Asset Protection Planning
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A properly established trust often the most reliable and secure structure for those seeking powerful asset protection. There are several factors to consider when setting up a trust to capitalize on its advantages. Keep in mind that for a trust to protect your assets, one must draft it in compliance with the laws of the jurisdiction where it is established. This holds true for other asset protection structures as well. That said, one of the key decisions you need to make when setting up a trust is where to domicile it.
As a rule, international trusts consistently display stronger asset protection case law when you compare offshore vs. domestic trusts. Offshore trust laws create environments that favors judgment debtors. Most of them have strong legal histories of trust impenetrability; and, they offer levels of privacy hard to find elsewhere. There are a number of international trust jurisdictions vying for dominance in the asset protection arena. Among them, Cook Islands, Nevis and Belize have some of the strongest and most secure trust protection legislation.
A tested method of protecting assets is to divest yourself of the same assets you are trying to secure. This may sound ironic or counter-intuitive, but it makes perfect sense. After all, it a challenge for your opponent to take something you do not own. A trust builds a wall between asset owners and their assets without requiring them to relinquish control over them. You continue to enjoy and manage your assets without placing them at risk from creditors or predatory plaintiffs.
There are several different types of trusts and a number of options as to where they can be established. To figure out what kind of trust you need to safeguard your assets and where to domicile it, it is best to sit down with an asset protection professional. In the world of asset protection, there are no cookie-cutter solutions. A seasoned asset protection professional will craft a structure that offers the maximum asset protection, fits your personal requirements, and meets the level of risk with which you are comfortable.
A U.S. trust basically offers the same protective features as an international trust. However, offshore jurisdictions typically have legislation that give those whose wealth can be plundered through rap of the judge’s gavel greater protection and more control over their assets.
There is a fierce competition that exists among the countries that offer offshore asset protection trusts. International trust jurisdictions are constantly vying for the lucrative business protecting wealth. To attract individuals seeking protection for their assets, these jurisdictions enact laws that tend to favor trust settlors. Asset protection legislation in offshore jurisdictions are carefully crafted to provide structures that can stand up to various challenges. This could not be more dissimilar to America, where bank and trial lawyers association lobbyists campaign-finance-bribe the lawmakers into making them more creditor friendly.
For example, neither Belize nor Nevis permit creditors to obtain freezing orders from local courts. This type of court order is also known as a Mareva injunction. With a Mareva injunction in hand, creditors can effectively block settlors from accessing trust assets. This can have a significant impact on the outcome of a court case against an asset owner, especially if they need their assets to fund their court battle against the same creditor. Settlors who set up their trust properly in Belize and Nevis will never have to fear having a Mareva injunction block their access to their assets in the middle of a court battle.
In addition to laws that favor trust settlors, most offshore jurisdictions also have extensive case histories of successful trust protection. Cook Islands has one of the most tested case law histories in the asset protection world. In these cases, creditors or plaintiffs failed to breach the security of a Cook Islands trust. This sets a solid legal precedence and also sends a strong message to would-be challengers to stay away.
Another attractive feature of offshore trusts is the level of privacy they offer. When you establish a trust in almost any international location, you are not required to place your name on any public document attached to the trust. In Belize, the government does not even require a trust structure to be registered. Anonymity provides another cloak of protection over your assets. If your legal enemies do not know you have an offshore trust, they cannot go after the assets housed in it.
So, how does Nevis stack up when we compare offshore trust jurisdictions? Nevis already had strong trust legislation as set out in the 1996 Nevis International Exempt Trust Ordinance (NIETO). However, in 2015, Nevis amended NIETO, which brought further clarity and even greater certainty to its existing asset protection laws. One of the key amendments to NIETO enacted in 2015 was the elimination of the three-year sliding window regarding fraudulent conveyance. Challengers to a Nevis trust now have a much shorter one-year window to bring a fraudulent transfer claim. Moreover, transfers made to the trust before a creditor’s cause of action accrues are automatically deemed to be safe, that is, not a fraudulent transfer under circumstances related to the claim.
In addition, the 2015 Nevis amendment also specifically introduced a duress clause. This allows an interested party (usually the trustee) to disregard a settlor’s instructions when the settlor is under duress. Although this is generally followed in international jurisdictions, Nevis trust legislation, even under NIETO, did not contain this specific proviso. When a debtor/trust settlor loses in an American court, the court can order them to repatriate assets held in offshore structures and satisfy their debt. The debtor is obliged to relay the court instructions to the trustee, or risk being held in contempt. However, in doing so, the debtor/trust settlor is acting under duress and not out of his or her own will. Under Nevis legislation, this satisfies the duress clause of the 2015 Amendment. The trustee is therefore free to disregard the order of the American court as relayed by the trust settlor.
