What is a Offshore Asset Protection Trust?
There are many types of trusts. For this example, I will define an offshore asset protection trust as any trust formed for a term of years in a foreign jurisdiction, which does not recognize (or imposes significant barriers to the recognition of) United States judgments.
Honestly, this is every country in the world since every country requires that the case is re-argued under their law.
This is not to say that assets have to leave the USA to be protected, they don’t. You simply use a foreign trust to force creditors to litigate abroad, NOT to move your money there.
The reason I will focus on trusts with a “foreign arm” attached is that those are the only types of trusts that are virtually impenetrable by creditors. An asset protection trust is best thought of as a legitimate and internationally recognized vehicle for a solvent person to place a portion of his wealth into a secure entity, which allows that person substantial control over the assets yet protects these assets from future unanticipated creditors.
Some jurisdictions require a trial de novo (which means trying the case anew, as if it had never been tried before). Other jurisdictions have a procedure whereby certain United States judgments can be recognized (usually not penal or fiscal in nature) provided certain procedural hurdles (which may amount to a mini-trial) are met. No country in the world automatically enforces judgments from any United States court. This is probably because all other nations are worried about one aspect or another of our anti-trust, environmental, securities and tort laws.
Table of Contents
- 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 powersThe 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.
Who Needs Asset Protection?
Any of these could leave you penniless and in debt
- 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.
Settlement Of The TrustThis 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 TrustsThe 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.
- A Supplement Or Replacement To Insurance
- A Tool To Settle Or Discourage Litigation
- To Keep The Ownership Of Assets Confidential
- An Alternative To Traditional Pre Nuptial Agreements
- A Protection Against Potential Exchange Controls
There may be a time in the near future when our government suspends our ability to take money abroad. A foreign asset protection trust prevents such restrictions. One managing director of a substantial bank in the Cayman Islands recently remarked, “Exchange controls were firmly in place in the United Kingdom before [former Prime Minister] Margaret Thatcher, and one can’t be certain that they will never be reintroduced. In the U.S., with the shape of its national debt, I would not be surprised at all if limits on foreign investment were adopted. The U.S. has had such limits before, in certain forms.”
- To Give An Insolvent Debtor A Fresh Start
There are situations where an individual might separate and insulate future start-up business ventures, which are unrelated to his current activities from past creditors by the use of offshore trusts. This is particularly useful when bankruptcy is not a valid option. This is a way where an insolvent debtor who is entrepreneurial-minded can protect future profits from attachment by creditors.
In this case, extreme care must be taken to guard against the possibility of fraudulent conveyance issues.
Asset Protection Planing
- Setup a Trust or LLC
- Belize LLC’s
- Offshore Banking Overview
- 5 Key to Successful Asset Protection
- Offshore Trust Asset Protection and Tax Planning
- Bankruptcy & Asset Protection
- Being Pro-Active is Smart
- Offshore Bank Account
- Expatriation Tax
- Offshore trust domestic for tax purposes
- Asset Protection Cost
- Asset Protection Professionals