Asset Protection Trusts


As the world economic situation totters on the brink of a cliff, with the World Bank predicting food riots worldwide due to increasing food prices and the banking infrastructure faces an imminent impending crisis, desperate people will do anything to eat and maintain their wellbeing.  Much of the world is just nine meals (three days) away from lawlessness and uncivilized behavior.

Already 15 million lawsuits are filed in the US every year according to the Legal Resource Network.  That computes to another American being sued every two seconds.  If you remain unprotected in your country of residence, it increases your likelihood of being sued and taking out liability insurance just makes you a more attractive target.  The best way to protect your self is by insulating yourself with an Asset Protection Trust outside your own country.  Such a trust disconnects your wealth from the legal system in your country.  It is the only way to guarantee that your assets cannot be seized by arbitrary action by your government on a mere pretext or suspicion of wrong doing and keep you waiting for ages for a trial.  If your bank and brokerage accounts have been frozen, you will have no access to money to hire a lawyer to protect you or seek their return to your control, especially if you are prohibited from borrowing without the permission of the authorities as sometimes happens.

Advantages of an Offshore Trust

  • Offshore trusts provide greater protection against lawsuits than domestic trusts.
  • Creditors are less likely to sue if your assets are owned by an offshore entity.
  • Attorneys attempting to sue offshore are confronted by a different legal system.
  • Insulates you from future exchange controls.
  • A properly structured offshore Trust can provide income.
  • Control of present and future ownership.
  • Provides for smooth, seamless transfer or family wealth to descendents for generations.
  • Protects from exorbitant probate taxes.
  • Can be used to provide for education, health care and maintenance of beneficiaries.
  • Assets are protected from spendthrift beneficiaries.
  • Property may be held to benefit of minors and bankrupt and incapacitated persons.
  • Strict confidentiality.
  • Efficient tax planning.
  • Protection of assets against potential creditors.
  • Some assets are better owned by an Offshore Trust than by a Limited Partnership e.g. the home mortgage deduction of interest is retained if eligible property is placed in an Offshore Trust, but not if placed in a Limited Partnership.
  • The Subchapter S election is retained if S corporation stock is transferred to an Offshore Trust, but not if transferred to a Limited Partnership.Trusts have been used for many centuries as a legitimate means of protecting assets, whether hard assets or cash and cash instruments.Each trust has the following:
    1. Settlor or Grantor
      C. Trustee(s)
      D. Beneficiary(s)

    The terms Settlor and Grantor are used interchangeably. This person is the one who settles certain assets upon the trust. S/he is usually the initiator of the trust and the one who transfers the initial assets to the trust. The Protector is the person who has a voice in the operation of the trust and is a watchdog for the beneficiaries. He assumes many of the functions of the Settlor or Grantor in his absence or after his death. S/he may communicate with the trustee(s) through letters of wishes or orally if s/he so chooses. Written communication is the best, since it leaves a record.

    The Trustee is the one who administers the affairs of the trust, receives the transfers of assets to the trust and invests its funds judiciously. The assets transferred to the trust are sometimes referred to as the “corpus” of the trust. The Trustee has absolute discretion as to the investments to be made, the disposal of assets and their distribution to beneficiaries in accordance with the wishes of the Grantor or upon the death of the Grantor.

    In theory, the Trustee is in complete control. In practice, the trustee adheres closely to the wishes of the Grantor and in his/her absence or upon his/her demise, to those of the Protector.

    A bank account in the name of the trust is legally owned by the trustee(s). However, the trustee may appoint any person s/he chooses to be a Manager of such an account. The bank account of a trust can be in the Caribbean, the US, Europe or any part of the world and there may be many such accounts.

    You may transfer any kind of asset you choose to your trust. This may take the form of land, house, apartment building, other rental property, works of art, automobile, boat, etc. This is done by a deed of conveyance. US citizens and residents have to report such transfer to the IRS. It may be better to have your trust purchase such property. If you propose to live in the property, it might be wise to make rental payments to the trust, so that you could not be accused of having beneficial use of the property without charge. The rent you pay goes indirectly back into your pocket.

    An IBC that is owned by a trust is also legally owned by the Trustee in the same way that the Trustee owns the trust. A Grantor may be appointed a Consulting Director or Manager of this IBC and thus entitled to a consultation fee or salary. As a Manager, s/he can be issued with a “revocable” Power of Attorney. It must be revocable, because if it were “irrevocable” he would have a measure of control over the IBC which is a subsidiary of the trust that would make the trust an “alter ego”, an extension of himself or herself, i. e. a sham. The U. S. Internal Revenue Code would treat its earnings as those of a Proprietorship or Partnership.

    Great care is to be exercised in choosing a Trustee, especially when both Grantor and Beneficiary are offshore companies controlled by the same Trustee. This is a trust relationship and not one easily undertaken with your life’s earnings.

    You should seek the advice of licensed practitioners in your own jurisdiction, notably tax attorneys and Certified Public Accountants before forming an Asset Protection Trust.

    A trust may have any number of IBC’s tied to it. This could be a particularly useful strategy where you wish to purchase several properties or to conduct several businesses and want to spread liability. A trust may also have several sub-trusts. Such sub-trusts could be used to settle property on various members of your family before your death, so that there are no family quarrels after you pass on. It helps to preserve family harmony for succeeding generations.

    The question you may ask is which structure should one use for privacy, asset protection, and credit enhancement. The best arrangement is a trust that owns one or more IBC’s. If you have to choose between an IBC and a Trust, because the funds were not sufficient to offer maximum protection, then the Trust has an edge over the IBC. If maintenance of personal control over your assets is of paramount importance, then the IBC is the more suitable of the two. Our conclusion then is that it is best to have both a Trust and an IBC, with the IBC owned by the Trust.