Asset Protection Planning
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Offshore trusts are superb legal instruments for asset protection and estate planning. Established properly, they can provide the strongest asset protection available. Thus, preferred trust jurisdictions specifically craft their statutes to protect assets from attacks in litigious jurisdictions such as the US and UK. Consequently, an offshore trust is somewhat similar to a domestic trust. Yet, it offers much more effective asset protection services because the trustee is outside of the local court’s jurisdiction.
Like its domestic counterpart, an offshore trust is comprised of a trust settlor, beneficiaries, a protector and a trustee. Similarly, a trust deed is the legal document that outlines the trust roles, power and control, responsibilities. It contains details of distributions and management. Moreover, it can contain custom provisions. These are specific legal instructions, such as, how trustees manage, carry out or enforce certain aspects of the trust.
When you set up a trust offshore, you will also have an offshore banking service. Bank accounts in your own country are under the jurisdiction of judges in your own country. So, even if your funds are in an offshore trust, you need to have your funds offshore as well. Global Finance rates the safest banks every year. As of this writing, of the top 50 safest banks, only three are located in the United States. All three are on the bottom half of the list. So, not only does the offshore trust protect your assets, it can also house your funds in safer banks than those available onshore.
When setting up a trust, international regulations require that you provide the legally required due diligence and know-your-customer documents. International regulators want to make sure that people use trust for legal reasons only to keep ill-gotten funds out of the financial system. Examples of these are a photocopy of your passport that has been certified by a notary public as a true copay of the original. You will need to provide an original utility bill showing residential address and reference letters. You will also need to provide simple evidence that the funds were obtained by legal means.
First, an individual settles a trust and then transfers assets into it. The offshore trust holds assets for the benefit of other individuals or legal persons. This is the person who is funding or setting aside assets for the future benefit of trust beneficiaries. In special cases a trust settlor can be a beneficiary, specifically in what we call self-settled spendthrift trusts.
A trust beneficiary is the person or persons who can benefit from trust assets. Beneficiaries have no management responsibility or power or control over trust assets. However, they are the only recipients of distributions or who can benefit from trust assets.
The offshore trust protects distributions to trust beneficiaries. This is because the assets are in the name of the trust. The trust sets them aside for the benefit of the individual(s) named therein. Thus, the trust protects the assets from seizure or creditor use to satisfy a beneficiary’s debts.
The protector role is an additional management and oversight position. The trust can give the protector veto powers on trustee decisions. To some degree they may also have control over trust management and distributions. A protector can also remove and reappoint trustees. The protector cannot be the settlor, the trustee or a beneficiary of the trust.
Trustees are licensed and bonded third parties that are professional trust administrators. The administrators are usually employees of a trust management company that hold law degrees. Trustees are duty bound to carry out the wishes of the trust settlor as set out in the trust deed. A trustee cannot benefit from trust assets. However, they can distribute trustee service fees at a rate established when the settlor created the trust. Trustees have limited powers over the assets encumbered in the trust. Rather, the control instrument is the trust deed and its management provisions.
So, which jurisdictions offer the strongest protection? The list is short. The Cook Islands trust is first. On reason is because of a short statute of limitations on fraudulent transfer. One to two years after the settlor establishes and funds the trust, the Cook Islands courts will not hear cases claiming fraudulent conveyance. Even if a litigant mounts a case within that timeframe, the statutes erect nearly insurmountable barriers. Plus the Cook Islands has proven itself reputable. This jurisdiction, which is 1.3 times the size of Washington DC, consists of a chain of islands in the South Pacific in the same time zone as Hawaii.
The Nevis Trust is number two. The reason it is number two is because that it has less case law history than the Cook Islands. We believe that Nevis could soon take the top spot because the laws are currently superior. That is, challengers must post a $25,000 bond to pursue a Nevis offshore trust. Plus, Nevis does not allow the Mareva Injunction in cases against trusts.
The next is the Belize trust. In Belize the moment the assets go into the trust, the trust protects the assets. Therefore, it has no vesting period. The problem? We do not trust the financial services providers. It is not that we have ever seen outright malfeasance by the trustees. Yet, we have seen some unsavory things in the financial institutions that give us pause. In other words, it is not that we refuse to set up Belize trusts. It is that, as a company who knows the industry, we have other choices that we see as more secure.
The Isle of Man Trust was one of the first such trusts offered as an asset protection tool. But this jurisdiction has fallen far behind the times in their trust legislation. Moreover, it is regulation run amok. The amount of hoop jumping that the officials make the providers go through in order to establish a trust is akin to a giant “go away” sign. Attempt to establish a trust and the regulators go through multiple rounds of “now we need,” in a continuous round of additional document requests. It does not end with trust establishment. The regulators continuously demand more and more documentation through the life of the trust. For these reasons and more, we do not suggest the Isle of Man.
Here is the most common structure. First, we set up an offshore trust. Next, we establish an offshore LLC. The trust owns 100% of the LLC. When the sea is calm, the client is the manager of the LLC and signature on all bank accounts. When a lawsuit threatens the assets, the trustee can step in as LLC manager and protect you. Since the trustee company is not subject to your local court orders, demands to repatriate funds fall on deaf ears. So, the LLC gives you the remote control to your funds inside of the trust.
Offshore Trusts have one major defining benefit over its domestic counterparts. That benefit is the jurisdiction in which it is established and operated. An offshore trustee does not have to comply with foreign court orders. Even if a creditor has a judgment against a settlor or beneficiary of an offshore trust, the trust protects assets. Judge’s in one country to not have jurisdiction over another. That is what makes offshore asset protection services, such as the trust, so effective.
The top offshore trust jurisdictions have created debtor-friendly laws that create a favorable legal framework for foreign investors wishing to protect their assets. The most advanced trust legislation in the world offers immediate protection. Whereas, others have a vesting period where a foreign creditor can challenge the transfer of assets. In these cases the period is six to twelve months depending on the jurisdiction and establishment of the trust.
Offshore trusts are the strongest vehicles to protect assets. The modern asset protection trusts are instruments that are self-settled. That is, the settlor and beneficiary are the same person. With these legal vehicles the one who set up the trust retains access to trust assets. Moreover, experience shows that they offer the utmost protection from creditors, divorce and judgments.