We are experiencing one of the most intense periods of legal action in world history. Each year, countless civil suits are filed in the United States, many of which are frivolous. Regrettably, these lawsuits seriously impact people’s livelihoods and financial stability. With these legal threats around every corner, you can’t just leave your money unprotected and hope no one sues you. You need a tool that can keep your assets out of the hands of lawyers and creditors. You need an offshore asset protection trust.
This detailed guide will highlight the powerful protections afforded by an offshore asset protection trust (OAPT). We’ll explain how these trusts work and how they can stop aggressive lawyers from getting their hands on your money.
- Offshore Asset Protection Trusts at a Glance
- How to Properly Structure an Offshore Asset Protection Trust
- How Offshore Trusts Work to Protect Your Assets After a Lawsuit
- Offshore Trust Financial Safeguards
- Statute of Limitations on Fraudulent Transfer
- What If They Beat the Statute of Limitations?
- Why the Cook Islands is the Best Place to Establish an Offshore Trust
Offshore Asset Protection Trusts at a Glance
An offshore asset protection trust (OAPT) is a type of irrevocable trust set up outside the settlor’s home country. It’s established according to international laws and has a trustee domiciled in a country foreign to the settlor. These trusts are most notably offered in the Cook Islands, Nevis, and Belize. Of these jurisdictions, the Cook Islands is considered the most reputable and has the longest case law history.
How to Properly Structure an Offshore Asset Protection Trust
Some assume that simply setting up a trust overseas is enough to protect their assets. But that’s not entirely true. To get the most lawsuit protection, a trust should be established in a specific manner by a professional.
A well-structured offshore trust is usually set up in the following manner. First, a trust is established overseas. Then an international LLC is established within the trust, with the settlor serving as the LLC manager. The trust then owns 100% of the LLC. Finally, a bank account is opened in the name of the LLC, with the settlor serving as the signatory on the account.
Using this structure, the settlor retains a strong level of control over the trust’s finances. Then, when legal troubles put the trust assets at risk, the trustee temporarily takes over as the manager of the LLC, which prevents plaintiffs from accessing the trust.
How Offshore Trusts Work to Protect Your Assets After a Lawsuit
The primary advantage of offshore trusts over domestic trusts is that they’re not beholden to US court judgments. Essentially, when you lose a case in the United States and are ordered to pay the plaintiff, your trustee can say “no.”
Once your trustee rejects the domestic ruling, there is little a local judge can do about it. A judge in the United States does not have the power to compel a foreign trustee to do anything. This forces the plaintiff to either give up or try the case again in the jurisdiction where your trust is established. Fortunately for you, filing a case in a foreign jurisdiction is incredibly expensive, and most plaintiffs won’t even bother. Even if they do, most offshore trust destinations have powerful pro-trust laws that make it nearly impossible for lawyers to access your assets.
If you’re still thinking about setting up a domestic trust instead of an offshore one, consider this. As of this writing, only three of the top 50 most secure banks are in the United States. All three of them rank in the bottom half of that list. You’ll enjoy far more financial security if you set up your trust overseas.
Offshore Trust Financial Safeguards
Despite their proven efficacy, some people remain wary of offshore trusts. Usually, this uncertainty stems from a fear that trustees will run off with their money. Though this worry is understandable, it has little basis in reality.
Trustees and trust companies in popular offshore trust destinations are licensed and intensively vetted. Every trustee goes through rigorous background checks and a thorough licensing process. Plus, you have insurance against any trustee malfeasance, which will help you recover any lost funds.
Nations like the Cook Islands, Nevis, and the Isle of Man receive a significant portion of their GDP from the financial services industry. As a result, they watch every trustee very carefully. In fact, you’re less likely to find a bad trustee overseas than you are at home. On top of that, when you work with a professional trust establishment group like Asset Protection Planners, your chances of coming across a malicious trustee drop to almost zero.
