Guarding Your Liquidity

The traditional American Dream, especially for those of us who grew up in families that survived the depression of the 1930s, was to have a home “free and clear” of any mortgages. The security of a debt-free home was the goal of every family in the 20th-century United States. However, we are now in the next century and the horizon is changing in many ways.

We now live in a society where there is a lawsuit filed against someone every 20 seconds in our courts today.¹ In the litigious society in which we now find ourselves, publicly recorded assets which are free of encumbrances can now be an attractive target and an invitation to unscrupulous legal vultures who may be on the prowl for unguarded opportunities.

An underemployed attorney can simply scan the public tax rolls to find unencumbered property to contrive a grievance against. And, as any competent attorney will confirm to you, every lawsuit is a “roulette wheel” in a game they play every day.

This gives rise to a strategy worth considering to those who are of significant financial means: asset protection. Unfortunately, in today’s litigious environment, there is a distinctive threat that is commonly known as “the unworthy judgment:” a contrived-but successful-judgment brought about by an unscrupulous adversary (which can be a stranger in our transient society). There are ways to protect against such a potential threat by those who have means to protect, but they require anticipation well in advance.

Perhaps the best way to prevent theft (administrative as well as physical) is simply to own nothing! What you don’t own can’t be stolen or lost through judicial procedures. When someone arrives on your doorstep with a court judgment for several million dollars, simply hand them your wristwatch and explain, “That’s all I own. Go away.” Your home, your car, your computer, etc. are all either leased, encumbered, or owned through a trust, a limited partnership, or a corporation.

(Many business corporations consist of two entities: an operating company and a holding company. All of the significant assets are held in a holding company to insulate them from any missteps which might occur by the operating company.)

This is why many people place their more significant personal assets into a trust, a family corporation, or some other structure to keep them out of reach from an “unworthy judgment.” Such a structure needs to be properly crafted by an attorney specializing in asset protection and needs to be in place at least a year before it is put to a challenge. Otherwise it could be subject to attack as a deliberate mechanism intended to defraud a creditor.

There are many different vehicles which can be used for estate planning and protection: living (revocable) trusts, irrevocable trusts, charitable remainder trusts (CRTs), limited partnerships, and corporations. Each has its own unique characteristics and advantages in accomplishing a large variety of goals: tax planning, survivorship and inheritance issues, and asset protection and management.

A detailed discussion of each of these alternative instruments is far beyond the scope of this brief introduction. Since the relevant regulatory environment involving tax and inheritance issues is constantly in a state of change, sound professional advice and supervision is essential if any of this is to be effective.

Taxation is always a key consideration for any assets that are significant. Taxes can be viewed as simply a penalty for poor planning. This, too, is a subject far beyond the scope of this brief review and needs to be directed toward competent counsel. (It is also worth noting that your accountant should be-at least, technically-under the supervision of your attorney to maintain the confidentiality of “attorney-client privilege.” Otherwise, this confidentiality can be pierced in an adversary proceeding.)

Charitable Remainder Trusts (CRTs)

While a discussion of the many alternative types of trusts is beyond the scope of this review, there is one that is surprisingly useful and has implications which are often overlooked: the Charitable Remainder Trust. It is a way that any significant asset can be donated and both the donor and his survivors can still retain its use during their lifetimes! This is not only of benefit to the recipient charitable organization; it can also result in very significant reductions in tax liabilities in the meantime. This clearly can be the most effective means of benefiting your favorite ministry or charity, while at the same time freeing up tax dollars for your own purposes. Consult your own advisors to profile the possibilities.

Internationalizing

Another significant positioning in today’s shrinking world is to internationalize one’s own personal horizons. The role of “off-shore” entities can be extremely effective for those who have significant means. There are a number of foreign jurisdictions that have established themselves over many decades in serving the diligent investor. The use of international bank accounts and foreign life insurance (which are private contracts, not “accounts”) are the stock-in-trade for the sophisticated global citizen. These can be very private and sound, although they can also be expensive and do require diligent maintenance. The exploitation of multiple currencies can also be a hedge against the anticipated vicissitudes facing the U.S dollar.

A current passport for each member of the family is also a prudent initial step toward protecting against unanticipated upheavals.

All of these issues require some serious study, yet can reward the diligent steward and lend a refreshing excitement to life’s adventures. But there’s an even more important factor in what we call the “Vortex Strategy”...

