Chapter 5

After dealing with all of the trust related paperwork, we went home and Elsa went to her bedroom for her afternoon nap, I settled into my favorite living room chair, closed my eyes, and let my mind wander wherever it would go. My mind focused on how complex my life had become since Elsa told me she was going to leave her estate to me. That was over a year ago.

The problems I face have become even more apparent since Elsa and I returned from Europe. The conversations we had in Sam’s office took center stage in those problems. I suspect I am going to have ongoing problems with the IRS. The remaining two requests Elsa asked me to do could easily result in me being tied to Nazi war loot, which would be the end of my life as a free man if I handled the tasks in the wrong way.

We’ve resolved how I was to handle Elsa’s European empire by creating the Trust, but I will have an obligation to the Trust. I don’t object to supporting the Trust, but I haven’t decided how to meet the costs I will incur in traveling to and from Zurich and living in Europe several weeks or more, every year. I wasn’t drawing a salary from the Trust, so my best option is to let the Trust pay my travel costs. Paying for these costs personally will cause me trouble with the IRS, although my involvement with the Trust can be easily explained and I don’t think the expenses paid by the Trust will be considered income for me. The trouble may be limited to an annual audit of my taxes. That is probably going to happen anyway after I inherit Elsa’s companies.

I was very uncomfortable with the amount of money Elsa had transferred to me, while we were in Switzerland. It sort of felt like charity, but I also knew I would need money for what I would do in the near future in aiding Elsa. I eventually rationalized it as advance payment for the costs I would incur in supporting Elsa.

While I wasn’t a pauper, I certainly wasn’t wealthy before I went to Switzerland with Elsa. Having a veritable fortune in the Cayman Islands was nice, but I would have problems explaining the sudden wealth in my Cayman checking account to the IRS. Elsa’s idea of calling the money a gift should work out okay, but I’m like Elsa, I don’t like paying more tax than I feel is reasonable, and anything more than about twenty-five percent seems unreasonable. I wish the Government would change the tax laws to a flat tax of about twenty percent or less on everyone’s gross income. It would make things easier for everyone, and it should provide the Government with more income. I recall hearing about this millionaire Arizona rancher who earned a gross income of several million dollars per year, but the tax laws regarding deductions and depreciation result him paying zero dollars in tax. Things like immense incomes and low tax bills are common among the ultra-rich. That’s just not fair to the rest of us tax payers.

Sam told me that I was required by US law to report all bank accounts that I may have in foreign countries if the total of the balances was over ten thousand dollars. Between what Elsa transferred into my numbered account and my depositing money from my Swiss checking account through several bank accounts to my numbered account, I had over a hundred million dollars in my numbered account and about a hundred thousand in my Swiss and Cayman checking accounts.

Based on our conversation with Sam, if I reduce the total balance in my two checking accounts to less than ten thousand dollars, I won’t have to report the accounts to the IRS. I left three thousand dollars in my Cayman account, and five thousand in my Zurich account, and I transferred the rest of the funds to my numbered account. Since the total balance of the two accounts was less than ten thousand dollars, I didn’t need to report my accounts. If no attention is brought to my Cayman account, it is doubtful that the IRS will ever learn that I also have a numbered Cayman account.

I later learned that wasn’t always true that the IRS wouldn’t learn about an unreported numbered account. People often got careless and created links between their numbered accounts and their US checking and savings accounts. I needed to be very careful how I handled my numbered account and follow Elsa’s advice about using only my Cayman checking account for withdrawing funds from and depositing funds to my numbered account.

I think the biggest problem I currently faced, was caused by Elsa’s dislike of the Government seizing a large portion of her estate after her death. I understood Elsa’s feelings. Hans and Elsa worked all of their lives to be financially secure and they spent a lot of their money to help others. In the process, they paid income taxes to both the US and Swiss Governments on what they earned, and even after their deductions, they were still in the highest income bracket. That was a lot of money to turn over to the IRS and Swiss Governments. Elsa no longer has financial interests in Europe that can be taxed. Hans is dead and when Elsa passes away, the IRS and Colorado will claim more than half of her estate as inheritance taxes. It just isn’t right.

