How An Offshore Trust Can Make Your Assets Bullet-Proof
Trusts are originally a British concept. They were originally established centuries ago when the British landed nobility were going to war. They would leave their affairs to be managed by others in a trust with strict instructions on how their assets were to be managed. When they returned from war the trustees would return the assets to the nobles who returned from war.
There are 3 layers to a trust. You have the settlor, the beneficiary, and the trustees. The settlor is the person or entity who establishes the Trust. The Beneficiaries are those who will benefit from the assets owned by The Trust in the future. The trustees manage the trust on behalf of the beneficiaries. Offshores trusts and foundations work in exactly the same way as their onshore equivalents. Offshore trusts, however, offer a greater level of privacy and protection.
The Trustees have instructions on how to manage the assets and how they are to be disbursed. The Settlor, although he doesn’t control or own the assets may have significant input into what happens to them. With many offshore trusts, the settlor will have a Power of Attorney to manage the assets owned by the trust or foundation. In this way, you are able to use an offshore trust to control significant assets without having any legal ownership of the assets.
1. Iron-Clad Legal Protection for Your Assets Held in an Offshore Trust
The reason that Trusts have stood the test of time over centuries is that they provide a clear legal separation of the assets of an individual from the assets of the Trust. When you transfer assets to a Trust or a Foundation you no longer own them legally.
Offshore trusts add another layer of protection for the settlor and beneficiaries as it’s often impossible for any hostile creditor to discover any information about the assets and activities of the offshore trust or foundation. This level of privacy is protected with strong legal safeguards in some offshore jurisdictions.
They can’t be seized by your creditors. Trust law in some jurisdictions even has legislation to stop anyone from being forced to transfer the assets of the trust under duress. For example, imagine your ex-wife knows about the millions sitting in the Offshore Trust and manages to get a judgment to have them transferred to her in your home country.
In this scenario, the Trust would be frozen and legally you’d be unable to instruct the Trustee to transfer any assets. The creditor would have to start proceedings against the Trust in its legal jurisdiction. If the Trust is established in a jurisdiction with strong asset protection measures like The Cook Islands or Nevis this will be an almost impossible task.
In the first instance, any creditor would have to hire a legal team in the offshore jurisdiction. In a jurisdiction like the Cook Islands, they’d also have to deposit money with the court to cover potential costs.
2. Use an Offshore Trust to Protect Your Assets Even if You Haven’t Decided on the Beneficiaries Yet
Some Offshore jurisdictions such as The Cayman Islands and The British Virgin Islands have modernised the Trust with the introduction of The STAR Trust. These structures make it easier to remove Trustees and lets the Settlor keep more control of the Affairs of the Trust.
These structures are more like living Trusts that do not have to nominate beneficiaries when they are set up. This lets you transfer your wealth out of your legal ownership, while still keeping control. You can decide on the beneficiaries at a later date.
3. Set up an Offshore Trust in the Most Private Jurisdictions
Lichtenstein is the home of the original Foundation which is basically a European version of the British Trust. Lichtenstein Foundations are largely impenetrable.
Panama updated the Foundation structure with its own version of the Lichtenstein Foundation. This, combined with Panama’s strong privacy laws and aversion to co-operating with foreign jurisdictions makes it a good option.
The Cook Islands and Nevis also have strong privacy laws and legislation which makes their trusts almost impenetrable.
4. Use an Offshore Trust to Preserve Generational Wealth by Avoiding Inheritance Tax
Trusts and Foundations are a good option to preserve generational wealth. Because they are not owned by you they are not affected by any financial mishaps such as legal judgments or even bankruptcy.
The Trust will be at the top of your Offshore pyramid, owning shares of your confidential Offshore Companies which may in turn own assets in your home country or other high tax jurisdictions.
5. Protect Assets prior to Marriage
As Rockefeller once said Trusts are the perfect way to “Own nothing and control everything”.
How Trusts and Foundations are Used:
John was planning to marry his long-term fiancé. John had a net worth of more than £8m and lived in London. His assets included shares in his family business, investments in listed companies, and cash.
John, having heard some horror stories about divorce law in the UK, wanted to make sure that his assets were protected no matter what. After speaking to us we set up a Foundation in Lichtenstein and he donated most of his assets to the Foundation. John was still in control of his assets, but he was no longer classed as the Ultimate Beneficial Owner.
John started his marriage with the peace of mind that his assets were safe and secure in all eventualities. He was also able to avoid the awkward conversation about pre-nuptial agreements.
6. Secure Assets Before Moving to a High Tax Country
Charles had been living in Monaco for over 10 years but, in need of a change, and a new challenge he decided to move to California. After living in a tax haven for the last 10 years Charles wanted to legally protect his $12m net worth from the US tax authorities before he became a legal resident.
Charles donated most of his assets to a Seychelles Foundation. That not only protected his assets from the dangers of a more litigious society, he also protected his income of $700,000 per year from US taxes as he is no longer the owner of the assets producing the income. When he needs funds from the foundation he requests a loan from the trustees on commercial terms. As it’s a loan from the trust it’s not taxable. Charles can spend the next few years in California safe in the knowledge that his assets and income are safe and secure.
An offshore trust can be a key part of your asset protection strategy. It’s not necessary in every case and adds a little to your annual costs. However, anyone with substantial assets to protect should consider using an offshore trust. There are a wide variety of jurisdictions that will work well. Your unique situation including the risks that you face and the jurisdiction where you live will determine the best overall strategy for you.
For more information on asset protection strategies, our special report – Bullet Proof Asset Protection goes into more detail about offshore trusts, foundations, offshore companies, banking, and overseas residencies. It’s a must-read if you have wealth to protect. Click here to get a discounted copy instantly.