What is an Offshore Asset Protection Trust?

There are many ways to legally hide and protect your assets from unscrupulous lawsuits, hungry creditors, and bitter divorces. The different options available all have their own unique features, benefits, and drawbacks.

One thing to know is that a few of these options clearly stand above the rest in the level of protection and privacy which they offer.

One such example is that of an Offshore Asset Protection Trust (OAPT), which is unparalleled in its ability to protect your assets from lawsuits whilst simultaneously offering numerous other uses and benefits.  

What is an Offshore Asset Protection Trust?

A Trusts consist of three parties: the grantor (i.e. you), the trustee, and the beneficiaries. With ordinary trusts, the grantor cannot also be the beneficiary. In other words, the one who endows the trust with funds and assets cannot simultaneously reap the benefits of those assets. 

The primary difference between a domestic and offshore trust is that an offshore trust is in a foreign overseas jurisdiction. Having an offshore structure outside of the country where you live is an important aspect of an asset protection strategy. It provides the benefits of having a second legal system in place and makes breaking open the trust most difficult because foreign court orders are usually not recognized.

Furthermore, it is much harder to get access to personal information as most company registries in offshore financial centres are not available to public inspection. Many countries that have a developed regulatory structure have several barriers to entry that prevent parties from being able to indiscriminately make claims.

Countries like Nevis and the Cook Islands for example have a statute of limitations of 1-2 years, must prove fraudulent transfer and in the case of Nevis you must post a 100,000USD bail before making your case to the country's court system.

These are just some of the distinctions that make an offshore trust stronger than a domestic trust. 

What Makes OAPTs Different?

An Asset Protection Trust is a special type of trust which is known as a “self-settled” trust. What this means is that you can be both the grantor of the trust and its sole beneficiary.

The only outside party is the trustee, who is appointed to protect the assets in the best interest of the beneficiary. This means, for all practical purposes, you maintain control over the assets, but on paper they are owned and protected by the trust. 

Separating assets from your personal estate in this manner has several benefits related to estate planning and tax efficiency.  However, the most important benefit which we will look at here is that it provides bulletproof protection for your assets.

They Have Strong Protection Mechanisms

There are two defining features of an Offshore Asset Protection Trust structure which makes it so effective as an asset protection tool. Firstly, there is the fact that the assets in the trust are not legally owned by the grantor.

The trust operates as a separate entity with its own tax number. This means that the assets are not only protected, but also disidentified from your personal name, so they are well-hidden.

If a lawyer does a quick search of your assets, they will not find the assets in the trust as being connected to your estate without some digging. This is even more so the case with offshore Asset Protection Trusts. Having an offshore trust in comparison with a domestic trust will provide additional hurdles that will make it much more difficult to break.  

Under ordinary circumstances you have full control over the assets in the funds, however, in the case that there is a court order which requires you to hand over your funds to a creditor, the trustee is legally obliged to step in and protect the trust’s assets, and can refuse to hand over the funds.

There is very little that a creditor can do to lay claim over the assets in this case. This is especially true for offshore APTs, as they are in a completely different jurisdiction, far beyond the reaches of domestic courts and lawyers. With specific regulations that prevent a case such as countries like the Cook Islands and Nevis are some of the most well-established jurisdictions in the world precisely because they have iron-clad laws that make it virtually impossible to get access to.

Offshore APTs have barriers to entry such as:

• 100,000 bond requirements(in the case of Nevis)
• 1-2 years fraudulent conveyance proof
• don't recognize foreign court orders
• cases have to be brought within the local court system

Fraudulent conveyance has to be proved beyond any reasonable doubt that the beneficiary intended to defraud the particular creditor and that the transfer was done to specifically hide assets that where lawfully theirs.

Lawsuits that are filed against any individual can be held personally liable in many cases. Distancing yourself from your assets can help protect yourself in case anyone comes after you. 

Why They Are The Best Option Available?

Offshore Asset Protection Trusts which are properly formed in the right foreign jurisdiction offer superior asset protection and privacy. Placing your assets in a foreign jurisdiction offers an important additional layer of security, as they are out of reach of local creditors and court orders.

They are also much more difficult to track and connect to your name, as they can be structured in such a way through multi-jurisdictional structures and the use of nominee services and the use of signatory services that make it even more difficult to get access too.

There are certain foreign jurisdictions which are especially conducive for establishing Offshore trusts due to the laws and regulations which govern such entities. One such jurisdiction is the Cook Islands.

