Asset Protection and Offshore Trusts

It is well-known the United States is the most litigious society in the world. We also have a unique legal system wherein, usually, each side is responsible for their own costs. With the availability of contingency fee attorneys, there is little disincentive for someone to file a lawsuit regardless of the odds of winning. However, a creditor cannot take assets that you do not own. If you transfer legal ownership of your assets to a third-party, your future unknown creditors cannot access those assets. Most people do not want to give away their assets to other people; this is where trusts become crucial for asset protection.

The legal theory behind trusts generally is that they split ownership into 2 different categories: legal ownership, the person with title to the asset, held by the trustee; and beneficial ownership, the person entitled to use and enjoy the asset, held by the beneficiary of the trust. Under certain jurisdictions, you can transfer legal ownership to a third party while still maintaining beneficial ownership and your creditors won’t be able to access those assets, giving you the best of both worlds: protecting your assets while still being able to use and enjoy them. A potential solution to this problem? An Offshore Asset Protection Trust.

Meet Our Offshore Asset Protection Attorney

View 's Profile Bridget B. Burns's Profile Image

Bridget B. Burns

Attorney Bridget Burns’ practice focuses on all aspects of trust and estate law, including complex estate plans, offshore trusts, probate and trust administration. Read More
View 's Profile

What is an Offshore Asset Protection Trust?

Similar to a living trust, it is a trust you set up and transfer assets to, which are held for your own benefit. Unlike your living revocable trust, an offshore asset protection trust is irrevocable and has a third-party trustee, who has no jurisdictional ties to the United States. The trust is governed by the laws of the foreign jurisdiction, which will have its own laws that dictate the terms and governance of the trust, including how long the trust can last, as well as the ability of creditors to pierce the trust.

Why an offshore trust rather than one based in the United States? Because the trustee is not under United States jurisdiction, any judgment or court order from any United States court will be of no effect on your trustee. Creditors who want to reach the trust’s assets will be required to start their litigation in the jurisdiction where the trust is located to reach those assets, within court systems that are nowhere near as plaintiff-friendly as the United States; it can cost $150,000 just to hire an attorney and file a case in some of the best offshore asset protection jurisdictions. Moreover, the laws in the best jurisdictions are creditor-adverse, with high standards of proof and strict, and short statutes of limitations.

Although the trustee of the offshore trust becomes the legal owner of the assets, these trusts can be used in conjunction with companies, including partnerships and LLCs, in order to allow you to maintain control of the assets. Additionally, you are the beneficiary of the assets, so as long as you have no legal troubles brewing, you can continue to access and use those assets. As the famous saying goes, you are able to “Own nothing, but control everything.”

One important point is that offshore asset protection trusts are tax neutral structures; they are not meant to dodge taxes or hide assets from the IRS. In fact, the IRS has specific forms that you must file every year to disclose your offshore trust. This is an important aspect of legitimizing your offshore trust.

If you want the peace of mind that the wealth you have worked hard to acquire will remain for the rest of your life and beyond, an offshore trust is the best tool available to you.

Cook Islands Offshore Trusts

Offshore trusts are more effective than any other tool because they are the only way to remove United States court jurisdiction over your assets while allowing you to retain a right to those assets. By putting assets you want to protect in a trust with a trustee who has no ties to the United States, creditors are unable to use United States courts to access assets. Instead, creditors will have to re-start their litigation in the jurisdiction where the trust is located to reach those assets, within court systems that are nowhere near as plaintiff-friendly as the United States.

Where should you set up an offshore trust? Many people have heard of offshore assets in places like the Bahamas, the Cayman Islands, or Switzerland. But the premiere jurisdiction is one many people in the States haven’t heard of: the Cook Islands, a Pacific island nation which is a protectorate of New Zealand.

Offshore trust planning for United States citizens was uncommon until the late 1980s when a Colorado-based attorney helped draft the Cook Islands International Trusts Act of 1984. This Act specifically only applies to non-residents of the Cook Islands and features numerous benefits for those outside of the Cook Islands to use:

  • the details of the settlors, trustees, and beneficiaries are private;
  • no perpetuity period applies to these trusts, meaning there is no forced date the trust terminates, so they can benefit multiple generations;
  • the statute of limitations to challenge transfers to the trust is a very firm two years;
  • the only way to pierce the trust is to prove a fraudulent transfer to the trust “beyond a reasonable doubt,” the highest burden of proof for a plaintiff; and
  • the statute expressly prohibits trustees from recognizing foreign judgments or jurisdiction.

This Cook Islands law is considered the gold-standard of asset protection law, and other jurisdictions have copied it. Because the Cook Islands was first to implement, they have many of the most well-established trust companies, with years of experience and millions of dollars under management, and courts who are very familiar with the law. Because of this long history of favorable law and legitimate trustees, the Cook Islands remains the first choice for most offshore asset protection trusts.

The law firm of White and Bright, LLP can help you determine if an Offshore Asset Protection Trust is the right fit for your assets. Our attorneys provide full-service legal counsel and representation. We also assist clients with all aspects of trust administration and probate administration.

A Primer On Asset Protection

Although “asset protection” may not be a phrase you are used to seeing, most people engage in asset protection to some degree. For example, liability insurance is the most basic form of asset protection: you want to make sure if you have a home o… Read More

For More Information

  • This field is for validation purposes and should be left unchanged.