Most asset protection professionals consider an offshore trust to be the leading legal tool for protecting assets. We agree. In this article, we’ll show you why offshore trusts offer superior protection from creditors, explain their functionality, and tell you which jurisdiction has the most favorable laws.
- Anatomy of an Offshore Asset Protection Trust
- How Offshore Trusts Work
- Offshore Trust Creditor Protection Benefits
- Which Offshore Trust Jurisdiction Provides the Strongest Creditor Protection?
Anatomy of an Offshore Asset Protection Trust
An offshore asset protection trust involves three main parties:
- Settlor/Grantor – The person who creates and funds the trust.
- Trustee – The person who manages the trust for the beneficiaries.
- Beneficiary – The person, people, or entities that will receive some or all of the trust assets.
Each of the above roles is clearly defined during trust formation in a document known as the “trust deed.” This legally binding document lists the people serving in each of these roles and provides clear direction on trust management and benefits distribution.
Offshore trusts, like domestic trusts, can be established as either revocable or irrevocable trusts. Revocable trusts are useful primarily for estate planning, as the trust assets are still partially controlled by the settlor.
If you plan to use an offshore trust for creditor protection, you’ll need to establish an irrevocable trust. This style of trust cannot be altered without a court order and fully separates the assets in the trust from the settlor. When creditors come looking for money, they’ll find that the settlor doesn’t actually “own” the assets within the trust.
How Offshore Trusts Work
Offshore trusts are designed to legally separate you from trust-protected assets. This separation is achieved by ceding control of the trust to your trustee after depositing your assets. Once the trustee takes possession of the trust, they are bound by a fiduciary duty to protect the trust assets for the beneficiaries. This duty even includes protecting against foreign judgments, which places your assets outside the US legal system’s reach.
Offshore trusts are used in concert with offshore companies and bank accounts. This ensures even stronger protection against creditors, as neither the trust nor the accounts within it are US-based. You can even have your asset protection planner set up an LLC and then place that in the trust. The LLC provides a second layer of separation from your assets and gives you more control, as the LLC can manage the assets it owns even from inside the trust.
Finally, offshore asset protection trust provisions are carefully written so that, in the event of legal duress, the LLC manager role is passed to the trustee who acts according to the trust deed. Once any legal duress is no longer present, the trustee can assign management back to you.
Offshore Trust Creditor Protection Benefits
When a creditor has a valid legal claim to some of your assets, they are functionally allowed to “step into your shoes.” This means that they can take any assets that you could feasibly transfer to them. As an example, if you have a checking account, it’s fairly easy to take money from that account and send it to someone else. If you owed a creditor money, they could essentially transfer that money to themselves, because it is an action you are capable of taking.
Offshore trusts work effectively because they limit your capabilities. When you have an irrevocable offshore trust, there is little you can do to fully repossess those assets. By extension, if a creditor were to win a judgment against you, there is nothing they can do to claim any possessions in your trust. Offshore trusts take the protection a step further – they can completely ignore a judgment from your domestic jurisdiction. Ultimately, if a creditor wishes to break through these robust protections, they’ll have to file a case against you in the offshore jurisdiction. The bulk of creditors will cut their losses and leave you alone rather than fight that obstacle.
Most popular and safe offshore trust jurisdictions have other asset protection, taxation, and confidentiality amenities for foreign investors. Assets placed in these trust jurisdictions escape certain tax burdens such as inheritance taxation. These trusts also offer significantly more financial privacy and confidentiality than any domestic trust.
Which Offshore Trust Jurisdiction Provides the Strongest Creditor Protection?
Many offshore trust jurisdictions offer robust protection from creditors. But the Cook Islands is easily the most effective location to set up a trust.
The Cook Islands has strong asset protection laws, ignores foreign judgments, and is well-respected by the worldwide financial community. To date, none of the asset protection trusts we’ve established in the Cook Islands has ever been breached by a creditor.
Call Asset Protection Planners to Set Up Your Offshore Trust for Creditor Protection
Whether you’re concerned about creditors coming after your assets or just want some financial peace of mind, setting up an offshore trust is a good idea. Our team at Asset Protection Planners has a rich history of establishing effective trusts in the Cook Islands and other reputable jurisdictions, and we’ll do the same for you!
Click the link below to set up your free consultation to learn how we can help protect your assets from creditors!