OFFSHORE TRUSTS AND ASSET PROTECTION
When I mention the topic of offshore trusts to my clients’, at first, it may conjure up notions of exotic locales, palm trees, ocean breezes, and the very wealthy, shifting assets offshore. However, offshore trusts are not just an estate planning and asset protection tool for the very wealthy. Offshore trusts can also be utilized by persons of more modest means in certain situations and can be affordable. One of the primary reasons that people use offshore trusts is for maximum asset protection. There is a misconception in the public about offshore trusts’ and their purpose, so I want to provide you with a clear picture about what an offshore trust is and how it can be used to benefit you and or your family.
What is an Offshore Trust?
A trust is a written agreement wherein a “settlor” or the person establishing the trust, transfers his or her property to the trust, it then becomes “trust property,” and the settlor also chooses a “trustee” who agrees to manage the trust property for the benefit of others. In an offshore trust agreement, the trustee is located offshore and typically is a trust company that is familiar and experienced in acting as a trustee for an offshore trust. An offshore trust is designed to insulate the assets placed into the trust from any potential unforeseen future claims. Here are the major benefits of an offshore trust:
1.) Creates a Legal Barrier for Potential Creditors.
Foreign jurisdictions have far more protective trust laws than the U.S. Creditors are only interested in pursuing a lawsuit if they can force a distribution from the trust to satisfy a judgment. If you are sued in the U.S., and your assets are in an offshore trust, the U.S. court may not have personal nor in rem jurisdiction over you or your property; and therefore, the legal battle would need to take place abroad. Most U.S. attorneys’ contemplating a lawsuit to recover assets from an offshore trust will be inexperienced as to how to recover from an offshore trust because they know little or nothing of the foreign country’s law, procedures, customs, costs, or even currency. These factors combined with the foreign jurisdiction’s law to not recognize a U.S. judgment, meaning the case must be brought in the foreign jurisdiction, and generally by the time a U.S. attorney figures out this fact, the foreign statute of limitations will likely have expired, meaning your assets are protected from suit.
2.) Security and Privacy.
Offshore trusts provide security and privacy. A trust is a contractual agreement and therefore is not a public record. All personal and financial matters associated with the trust are kept private. As stated above, an offshore trust, offers maximum asset protection and security through foreign laws that do not recognize U.S. judgments.
3.) Diversification of Your Investment Portfolio.
An offshore trust can hold title and or interests in domestic and foreign assets under certain conditions, multiple domestic and foreign currencies, and other investments. Typically, an offshore trust is named as the account holder of an offshore bank account or accounts wherein the trust’s liquid assets are held. Offshore banks generally have more investment options than banks in the U.S. and also may offer higher interest rates for savings accounts. For example, some offshore banks allow you to convert your U.S. dollars into multiple foreign currencies. Generally, when the U.S. dollar falls, other foreign currencies rise. You can use foreign currencies in the offshore trust as a hedging strategy against the U.S. dollar. In conjunction with diversification, another reason offshore trusts utilize offshore accounts is for asset protection. If your money is in a U.S. account, a U.S. court will have jurisdiction over those assets; however, if your liquid assets are in an offshore account held by an offshore trust, it is unlikely that a U.S. court will have any authority over those assets. There are also ways to have your money in the U.S. and upon a certain triggering event, then transfer the trust property offshore.
4.) Peace of Mind.
Offshore trusts are similar to the concept of insurance, hopefully, you never need it, but when you do, you are grateful that you have it. With an offshore trust, you can rest assured that your assets will be secure and protected from potential judgment creditors and that your family’s legacy and your wishes will be followed an honored for the benefit of your beneficiaries.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Author: Attorney Ili J. Subhan
Subhan Law Office, LLC © 2016 All Rights Reserved.