Normally, an asset protection trust with a United States citizen or resident as the settlor is structured to be tax neutral. In particular, no additional income, estate, gift or excise tax should be due because of the settlement of an asset protection trust. Likewise, the trust should not be expected to save taxes. It should also be emphasized that a foreign trust, notwithstanding the almost complete confidentiality it offers, cannot be legally (or safely) utilized to hide income from the long arm of the United States Treasury. In particular, the Treasury Department, particularly through its new interagency task force called finCEN, has committed substantial personnel (often ex-CIA) and computer capacity to combat money laundering and abusive uses of offshore trusts. Also, effective January 1, 1997, substantial and complex amendments were made to the Internal Revenue Code which can result in the imposition of large and unnecessary taxes and penalties on individuals utilizing foreign trusts. In light of this new legislation, we always endeavor to structure offshore asset protection trusts so that they are "domestic" for the purposes of United States taxation. This avoids a host of reporting requirements. MORE ON THIS SOON.
As long as you are a United States citizen or resident and considering an asset protection trust, please have it implemented by a real tax expert with substantial experience. Remember, if you are ever told that an asset protection trust (or indeed any foreign trust) will save you income taxes you are getting bad advice; and, in the process, probably being asked to commit a crime.
