Nearly a dozen states permit the creation of domestic asset protection trusts (DAPTs) to shield their assets. Unfortunately, California is not one of them.
However, you do have the option of creating a foreign asset protection trust (FAPT.) FAPTs offer various asset protection benefits that DAPTs cannot and there is a reason that they continue to rise in popularity. One of the greatest reasons is that FAPTs are not governed by U.S. laws.
Protect assets from creditors, ex-spouses and lawsuits
Assets held in domestic trusts are vulnerable to domestic judgments. In contrast, any assets held in offshore trusts are subject to the laws of that country. In most cases, foreign courts do not recognize judgments made in U.S. courts. If you are ever sued, experience creditor issues or go through a divorce, your offshore trust assets will be difficult, if not impossible for creditors, ex-spouses or plaintiffs to access.
While individuals may choose to file a foreign lawsuit, it is rather unlikely that they will win their case. In addition, some jurisdictions do not award punitive damages and emotional distress. As such, you may only be required to pay actual damages. The statute of limitations in other countries to file a suit is also typically shorter than those in the United States.
Keep in mind that FAPTs are not a way to evade paying taxes. You are required to report assets to the IRS. You must also consider the maintenance and advisor fees that come with FAPTs.
If you are willing to go the extra mile to safeguard your assets, creating a FAPT may be worth considering.