Is an Offshore Trust the Same Thing as an Asset Protection Trust?

Is an Offshore Trust the Same Thing as an Asset Protection Trust?

Ours has become an increasingly litigious society. Therefore, it’s become increasingly important for wealthy individuals to take some type of action in order to protect their assets from unexpected lawsuits and the claims of creditors.

Many financial experts offer asset protection trusts as the best legal vehicle for shielding valuable assets. Asset protection trusts allow creditors to reach a settlement with their respective debtors on more favorable terms, therefore avoiding costly litigation.

Asset protection trusts, unlike other types of trusts, are self-settled spendthrift trusts. This means that an individual can be the trustmaker or settlor and beneficiary at the same time. Many individuals also establish asset protection trusts to protect assets intended for beneficiaries.

Many individuals that are deciding whether to create an asset protection trust also have questions about offshore trusts. Is an offshore trust the same as an asset protection trust? And the answer is “not necessarily”, which is why it’s very important to choose the right jurisdiction when settling an asset protection trust.

Currently, there are 17 states within the U.S. that allow for domestic asset protection trusts. These are irrevocable, self-settled spendthrift trusts. Once the assets are transferred, they can’t be transferred back to the settlor except as a distribution to him as a beneficiary.

While the primary reason for settling an asset protection trust is to protect valuable assets, due to the irrevocable nature of the trust, they can be excluded from the estate of the settlor which can be beneficial when it comes to tax planning.

Domestic asset protection trusts have some downsides, the most important one being that they’re subject to U.S. laws. Any judgments coming from a U.S. court may be enforced against the assets held in the trust. Another downfall is the existence of “exception creditors” in several jurisdictions that have the right to penetrate the protection afforded by the trust.

In addition, trustees of domestic trusts can be forced to release personal information about the settlor and can be deposed and subpoenaed in cases where a lawsuit is filed against the settlor.
In comparison offshore trusts do more for the settlor.

What Makes Offshore a Good Option for Asset Protection Trusts?

Offshore trusts provide more effective protection for your assets for several reasons. Such trusts are settled in jurisdictions outside of the U.S. and are governed by its laws vs U.S. laws. The jurisdictions that promote themselves as popular offshore trust locations such as the Cook, Cayman, and British Virgin Islands, Jersey, and Bermuda, don’t enforce U.S. judgments against asset protection trusts within their jurisdictions, and they don’t have rules against perpetuities, unlike most domestic trusts.

While they’re usually more expensive to establish, an offshore asset protection plan, in general, has more stringent privacy measures which makes it hard for creditors and others to get information regarding the terms of the trust and its assets.

But is it Right for You?

To learn more about domestic or foreign asset protection trusts and which one may be a better vehicle for your situation, contact Jeffrey M. Verdon Law, top estate planning attorneys located in Newport Beach. JMV Law has over 30 years of experience in providing clients with asset protection services throughout Orange County.

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