The Most Important Factor of All: The Tithe

Learn the supernatural element of stewardship: this is the solution to all financial problems! In last month’s article, we introduced the tithe as our “secret weapon.” Who’s in control of our finances-God or us? It’s a question of faith.

Man’s Purposes for Money

Man’s purposes for money include: 1) providing for security; 2) establishing independence; and 3) creating power and influence. These purposes may sound fine, but look who’s in control. This mind-set is based on an independence from God, not a dependence upon Him. Real financial freedom comes from realizing that true prosperity comes only from God (Deut 8:18) and committing ourselves to His purposes for money (Mt 6:30):

God’s Purposes for Money

1. Provision (1 Kgs 17:4)
2. Direction (1 Kgs 17:7)
3. Fellowship (1 Kgs 17:9)
4. Demonstration (James 5:17)

1) To Provide Basic Needs (Mt 6:26-30; 1 Tim 6:8)

1. • To establish daily dependence on Him (Mt 6:11).
2. • To deepen our love for the Lord (Col 2:10; Jn 15:5).
3. • To develop a spirit of gratefulness.
4. • To teach us to live within our means (1 Tim 6:6).
5. • To help us enjoy our possessions (Heb 13:5).

2) To Confirm Direction (Ps 37:7)

1. • To build our faith and vision.
2. • To determine who is the lord of our life (1 Tim 6:17).
3. • To protect us from harmful items (1 Tim 6:9).
4. • To teach us patience (Rom 5:3; James 1:3-4).
5. • To concentrate on true riches (Phil 3:7-8).

3) To Give to Christians (Rom 12:3)

1. • To unite Christians (2 Cor 8:14).
2. • To demonstrate the mark of a Christian (Titus 2;14; 2 Cor 9:8).
3. • To initiate spontaneous thanksgiving (2 Cor 9:11).
4. • To multiply the potential for giving (2 Cor 9:6).

4) To Illustrate God’s Power

1. • To cause Christians to trust Him (1 Kgs 18:21-40).
2. • To mock the false gods of our age.
3. • To purify our lives and motives (Ps 66:18).
4. • To bring non-Christians to salvation (Acts 5:12-14).
5. • To glorify God (Ps 50:15).

The Practical Aspects

A tenth of all is His. Be strict. Be careful. Be systematic. Separate His funds upon arrival: use a separate box, checking account, or whatever (1 Cor 16:1, 2). Keep records; your “giving” only comes after the return of His tenth.

You can take it with you! They always say, “You can’t take it with you.” I believe you can! There is a strange parable of the Unrighteous Steward (Lk 16:1-13), in which he writes down his boss’s receivables in anticipa­tion of an audit and his impending termination. Thus, he exploited his present, but temporary, circumstances to enhance his future opportu­nities. This is a strange example, but notice that the Lord commends his shrewdness, not his ethics. I believe this suggests that there is a way to “take it with you”: you can send it on ahead!

Before traveling to a foreign country, you usually convert your domestic currency into “the coin of the realm” to which you’re traveling. If you take heaven seriously, then why not prepare for your eternity through your stewardship of your current assets?

Portfolio Management Concept

In regards to your own program of giving, there is a rather unorthodox distribution approach you might consider. Professional managers attempt to minimize their maximum regret. [Known as the “Savage Principle” in the mathematical theory of games, a division of Decision Theory.²] They make their decisions in light of the ultimate review at the end of their reporting period. I personally never give according to “need” alone. In fact, the more desperate the need, the more I’m suspicious. There are more “needs” than I can possibly respond to. In fact, it seems to me that there are many ministries that God would prefer to shut down, if their supporters were only more perceptive!

I tend to view my giving opportunities as a portfolio manager. A portfolio manager’s performance is measured in retrospect by the subsequent results of his investments. Why not look at your own program of spiritual stewardship the same way? I hope to invest my resources where I have a high degree of confidence that the Lord will get the return He desires.

This approach results in a different perspective of alternatives. I am not as interested in a “need” as much as in indications that the Lord is in the action. What is the evidence that He is blessing what is going on?

I prefer to commit my resources into those areas in which I have been blessed, and where I am confident that He is pleased with the fruits that are being yielded. Your home fellowship should come first; and then any specific supporting ministries through whom the Spirit has blessed you.