Best Offshore Jurisdiction for Person Asset Protection from Lawsuits

Best Offshore Jurisdiction for Protecting Personal Assets

Best Offshore Asset Protection

Protecting personal assets is important for any wealthy individual. Offshore jurisdictions are generally regarded as providing better asset protection than domestic jurisdictions. Many favorable offshore jurisdictions have laws which make it very difficult for foreign creditors to pursue assets. The Cook Islands is widely regarded as the best offshore jurisdictions for personal asset protection.

Cook Islands Asset Protection Strategy

What The Cook Islands Provides

The Cook Islands offers the best offshore asset protection against judgments, protection from subpoena, fraudulent transfer protection, and the ability to retain a degree of control over assets. There are a number of legal vehicles which wealthy individuals can use for personal asset protection in the Cook Islands including trusts and limited liability business entities.

Protection Against Foreign Judgments

The Cook Islands does not recognize foreign judgments. This is a huge advantage over domestic jurisdictions. Since foreign judgments are not recognized, potential claimants would be required to travel to the Cook Islands in order to have their case tried in a local court. The time and cost associated with traveling to another country to have the case tried are very discouraging. More often than not, creditors will decide that it is not worth it to pursue assets held in a Cook Islands asset protection structure.

Those who do decide to make a claim against assets held in a Cook Islands can only make a claim of fraudulent transfer of assets. However, the local courts do not have jurisdiction over this offshore asset protection strategy.

Subpoena

Protection From Subpoena

Whereas financial privacy is an important part of asset protection strategies, it is not enough today to protect assets. Creditors and money-hungry litigants will go after low-hanging fruit. If they can see that an individual has a substantial amount of assets, they are more likely to try to make a claim against those assets. They will not, however, try to make claims against assets which they do not know exist. The Cook Islands has some of the world’s strongest financial privacy laws.

These jurisdictions do not require the registration of the settlors of trusts or the founders of limited liability companies. The name of the trust, the name of the trustees, and the date of the trust deed are the only information which is made publicly available. Limited liability companies are allowed to keep their own records. Information regarding a limited liability company is kept by the company itself. The company name, resident agent’s name and address are the only information which is required to be registered. Nominee account holders may also be appointed in the Cook Islands.

The problem is, depositions often draw out and lay bare those things we want to keep private. Based out our testimony. the opposing attorney will often file subpoenas demanding that you turn over documents. But what if your trustee in the Cook Islands has the documents they seek? We have seen it time and time again. When U.S. attorneys subpoena Cook Islands trustees, the trustees refuse to comply. U.S. courts cannot compel foreign trustees to turn over documents.

What About Fraudulent Conveyance?

The biggest threat to personal assets held in any asset protection structure worldwide is a claim of fraudulent transfer. Fraudulent transfer claims occurs when assets are transferred with the expressed intent of delaying or defrauding creditors. Successfully making a claim of fraudulent transfer in a local court is the only way that a creditor could gain access to assets held in a Cook Islands asset protection structure.

Fortunately that is much easier said than done. We have never had a client lose a fraudulent transfer on a Cook Islands trust that we have established. The burden of proof for fraudulent transfer in the Cook Islands falls on the creditor. The burden of proof for claims of fraudulent transfer in the Cook Islands is beyond a reasonable doubt. The creditor must prove that making the transfer made the debtor insolvent. They must also prove that transfer was made with the explicit intent of defrauding that specific creditor. That is, not just any creditor, but that one in particular.

The Cook Islands also has an extremely short statute of limitations regarding claims of fraudulent transfer of assets. Creditors have only one year to bring action against the settlor after the supposedly fraudulent transfer occurred; two years from the cause of action i.e. reason the lawsuit was filed. Even before the statute of limitations has run out on the fraudulent transfer claim, it is basically impossible for creditors to touch the assets. After, the courts in the Cook Islands will not even entertain the case. There is a substantial amount of legal precedent which supports that assets will be protected in the Cook Islands. Literally thousands of cases have been judged in favor of protecting the assets of individuals using Cook Islands asset protection structures. This is not the case with domestic jurisdictions.

Asset Protection Chess Game

Can You Get to Your Money?