People plan and work hard during their life to provide a financially secure lifestyle for themselves and their family. Over the period of a person’s life, the Federal and State Governments take about forty percent of the average person’s income as income taxes, and that doesn’t include all of the miscellaneous taxes you have to pay, such as: sales tax, luxury tax, gasoline tax, licensing fees, etc. That percentage is even higher if you are in the upper income bracket. Then you die and the Government absconds with more than half of the estate you leave to your heirs. Between all the taxes you pay while you are alive, it seems like the Governments takes half of what you earn and then they take another half of what you leave behind for your heirs. Having to turn over three quarters of your income and investments to the Government is wrong in my opinion.

Elsa’s plan for avoiding inheritance taxes and most of what she would have to pay in income taxes will work if Harry and Sam can find a legal way to transfer ownership of her companies to me, and if she can find an acceptable reason for selling off her companies at an extremely low price.

Of course Elsa’s plan could put me in a bind, but my idea of Elsa’s selling her companies to a business I establish in the Cayman Islands, may protect me from the greedy hands of the IRS. If I understand the island’s privacy laws, the Cayman Islands treats information about the businesses established on the island and about who owns them as private information that is not to be revealed by the government to anyone. If that is true, then the IRS may not learn that I bought Elsa’s businesses.

But that solution creates another problem. I don’t see a way for me to live in Pueblo and run a business based in the Cayman Islands. I can see no way to avoid that problem other than to move to the Cayman Islands. My problems with the IRS will continue even if I reside overseas, and the only way I can see to avoid being harassed by the IRS is to become a citizen of the Cayman Islands. But... I don’t want to give up my US citizenship!

I heard Elsa softly ask, “Are you asleep, Paul?”

“No, I’m just trying to put everything that has happened since we returned from Switzerland into perspective. Did you need something?”

“When I woke up, I laid there thinking about the past few days until I decided to get something to eat. Can we talk?”

“Sure. I’m hungry also, so I’ll join you for a late lunch.”

Elsa made us a couple of tuna fish sandwiches and heated up a can of tomato soup. As we sat at the dining room table eating lunch, Elsa started to talk.

“I like your idea of opening a business in the Cayman Islands, Paul. It got me to thinking about our two-week vacation. I liked the weather, the people, and the simplistic life style we found there. If that is typical, then I wouldn’t object to living there.”

“What about your home and your friends here in Pueblo, Elsa?”

“My home gives me many fond memories of Hans, but it’s the things in the house more than the house itself that gives me those memories. If I were to move to the Caymans, I would take all of my belongings with me. My belongings would continue to remind me of Hans.

“Over the past few years, I have been having difficulties with the snow and with the winter winds and temperatures. I’m always afraid of falling and breaking a bone, and I never feel warm during the winter months. At my age, I would be more comfortable in a warmer climate. My friends are mostly business acquaintances, and I can stay in touch with them by phone. Would you be interested in relocating to the Cayman Islands?”

“I’ve been thinking along those lines while you were napping, Elsa. I am an only child and my parents passed away before I started college, but I still have a few aunts, uncles, and cousins around. We stay in touch, but we aren’t close. If I moved to the Caymans, I could always return for a visit or they could visit me.

“While you were napping, I also realized that if I set up a business in the Caymans to buy your companies, it would be virtually impossible for me to manage the business from Pueblo. The only thing keeping me here is you. So if you are seriously thinking of moving to the Caymans, I would be more than willing to go with you.”

“All right, Paul. Let’s make plans to move to the Caymans as soon as possible. The first thing we will need to do, is for you to set up your business. I wouldn’t mind going with you for we could start looking for a place to live. Do you have anything in mind for a house to buy?”

“No, I hadn’t gotten that far in my thinking. Something about the size of this place would be good. I would like to be reasonably close to a large town like George Town, but I don’t want to live in the city. A place with easy access to a beach might be nice.”

“Paul, you need to stop thinking of yourself as a poor man, and start thinking about what your future position in the Cayman Islands’ society will be.