To further discourage frivolous challenges to Nevis trusts, a creditor is required to post a bond before bringing a claim. The 2015 Amendment places the bond at EC $270,000, or the equivalent of US $100,000. This ensures that only the most determined creditor, who believes his or her case will prosper in a foreign court, will dare to challenge a Nevis trust.
Set up a trust in Belize and your assets are protected from the moment the trust is incorporated and the assets are transferred to the trust related to divorce, inheritance or insolvency. Provided the trust was established properly (no mistakes, fraud, or duress), any such assets you transfer to it enjoys immediate protection. This can be especially relevant when a creditor brings a fraudulent conveyance claim against you as the trust settlor. There is no window of time within which your trust assets are vulnerable to a fraudulent conveyance claim. This protection holds whether the claim or judgement occurred before or after the trust was created.
As stated briefly above, Belize offers a high level of privacy when it comes to setting up a trust structure. Belizean legislation does not require registration of the trust. Furthermore, trust settlors can continue to instruct trustees as to how the trustee should administer the trust through the Letter of Wishes. Since, strictly speaking, this is not part of the trust. The Letter of Wishes is confidential. And unlike the trust, which is irrevocable, the Letter of Wishes is revocable. The settlor can easily amend it to adjust to challenges to the trust or the current circumstances of the trust settlor.
Located in the southern hemisphere, close to Australia and New Zealand, Cook Islands is in the same time zone as Hawaii. Because of its legal ties to New Zealand, cases brought against Cook Islands trusts are heard in New Zealand courts. However, courts apply Cook Islands laws, not New Zealand legislation, in these cases. Cook Islands enjoys a long and favorable case law history. It is very rare that a civil creditor has penetrated the asset protection features of a Cook Islands trust. In fact, it has never happened to any of our clients.
One of the reasons behind this formidable shield is the level of proof that Cook Islands trust legislation requires. A creditor must prove beyond a reasonable doubt that a debtor/trust settlor established the trust for the sole purpose of withholding assets from the creditor; and not any creditor, but that particular creditor bringing the case. This is why it is crucial that an experienced professional insert specific verbiage as to the purpose of the trust from the very start. “Beyond any reasonable doubt” is an extremely high level of proof, and one that is quite difficult to achieve.
A Cook Islands trust has another highly attractive feature as far as asset protection is concerned. It is readily portable. A trust settlor can move the trust—and the assets it contains—out of Cook Islands jurisdiction at any time. You can do so even if you are embroiled in a court case regarding that same trust an its assets assets. So, if you ever find a case against your Cook Islands trust prospering (a highly unlikely scenario in itself), you can move the trust out of Cook Islands jurisdiction and domicile it elsewhere. Of course, a determined creditor can simply bring his or her case against you in the second location. But they have to start all over again and under the laws of the second locale. This is often reason enough for most creditors to give up the pursuit of assets held in offshore trusts.
1. Cook Islands.
We set up most of our offshore trusts in the Cook Islands. Why? As stated, they have tremendously high barriers for those who wish to challenge the trust. Plus, we trust the trustees. We have seen their behavior as nothing less than exemplary. We have been setting up trusts there continuously since 1995. None of our clients, to date, have lost their money once placed therein.
Nevis has improved their legislation significantly and, frankly, has better legislation than the Cook Islands. Eliminating the threat to freeze trust assets is significant. So, one can use trust funds to fight lawsuits both domestically and abroad. The case law history, however, where it is not bad, it is practically nonexistent. Plus, the reputation of the jurisdiction in the offshore trust world has a shorter leash than the Cook Islands. As Andrew Carnegie said, “The older I get the less I listen to what people say and the more I look at what they do.” The Cook Islands has a longer history of us seeing what they do.
Theoretically, Belize has the best laws. Theoretically. But we don’t set up many trusts there. Why? See the above paragraph. As of this writing, we have not seen an extended history. For us, trust and confidence are earned over the long term and not given freely. Can you trust the trustees? In Cook Islands the answer has been a definitive yes. We have seen examples of impropriety in the Belize banking system. We have not seen any impropriety with Belize trusts. None whatsoever. But, when our client’s money is at state, long standing observation of integrity is our primary measuring stick. In our world, only time will tell.
Offshore trusts offer a wide array of asset protection features that go far beyond what U.S. trusts can provide. Trust legislation in these international jurisdictions create settlor-friendly environments. Most of these offshore locations also have tested case histories exemplifying trust impenetrability. Additionally, they offer a high levels of privacy that add additional layers of protection for your trust assets.
Three jurisdictions—Cook Islands, Nevis and Belize—possess exceptional trust protection features. Whereas, no single jurisdiction that will suit the needs of everyone, the tried and true champion is the Cook Islands. For asset planning that exemplifies effectiveness and peace of mind, nothing is a better measure than time-tested results. Anything less, and your assets may be in jeopardy. To speak with a consultant fill out the inquiry form on this page or utilize the phone numbers listed above.