Offshore Asset Protection Trust (OAPT)
The offshore asset protection trust (OAPT) is an irrevocable trust. It is established according to international laws. It also has a trustee that is domiciled in a country foreign to the settlor. These trusts are most notably offered in the Cook Islands, Nevis and Belize; the Cook Islands being the most reputable and with the longest case law history.
Offshore Asset Protection Trust Structure
Most commonly, it works like this. First, a trust is established. Then an international LLC is established. The trust owns 100% of the LLC. The client is the settlor of the trust and the manager of the LLC. A bank account is opened in the name of the LLC. The client is the signatory on that bank account. When the “bad thing” happens and the trust assets are at risk the trustee steps in to protect you. The trust company can step in as manager of the LLC. At that point the trustee holds to positions: trustee of the trust and manager of the LLC.
How It Works
The domestic courts say, “Give me the money.” The offshore trustee can say, “No not going to.” There is not much the local judge can do about it. The judge down the street doesn’t have a say-so about the trustee an ocean away. Thus, it is one of the few ways enjoy asset protection after a lawsuit is filed.
The bank account for assets inside the trust is established in a strong, safe bank that does not recognize foreign judgments. There are a multitude of very secure banks overseas. Do your research. If you investigate the reports on the banks rated by financial strength, you will find that of the top 50, only three are located in the USA. All of the US banks are on the bottom half of the list. In other words, there are much stronger banks located outside the US than within.
Offshore Trust Financial Safeguards
Another question that is frequently asked is, “What if the trustee runs off with my money?” Good question. The trust companies are licensed; meaning a trustee must go through intensive background checks to obtain a license. Plus, the trustee is bonded by an insurance company. The trust companies are vigorously audited by government regulatory agencies. Because a significant portion of the GDP of these countries come from the financial services industry, the regulators ride the trustees like stallions. One slip-up would spread like wildfire across the Internet. So, officials do not tolerate any deviations that could affect the jurisdiction’s upstanding reputation.
Does It Work?
The best thing about an offshore asset protection trust? It works. And it works well. Especially ones in the Cook Islands. In fact, there has not been one client who has lost money out of a Cook Islands Asset Protection Trust established by this company. And this company has established well over a thousand trusts. Thus, actual experience and case law shows that the offshore trust is one of the strongest means to protect liquid assets.
This organization has established trusts in all 50 US states and many countries of the world. So, there is really no motive or bias for suggesting any one jurisdiction over another. It is simply that time and time again, the Cook Islands asset protection trust has done what it was designed to do.
Statute of Limitations on Fraudulent Transfer
For the offshore trust statute of limitations on fraudulent transfer, keep reading to the end so you get the whole story. In the Cook Islands and Nevis, the statute of limitations on fraudulent transfer is one year; two years from the cause of action. That means that if you glance at a text while behind the wheel, rear end someone and get sued for more than the limits of your insurance, that the plaintiff has a small window of time to file a lawsuit in the US, take it though the whole judicial process, possible appeals, etc. Then the statute of limitations would bar the suit from being accepted in the Cook Islands.
What if They Beat the Statute of Limitations?
Even if the plaintiff beats the statute of limitations clock and files a lawsuit in the Cook Islands (something rarely seen) the hurdle would be almost insurmountable. That is because the next terrain feature a plaintiff would theoretically scale is Mount Improbable. That is, if the plaintiff obtained a court judgment against you, the next step would be a separate lawsuit in the Cook Islands. Cook Islands does not recognize or enforce foreign judgements so an entirely new action would be required.
The came can be said for a Nevis trust. Not only would the expense of litigation to the plaintiff be astronomical, the likelihood of success is miniscule. The plaintiff would then need to prove his or her case beyond a reasonable doubt. They would have to prove that the settlor placed his or her assets inside the trust to hinder that particular creditor from obtaining the funds. Not any creditor, mind you, but that particular one. In fact, this company has never seen a party to an offshore asset protection trust have his or her share of trust assets taken, even if the case was filed before the deadline.
So, how do the various jurisdictions compare? Let’s take a look below.
Cook Islands Trust
The Cook Islands is well respected as possessing the strongest offshore asset protection trust statutes. Cook Islands asset protection trust statutes had their origins in 1989 as the first jurisdiction to write trust legislation specifically geared toward asset protection. The prominent characteristics inherent in the statutes allow for the creation of a financial fortress to protect wealth from legal attacks that are commonplace in highly litigious regions around the world.
If you study the Cook Islands International Trusts Act you will find allowances for favorable tax planning and estate planning that allows wealth to pass from generation to generation. Probate, the expensive and time-consuming process of moving assets of a deceased person to his or her heirs is eliminated, allowing for a free-flow transition of wealth to family, friends and/or charities of your choice. Unlike most jurisdictions follow ancient Elizabethan principles that limit the trust’s lifespan, a Cook Islands trust can be perpetual. Forced heirship rules have been eliminated, allowing the Settlor to choose who received inheritances.
The laws allow for dynasty trusts allowing wealth to pass from generation to generation without onerous transfer taxes such as estates and gift taxes. It allows for “purpose trusts,” where the trust can have a noncharitable purpose rather than a beneficiary. The law also allows for charitable trusts. There are a multitude of investment vehicles that can be held in a Cook Islands trust from a basic bank account to investment accounts in stock, bonds, precious metals as well as real estate. Such trusts are also often key elements of business succession plans where a business is passed onto heirs.
The following are some key provisions:
- Statute of limitations on fraudulent transfer (fraudulent conveyance) is limited to one year or two years from the cause of action in which a creditor may file an action in the Cook Islands against a trust.
- Such actions require ‘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.
- The Settlors can retain certain controls over their trust and maintain its asset protection.
- No punitive damages are allowed.
- Protection remains even if settlor or beneficiary files for bankruptcy.
Originally, the offshore asset protection trust statutes were directed to serve US clientele. As countries such as 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 such as those offered in the Cook Islands.
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 while providing a structure that can safeguard, grow and provide for the enjoyment of wealth for years to come.
Isle of Man Trust
The Isle of Man may have offered one of the original offshore asset protection trust vehicles, but it has been surpassed by the Cook Islands, Nevis and Belize. The Isle of Man Trust is difficult and expensive establish. The regulators have made it so onerous to create and maintain, it is almost as if they have put up a big “Go Away” sign at their front door.
After all of the requested due diligence documents are provided, it is not unusual to have three to four more “now we need” sessions. That is, the required documents are provided, then the regulators ask for more documents to support the documents they requested in the first place. Plus the statutes have not kept up with modern legal challenges. So, until the jurisdiction steps into the new millennium, our experience has shown that most people would be best served elsewhere.