination.

Nevada transacts billions in sports betting making the movement of money acceptable, Wyoming does not.

Wyoming has basic simple incorporators or “bookees” whereas Las Vegas, Nevada is home so some of the best asset protection services in the country.

Nevada is “highly recommended” in the asset protection field whereas Wyoming is not.

Wyoming has relatively few banks whereas Nevada has many banks. Due to international travelers from abroad and the billion dollar gaming industry Nevada banks are less like to file a SAR’s report with the I.R.S. from offshore funds whereas in Wyoming funds coming in internationally or in large amounts would be viewed as suspicious by Wyoming banks.

Nevada law permits the freedom of higher risk assets under management and Wyoming does not.

Nevada’s trust law recognizes the ability to delegate investment responsibility by trust arrangement, Wyoming requires trustees to be involved in all trust decisions.

Nevada is known by asset management advisors as having unique laws in investment portfolio management whereas Wyoming is not considered for this purpose.

Because of Nevada’s unique regulatory, liberal body of trust laws and legal climate Nevada has become the State of choice in forming trusts, not Wyoming.

As you can see, the claim that Wyoming has the “best” asset protection laws is hollow.  Nevada has clear and distinct advantages in each of the specific legal factors that provide corporate asset protection.  

---

Why Nevada and Not Delaware?

Nevada provides stronger Personal Liability Protection to Officers and Directors.
Nevada has broadened its indemnification of Officers and Directors.
Nevada law is more permissible than Delaware law insofar as when dividends may be paid.

Legal Advantages of a Nevada Corporation

Legal Advantages of a Nevada LLC

Nevada Tax Advantages

Other Advantages

What are the Legal Advantages of a Limited-Liability Limited Partnership?

---

What is Charging Order Protection?

One of the pillars of asset protection planning is privacy. Many lawsuits are just a form of legal extortion. Plaintiff attorneys know that most people don't want to spend tens of thousands of dollars in legal fees to go to trial even though they think their cases are relatively strong. Therefore they agree to settle their cases just to get rid of the lawsuits.

Having financial privacy reduces the target that is painted on your chest for frivolous lawsuits since it greatly minimizes the financial incentive and maximizes the uncertainty for plaintiff attorneys to file this kind of lawsuits. There is nothing an attorney hates more than to spend his time taking a case to a court trial and be unable to collect his fees after winning. Therefore, attorneys don't want to waste their time suing people who do not appear to own anything.

A sound asset protection plan, however, must go beyond privacy. Even though privacy can prevent most frivolous lawsuits, you still want a solid shield to protect your assets if someone decides to sue you anyway despite your apparent lack of assets.

An important tool to shield your assets from judgment collection if someone decides to sue you anyway is a charging order protecting entity. There are two entities that have such charging order protecting capabilities. They're the limited liabilty limited partnerships (LLLPs) and the limited liability companies (LLCs).

What is a Charging Order?

Before we get into what a charging order is, let's look at a brief history of this legal concept. More than 100 years ago, a common form of business structure was the partnership. Many people got together and formed partnerships to conduct businesses. Since partnerships did not have any legal status separate from their individual owner-partners back then, they couldn't own assets in their own right. Business assets in the partnerships were viewed as owned by the partners collectively. This situation made lives very complicated for the partnership when one of the partners ran into financial troubles.

Let's look at an example to illustrate this point. Three people formed a partnership to start a merchant marine business. They each contributed capital into the partnership and bought ships and warehouses. The business was doing well after a few years. Unfortunately, one of the partners, due to the failure of another business of his, incurred massive debts. His creditors, unable to collect from him personally, came and seized one-third of the assets in the merchant marine business. The seizure of the partnership assets left the business in financial ruin when it missed many freight delivery dates and goods were spoiled without proper warehousing. The two other partners, innocent by all accounts, were injured as the direct result of this act of asset seizure by the creditors.

