Asset protection trusts and offshore investment

15 Oct
asset protection

asset protection – image by porbital

When discussing asset protection and offshore investments, the most widely known legal device for offshore planning or investment is an asset protection trust. Asset protection trusts resemble a typical trust as it legally exists in the United States only it’s located in a trust-friendly jurisdiction like the Cook Islands or the Bahamas. Certain jurisdictions (like the Cook Islands and the Bahamas) have enabled laws to make it difficult for creditors to push claims against the trust. Offshore trusts are considered “self-settled”, meaning the settlor and the beneficiary are the same person. A trustee is nominated by the settlor and is either a individual not a United States citizen or a trust company without ties to the United States. Usually there are also trust advisors or protectors who act as administration officials and serve as protection for the trust; they have no self-serving interest in the trust property itself.

The selection of the trustee is possibly the most important decision when forming an offshore trust and can be a bank or lawyer in another country. The trustee must be a reliable professional and willing to defend the trust against outside attacks by creditors and their attorneys. The offshore trust is most effective if the debtor relinquishes all control of the trust and the trustee and when all involved parties other than the debtor are outside the legal jurisdiction of the United States.

Offshore trusts often require considerable planning far in advance of when they will be needed. An offshore asset protection trust must be in place before it’s needed, i.e. before the debtor has been sued or ever threatened by a lawsuit or legal action. Wait too long to act and the settlor may be liable for fraud (intent to hinder or defraud a creditor) and the trust is dissolved and unable to protect any assets at all. All trusts also need to be established properly by filing the required paperwork with the IRS. Aside from asset protection, offshore trusts can be used properly to create an estate planning option for those worried about losing control of their assets or preserving them for beneficiaries. Well-planned and constructed, an international trust almost eliminates any estate tax liabilities. International trusts aren’t for everyone but they can be another tool to estate planning. Foreign trusts also offer United States citizens an opportunity to diversify their portfolio into a wide variety of better performing overseas investments, investments not usually available onshore.

It is very critical when selecting the location for the trust site. How the trust is able to operate and the laws favoring trusts can vary from country to country. Each country has unique advantages and disadvantages concerning taxes, foreign business, banking and investments. Depending on the intended purpose of the trust, and the inexperience of most people when establishing an offshore trust, it is critical to have an experienced team of trust advisors to count on.

Popular countries which favor offshore asset protection trusts are: Switzerland, Bermuda, The Cayman Islands, The Cook Islands, Liechtenstein, Anguilla, Gibraltar, Turks and Caicos.

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