“Your company will own businesses that are each worth millions, and that will be just the start of your business empire. You will become a powerful man in the Caymans. You also have money in your numbered account and you should invest it through your company. You can invest in real estate and you can buy more businesses. However, you will need to wait until the new business is stable and you have a firm grasp on all of my companies before you start expanding. Too rapid of a growth, is a bad thing for a business. The growth rate needs to be planned and controlled. That is what Hans and I learned, although that doesn’t mean the growth rate has to be slow.

“When you become one of the Cayman’s more important residents, it may be advisable for you to become a citizen of the Cayman Islands.”

“I’m not sure if giving up my US citizenship is something I want to do, Elsa.”

“I didn’t say you had to give up your US citizenship. It may be possible for you to have dual citizenship like Hans and I did.”

“That hadn’t occurred to me, and if it is possible, I will have to give the idea some serious consideration. What type of house do you think we need to buy?”

“I’m thinking of a small mansion. Hans and I were doing our best to keep a low profile here in the US when we bought our house, and living in a small house helped to keep us from being noticed. This house was adequate for us and we loved it. However, you are going to be in a very different situation. Keep in mind that I’m not going to be around much longer, so you need to buy what you will need for the future.

“You will need a home suitable for entertaining your business associates. I know you have expressed a disdain for high society in the past, but I suspect you will be involved in the Cayman’s social set to some extent. It seems to go hand-in-glove with wealth.

“It will be very evident to everyone that you are a wealthy man. Wealthy people typically need bodyguards and a higher level of security than an average person. Your home may need a sophisticated security system, which means you may need security guards continuously monitoring the system and the grounds. You may even need bodyguards.

You and I aren’t going to be able to take care of a mansion, so you will need a household staff. I’m thinking of a cook, gardener, and a couple of maids. You may possibly need a chauffeur. You will need to think about whether you want your staff living with you. Personally, I don’t care for live-in servants, but in your home they may be necessary.

“I suspect that the women who visit and live on the island will target you as a potential husband. I expect that you will find the right woman for yourself within a couple of years and marry her. The two of you will also want children.

“All of this means you will need a very large home, which is why I suggested a small mansion. It is just a matter of finding the right mansion. If necessary, you may have to build a place that meets your needs.”

“I can see most of that being valid, Elsa. Especially a household staff, if we get a large place. A wife and kids are in my plans at some point, but I think it will take more than a couple of years before I’m ready for marriage. I’m going to be very busy with my new business.

“Setting up the business will be more important at this point than finding a house, but if you want, we can start looking around for a house during our trip.

“The businesses I visited are in the fields of computer hardware and software, oil exploration, trucking and shipping, textiles, a fishing fleet, and a seafood distribution center. I see the businesses falling into four categories with a division to manage each category: technology, transportation, oil, and fishing ... although seafood may be a better title than fishing. During our tour of your US businesses, I didn’t get a sense that the textile company really fit into your business empire. Did you and Hans buy it out of sentimentality, since that was the business your families were in before the war?”

“It’s possible, but I never thought of that as our reason. I know Hans and I were always comfortable with the business, and it made a good profit for us at first. I’m afraid that the textile industry in New England is coming to an end. Lately the company’s profits have been declining and many of our local competitors have gone out of business. I have reached the point where I will have to make a decision to sell the company while I still have a chance of a profit, or I will need to retool the plant, so it would be competitive with the overseas textile companies and those located in the south. I’m still not sure which would be the best option.”

“It sounds to me like textile manufacturing in the New England area is a dying business. If that is true, it would probably be best to sell the company. However, I know very little about the textile business. If retooling the plant would extend its profitable life span significantly, then that may be a good way to go. I’ll leave it up to you to decide. I can keep the plant as a fifth category and learn the industry, or at least put an expert in charge of a fifth division. If I do that, then investing in the textile business in other parts of the country may be a good move. Let’s just think about it for now.

“So my company will have to have four, and possibly five, divisions to manage your companies. I will also need a Division, or several groups, to handle the administrative, financial, legal, and other needs of the company.

“In addition to creating the legal structure of the company, I will need an office building and a few key people to begin staffing the company. I think it will take close to four to six months to create the company, find an office building, find a Chief Operating Officer, and hire people for the legal and contracts groups with support people. That is the minimum that will be needed before I will be in a position to buy your companies, but with the right COO, it might take less time than I think to accomplish all of that. Once we are in the negotiation phase of the sale, we can begin to set up the rest of the company’s structure.”

