The Benevolent Father
Dr. Mehta always encouraged his children to be entrepreneurial. So when his son undertook his first real estate development project, Dr. Mehta helped him by personally guaranteeing $1 million in loans.
Dr. Mehta was completely surprised when the real estate development went sour and his son began talking about a possible default on the bank loan. Mindful of the personal guaranty he signed, Dr. Mehta retained our firm for asset protection planning.
He had three primary assets: his personal residence with approximately $1 million of equity, the medical practice, and a brokerage account with approximately $700,000 of investments.
We analyzed Dr. Mehta's situation and quickly determined that for him the best course of action was to encumber his personal residence and then protect the loan proceeds. Dr. Mehta obtained a bank loan (interest only) bearing an interest rate of approximately 5.8%. Dr. Mehta then invested the loan proceeds through an offshore structure and was able to generate a 9% rate of return on his investment.
He also liquidated his investment account and moved the money offshore into the same investment structure as the loan proceeds.
We advised Dr. Mehta that it would be extremely difficult (maybe even impossible) for the bank to reach his offshore investments. It was certainly very expensive.
The bank agreed. When apprised of Dr. Mehta's financial situation they concluded that it would be uneconomical for them to pursue Dr. Mehta's medical practice or his offshore investments. The bank did not pursue Dr. Mehta on the personal guaranty, and allowed Dr. Mehta's son to restructure his debt service on very favorable terms.