What is a Offshore Asset Protection Trust?

Asset protection language uses and references these primary entities:

• Trust – an entity created to hold assets for the benefit of certain persons or entities, with a trustee managing the trust (and often holding title on behalf of the trust). Most trusts are founded by the persons (called trustors, settlors and/or donors) who execute a written declaration of trust, which establishes the trust and spells out the terms and conditions upon which it will be conducted. The declaration also names the original trustee or trustees; successor trustees or means to choose future trustees. The creators usually give the assets of the trust to the trust, although assets may be added by others.
• Beneficiaries – Under a foreign APT, the beneficiaries are usually the settlor, the settlor’s spouse, the settlor’s children, and other blood descendants, living parents of the settlor, and possibly one or more charitable organizations.
• Donor – One who makes a gift or transfers lands to another, also one who creates a trust.
• Grantor – The person by whom a transfer of property is completed, also the creator of the trust.
• Protector – One who serves as the champion, the overseer of the trust. Currently, the position of a trust protector is not normally encountered in domestic U.S. trusts, but this position is very common in other common law jurisdictions. Under many foreign trusts, the protector is originally the settlor, which can change later.

  The trust protector often has the following powers

  The power to remove and replace any trustees; The power to reject the investment decisions of the trustees; and The power to reject the distribution decisions of the trustees.
• Settlor – Also one who creates the trust or provides the reason for creating the trust.
• Trustee – Person or institution that oversees and manages a trust.

If you run your own business, if you have stocks and bonds, if you are in the public eye as a celebrity or even known in small circles as someone who is “doing well,” you could become the target of a sue-happy individual. What’s more, if you happen to engage in activities in your business or personal life that could create a liability situation for you, you need to think very seriously about what would happen to you and/or your family if you were to be sued…could you easily fund and whether the mental and financial burden of a lawsuit? Could you recover if you were to lose everything? A business owner or a licensed professional has a one in three chance of being named a defendant in a lawsuit in the next year, and it will only get worse with more than 100,000 law school students in school each year.

Any of these could leave you penniless and in debt

• Divorce.
• A negligence or injury claim, whether justified or not, that exceeds any insurance coverage you may have. Lawsuits from disgruntled business partners or employees.
• Huge fines for violating state or federal law.Lawsuits because of the actions of an employee.
• A costly accident and negligence claim.
• Nursing home or catastrophic medical bills.
• A lawsuit for defamation.
• Claims from creditors should your business fail.
• Breach of the contract through no fault of your own.
• Catastrophic medical bills.
• Seizure of your home or other assets without due process by U.S. Customs or other government agencies with forfeiture power.A huge tax bill and e
• scalating penalties following an IRS audit.
• A professional malpractice suit.

Everyone will flirt with liability and financial disaster, regardless of lifestyle, occupation, or caution. Dangers can be minimized but never entirely avoided. Even though you can’t eliminate the possibility of the above-listed points; you can greatly reduce your financial exposure due to them.

Settlement Of The Trust

This refers to the complete establishment of the trust, meaning it is created and finalized as an existing entity. Remember, for a trust to serve as a protection from creditors, the settlement of the trust must occur long before any significant creditors or liabilities materialize. I always advise my clients that establishing a trust should involve only a portion of their assets, leaving them demonstrably solvent after the transfer. Done in this fashion, asset protection trust is a very effective tool.

Practical Uses Of Offshore Asset Protection Trusts

The following is a partial list of the benefits of foreign trusts with asset protection characteristics. Some relate to asset protection and some relate to general business considerations. When documenting the trust the business-oriented justifications for settlement of the trust should be emphasized.

1. 1. A Supplement Or Replacement To Insurance

An important motivating factor for the settlement of an asset protection trust is the dramatic rise in the United States of both the number of lawsuits and the magnitude of verdicts. New theories of liability are created every day and suits are being brought more often. Approximately 18 million civil suits are filed annually in this country – one for every 10 American adults. Some professionals utilize asset protection trusts as an add- on or replacement to insurance. As malpractice rates rise, many professionals are reducing their coverage but still preserving their right to a defense under their policy, and implementing asset protection trusts. On occasion, these professionals go completely bare, particularly once all of the relevant statutes of limitation periods have expired. Many individuals recognize that heavy insurance in the current judicial climate serves to draw litigation, and that by reducing or eliminating the size of the potential recovery the incentive of any claimant to institute and pursue litigation is likewise reduced.

1. 1. A Tool To Settle Or Discourage Litigation

Few lawsuits are brought on principle, particularly if the lawyer for the plaintiff is being compensated on a contingent fee basis. Once the plaintiff and his attorney discovered that a properly settled and implemented asset protection plan is in place and that any judgment will be difficult or impossible to collect, their motivation to proceed with litigation fades. One principal effect of a carefully crafted plan is the destruction of the plaintiff’s economic incentive to litigate.

1. 1. To Keep The Ownership Of Assets Confidential

The confidentiality and secrecy laws of many offshore jurisdictions are taken very seriously and in fact, impose criminal penalties for their violation. Notwithstanding the near-absolute secrecy permitted by some jurisdictions, the settlor should be aware that the settlement of an offshore trust normally does not result in any tax savings or mean that the United States government (utilizing the resources of FinCEN) cannot discover the trust through a governmental investigation.

1. 1. An Alternative To Traditional Pre Nuptial Agreements

An unmarried person may normally settle an offshore trust without the consent of his prospective spouse. The offshore trust will normally protect the transferred assets in the event of a divorce. The primary difference is that the prospective spouse does not need to consent to the transfer (in fact, the spouse need not even know of the transfer). Offshore trusts are also sometimes useful in pre-divorce planning (e.g., to keep an expected inheritance segregated as separate property). In all cases, an asset protection trust is an estate-planning instrument with the same effect of a traditional domestic trust. (More specific information on marriage and relationships as they relate to assets in Chapter 9 of asset protection in a nutshell.)

1. 1. A Protection Against Potential Exchange Controls