Offshore vs. domestic asset protection trusts. How do they compare?
Domestic asset protection trusts (DAPTs) are relatively new in the planning arena. They are gaining the attention of advisors and estate planners to protect the wealth of their clients. Offshore asset protection trusts have long-standing case law histories. Offshore trusts also place assets beyond the reach of results-oriented judges.
For some clients the idea of domestic asset protection tools sound more attractive. They may feel that that domestic solution serves the same purpose as the offshore one. However they raise question with many experts as to their efficacy.
When clients are adamant about not going offshore, domestic asset protection trusts one option. But when you compare domestic vs. offshore trusts do domestic trusts work? This article will answer this question.
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Domestic Asset Protection Trusts
DAPTs raise an interesting dichotomy. Specifically, varying state’s law that can increase the risk of litigation. This, in itself, is a huge deterrent to choosing a domestic option. On of many things that is lacking here is time. Right now, there isn’t sufficient case law backing the performance of domestic asset protection trust planning. But there is plenting showing their failures.
As a result of lack of case law precedent, we have seen judges blazing new case law trails. And this is not a good thing if you are the one sitting in the middle of that trail. With increasing theories of legal liability, the weight seems to shift more and more to the side of the plaintiff.
Suppose a resident of one state establishes a DAPT in another state. Perhaps they own property in a third. As such, what state law governs a case? There are special provisions one can implement when establishing a domestic trust for asset protection. These provisions may be able to handle some of these issues. But that depends on the discretion of the court. Are your assets worth the risk?
History? What History?
Fact is, the legal history of court rulings on domestic trusts just isn’t here yet. Only a few states have asset protection trust statutes. Plus, that states that do have their own body of law. As is common, you may live in a state that does not have asset protection trust statutes. Even if you do, someone may litigate a case against you in a state unfriendly to domestic asset protection trusts. That is, they may file suit in a state where public policy prohibits these asset protection trust statutes. Such cases raise big conflict of law concerns. Offshore asset protection trust have substantial case law history. So, when it comes to the track record for offshore vs. domestic asset protection trusts, offshore wins.
Each DAPT state defines creditors and classifications of exemptions that allow penetration of an asset protection trust. Examples are such things as child support, tax evasion, certain tort claims, division of property as well as many others. Defining fraudulent conveyance or transfer of assets is another legal burden. Try to defend the case where legal standards differ with regards to asset protection statutes. You’re in for a challenging battle.
Offshore Vs. Domestic Trust
The single biggest difference in comparing offshore and domestic asset protection trusts, and quite possibly the most important, is that all domestic asset protection trusts are necessarily governed by US law. This means that a domestic trust does not fully separate your assets from the US legal system. Thus, DAPTs come with legal vulnerabilities that we simply do not find in offshore planning tools.
When pursuing assets offshore your legal opponent must post a bond to sue your trust. They must pay all legal fees (unless successful in suit). Moreover, they must do all of this without a contingency fee agreement. So when comparing offshore vs. domestic trusts, the offshore trust shows far better results.
Offshore Asset Protection Trust
Offshore asset protection trusts remain the stronger option. For those who are comfortable with or embrace a global asset protection plan it is the strongest option. For those who don’t yet have that comfort level, informing yourself may likely fill the comfort gap.
One can establish a domestic asset protection trusts relatively quickly. They are a somewhat less expensive option. They provide mid-level creditor protection as well as estate planning. Nevada  is the best US jurisdiction according to our research. However, when you look at offshore vs. domestic trusts, offshore asset protection trusts one big thing stands out. The offshore asset protection trust is the only planning tool that offers a virtually flawless protection history. Plus they have years of case law protecting assets from US judgments and court orders. People have even used offshore asset protection trusts successfully after someone has filed a lawsuit against them.
Domestic Plus Offshore (Combined)
Domestic asset protection tools can be used in concert with offshore legal structures. What happens when you spread your protection plan out in multiple jurisdictions? Your legal opponent must fight a battle on more than one front which is a protective layer in itself. There are situations where a domestic planning tool is sufficient. In such cases, there is no need to bear the expense and time of a complex offshore plan. On example is where there is not sufficient asset value to protect.
On the other hand, there are many cases where strong protection may be need in the future; however, one is not ready to pull the offshore trigger. That is why we have come up with the Trigger Trust ®. The Trigger Trust ® is a combination of a domestic and offshore trust. It is domestic until you need the trustee to pull the trigger and bear the strength of an offshore trust.
Domestic Vs. Offshore Trust Conclusion
One should make these determinations with an experienced professional advisor. The advisor can assist you with your specific situation. Plus, they can guide you through the process of deciding what is right for you. They can also give you information on offshore vs. domestic trusts and which might be right for you. You can call and speak with our in-house attorneys or consultants.
There may be times when you want to be absolutely sure that your assets are protected from just about anything. This includes protection exempt creditors defined by US states law or judgments. If so, a properly established offshore asset protection trust is the only option available. Call or fill out the consultation form on this page for more information.