To avoid such chaotic collection practices as illustrated by the example above, businesses lobbied the state legislatures for reform and the concept of the charging order was born. At the turn of the 20th century, through the introduction of the Uniform Partnership Act and the Uniform Limited Partnership Act (and their subsequent revisions), a creditor who tried to collect from his debtor's interest in a partnership was limited to a charging order. After these legislations were enacted, creditors of a debtor-partner could no longer seize assets from inside the partnership. They could only request a charging order from the court to charge the ownership interest of the debtor partner in the partnership.

In a nutshell, a charging order is a court order commanding the partnership to redirect any distributions intended for the debtor-partner to the creditor to satisfy the debt of the partner if and when distributions are made. In other words, if Partner A's (in a three-member equal partnership) interest in his partnership is under a charging order, and if the partnership distributes a total of $600,000 to its three partners and Partner A is to receive $200,000, that $200,000 distribution must be paid to the creditor of Partner A instead. The keywords here are "if and when." If the partnership does not make a distribution, the creditor gets nothing.

Let's review the charging order again:

These charging order protective features sound like a solid asset protection shield, don't they? Yes, they are but there is one more. It's called the K-1 surprise.

K-1 SURPRISE

Since the charging order creditor has the rights of an assignee to the financial interest of the debtor-partner and since a partnership is a pass-through entity for income tax purposes, the creditor is, therefore, obligated to pay taxes on the debtor-partner's share of the income in the partnership. In other words, if the partnership generates $600,000 in profit in a calendar year, each partner will get a K-1 (partner's share of profit and loss statement) at the end of the year for $200,000 from the accountant of the partnership. Each partner is responsible for paying income tax on his share of the profit ($200,000) whether the partnership distributes any of that profit to him or not. Now if one of the partners is under a charging order, the charging order creditor will get the K-1 instead and be responsible for paying income tax on that $200,000 profit whether he has received any distributions from the partnership. Now if the partnership doesn't make any distribution and the charging order creditor must pay income tax on $200,000 of partnership profit at the end of the year, how long do you think it will take him to run over to ask for a settlement at pennies on the dollar? Now you see how powerful this charging order protection is?

About thirty years ago, the limited liability company (LLC) structure was born in the U.S. The LLC is a hybrid between a limited partnership and corporation. The Uniform Limited Liability Company Act inherited all the charging order protection features of the limited partnership. Therefore, both the LLLP and the LLC structures offer the charging order protection features discussed above.

Now the Uniform Limited Partnership Act and the Uniform Limited Liability Company Act are anything but uniform. All the states have modified these acts to suit their needs. Most states now allow the foreclosure of a charging order if the charging order creditor is not getting distribution from the partnership. The foreclosure of a charging order will essentially allow the charging order creditor to take over many of the debtor-partner's rights in the partnership and to seize the assets in the partnership. Only a few states specifically in their statutes restrict the remedy of a creditor solely to the charging order without the possibility of foreclosure. Therefore, forming the LLC/LLLP in the right jurisdiction AND to have in place a properly drafted operating agreement for the LLC/LLLP with such a restriction are critical in proper asset protection planning.

---

Opening a swiss bank account

Who can open a Swiss bank account? In principle, anybody can open an account at a bank in Switzerland. However, banks reserve the right to reject customers. For example, a bank might refuse to offer banking services to a so-called "politically exposed person" who the bank believes would pose a “reputation” risk if he or she were to become a client. A bank might also refuse to start a banking relationship if it has doubts about the origins of the potential client's funds. Swiss banks are forbidden by law to accept money which they know or must assume stem from crime or any illegal activities.

How can I open an account from my home country? First of all it must be understood that Swiss banks have very strict procedures concerning the opening of accounts, irrespective of the domicile of the customer. In line with Swiss laws governing "due diligence", the bank must verify the identity of the customer on the basis of an official document (e.g. a passport). If the Swiss bank you are interested in has a subsidiary, branch or representative office in your country you may consider contacting this office. If the bank is not represented in your country, please get in touch directly with the bank in Switzerland which will then provide you with further information. We recommend you to contact our offices to obtain all needed information before you decide to contact the bank directly.

