Client Story: Risk & Protection from Consequences

We recently had a client who had a situation many parents are susceptible to.

Dr. Ashtan had a successful surgical practice. He worked hard and built a comfortable life for himself and his family. He took calculated risks and encouraged his children to be entrepreneurial.

When his son, Peter, undertook a real estate development project Dr. Ashtan fully supported his endeavor by personally guaranteeing a $2 million loan from a specialty lender to fund the project.

Unfortunately, due to either lack of experience, poor management, or plain bad luck, the real estate development went bust, and Peter was about to default on the loan. Dr. Ashtan, aware of the consequences of a default when there is a personal guarantee, came to us immediately for asset protection planning.

His personal residence with $1.3 million in equity, his medical practice, and a brokerage account with $900,000 in investments, were all exposed to the personal guarantee.

We advised Dr. Ashtan to:

1. Encumber his personal residence and protect the mortgage cash out by investing through an offshore structure.
2. Liquidate his investment account and move the money offshore into the same investment structure as the loan proceeds.
3. Convert his medical practice into an LLC

Peter hired a debt workout specialist but could not come to terms with the lender. He defaulted on the loan and the lender sent a demand letter to Dr. Ashtan. We presented the lender with Dr. Ashtan’s financial statement (showing an encumbered house and the medical practice – the offshore assets were in an irrevocable trust). The lender settled with Dr. Ashtan for approximately $150,000, a result that our client was very happy with.

Although each case is different, this time, we were successful. We often get asked whether it is too late to protect assets when a default is imminent. As this case demonstrates, the answer is no – it is not too late. When we plan late, the effectiveness of what we do is diminished, but it usually still makes sense to try. If Dr. Ashtan did not try to protect his assets, the lender would have never settled for $150,000.

If you have any questions or going through a similar situation, please feel free to contact us. We’ll be happy to explore your options.