Offshore Trusts are the Best Asset Protection Available

The offshore trust is the best known and most effective legal tool used in asset protection today. The offshore asset protection trust launched the industry and has been the go-to structure for international asset protection specialists for decades.

Offshore trusts share many characteristics with a typical U.S. trust. For example, the offshore trust is a “self-settled trust, which means that the settlor and the beneficiary can be the same person. Also like a U.S. trust, the trustee is nominated by the settlor and will manage the estate should the settlor become unable to do so.

In the U.S., we usually define “unable” as a physical or mental impairment or death of the settlor. Offshore, we include “duress” in this definition, which allows the trustee (or protector) to step in if the settlor is sued or has a creditor judgement against him.

Because the trustee or protector are tasked with protecting the assets of the offshore trust, they should be foreign persons. That is to say, they should not be U.S. citizens or residents and out of the reach of U.S. courts.

Also note that the offshore trust may have trust advisors and investment managers. These advisors might be abroad or in the United States and be responsible for the day to day management of the assets of the offshore trust.

These advisors must be focused on working for the benefit of the trust and not for the settlor. When the desires of the settlor are at odds with what’s best for the heirs, or the best judgement of the advisor, the beneficiaries needs should win the day.  

For example, the trust should never invest in a business owned by the settlor or do anything that would create a conflict of interest. An offshore trust should be operated as a “blind trust,” a term we’ve heard quite a bit about since Trump was elected.

Likewise,  the settlor should have minimal or zero control over the assets of the trust. You should not have access to them, unless you decide to close down the trust. You should be unable to borrow against the  trust or use its assets for your benefit. .

The settlor can tell the investment managers how she wants the assets handled in general. For example, half in stocks, a quarter in bonds, and a quarter in gold (or something like that), but should not be making the investments or have control over the accounts.

As I said above, the offshore trust is the most secure asset protection vehicle available today. One of the reasons for this level of protection is the fact that you have little control over the trust assets. Thus, offshore trusts are best used by those who want to move a nest egg offshore and leave it there to grow for the benefit of their heirs.

For example, the  settlor should never have control over the appointment or replacement of the trustee. Likewise, trust protectors and advisors should not have the power to remove and replace the offshore trustee. Your trustee should be completely independent and working solely for the benefit of the trust.

This is because U.S. courts will try to force anyone with control over the trust to dissolve the structure and return the assets to the United States. Judges have held debtors (settlors), U.S. trust advisers, and U.S. trust protectors, in contempt of court and put them in jail to force  compliance with the court’s order. For this reason, only non-U.S. persons should be in control of the trust.

Even so, an offshore trust will be 100% effective against future civil creditors if the debtor/settlor is willing to relinquish control over the assets and the offshore trustee and if all parties to the trust other than the settlor are outside of the United States.

If you want total control over your assets and your investments, then I would recommend a Panama Foundation over an offshore trust. I would also suggest a Panama Foundation over an offshore trust if you are looking for a parent or holding company for an active international business.

Of course, a Panama Foundation doesn’t provide the same level of asset protection and estate planning available in a more expensive and customizable offshore trust. But, it does a solid job when assets are outside of the United States and it’s funded well in advance of the dispute arising.

Once you’ve decided that an offshore asset protection trust is the vehicle for you, then you need to select the best jurisdiction. Most experts agree that the Cook Islands, where the offshore trust industry began, is the most secure country. For more on this, see: Maximum Security with a Cook Islands Asset Protection Trust.

But there are many competing jurisdictions which might fit your personal situation better. For example, Cayman Islands, Belize, and Nevis all have solid offshore trust statutes. One might chose Cayman because you want to focus your investments on Cayman Island funds. Or you might prefer the banks, investment advisors and trustees available in Belize to those of the Cook Islands.

The point being that there is no “one size fits all” offshore trust solution. These are all custom designed and drafted trusts tailored to your situation. The offshore trust industry is all about specialized trusts for high net worth individuals, which is the opposite of the high volume offshore incorporation mill model.

When planning an offshore trust, start by selecting tax and business advisors that you are comfortable with. Then choose a trustee and investment advisor who will manage the trusts with your values in mind.

I also suggest that the quarterback of your offshore structure should be from your home country. If you’re seeking protection from future U.S. liability, then you want a U.S. attorney building your structure (with offshore advisors and trustees in key roles). Likewise, if you are a U.K. citizen, you want a U.K. tax and trust expert managing your project.

Once your team is in place, relay on these experts to select the jurisdiction and bank that best fits your situation.

I hope you have found this article on offshore trusts to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 550-2743. All consultations are free and confidential.

We can also assist you to keep your offshore trust in compliance with the Internal Revenue Service. We are the only mid-sized offshore asset protection firm that offers both formation and tax preparation services.