Offshore Trusts: Jurisdiction Shopping with a Flight Clause

A flight clause in an offshore trust allows the trustee (or trust protector in some jurisdictions) to move the trust from one country to another. The flight clause in an offshore trust is intended to support the prime directive of the trust – to preserve the assets of the trust for the beneficiaries. A part of this directive is that, should things become too “hot” in your country of incorporation, the trustee can move the trust and its assets out of the fire.

The flight clause gives the trustee the power to transfer both the assets and the trust itself – to close down the trust in country A and open a new trust in country B. A flight clause in an offshore trust has three primary benefits:

  1. Maximizes asset protection. Should a creditor make headway in your country of registration, you can leave that country, forcing them to start all over in another jurisdiction.
  2. Allows you to move the trust out of a country in the case of civil unrest or banking issues. For example, the banks in your country change their rules or have correspondent banking problems (as happened in Belize in 2015).
  3. The government changes the law, making your country of incorporation less attractive for one reason or another.

An example of a flight provision in an offshore trust is:

“The Trustees may, by a written declaration executed by them, at any time or times and from time to time during the Trust Period, as they deem advisable in their discretion for the benefit or security of this Trust Fund or any portion hereof, remove (or decline to remove) all or part of the assets and/or the situs of administration thereof from one jurisdiction to another jurisdiction and/or declare that this Trust Agreement shall the date of such declaration take effect in accordance with the law of some other country or territory in any part of the world and thereupon the courts of such other jurisdiction shall have the power to effectuate the purpose of this Trust Agreement to such extent. In no event, however, shall the law of some other country or territory be any place under the law of which:

(1) substantially all the powers and provisions herein declared and contained would not be enforceable or capable of being exercised and so taking effect; or

(2) this Trust Agreement would not be irrevocable.

From the date of such declaration the law of the country r territory named herein shall be the Applicable law, but subject always to the power conferred by this Section ___ of this Article ___ and until any further declaration be made hereunder.

So often as any such declaration as aforesaid shall be made, the Trustees shall be at liberty to make such consequential alterations or additions in or to the powers, discretions and provisions of this Trust Agreement as the Trustees may consider necessary or desirable to ensure that the provisions of this Trust Agreement shall mautatis mutandis, be so valid and effective as they are under the Applicable Law governing this Trust Agreement at the time the power contained herein is exercised.

The determination of the Trustees as to any such removal or change in Applicable Law shall be conclusive and binding on all persons interested or claiming to be interested in this Trust Agreement, and the written declaration executed by the Trustees from time to time effecting any such change in situs or Applicable Law is hereby deemed to be a term or provision of this Trust Agreement as if included herein on the date of execution of this Trust Agreement by the Settlor.”

A flight clause in your offshore trust provides an important level of protection in the event of unrest or banking issues in your country of registration, a change in the law, or an aggressive creditor willing to spend big money to chase down the assets of the trust in your country of incorporation.

A fight clause is especially important in Dynasty Trusts and during the first year or two of a new formation.

A dynasty trust is meant to manage assets for the benefit of your heirs for generations to come. As such, it’s subject to government and legal issues that were not foreseen by your agents decades or in advance. A flight clause will allow your trustees to manage risk and adapt to changes in the law after your passing.

Also, an offshore trust is most susceptible to attack in its first year or two of formation. During this time, a creditor may have standing to bring suit in your country of registration. In that event, you might let him spend money on lawyers and then move out of his reach. For more on this, see: The Law of Fraudulent Transfer in Offshore Trusts

For these reasons, a flight clause is a strong asset protection tool available only to offshore trusts. It will give your Trustees maximum discretion on how and where to best manage the trust for the benefit of your heirs.

I hope you’ve found this article on the flight clause in offshore trusts to be helpful. For more information, or to form an international trust, please contact me at info@premieroffshore.com or call us at (619) 550-2745 for a free and confidential consultation.

If you’re a US citizen, we can also assist you in keeping your international structure in IRS compliance. For more on this, see: Offshore Trust Tax Status and U.S. Tax Filing Requirements (Form 3520-A)