FOREIGN/OFFSHORE TRUSTS
The international asset protection trust also referred to as an offshore trust is a popular form of asset protection. Trusts are versatile tools that can be resolved in jurisdictions that have lawful systems developed to improve asset protection as well as the personal privacy of the investors.
The United States Treasury has actually talked about the large number of offshore trusts being created and they described the market as “exploding. They have estimated that approximately billions of dollars are currently being safeguarded by these types of trusts. There is an annual increase in the number of trusts being created each year.
Experts on the opposite sides of the asset protection debate can include themselves in these statistics. Both the people who protect the assets (i.e. Attorneys) and the people that own them are looking to have the highest level of protection for themselves. In fact, an attorney posted this quote in the American Bar Association Journal; “I don’t want someone doing to me what I do to them all day in court.” Attorneys are establishing offshore trust funds for their own benefit to protect themselves from their own work-related risks.
Therefore, they placed their assets into a product that can provide them with the utmost protection they require to prevent massive legal costs. The offshore asset protection trust is an integral part of a sound asset protection and financial strategy. This type of trust is specifically designed specifically to prevent costly lawsuits.
Trust Features
The difference in the wording of an asset protection offshore trust and an asset protection domestic trust is minimal. It is only when it is challenged in a court that the differences come into their own. To get the most benefits out of an international trust it needs to be settled in a country that has strong privacy and protection laws. The Cook Islands provides this type of protection for an offshore trust. The majority of these trusts are managed by licensed and bonded trustees or trust companies that specialize in protecting assets that are beyond the jurisdiction of the United States courts. A trust can be created to run for a specific number of years, or to come to fruition when the owner dies.
A trust is funded when the trustee transfers their assets to the trust. The assets can be distributed to specific individuals called beneficiaries. The trustee can be a beneficiary as well their wife/husband, partner, or children, etc. An additional control that can be implemented into the trust is a trust protector. This is an individual who the owner deems responsible enough to provide additional control over the trust. The trust protector can be granted permission to act on the trustee’s behalf to make significant decisions such as amending the trust and distributing the assets of the trust to the beneficiaries.
Funding Your Trust
You can fund an offshore trust by transferring securities, cash and any other form of assets into the offshore bank account that was created for the offshore trust. A better option is to set up a limited liability company (LLC) that will own 100% of the trust. By doing it this way you can control the trust until somebody threatens the trust with a lawsuit. The fully insured, bonded and licensed trustee will be able to, as the LLC manager, step up to the plate to protect you. They will then be in a position to act on your behalf to carry out any necessary obligations of the trust (e.g. dispersing revenue to the beneficiaries). These activities can be started via recommendations from the trust protector, at the discretion of the trustee, through demands from the settlor.
Combining offshore banking with an offshore trust will provide exceptional financial privacy and asset protection. This is especially applicable when your possessions are held in a trust that is settled in a location that provides very strict financial privacy laws. It is the most powerful (legal) part of a financial asset protection strategy.
Legal Provisions
Asset protection must be the paramount concern for any trust that is about to be created. The trust must have a fully licensed, insured and bonded offshore trustee. Let’s say that you are a resident of the United States and also the trust settlor, and you are ordered by a court to return the assets that were moved to an offshore trust. You write a letter to the trustee of the trust explaining to them that the courts have ordered you to return the assets belong to the trust. The trustee will not comply to the court’s request because the trust has a “duress clause” written into it. Therefore, as you are making the demand under legal duress the foreign trustee will certainly not relinquish your possessions to the courts. Your assets will continue to be securely protected within the trust.
You have the legal rights to owning a trust’s assets if you are a named beneficiary of the trust. If you are a beneficiary of a US-based domestic trust and you actually live in the United States, then a judge might get you to retrieve the assets therein. Furthermore, if you do not comply with the judge’s order you or even your trustee could be held in contempt of court. Whereas, the protection planning capability within a foreign trust gives you a strong bargaining position because the trustee stands between you and the courts. Therefore, you are not legally obliged to hand over your assets to your opponent. Consequently, the courts do not have a legal right to hold you in contempt of court for something that you cannot do.
There are various trust provisions that resolve this directly; such as needing the trustee’s consent to withdraw the trust or recover the possessions held within. As stated above, a duress arrangement will further strengthen the trustee’s position in disregarding any action the settlor tries to implement. If a settlor of a trust is under legal duress, then they have no lawful rights to recover the assets held within the trust if the said assets are going to be given to their legal opponent. A United States court order cannot be enforced on your trustee. Therefore, you or your trustee cannot be forced to take any action that you or your trustee have no lawful right to execute. The assets of the trust are secure. As you are settlor of the trust you do not have any legal power to abide by any court order.
In the event that an offshore trust is created to try and defraud a tax obligation, lenders or harbor assets obtained via illegal or criminal activity, the results will most certainly differ. The offshore, as well as the jurisdiction legislation, are not configured to improve an individual’s capability to participate in tax evasion, scams or criminal activity. When a trust is used for this type of activity, then the courts will sanction a much more powerful legal reaction, and in some instances, contempt of court procedures will ensue. Most asset management companies will not intentionally establish trusts for illegal purposes. The offshore asset protection trust can be the best option to go for if you require a genuine solution to honorably protect your assets.
The costs associated with obtaining or enforcing a U.S. judgment will result in protracted and expensive litigation, including hiring counsel in the foreign jurisdiction to litigate or enforce a creditor’s claim. These costs will motivate a creditor to settle a claim for pennies on the dollar.
Finally, our clients are consistntly surprised to find out that foreign trusts are usually less expensive to set up and administer than DAPTs.