Can I open a Swiss bank account entirely via the Internet? No, because technical and legal reasons prevent the customer identification procedure from being carried out entirely online via the Internet. At the present time banks in Switzerland must follow the identification procedures laid down for opening an account by correspondence. In accordance with the Due Diligence Agreement (CDB 03), the bank verifies the identity of the contracting partner by obtaining a certified copy of an official identification document (e.g. passport or identity card). The certified copy may be provided by a branch, representative office or group company of the bank; by a correspondent bank; by a financial intermediary specifically appointed by the bank; or by a notary public or public office that customarily issues such authentications. The bank also checks the address of the new customer through an exchange of correspondence.

What questions will the bank ask me? First of all, the bank’s staff will certainly ask questions to fulfill the bank’s legal obligations with regard to due diligence. This will include asking for proof of your identity and also establishing the identity of the beneficial owner of the assets if you are depositing funds on behalf of someone else. The bank's staff might also ask about the origin of the funds and the nature of your professional business and they will also want to get an idea of your usual financial transactions. In order to offer you the best advice, the bank will also ask about your future plans, for example, whether you intend to buy a house, start a business, retire, etc. If you are asking the bank to manage an investment portfolio they will also ask how much risk you are willing to accept. In short, the more the bank knows about you, the more it can tailor its advice and service to your individual needs.

What documentation will the bank want to see? As mentioned above, Swiss banks are obliged to verify the identity of a client. For this reason a bank would very much prefer to meet you face-to-face for an initial discussion. The bank will certainly want to see official identification papers such as a valid passport or an equivalent official identification document containing a photograph. The bank may also ask for documentation that can prove the origin of your funds, such as the contract for a house sale, a statement from a foreign bank, a receipt from the sale of securities, etc.

Can I open an "anonymous" account? No. There is no such thing as an "anonymous" account in Switzerland. Under Swiss law, the bank must know who you are. Anonymous accounts at Swiss banks exist only in the imagination of thriller writers!

What about "numbered" accounts? The procedure for opening a “numbered” account is exactly the same as for any other type of account. The bank must verify your identity and establish the identity of the beneficial owner. “Numbered” accounts are certainly not anonymous! With a “numbered” account your business within the bank is carried out not under your name but under a number or code. This is simply an internal security measure to restrict knowledge of the customer's identity to a small group of employees in the bank and apart from this a “numbered” account enjoys no additional privileges in terms of confidentiality.

Is there a minimum opening deposit? Most Swiss high-street banks do not require a minimum deposit for an ordinary current or savings account. However, some of the private bankers and other banks offering private banking and wealth management services do require a minimum deposit.
Does the account have to be in Swiss francs? No. Swiss banks offer accounts in US dollars, Euros and other currencies besides the Swiss franc.

How much interest will the bank pay on my money? The amount of interest you receive will depend on market conditions governing interest rates in general and the type of account you have at the bank. Please do not forget that any Swiss-domiciled entity paying interest or dividends is legally obliged to deduct withholding tax at 35%. Swiss taxpayers have the tax credited against their tax bill. Foreigners can claim a tax refund if their country has a double taxation agreement with Switzerland.

How safe are Swiss banks? All banks operating in Switzerland must be licensed by the Swiss Federal Banking Commission (SFBC). The SFBC, which is a member of the Basel Committee on Banking Supervision, regulates and supervises all banks in Switzerland according to the Basel Committee’s standards. These standards cover not only equity and capital adequacy but also the entire scope of prudential and operational rules. As an additional safety measure, Swiss law demands capital adequacy standards even higher than those required by the Basel Accord. Swiss banks can therefore certainly be counted amongst the safest in the world.

