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Trusts have existed for hundreds of years, yet remain one of the best ways to achieve asset protection.  From the time the first English knight conveyed property to a trusted friend for the benefit of his wife and children, trusts have preserved assets from family squabbles, spendthrift descendants and legal claims.  Nearly 1,000 years later, trusts still provide highly effective asset protection.  And virtually any property can be conveyed to a trust, including cash, securities, real estate, shares in private companies, artwork, jewelry, etc.  Generally speaking, the beneficiaries’ creditors can’t reach a properly configured trust’s assets. But, a number of jurisdictions have enacted favourable laws that augment their wealth preservation possibilities.  In a nutshell, that’s why The Sovereign Society recommends offshore asset protection trusts, or OAPTs.  Before discussing how to evaluate an offshore jurisdiction for an OAPT, let’s review the nuts and bolts of any trust relationship.  And a relationship is the operative word.  That’s because unlike a corporation, foundation, limited liability company or other structure, a trust doesn’t have a separate legal identity.  It’s instead a contract between three parties:  1. The grantor or settlor is the person or company who transfers the property’s legal ownership to the trust and therefore “settles the trust.”  2. The trustee is the person or company that administers the trust and that bears legal title to the trust assets.  The trustee owes a fiduciary duty toward the third party in the trust relationship.  3. The beneficiaries, who are the individuals that receive payments or other benefits from the property held in the trust.  Additionally, OAPTs may include a protector or guardian to monitor the trustee.  The protector insures the grantor’s intentions are respected and often has the power to veto acts proposed by the trustee.  If necessary, the protector can even change trustees.  The protector oversees the trustee, so the trustee can’t assume a protector’s responsibilities.  7 Factors to Evaluate in any Offshore Trust Jurisdiction You can form a valid trust in any jurisdiction that inherited English law.  That gives you nearly 60 jurisdictions to choose from—any of England’s current or former colonies.  A few civil law countries, including Panama and Liechtenstein, also have laws authorizing the formation of trusts.  Most of these jurisdictions have trust laws similar to those in England.  That’s because English law remains in any jurisdiction that inherited it unless amended, repealed or overruled.  That presents a potential problem, because when two countries’ laws are similar, it’s possible one country’s judgments will be honoured in the other country. - Article Continued Below -

The Sovereign Society, headquartered in Waterford, Ireland, was founded in 1998 to provide proven legal strategies for individuals to protect their wealth and privacy, lower their taxes and to help improve their personal freedom and liberty. The Society's highly qualified contacts recommend only carefully chosen banks and investment advisors as well as financial and legal professionals located in select tax and asset haven jurisdictions around the world. The Society provides advice concerning the establishement and operation of offshore bank accounts, asset protection trusts, international business corporations (IBCs), private foundations, second citizenships and foreign residency, as well as practical safeguards for financial, Internet and personal privacy. The Sovereign Society stands alone in fulfilling this singular, international offshore service role for its members. To learn more about our organization and how you too can become a member, please click here.

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That brings us to the first and most important requirement in any trust jurisdiction you might be considering: 

1. Make sure the trust jurisdiction doesn’t honour foreign judgments against assets transferred to a valid trust formed there.  ere may be exceptions if the assets are derived from fraud or other criminal activity, but otherwise, the assets should be protected.  That’s the whole point of an OAPT! 

2. Choose a jurisdiction that’s politically and economically stable.  Nigeria and Zimbabwe inherited English law, but you probably wouldn’t want to form a trust in either country, even if they enacted favourable trust laws.  A more relevant case: Belize, which arguably has the world’s strongest OAPT law, had its political stability shaken in 2005 when widespread civil disturbances broke out. 

3. Make certain the jurisdiction has reasonable “fraudulent conveyance” rules.  In 1571, the English Parliament adopted the Statute of Elizabeth that established criminal penalties for anyone who withheld property from creditors.  The legal principles developed to interpret this statute became known as fraudulent conveyance or fraudulent transfer rules.  Even though England long ago repealed the Statute of Elizabeth, its principles may still apply in jurisdictions that inherited English law.  This law’s most insidious principle states a transfer may be voided with respect to future unknown creditors! 

Most English law jurisdictions have dealt with the “Statute of Elizabeth” problem either by repealing it (e.g., the Cook Islands) or by modifying it as to not apply to future unknown creditors.  Other jurisdictions mandate a statute of limitations for bringing claims against the trust, varying from an immediate cut off at the time the trust is settled (e.g., Belize) to six years (e.g., the Cayman Islands) or more. 

