When it comes to keeping your money safe, only the best asset protection trust strategies can offer you true security and peace of mind. The right trust can legally shield your assets from lawsuits, creditors, divorce, and bankruptcy. Conversely, a subpar trust can leave your wealth vulnerable to those threats and countless others.
Of all the options available to you, the best trust for asset protection is an offshore asset protection trust (OAPT). When these trusts are established by qualified professionals, such as Asset Protection Planners, and combined with an offshore LLC, they become nearly impenetrable.
Here, we’ll discuss what makes offshore trusts combined with LLCs the best asset protection trust strategy:
- \Why Use a Trust as Part of Your Asset Protection Strategy?
- Why Offshore Trusts Are the Best Asset Protection Trust
- Enhancing Your Offshore Asset Protection Trust With an Offshore LLC
- The Best Asset Protection Strategies Balance Control With Protection
Why Use a Trust as Part of Your Asset Protection Strategy?
A well-crafted trust is widely considered the best asset protection strategy because it separates legal ownership from beneficial ownership. In practice, this means that the trust owns your assets. If someone sues you, the assets you’ve placed inside a trust are essentially off limits to your creditors, as they no longer belong to you in a legal sense.
This legal separation between you and your assets is made possible by a spendthrift clause. This clause prevents beneficiaries from transferring or pledging trust assets. An independent trustee controls the trust, not the person who created the trust (the settlor). When you serve as a beneficiary of a spendthrift trust that you established, this “lack of control” stops a creditor from accessing the assets in the trust. This layer of protection is why trusts are often considered the cornerstone of all the best asset protection trust strategies.
Why Offshore Trusts Are the Best Asset Protection Trust
We’ve established that an asset protection trust is effective for guarding your wealth against creditors and other threats, but now it’s time to discuss the best trust for asset protection.
Trusts come in several categories, but for the purposes of this discussion, we’ll look at two different types of trusts: domestic and offshore.
Learn more about the best asset protection structure.
Domestic Asset Protection Trusts
Domestic asset protection trusts (DAPTs) can only be created in 17 states, and are widely viewed as a convenient option for people who want to quickly protect their assets without going overseas. However, domestic trusts aren’t the best trusts for asset protection. A DAPT, regardless of where it’s established, is subject to the laws of the jurisdiction in which you get sued. For example, if you set up a trust in South Dakota, which has favorable trust laws in place, and get sued in a creditor-friendly state, like California, the CA judge’s ruling affects your SD trust.
Offshore Asset Protection Trusts
Offshore asset protection trusts are immune to rulings from outside jurisdictions. No matter what a judge from the United States says, their ruling has no power over offshore trusts and trustees. Your trustee can deny any creditor demands, even if the creditor brings a U.S. court ruling with them. At this point, most creditors give up entirely, but some choose to pursue a lawsuit in your offshore jurisdiction. Fortunately, jurisdictions like the Cook Islands, Nevis, and Belize have favorable laws that make it extremely difficult for creditors to win a fraudulent conveyance ruling against your trust.
Here are just a few of the barriers that an offshore asset protection trust uses to keep your wealth safe from creditors:
- Refusal to recognize foreign judgments: Creditors cannot rely on a preexisting fraudulent conveyance ruling made by a U.S. court. Instead, your creditor must file a claim in your trust’s local court.
- High lawsuit costs and mandatory personal appearances: Offshore courts often require steep upfront fees just to file a fraudulent conveyance claim. On top of that expense, the claimant must often appear personally in the jurisdiction during court hearings and filing processes.
- Strict burden of proof: Creditors must prove beyond a reasonable doubt that a fraudulent transfer occurred. This is the same burden of proof reserved for criminal cases in the U.S., and is extremely difficult to meet.
- Tight filing deadlines: In the Cook Islands, creditors can be barred from filing a fraudulent transfer claim after one to two years, depending on the situation.
To date, we have never seen a client lose funds held in a Cook Islands or Nevis trust that we established.
Learn more about the best countries for offshore asset protection trusts.
Enhancing Your Offshore Asset Protection Trust With an Offshore LLC
While an offshore asset protection trust is strong on its own, the best asset protection strategies combine it with an offshore limited liability company (LLC). Here’s how that works:
- Your asset protection planner creates an offshore trust with a strong spendthrift clause.
- After building the trust, your planner sets up an offshore LLC.
- Your team places the LLC inside the offshore trust.
- You place your assets inside an account held by the LLC.
This setup adds multiple legal barriers on top of the nearly unbreakable ones already generated by your OAPT. Some of these obstacles include:
- Multiple layers of legal protection – LLCs have their own natural protections against lawsuits, and when those are combined with the advantages of an OAPT, it creates a double firewall. Creditors will have to overcome the protections afforded by your LLC and those offered by your OAPT to even have a chance at getting their hands on your assets.
- Court-proof structures – Since offshore courts can ignore U.S. judgments, creditors face a legal dead end. They can’t force offshore trustees to comply. Domestic trustees, on the other hand, may be pressured by U.S. courts into releasing your assets.
- Trustee’s legal duties – Trustees in strong jurisdictions must follow local law. This means they cannot honor a foreign court order. They can, however, make distributions on your behalf during a legal attack, which can keep you financially afloat without putting your trust-held assets at risk.
- Privacy laws – Offshore jurisdictions often don’t require public disclosure of settlors or beneficiaries. In places like the Cook Islands, only the trust name, trustee name, and trust date are recorded. Company ownership remains private as well. This makes it harder for creditors to connect you to your trust, reducing the chances that they’ll even file a fraudulent transfer claim.
In addition to those asset protection benefits, you also receive a greater level of control over your assets when you combine an LLC with an offshore trust.
The Best Asset Protection Strategies Balance Control With Protection
When you set up a multi-entity structure using an offshore LLC and an OAPT, you gain greater control over your assets. In a typical offshore trust, you can only use the assets that are distributed to you as a beneficiary. However, an offshore LLC allows you to maintain control over any assets placed inside of it.
Here’s how this added control works in practice: Imagine you have an offshore trust with an offshore LLC inside of it. The trust, and by extension the LLC, is under the care of your trustee. But when you serve as the LLC manager, you can use any assets that belong to the LLC at your discretion. If you are ever sued, you can shift total control of the LLC back to the trustee, which prevents creditors from gaining access to the assets the LLC holds.
While the trustee runs the LLC, they can still pay your bills or send money to a family member or friend on your behalf. You maintain indirect access to assets, even during legal duress. This balance of control and security makes the offshore multi-entity structure an ideal asset protection approach.
Set Up the Best Asset Protection Strategy With Help From Asset Protection Planners
If you’re ready to set up the best asset protection strategy possible, Asset Protection Planners is here to help! Our team has established offshore trusts for decades, and knows exactly how to keep your wealth safe without compromising your access to it.
Schedule a free consultation with us today to protect your assets for a lifetime.