How “secret” are Swiss banks? In Switzerland great importance has traditionally been attached to the protection of an individual’s privacy, and this has always included financial privacy. Surveys consistently show that the vast majority of the Swiss people want to maintain this protection. However, the high level of confidentiality Swiss banks offer, both to their domestic and foreign customers is not absolute and certainly does not shield criminals. As a matter of principle the rights to privacy can be suspended when a criminal investigation is underway. The Swiss banking secrecy aim is to protect the privacy of their honest bank clients while exposing criminals to the full force of the law.

---

ESCROW ACCOUNT - HOW WE CAN HELP YOU?

What is Escrow Account? Escrow is a way of transferring or exchanging property or money using a neutral third party. Escrow provides the public with means of protection in the handling of funds, assets and/or documents. Escrow enables the buyer and the seller to transact business with each other through a neutral party, thereby minimizing their risk. Escrows are established to hold original documents, real estate deeds, titles to property, money or securities until conditions are fulfilled and the items are released.

In the escrow, all parties involved give their instructions to neutral intermediary, called the "escrow agent" or “escrow manager” whose duty it is to assure that no funds, assets or property will change hands until all instructions have been carried to completion.

An escrow is beneficial to both parties as an escrow agent will be holding the documents, processing all regular payments, maintaining an accounting of all transactions and providing the required reporting. Escrow accounts are designed to facilitate the business and to make seemingly complicated or “impossible’ transactions to become real and performable. Escrow is also useful in ordinary day to day business.

Why Do I Need an Escrow? Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until all of the instructions in the transaction have been followed. The escrow agent or manager has the obligation to safeguard the funds, assets and/or documents while they are in the possession of the escrow agent and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.

What types of transactions go through escrow? Most contracts that involve the transfer, lease or financing of real or personal property can be placed in escrow. You may be involved in escrow not only when you buy or sell real estate, but also when you make trade deal, sell a business or transfer stock in a closely held business. The buyer or seller should demand the protection of escrow for any transaction which involves a substantial investment.

Escrow can be effective in:

- Contracts and deeds of trust between private parties
- Safekeeping of documents
- Holding and releasing of funds for subdivisions & construction
- Projects and other business transactions
- Processing of funds related to trade deals
- Holdbacks and reserves on corporate purchase transactions
- Holding earnest money and deposits on capital-raising transactions
- Mergers, acquisitions and buyouts
- Investment offerings
- Settlement of claims

How Does Escrow Work? The principals to the escrow are buyer, seller, lender, borrower, etc. which cause escrow instructions,  usually in writing, to be created, signed and delivered to an escrow agent or professional manager or Certified Public Accountant or Lawyer to act as your escrow agent or manager. We shall provide all information necessary for the preparation of your escrow instructions and legal documents. We use only first class banks to safeguard the funds and assets of the parties to the escrow transaction.

We process the escrow arrangement in accordance with the escrow instructions and when all conditions required in the escrow are met or achieved the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects as it deals with your property and the transactions at hand. We shall draft all the paperwork which will be made to your particular case.

Our duties as your escrow agent will include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all of the terms stipulated in the escrow are satisfied; distribute or pay the funds in accordance with instructions and provide an accounting for same in the Closing or Settlement Statement.

What is needed to set up an escrow account? Parties to the escrow need a properly executed agreement. On traditional escrows the agreement may be a contract for deed, trust indenture, mortgage, or buy/sell agreement. In addition, the parties will complete a drafted Escrow Agreement which shall document parties’ name and other important information, legal documents received, payment amount, frequency, interest rate,  disbursement instructions and fees, terms and regulations of the agreement.

Escrow and real estate transactions. Very often to finalize the sale of the real estate successfully a neutral, third party escrow agent is engaged to assure the transaction will close properly and on time. The escrow agent insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring your clear title to your property before the purchase price is fully paid. The documentation the escrow holder may be collecting includes:
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies or title guarantees
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds.

Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller and appropriate title insurance or guarantee is issued as outlined in the escrow instructions. At the close of escrow, payment of the funds shall be made in an acceptable form as per escrow instructions.

We invite you to contact our office to learn more how we can assist you to set up Escrow account and to safeguard your legal rights and financial interests.