Offshore Asset Protection Trusts

Asset protection has always been, and is still, a top priority in estate planning. Your desire is to protect the assets you have accumulated from current and future creditors so that your heirs can inherit these assets after your death. As states throughout the country continue to change the laws regarding asset protection, the use of offshore asset protection trusts has become more popular.

However, offshore asset protection trusts can be complex and difficult to establish; therefore, using an experienced attorney to draft the trust is the best way to ensure that an offshore asset protection trust is legal and valid. Before deciding to use an offshore trust to protect your assets, have an attorney advise you of the benefits and disadvantages of using this type of trust for asset protection.

What Is an Offshore Asset Protection Trust?

For an offshore asset protection trust to exist, you must have one or more trustees, there must be at least one beneficiary, and the trust must hold title to assets in trust for the benefit of the beneficiaries. The decision to use an offshore asset protection trust will vary according to each person’s situation. In most cases, this type of trust is used when a person needs to protect his or her assets from current or future creditors who are aggressively trying to seize the person’s assets to repay debts. In particular, this type of trust is used to protect assets against lawsuits.

In most cases, an offshore asset protection trust is located in a foreign jurisdiction that has laws that are more favorable to debtors. The laws tend to make it much more difficult for creditors to attack the assets of a trust. However, one downside is that the trust typically must be an irrevocable trust in order to provide the level of asset protection the grantor is seeking.

Where Do You Want to Establish an Offshore Asset Protection Trust?

When searching for a jurisdiction to establish your trust, the best offshore jurisdiction offers the following advantages:

  • The foreign jurisdiction has no comity with the United States. In other words, a judgment obtained in the United States will not be enforced against the trust in the foreign jurisdiction. If a creditor wants to attack the trust, it must file a lawsuit in the foreign jurisdiction.
  • The foreign jurisdiction permits self-settled spendthrift trusts so that you can be the beneficiary of your own trust.
  • While the income from the trust may be taxable in the United States, the foreign jurisdiction will not tax the income of the trust.
  • The foreign jurisdiction permits the management of assets to remain with a United States money manager.
  • The foreign jurisdiction has very short statutes of limitation regarding the challenge of transfers to the trust.
  • The foreign jurisdiction makes it very expensive for creditors to pursue claims against the trust because it must hire an offshore law firm, pay an expensive retainer fee, and deal with the local laws of the foreign jurisdiction.

Do I Need an Offshore Asset Protection Trust?

In order to make an offshore asset protection trust viable, the assets transferred to the trust should be substantial enough to warrant the cost, time, and difficulty in creating and maintaining this type of trust. The cost of paying a trustee can be substantial. In most cases, you must have at least one trustee to manage the trust in the foreign jurisdiction.

The best trustees to use for offshore asset protection trusts are professionals such as a lawyer or a bank located in the foreign jurisdiction because they are reliable and experienced in defending the trust against attacks. However, this becomes very expensive. Unless the assets in the trust have substantial value, the cost of maintaining the trust exceeds the value of the trust in protecting the assets.

Deciding whether to use an offshore asset protection trust should only be made after you consider all of the various advantages and disadvantages associated with these types of trusts. Asset protection has become more of an issue in the estate planning process as individuals seek to protect their family’s inheritance from creditors. Therefore, estate planning tools have evolved to include several excellent ways to protect assets without the need to use offshore asset protection trusts.

If you are concerned about protecting your assets now and after your death, you should discuss your options with an experienced trust attorney or estate planning attorney. With careful planning, you can protect your assets and meet your goals using a variety of estate documents available in the United States.

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