Best Asset Protection Trust Strategy
Trusts are the most popular tools in the world for asset protection. Trusts may effectively be used to legally protect money from creditors. They can also be beneficial for minimizing tax liability and simplifying divorce and bankruptcy proceedings. So, here we talk about the best asset protection trust strategy today. The most popular type of trust for asset protection is a self-settled spendthrift trust. This type of trust allows settlors to protect their own assets. They may also protect assets which will be gifted to beneficiaries. These trusts are often referred to as asset protection trusts.
Asset protection trusts are excellent choices for asset protection for those in high-liability professions, such as physicians and other business owners. Society is becoming more and more litigious every day. For this reason, a comprehensive asset protection strategy is an essential part of any wealthy person’s financial planning.
Multi-entity offshore asset protection structures provide the best possible asset protection available worldwide. This is the result of the mammoth obstacle that they present to creditors. Creditors are required to pierce through all of the various tools utilized within the asset protection structure.
One example of a multi-entity offshore asset protection structure is combining an offshore trust with an offshore limited liability company. Not only is it popular, but case law repeatedly shows that it is one of the most effective asset protection strategies.
To use this strategy, a person must first settle an offshore self-settled spendthrift trust. This trust must be irrevocable in order to provide protection. The same individual simultaneously establishes a limited liability company (LLC). Ownership interest of this limited liability company is then placed inside of the trust. The assets are transferred to an account which is opened in the name of the limited liability company.
Under normal circumstances, the settlor of the trust may maintain control of the assets held within the LLC. This is done by naming settlor of the trust as the manager of the LLC. The trust transfers control of the limited liability company to the trustee under times of legal duress. This strategy takes advantage of the fact that trustees are legally barred from making transfers of assets while a settlor is under legal threat. As a result, extra protection is afforded from creditors. Trustees cannot transfer assets which they can reasonably assume will be claimed by the settlor’s opponents. Trustees do, however, have the ability to pay bills for the settlor of a trust. Additionally, they may make distributions to relatives or trusted friends on the settlor’s behalf. Using this structure, the settlor has the ability to access their assets while keeping them out of the reach of creditors.
What Is An Asset Protection Trust?
Asset protection trusts divide the beneficial and legal ownership of assets. A trust’s beneficiaries are beneficial owners of equitable interests in the trust. However, the legal title of the assets belongs to the trust, instead of the beneficiaries. Trusts enable their settlors to shield assets from their creditor’s claims legally.
This occurs through what is known as a spendthrift clause. A spendthrift clause is language incorporated into the trust deed. It states that the trust is created for the benefit of a person who is unable to control their spending. An independent trustee is appointed to control how the trust assets are used. The assets are under the control of the trustee rather than the settlor of the trust. As a result, they are generally protected from the settlor’s creditors.
There are many jurisdictions which offer asset protection trusts. Domestic asset protection trusts are asset protection trusts which are settled in the United States. They are only available within 17 different states. Domestic asset protection trusts can be useful in protecting assets from creditors. However, these assets are still within the reach of local courts.
Offshore asset protection trusts provide significant advantages over domestic asset protection trusts. Jurisdictions like the Cook Islands, Nevis, or Belize, feature favorable laws which make it difficult for creditors to claim assets from their owners.
Benefits of an Asset Protection Trust with an LLC
Several jurisdictions offer significant benefits for those who combine the use of an asset protection trust with an offshore limited liability company.
- Multiple Layers of Asset Protection
As mentioned above, using an offshore asset protection trust in combination with an offshore limited liability company provides the best asset protection possible. This is because this structure creates multiple layers of legal separation between the settlor of the trust and the assets. The further the legal separation between the settlor of the trust and the assets, the more the assets are protected. Trusts create a single layer of legal separation. They do so by placing the control over distributions of assets to the settlor in the hands of the trustee. Offshore limited liability companies provide another layer of legal separation. This is the case because offshore limited liability companies are considered to be separate legal entities from their owners. As a result, a creditor with a judgment against a person utilizing this asset protection structure would have to pierce through both layers of protection.
