Protecting Your Assets Is Crucial

November 8, 2022

Protect Your Assets with an Offshore Trust

Protecting your assets is crucial when drawing up an estate plan. An asset protection trust can help you keep your assets from creditors, lawsuits and civil actions. These trusts must be carefully established and managed. Properly structured, in the right jurisdiction, the offshore trust eliminates the power of the U.S. judicial system to “get at” trust assets.

Foreign asset protection trusts typically provide more security for your assets and are harder to locate, they are more expensive to establish than a domestic asset trust.

There are a variety of types of trust but generally the two most important types are fixed trusts and discretionary trusts.

Fixed Trusts

A fixed trust will set out in the trust deed precisely who will benefit from the settled assets and at what stage in the future. Such trusts have the advantage of certainty. However, they are normally unchangeable and can create real problems where, for example, the beneficiaries designated become unsuitable or taxation law changes adversely. On the other hand, here the risk of legal attack is great, especially for doctors and other professionals the asset protection aspect is greatest when the trust is irrevocable.

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Discretionary Trusts

The second main category of trusts are discretionary trusts, which define in the trust deed a class of beneficiaries who can benefit in the future but whose exact interest is not currently specified. Most modern trust deeds also have the power to add new beneficiaries into the deed in the future should this be desirable. Where a discretionary trust is set up, it is important that the trustee understands the settlor’s situation and can advise him on the best course of action that he should follow from time to time.

To protect assets from U.S. creditors, an Offshore Trust should include:

The trust is irrevocable.
The U.S. debtor is the grantor but never sole the trustee.
The trust provides the trustee the discretion to withhold payment from the beneficiary.
The trustee is typically a foreign trust company or financial institution rather than an individual.
Sometimes, a friend or financial advisor of the U.S. debtor serves as a trust protector. The plan best uses a trust protector who is not located in the United States.
The trust expressly states that the location of the trust (called the situs) governs trust provisions.
The sole asset of the trust is a 100% ownership position in a foreign LLC or other entity that can be controlled by the debtor when not under creditor duress.

What Countries are Offshore Trusts Available?

Offshore asset protection trust or available in many jurisdictions, but some of the more common ones include:

The Cayman Islands
The Cook Islands
The Bahamas
Nevis
Belize
Isle of Man

Each country will have its own requirements for an Offshore Asset Protection Trust, but the basics include a trust that is irrevocable; domiciled outside of the United States, and utilizes a foreign trustee. In addition, in order to attack the trust, the country will usually require the creditor to post a bond.

While other options exist to protect your assets, none have stood the test of time quite like offshore asset protection trusts. Offshore asset protection trusts may be the perfect solution for you. No matter which country you choose for your offshore asset protection trust, make sure you’re trusting experts to help you set it up. Let us help you, we have decades of experience in helping people set up their trusts and other offshore issues.