Posted 07 Nov 2010
An offshore asset protection trust can be an excellent tool to protect your privacy and assets. The US legal system is not always friendly to people who have money. There is a real threat of an out of control jury award, high punitive damages claims, and questionable cases commenced to try and force a settlement by a wealthy defendant for less than it would cost to successfully defend the suit.
Plus there are threats by identity thieves and con-artists who target the wealthy. Some have predicted a rise in violence, extortion and kidnapping against the wealthy as has been common in the bordering country of Mexico. An offshore asset protection trust may help reduce or mitigate this possibility.
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Others worry that the economic situation which has worsened the problems I have already mentioned and also threaten any wealth denominated in US dollars. A collapsed currency and a devalued dollar will not bode well for anyone who holds US based investments, regardless of their fears of personal security.
All of these threats face even moderately wealthy Americans, especially if they have not diversified internationally. International diversification can include investing in assets not denominated in dollars, holding assets outside of the US, overseas entities, and even foreign citizenship. Offshore asset protection trusts can be a great part of any internationally diversified portfolio and provide better privacy.
When we talk about asset protection, we don't mean "hiding assets" or anything like that. All assets that must be reported for tax purposes should be. "Hiding" assets from creditors, hindering, delaying and defrauding creditors are all illegal and could lead to a court forcing you to repatriate your wealth or be jailed for contempt of court. But offshore asset protection trusts can still increase privacy and protect from creditors legitimately.
Offshore trusts can be structured to maximize gift, estate and income tax benefits. Often, they are exempt from income taxes because they are offshore trusts. If drafted correctly, beneficiaries can receive distributions income tax free or at least at the rate of the beneficiary rather than the trust creator. Plus, offshore trusts can be structured to avoid estate taxes. Plus, gift taxes, often paid when funding a trust, can be minimized.
When a creditor pursues a trust creator there is one thing at issue which determines if the creditor can reach those assets. That is, does the creator still have control. If they do, even if it is minor control, the creditor has a right to attach those assets.
Courts are now sending trust creators to jail for contempt for failing to pay creditors from their offshore asset protection trusts if they retain any amount of control over the assets. On the other hand, if the trust creator has no control, the creditor will not be able to reach those assets through a judgment.
Beneficiaries can also be protected from potential creditors by doing two things. Give the trustee the power to make discretionary distributions. If the beneficiary has gotten themselves into trouble, the trustee can withhold payment until the trouble has passed.
The other thing that can be done is to let the trustee make payments for the benefit of the beneficiary, rather than to the beneficiary themselves. This way, even if the beneficiary gets into trouble, the trustee can still pay the weekly rent at the Bellagio, pay for the rental Ferrari, and pay the tab at all the buffets in town.
Even if the trust creator controls an asset held in an offshore asset protection trust, the jurisdiction chosen may provide some added protection by local law which makes attachment procedurally expensive. For example, some local trust laws do not recognize US judgments. Thus a creditor will have to re-litigate in the local jurisdiction to get a court to order a distribution. This can encourage lower settlements.
Plus, many havens of offshore asset protection trusts will have favorable statutes of limitations for fraudulent transfers. US law generally leaves 4 years for fraud and 10 years for bankruptcy. Many trust havens will only have a 1 or 2 year statute of limitations period.
First, most offshore asset protection trusts are not named after the trust creator or beneficiaries. Thus any major assets owned are not publicly linked to any person who could be the target of unjust litigation or fraud. Plus, trust fund babies are sometimes negatively stereotyped. Financial statements remain private to protect the anonymity of beneficiaries and trust creators.
Yet another benefit is that assets that are transferred by a trust are not subject to probate proceedings, which are public. This can help prevent identity theft. If an asset that is transferred at death must go through probate, all of the information is public.
Offshore asset protection trusts are certainly the Escalade of asset protection. As such, they are not cheap. But, if you have significant assets, they might be the best way to protect the financial privacy, financial well being and even the physical safety of you and your family. Other tools include Using New Mexico LLCs, using a ghost address, another privacy tools and resources.