The Cook Islands also allow individuals to maintain more control over their assets when they are under legal duress. This is done by establishing a Cook Islands trust in combination with a limited liability company founded in the Cook Islands or another favorable jurisdiction. The assets which the settlor of the trust wants to protect are transferred to the limited liability company. The settlor of the trust is then appointed as the manager of the limited liability company. Under normal circumstances, the settlor of the trust will be able to maintain control over the day-to-day operations of the limited liability company. Assets held within the trust remain under the settlor’s control.

In times of legal duress, however, the managerial role of the limited liability company is passed to the trustee. Trustees in these jurisdictions are barred from carrying out orders dictated by foreign courts. Additionally, they are prohibited from making distributions which they know a creditor will likely seize as long as this was stipulated in the trust deed. This situation is referred to as “Impossibility to Act”.

“Impossibility to Act” is a legal situation where the settlor of a trust is under pressure from a court order. In this situation, the settlor will request a distribution but the trustee will refuse to release the assets. They will do so on the grounds that the settlor is under legal duress. As a result, the settlor has fulfilled their obligation in the jurisdiction issuing the court order because they tried to get the assets. However, the creditor will be unable to obtain the assets because the trustee will refuse to release them. Once the creditor drops the claim and the settlor is no longer under legal duress, they may access the assets once again. This is a completely legal way for the settlor of an offshore trust to protect his or her assets. Using the above strategy severely limits the risk of claims of fraudulent transfer of assets. This is the case because it is the managerial role which is transferred from the settlor of the trust to the trustee.  No transfers of assets were made while the creditor was making their claim.

The provisions of Cook Islands law allow for the trustee to pay bills for the settlor. The trustee may also pass funds to trusted family members or friends. These intermediaries may then pass the funds to the settlor. As a result, the individual using the Cook Islands asset protection structure has access to their assets while their creditors do not.

Protecting Your Home

Protecting Your Home

The one asset category which a Cook Islands asset protection structure, alone, will not protect is real estate. Real estate is subject to the laws of the jurisdiction where it is located. “Great, you have this trust,” quips the judge, “I don’t care. I’m taking it anyway.” For this reason, it is often advisable to combine a Cook Islands asset protection structure with an equity stripping arrangement.

Equity stripping is a two-step process. First, set up an offshore LLC and place it inside of your trust. We recorded a home equity lines of credit against our real estate payable to that LLC. Second, when legal duress gets to a boiling point, we have a third-party lender in the Cook Islands purchase the credit lines. They deposit the proceeds in an inaccessible account in your offshore trust. This generates  a statement that you can show the judge to prove that the loans are payable to a third-party and that you receive the proceeds.

In addition, depending on the state where you reside, you may have a homestead exemption to protect your home. Homestead exemptions are laws provided in many states which protect some or all of the equity in an individual’s primary residence from creditors. Florida, Iowa, Kansas, Oklahoma, South Dakota and Texas are considered to be the states with the best homestead exemptions. They have provisions in their laws which, followed properly, allow you to protect 100% of the equity.

The value of the homestead exemption is based on a number of different criteria. These criteria include marital status, status as a family unit, and the age of the homeowner. Most states provide a strong advantage for married couples and families with regards to the homestead exemption.

It is essential to note you may be able to use homestead protection to protect you against most creditors. However, there are still certain creditors who may still reach assets protected by the exemption. These creditors include federal or state governments for tax claims, as well as child support and alimony claims. Additionally, creditors who successfully obtain judgements against the homeowner may be able to force the sale of the home. After the sale of the home, they have the ability to keep all the equity from the sale which is covered by the judgement up to the amount owed by the debtor. In certain situations it is advisable to take the equity out of the home. The value of the equity can then be placed it in a Cook Islands asset protection structure.

Cook Islands Asset Protection

Cook Islands Background

The Cook Islands are located in the South Pacific Ocean between Hawaii and New Zealand. They derive their name from Captain Cook, who sighted them in 1770. The Cook Islands became a British protectorate in the year 1888. In 1900, New Zealand took over administrative control of the islands. Since 1965, the Cook Islands have been self-governed. They still enjoy a free association with New Zealand. Emigration of skilled workers from the Cook Islands to New Zealand is very common. The Cook Islands have a GDP of roughly US$ 300 million. Tourism is the largest sector in the Cook Islands. This is a result of its beautiful beaches, temperate weather, and rich local culture. The second largest sector is the financial services industry. A stable government and strong economy make the Cook Islands an ideal jurisdiction to use for offshore asset protection.