Asset protection has for years been recognized as one of the basics of retirement and estate planning. The international tool takes a more sophisticated approach to those same well-known concepts. In addition, foreign trusts offer U.S. citizens opportunities to diversify into a number of better performing global investments not generally available "on shore". Since 75 percent of the world's capital is held outside the U.S., it makes sense to have improved access to that market.

Although they are designed to be tax neutral, a number of foreign countries offer more flexible trust laws that allow trust creators to shelter assets from frivolous lawsuits, create entities that will last for generations and effectively manage and distribute those assets. They are helpful in corporate business planning and investment diversification. For anyone having international holdings or immigration concerns, an asset protection trust offers numerous advantages.

A requirement for planning these trusts is that they have to be established long before they are needed. In other words, if you wait until you are being sued or chased by creditors, then it's too late. An asset protection trust must be in place before the debtor or defendant has been sued or, for that matter, even threatened with a lawsuit. If you wait too long to act and a fraudulent conveyance occurs, then the trust will be set aside, unable to protect anything. Also these trust entities must be established by properly filing the paperwork required by the IRS and they are not to be used for insolvent individuals.

International trusts provide more than just asset protection. When properly done, they offer excellent estate planning tools for anyone concerned about conserving or losing control of their assets. Combined with family limited partnerships and section 664 charitable remainder trusts, a well-constructed international trust effectively eliminates estate tax liabilities.

Offshore trusts are funded in two ways, those which own assets remaining in the U.S. but hold the title offshore, and those holding both title and assets in foreign countries. For many, the psychological discomfort of shipping a significant portion of their estate offshore is the principal reason for keeping positions in domestic financial products. Unfortunately, assets left in the U.S. may ultimately be exposed to litigation, even though owned by an offshore trust. Therefore, the most protection lies in holding all of the assets and their ownership outside the U.S. Offshore assets held by international trusts may allow the defendant in a lawsuit to better maintain control during litigation. As a result, the trustor effectively steers away any potential settlement towards more favorable terms, since offshore assets cannot be easily attached. Enforcement of legal actions requires that the litigation occur in the foreign country where the trust is sited and be subject to its laws. In most cases, attorneys are barred from working on a contingency basis and plaintiffs are required to post a bond equal to 10-50% of the amount claimed. Shorter statutes of limitations, more restrictive legal requirements and the inconvenience of trying a case outside of the U.S. create effective barriers to nuisance suits. And you don’t have to be a multi-millionaire in order to have excessive liability exposure. For example, if one of your heirs or employees uses your vehicle and accidentally runs over a child, the resulting litigation is would likely exceed the typical liability coverage of your auto insurance policy by several million dollars. Even if you are innocent of any wrongdoing, who are the plaintiffs going to turn for compensation in the lawsuit? Even if you should win in court, you’ve lost time, money and your reputation in the process. For anyone with "deep pockets" who are worried about increasing exposure to personal injury claims and confiscation of assets due to final expenses, an international trust may be the most potent tool available.

The rules under which the trust operates depend upon its location. Since many countries have more favorable laws, it is very critical to carefully select the site of the trust. Based on your needs, you may have a number of uses for an international trust. International trusts limit domestic medicaid attachments, create dynasty trusts bypassing laws of perpetuity, allow for negotiated settlements making full use of liability insurance, all without having to tap into privately held assets.

The most popular countries used in offshore planning include: The Cayman Islands, Switzerland, Liechtenstein, Bermuda, The Bahamas, The Cook Islands, Nevis, Anguilla, Gibraltar, Turks and Caicos. Each country has its own advantages and disadvantages regarding tax planning, foreign business operations, banking and investment infrastructure, telecommunication capabilities, access to qualified trustees and money managers; so creator of the trust’s decisions should not be undertaken lightly. Since the majority of people have little or no experience in establishing a foreign entity trust and have no contacts to wade through the bureaucratic paperwork, you need to have an experienced team of advisors. Bear in mind that international trusts are not for everyone. However, for those individuals who feel their asset exposure is too high, these trusts are another valuable tool in their estate planning

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.