The international asset protection trust, also known as an offshore trust is a popular asset protection vehicle. Trusts are flexible instruments that can be settled in jurisdictions with a legal systems 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. 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 set up such a trust for himself. He 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 hazards.
More people understand their own lawsuit potential and the devastation that they can cause. Thus, they put 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. It is designed specifically to avoid and deter 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. One of the prominent jurisdictions is 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 settlor’s death.
Trusts are funded by the settler transferring assets to the trust. Trustees can 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 whom the settlor 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.
Funding Your Trust
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. Better yet, set up an LLC that the trust owns 100%. This way, you have an instrument within the trust that you can control until a lawsuit threatens the assets. The licensed, bonded, and insured trustee will then take action and step in as the LLC manager to protect you. Then they will perform the needed duties 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. This is especially the case when your assets are held in a trust, settled in a jurisdiction with the strictest financial privacy laws in the world. It is legal and powerful part of a 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. Moreover, the judge could choose to hold you or your trustee in contempt of court if you or your trustee 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 generally 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, who is under legal duress, with no legal right to 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. Thus, you or they cannot be be compelled to any action which you or your trustee have no legal right to perform. The trust assets are protected. You, as the trust settlor, lacks the legal power to comply with such 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.