“Will we need to be in the Caymans for four or five months, Paul?”

“No. What I’m thinking of is, I’ll find a lawyer to incorporate the company, a COO to run the business, and a business lawyer to take care of the company’s legal affairs. Once that is done, I can talk with them about what I want done. We can go home while they take care of the work. I can consult with them by phone, and if necessary, I can always make a quick trip back to the Caymans to take care of anything that needs my physical presence.”

“Elsa, what do you think we will need to do before you sell the house and move to the Cayman Islands?”

“As far as the house goes, we need to sell the bullion and get the house ready for sale.

“For my businesses and investments, I need to sell all my stock, but I may decide to do that after the move. I want to wait and see if Sam can find a way to transfer my stock to you without me having to pay income taxes.

“For the companies I own, I want to visit each company and brief the board of directors on my plans for selling the companies. They will need to know what is happening, so they can keep their people calm. I will let them know that I plan to sell similar companies to the same buyer and I want them to create negotiating teams for each group of companies. I will also let them know that there is a company that might be interested in buying all of my companies. Once that is done and your company is ready, I’ll put my companies on the market. I think you will need a negotiating team to come talk with my companies’ negotiating teams. We can let our teams discuss the conditions and terms of the sale, and report back to us. I’ll get involved toward the end, and I’ll meet with your COO and lawyer to discuss the price and finalize the sale.

“Once the sale is finalized, I’ll have Sam determine my tax bill for the year and put the house on the market. I think I’ll sell it to a young couple just starting out at a very reasonable price. I’ll transfer my money from my Pueblo checking account to my Cayman account, but I’ll leave enough in my Pueblo account to pay my taxes.

“I thought for a moment that you were going to tell me that you intended to tell the IRS to take a long walk on a short pier.”

“I wouldn’t do that, Paul. It would violate my ethics. I know I can’t legally avoid paying income taxes, but I can minimize my income, to pay as little as possible. If the IRS complains, I’ll just tell them I have all the money I will need for the rest of my life, and if I want to sell my companies and home at less than market value, that is my business. I won’t tell them, but by the time I die, I will have arranged things so there is no estate for them to tax.”

“I agree with your list of things that need to be done, Elsa, except for the bullion. I think we should have your trucking and shipping companies transport it to the Caymans for us. That way we won’t have to deal with it until later.”

“I’m not sure that is a good idea, Paul. If someone in an official position learns about the bullion, I will need a story to explain how I came to possess that much bullion. If they inspect the bullion, the markings will mark it as war loot. I can’t think of any way to explain those two things to the authorities. It would be safer for us to sell it to someone who will buy large amounts of bullion without asking questions. I don’t know of a bullion buyer like that, but I do have a few acquaintances who may know of a less than honorable buyer. I think it is still a good idea to first remove the marking from the ingots of bullion.”

“Would dealing with someone like that be safe? When we show up with the bullion, they could kill us and take the bullion.”

“I’ve heard those types of stories also, Paul. I wouldn’t put us in that type of situation for several reasons. First of all it wouldn’t be safe for us. Secondly, there is the potential for us being blackmailed. What I’m thinking of is, my acquaintance would be a middleman. He makes the arrangements for the sale. When we reach an agreement on the price, we turn the bullion over to him. He sells it to the bullion buyer, takes a percentage of the proceeds, and gives the balance to us.”

“Can you trust your acquaintance to deal with us honestly? Can he deal with the bullion buyer without being ripped off?”

“Paul, my acquaintance has the reputation of being an honest crook. He is also a very scary guy with a number of violent associates, so I don’t think the bullion buyer would even think about trying to rip him off. If I make a deal with my acquaintance, he will live up to his side of the bargain. A mutual acquaintance once said that according to my acquaintance, I am a scary bitch and there was no way he would cross me. Am I a scary bitch, Paul?”

With a smile I said “Only to someone who crosses you, Elsa. Let’s do it your way. I’ll start preparing the bullion for sale and pack it for shipment. I will have to do that task after we return from the Caymans. I’d say you should wait until all of the bullion is ready for shipment before you contact your friend.”