- Foreign Judgments Are Not Recognized
Additionally, the creditor would be required to obtain a judgment in the jurisdiction where the trust is held. This is because the majority of favorable offshore jurisdictions do not recognize foreign judgments.
Domestic trustees can face contempt of court if they do not comply with a civil judgment. Offshore trustees, however, are not bound by domestic court orders. In fact, in many favorable jurisdictions, trustees are bound by law to disregard foreign court orders. If a domestic trustee is faced with contempt of court to release assets following a civil judgment, they will more certainly do so. An offshore trustee will not.
In order to pursue a judgment against the settlor of an offshore trust, a creditor must usually have the case tried by the local courts. This is because the trustee is only bound by the law of the jurisdiction where the trust was established. Some jurisdictions, such as the Cook Islands, Belize, and Nevis, provide additional barriers to keep creditors from attacking their trusts. These barriers may include requirements that the plaintiff travel to the jurisdiction to file a lawsuit. The courts may also charge large fees to open cases in these jurisdictions.
Even if a case is filed, it is unlikely that a creditor will be able to touch the assets held within an offshore trust. In a number of jurisdictions, the only time a creditor can touch the assets is in a proven case of fraudulent transfer. The burden of proof is on the creditor to show that assets were transferred with the willful intention of defrauding that specific creditor. This proof in the Cook Islands and Nevis is beyond reasonable doubt. The creditor must also prove that settlor was made insolvent as a result of transferring those assets. We have never seen judgment take money from a client that they have held inside Cook Islands trust or Nevis trust that we have established for them.
- Access to Assets Under Legal Duress
Properly established offshore asset protection trusts allow settlors to access assets while under legal duress. While a settlor is under legal duress, the trustee retains control of the assets held within the LLC in the trust. The trustee will not be allowed to comply with foreign court orders. They may, however, pay bills for the settlor or pay a trusted friend or relative for the settlor.
- Financial Privacy
Trustees of domestic trusts are routinely deposed or compelled by subpoena. They are subject to the judgments of US courts. US laws often require the disclosure of sensitive financial documents during legal proceedings. In contrast, many offshore jurisdictions consider the settling of trusts to be a private matter. The Cook Islands, for example, does not even require trusts to register the names of their settlors. Only the name of the trust, the name of the trustees, and the date of the trust deed are required to be registered. The same goes for offshore companies. The favorable jurisdictions do not require the public disclosure of the company’s owner. They need only to record the name of the company, the filing date and registered agent.
Best Asset Protection Trust Uses
One may hold a wide variety of assets in the structure described above. This type of structure is frequently used to hold cash and stock, intellectual property, and other types of assets. Both liquid and tangible assets may be held using a structure which combines and offshore trust and an offshore limited liability company. It is possible to use this type of structure to hold real estate also. However, American real estate held in an offshore trust may still be affected by the judgments of United States courts. This is the case because real estate is always subject to the laws of the jurisdiction where it resides. In the event of legal duress, liquid assets may prove more beneficial when using this type of asset protection structure. For real estate, we record a mortgage against each property payable to the LLC inside of the trust. Then, when legal threats arise, we have a third-party company in the Cook Islands that buys the mortgages and places the proceeds in an inaccessible account on the offshore trust.
One may transfer assets to the limited liability company held inside of the trust at the time the trust is settled. That said, it is best to set up the trust as early as possible. The earlier the better. That is because the statute of limitations. Here is an example. Once a certain amount of time has expired, one year from the time a lawsuit was filed or to two years from the cause of action, in the Cook Islands, courts in that jurisdiction will not hear cases brought against the trust.
Want More Information?
If you want to get more information about setting up a asset protection trust you can get in contact one of these ways. 1. Use the telephone numbers listed above. 2. Complete the contact form located on this page.
Last Updated on November 5, 2018