Statute of Limitations on Fraudulent Transfer
A seldom cited benefit of offshore asset protection trusts is their short statute of limitations on fraudulent transfers. The statute of limitations is the period after a transfer during which a plaintiff can sue you. If the plaintiff wins this case, the money you deposited isn’t protected from legal action.
In the Cook Islands and Nevis, the statute of limitations on fraudulent transfers is one or two years from the cause of action. So, if you were sued, and then transferred money into your offshore trust to protect it from a lawsuit, the plaintiff would have to file and win that lawsuit within a very short time.
If your creditor fails to file the suit, go through the entire judicial process, and contest any appeals within that short timeframe, the suit won’t be accepted by the offshore court.
In general, most plaintiffs don’t beat the clock, but they occasionally do. Fortunately, there are still plenty of protections available even if that happens.
What If Your Legal Opponents Beat the Statute of Limitations?
On the off chance that a plaintiff meets the statute of limitations, the hurdles they face are still nearly insurmountable. If the plaintiff obtained a court judgment against you, the next step would be a separate lawsuit in the Cook Islands. The Cook Islands does not recognize or enforce foreign judgments, so an entirely new action would be required.
The same can be said for a Nevis trust. Not only would the plaintiff’s litigation expenses be astronomical, but the likelihood of success is also minuscule. The plaintiff would then need to prove that the settlor placed their assets inside the trust to hinder that particular creditor from obtaining the funds. Not any creditor, mind you, but that particular one. To date, we have never seen the settlor of an offshore asset protection trust have their share of trust assets taken, even if the case was filed before the deadline.
Why the Cook Islands is the Best Place to Establish an Offshore Trust
The Cook Islands has the strongest offshore asset protection trust statutes. The Cook Islands established them in 1989 and became the first jurisdiction to write trust legislation geared toward asset protection. The statutes allow people to create a financial fortress to protect their wealth from legal attacks.
Originally, the offshore asset protection trust statutes were designed to serve US clientele. But as countries like China and India have grown in wealth, many countries are crafting US-type statutes to address the needs of more affluent societies. The result is increased demand for vehicles that shield wealth from creditors – those offered in the Cook Islands, for example.
If you study the Cook Islands International Trusts Act, you will find allowances for favorable tax planning and estate planning. They enable wealth to pass from generation to generation. Unlike most jurisdictions, which follow ancient Elizabethan principles that limit the trust’s lifespan, a Cook Islands trust can be perpetual. Additionally, there are no forced heirship rules, so the settlor can choose who receives inheritances.
In addition, probate is not present in the Cook Islands. This makes for a smooth transfer of wealth to family, friends, and/or charities of your choice.
On top of all these benefits, there are a multitude of investment vehicles that can be held in a Cook Islands trust – from basic bank accounts to investment accounts in stock, bonds, precious metals, and real estate. Such trusts are also often key elements of business succession plans, where a business is passed onto heirs.
To recap, here are some of the most notable benefits of a Cook Island Trust:
- The statute of limitations on fraudulent transfer (fraudulent conveyance) is limited to one or two years from the cause of action.
- Such actions require a ‘beyond a reasonable doubt’ burden of proof, rather than a mere preponderance of the evidence.
- Cook Islands law does not recognize or enforce foreign judgments.
- Settlors can retain certain controls over their trust without losing asset protection.
- No punitive damages are allowed.
- Protection remains even if the settlor or beneficiary files for bankruptcy.
Licensed advisors in the Cook Islands can work hand in hand with a client’s existing counsel to craft a legal tool that complies with the client’s domestic regulations. They aim to provide a structure that can safeguard and grow your wealth so you can enjoy it for years to come.
Contact Us to Protect Yourself from Lawsuits Using an Offshore Trust
The best thing about offshore asset protection trusts is that they work – especially those in the Cook Islands. In fact, out of the thousands of Cook Islands Asset Protection Trusts we’ve established, no client has lost money.
If you’re ready to protect yourself from lawsuits in an increasingly litigious world, we’re ready to help. Click the button below to schedule a consultation for your offshore trust.