4. Beware the “self-settled trust” problem. n English law, you must relinquish the right to be a beneficiary of a trust you settle for the trust to provide asset protection against future creditors.  This is the self-settled trust principle.  If you intend to name yourself as a beneficiary, ensure the jurisdiction you choose preserves asset protection in that event.  The laws of most offshore jurisdictions now permit self-settled trusts, but some, including the Isle of Man, are silent on this issue. 

5. Overruling the rule against perpetuities.  English law provides a trust must have a limited (though possibly long) life. his is known as the rule against perpetuities and effectively frustrates the formation of long-term, so-called “dynasty” trusts.  Most offshore jurisdictions have modified the rule against perpetuities.  Some, such as the Cook Islands, have eliminated it altogether. 

6. The jurisdiction shouldn’t impose taxes on the offshore income of trusts formed by non-residents.  Most offshore jurisdictions do not impose income tax in this situation or only impose it on domestic income. 

7. If all else fails…flee.  An offshore trust should include a clause permitting it to change quickly the jurisdiction governing the law of the trust.  The use of dynasty trusts combined with changes in the geopolitical landscape make such a provision important.   Most offshore trust domiciles permit the use of such “flee clauses.” 

And the Winner is… 

Dozens of jurisdictions may serve your purposes when considering an offshore trust.  The easiest way to sort through the choices is to eliminate those jurisdictions that have attributes you don’t like. 

• “Weak” versus “strong” asset protection laws.  Jurisdictions with strong OAPT laws, such as Belize, Nevis, The Bahamas, and the Cook Islands have sometimes been viewed by U.S. courts as having “extreme” legislation.  The national courts of the Cook Islands and The Bahamas have also invalidated trust laws when trusts were used fraudulently.  These court decisions have led to experts recommending trust jurisdictions like the British Virgin Islands, Guernsey, Jersey, and the Isle of Man, which have no asset protection provisions in their trust law, or Bermuda and the Cayman Islands, which have moderate OAPT laws. 

• Independent nation versus overseas territory.  Some experts recommend avoiding jurisdictions that aren’t sovereign nations. For instance, several popular trust jurisdictions, including Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, and the Turk and Caicos Islands, remain U.K. overseas territories.  That makes them subject to the dictates of the U.K. Parliament, which once recently forced most U.K. overseas territories to enforce the EU savings tax directive by imposing withholding taxes on interest earned by EU depositors.  A move is now underway in the U.K. Parliament to require public disclosure of all a private trust’s parties.  If this initiative becomes law, it could potentially be extended to all U.K. overseas territories. 

• Developed versus under-developed financial and legal infrastructure.  Many OAPT jurisdictions are remote islands with few banks, trustees and lawyers to choose from.  Examples include the Cook Islands, St. Vincent and Samoa.  The limited number of choices may become a problem in the event of litigation or if you need to change trustees. 

• Secrecy versus confidentiality.  All English law jurisdictions recognize a “duty of confidentiality” bankers have toward their customers.  Some jurisdictions, in particular, The Bahamas, the Cook Islands, the Cayman Islands, and the Turks & Caicos Islands, have reinforced this principle with “bank secrecy” laws that punish violations of this duty with fines or even imprisonment.  However, secrecy may be waived in criminal cases. 
The bottom line: There is no “best” jurisdiction for an offshore trust.  Depending on your specific objectives, many different ones may be suitable.  You should only make the final decision after consulting a qualified asset protection attorney. 

Assuming your chosen offshore jurisdiction meets your requirements, it’s more important to select the proper trustee for your OAPT rather than select a “perfect” trust domicile.  That’s because you will be turning over legal title to your assets to your trustee, and depending on that person or company to reliably follow your instructions, possibly for many years.  More than likely, your U.S. attorney will recommend whom to choose for your offshore trustee. 

Finally: Offshore trusts aren’t asset protection panaceas.  Problems may arise if you retain too much control over your trust and/or if you settle the trust after a liability arises.  In these situations, there is a risk that a judge (especially in the U.S.) may find you in contempt and throw you in jail until you find a way to repatriate the trust’s funds for your creditors’ benefit.  In addition, OAPTs generally can’t reduce your tax liabilities, and you shouldn’t count on them to “hide” assets.  If you’re sued, assume your opponent’s lawyer will find your OAPT!
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