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A popular asset protection vehicle is the asset protection trust, or offshore trust. Trusts are flexible instruments that can be settled in a jurisdiction with a legal system created to enhance asset protection and privacy of investors.
The US Treasury has commented on the large number of offshore trusts being formed and used the word “exploding” to describe the market. An estimated tens of billions of dollars are currently protected through these types of trusts and the numbers of trusts formed grow annually.
Professionals on both sides of the asset protection battle include themselves in these statistics. Both the attorneys who protect assets and the ones who pursue them are seeking the ultimate in protection for themselves. An article in the American Bar Association Journal printed a quote from an attorney who said up such a trust for himself and said “I don’t want someone doing to me what I do to them all day in court.” Lawyers are setting up offshore trusts for themselves for protection from their own occupational hazard.
As more people understand their own lawsuit potential and the devastation that they can cause, putting assets into an instrument that is viewed as the ultimate protection layer to avoid costly legal battles. The offshore asset protection trust is part of a sound financial and asset protection plan, designed specifically to avoid and detour expensive litigation.
There is very little difference in the wording between an offshore trust and a domestic trust for asset protection. The big difference is when it is challenged in court. An international trust should be settled in a country with the strongest protection and privacy laws in the world, such as the Cook Islands. Offshore trusts there are managed by licensed and bonded trustees. Most of the time it is a trust company that specializes in protecting assets outside the U.S. court’s jurisdiction. Trusts can be created to survive for a defined amount of years, or to perpetuate after the settler’s death.
Trusts are funded by the settler transferring assets to the trust. Trustees distribute money to designated individuals called beneficiaries. The settlor can be a beneficiary as well has his or her spouse, children, etc. Another control instrument is the trust protector, this is a person who the settler designates to provide additional oversight over the trustee. They protector may give consent to the trustee for major decisions such as trust distributions and trust amendments.
You can fund an offshore trust simply by transferring cash, securities and other liquid assets into an offshore bank account that is in the name of your offshore trust. The licensed, bonded, and insured trustee will take action when it comes to holding income in the trust, or distributing it among the beneficiaries. These actions can be initiated through advice from the trust protector or, at the trustee’s discretion, through requests from the settlor.
Combining offshore banking with an offshore trust offers outstanding asset protection and financial privacy. When your assets are held in a trust, settled in a jurisdiction with the strictest financial privacy laws in the world is a legal and powerful financial asset protection plan.
Your trust needs to be created with asset protection provisions in mind. Your trust will have a licensed, bonded, insured offshore trustee. Let’s suppose that you, a U.S. resident and trust settlor, are ordered by a court to return assets that were transferred to an offshore trust. You write a letter to the trustee letting them know you have been ordered by the courts to return the trust assets. Based on the “duress clause” in the trust, the trustee will not comply. Since you are making the request under legal duress, the foreign trustee will not relinquish your assets to the courts. Your assets remain safe and sound inside.
When you are the beneficiary of trust assets you have the have legal right to them. If it was a domestic trust (such as a US-based trust if you live in the US) a judge could order you to retrieve the assets therein and choose to hold you in contempt of court if you fail to comply. With a foreign trust, on the other hand, your protection planning puts you in a situation where the trustee stands between you and the courts. Thus you do not possess the legal ability cough up your assets and hand them over to your legal enemy. The courts cannot hold you in contempt for something that is not possible for you to do.
Various trust provisions address this directly; such as requiring the trustee’s consent to revoke the trust or retrieve the assets held within. As mentioned above, this is further strengthened by a duress provision stating that the trustee must disregard actions directed by the settlor while under legal duress.
This leaves the trust settlor with no legal right to revoke the trust or retrieve the assets held within it if the assets would be directed to his legal opponent. Your trustee does not have to comply with U.S. court orders and you cannot be compelled to any action which you have no legal right to perform. The trust assets are protected and you, as the trust settlor, lacks the legal power to comply with a court order.
In the cases when an offshore trust was created in attempt to defraud creditors or tax agency or harbor assets acquired through fraudulent or criminal action, results will vary. The offshore trust and jurisdiction laws are not setup to enhance a person’s ability to engage in fraud, tax evasion or criminal activity. When trusts are used for these types of activities, stronger legal responses can come from the court, including contempt sanctions. Moreover, our company will not knowingly establish trusts for illicit purposes. So, if one has a legitimate need to protect honorably earned assets, the offshore asset protection trust may be the strongest solution.