Asset Protection and Offshore Trusts

Offshore trusts are a crucial asset protection strategy that can help safeguard your wealth and protect your assets from seizure. Significantly, you needn’t have accumulated a certain level of affluence before you can set up a trust in a foreign jurisdiction. Offshore trusts can be used by anyone who wishes to preserve their assets and make investments they might not otherwise be able to.

It is well-known that we live in one of the most litigious societies in the world. It’s imperative to take advantage of all the legal measures available to protect your assets from judgments and economic uncertainty. At White & Bright, LLP, our attorneys assist individuals and businesses with setting up offshore trusts to help ensure their hard-earned assets are kept out of the reach of creditors and shielded from seizure.

Meet Our Offshore Asset Protection Attorney

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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
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What is an Offshore Asset Protection Trust?

An offshore asset protection trust is a trust that is set up in a foreign jurisdiction for the purpose of transferring assets and holding them for your own benefit. These types of irrevocable trusts are distinct from other trusts in that they have a third-party trustee with no jurisdictional ties to the United States. Instead, these trusts are governed by the laws of the country in which they are set up. The foreign jurisdiction dictates the terms of the trust — including the duration of the trust and the ability of creditors to pierce it.

Why Are Offshore Asset Protection Trusts Used?

The most significant advantage of setting up a trust in a jurisdiction outside the U.S., such as Switzerland, the Cook Islands, or the U.S. Virgin Islands, is the protection they offer from lawsuits, judgments, and creditors. Since the trustee of an offshore trust is not under the jurisdiction of the United States, any judgment or court order from any United States court will have no effect on them. In other words, creditors who want to reach the trust’s assets would be required to commence litigation in the jurisdiction where the trust is located.

Typically, the court systems in these foreign jurisdictions are not nearly as plaintiff-friendly as in the United States, which can make it more challenging for creditors to pursue litigation. In some offshore asset protection jurisdictions, it can cost $150,000 to hire an attorney and file a case. Additionally, the laws in the best offshore jurisdictions are creditor-adverse with high standards of proof and short statutes of limitations.

Although the trustee of an 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. Importantly, since you are the beneficiary of the assets, you can continue to access and use them.

In addition, it’s vital to understand 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 a critical aspect of legitimizing your offshore trust.

Setting Up a Cook Islands Offshore Trust

If you’re considering setting up an offshore asset protection trust, you may be wondering which jurisdiction would be most suitable for you or your business. The leading and most secure jurisdiction in which to establish an offshore trust is a place many people within the U.S. may not be familiar with: the Cook Islands. This jurisdiction is a self-governing Pacific island nation in free association with 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 only applies to non-residents of the Cook Islands and features numerous benefits that those outside of the jurisdiction.

Some of the advantages to creating a Cook Island offshore trust include the following:

  • Privacy — The details of the settlors, trustees, and beneficiaries remain private.
  • No perpetuity period — Perpetuity periods do not apply to these trusts. There is no forced date on which the trust terminates, allowing it to benefit multiple generations.
  • Short statute of limitations — The statute of limitations to challenge transfers to the trust is a very firm two years.
  • High burden of proof for creditors — the only way to pierce the trust is to prove a fraudulent transfer to the trust “beyond a reasonable doubt.” This is the highest burden of proof for a plaintiff.
  • U.S. judgments are not recognized — The statute expressly prohibits trustees from recognizing judgments from foreign jurisdictions.

Cook Islands trusts can be used to protect both liquid and tangible assets, such as investment portfolios, life insurance policies, intellectual property, real estate, retirement accounts, and stock options. These types of trusts can offer considerable benefits to individuals in high-risk professions such as lawyers, doctors, and business owners. Notably, Cook Island trusts can provide peace of mind to those who use them that their assets are safeguarded during periods of political or economic turmoil.

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

Contact an Offshore Trust Attorney to Learn More About Protecting Your Assets

If you’ve been contemplating whether an offshore asset protection trust would be beneficial for your situation, it’s best to consult with a knowledgeable offshore trust attorney who can advise you. Providing legal counsel, the attorneys at White & Bright, LLP have extensive experience helping clients in California set up trusts in foreign jurisdictions to protect their assets. Contact us at (760) 747-3200 for a consultation today.

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