Offshore vs. Domestic Asset Protection Trusts
Domestic asset protection trusts 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 as a solution with the same purpose, 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 do they work? This article will answer this question.
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DAPTs raise an interesting dichotomy, which is varying state’s law that can increase the risk of litigation, which itself is a huge deterrent. What’s lacking here is time; right now, there isn’t case law backing the performance of domestic asset protection trust planning. When a resident of one state establishes a DAPT in another state and possibly owns property in a third, what state law governs a case? There are special provisions that can be implemented when establishing a domestic trust for asset protection. However the legal history of court rulings just isn’t here yet. Only a few states have asset protection trust statutes and all states have their own body of law. It is possible that a case may be litigated in a state where these asset protection statutes are prohibited by public policy, raising conflict of law concerns.
Each DAPT state defines creditors and classifications of exemptions that allow an asset protection trust to be penetrated for 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 to defend in the case where legal standards differ with regards to asset protection statutes.
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 your assets are not separated fully from the US legal system. DAPTs come with legal vulnerabilities that simply are not found in offshore planning tools.
When pursuing assets offshore your legal opponent must post a bond to sue your trust, pay all legal fees (unless successful in suit) and do all of this without a contingency fee agreement.
Offshore asset protection trusts remain the stronger option for those who are comfortable with or embrace a global asset protection plan.
Domestic asset protection trusts are setup quickly, are the far less expensive option and provide substantial creditor protection as well as high estate planning value. Nevada is the best US jurisdiction according to our research. However, offshore asset protection trusts are the only planning tool that offers a flawless protection history and years of case law protecting assets from US judgments and court orders.
Domestic asset protection tools can be used in concert with offshore legal structures. 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 all to its own. There are situations where a domestic planning tool is sufficient and there is no need to bear the expense and time of a complex offshore plan.
Making these determinations should be done with an experienced professional advisor who can assist you with your specific situation and guide you through the process of deciding what is right for you.
When you absolutely have to be sure that your assets are protected from just about anything, including exempt creditors defined by US states law or judgments, a properly established offshore asset protection trust is the only option available.
Last Updated on February 11, 2021