Cook Islands Offshore Trust

Cook Islands’ Asset Protection Trusts are protected by layers of legal safeguards and offer the utmost confidentiality. There is extensive case law that demonstrates the effectiveness of Cook Islands Trusts as a legal means for asset protection.

They have consistently proved to be impervious to all kinds of lawsuits and court judgments. Furthermore, owning such a trust can discourage any sensible lawyer from even opening a case against you in the first place. Other well-known and effective jurisdictions include Nevis and Belize.

Domestic vs. International

In the US, there are now a few states where one can establish a Domestic Asset Protection Trust (DAPT) which offers reasonably good protection for your assets.

The benefit is that Domestic Asset Protection Trusts can be formed quickly and easily, are generally more affordable than foreign trust structures, however, the downside is that your assets are still held within your own legal jurisdiction which makes your records more liable to be open to public scrutiny, and makes them much less resistant to legal claims and court orders.

Because foreign trusts reside in a country other than where you live you force the creditor to pursue their legal claim in the country where you hold your assets. Which means that the person has to file the suit in court in the country where your trust is located. Furthermore, most foreign countries do not recognize foreign country orders and therefore a local court can not force a court overseas to break open your trust as it would impenge on the soverignty of the state.

And lastly, offshore financial centers have strong assets protection clauses and legal statues that prevent false claims and phishing attempts from ever even making it to the court through high barriers to entry.

Strategies

Asset Protection Trusts are not the only way to legally hide and protect your assets. There are numerous other options, including:

1. Retirement Accounts

These offer limited protection if they are held in an offshore jurisdiction, though not completely confidential, they can be if you have the account held by a Trust and  LLC multi-jurisdictional structure.

If you reside in a country that is a member of the CRS then it will be a bit harder. However, your name will not be open to the public and will only be open to governmental tax authorities. The use of legal signatory services, bearer shares, as well as nominee services (depending on the jurisdiction can also add an extra layer of security and confidentiality. 

2. Land Trusts 

Asset Protection Land Trusts can be used as an effective means to create privacy on beneficial ownership of real estate. It can be used much the same way as a trust, and together in conjunction with an LLC can be effective to create layers of structures that help conceal true ownership which is helpful if you are trying to keep your name unassociated from title deeds. Land trusts are usually revocable and are open to amendments, however, land trusts are primarily used for privacy of ownership and not true asset protection.

3. Transferring your assets to a family member 

This may sound like a good solution it is not at all recommended and is not a sustainable solution. In any event, your family member may be just as likely to be sued as you are. It is not very difficult to go through financial records to be able to tie your assets to that of a family member and is likely the first thing a creditor will do when they decide to go after assets.

4. Offshore vehicles

Offshore Foundations and offshore companies have their rightful places in the asset protection world. It some instances an Offshore Foundation can provide just as much asset protection as a Trust. In many countries, Trust laws have been redesigned or struck down in an attempt to make them more transparent. In those instances, Foundations such as Panama or Nevis would likely be more suitable. However, if an appropriate jurisdiction is found like Nevis or the Cook Islands.

Trusts FAQ

Where is the Best Country to Form a Trust?

Some of the best countries to form a trust and that we use and establish trusts for our clients are Nevis, Cook Islands and Belize. Each of these countries has strong protection mechanisms and legal statutes that can be comparable to any other place in the world. 

How are Trusts Taxes?

Offshore Asset Protection Trusts are not taxed in the country where they are formed. Rather the taxation of the trust will be dependant upon the residence of the parties that establish the trust. Taxation of offshore structures is often a complicated issue as a result we recommend speaking with an offshore tax consultant before you create a trust.

How much does It Cost? 

This depends on a number of factors including the specific services used and where the trust is established. A Cook Islands Trust can run upwards of 15,000-20,000USD, with a separate yearly governmental fee. As the price is often a put off for many clients we often suggest Nevis or Belize as they can 5,000-10,000 USD.

Conclusion

Although there are many other ways to protect and hide your assets from creditors, lawsuits, and divorce, none seem to be quite as effective and time-tested as Offshore Asset Protection Trusts if they are properly structured in the best offshore trust jurisdiction.

It is important to realise that these are complex entities. Everyone has unique circumstances that require different solutions which require a professional asset protection planner. What is suitable for you may not be suitable for your neighbour.

It is far easier and more effective to set up your own tailor-made asset protection plan before the storm. Begin taking steps to protect your wealth today, by whatever means is right for you.