Timing is Everything - Asset Protection

An asset protection trust is likely to succeed if planned in advance and created at a time of personal financial calm. If attempted in response to a pending personal financial crisis, additional legal hurdles occur that are difficult, if not impossible, to overcome.

If a foreign trust is hastily established when one is facing a law suit, or soon after one has been sued or forced into personal bankruptcy, the act of transferring assets may violate US civil and criminal laws against fraudulent conveyances. These laws are designed to protect creditors. Under such circumstances a US court can declare null and void the transfer of assets to a trust, if it is part of an attempt to conceal or remove assets from creditors. The establishment of a trust near in time to filing or after bankruptcy is filed, or when litigation begins, can be seen as evidence of fraud -- a crime in itself under federal bankruptcy laws and in some states such as California.

Asset Transfer

As a practical matter, regardless of the time of APT creation, any assets physically remaining within your home country and its courts' jurisdiction generally are not protected from domestic judgement creditors. Simply placing title to property in the name of a foreign trustee is at best, paper thin protection unless the property actually is moved offshore. If tangible assets actually are transferred to the foreign jurisdiction, as when funds or stock shares are moved to an offshore trust account or the trustee's safe deposit box, a home country creditor will have great difficulty in reaching them, provided he even discovers the trust exists.

As a mandatory precaution, the APT and its trustee should always employ an offshore bank that is not a branch or affiliate of any bank within your home country. This helps insulate the offshore bank officials (and APT accounts) from foreign pressure and gives greater legitimate protection from home country pressures or just informational snooping, whether government or otherwise.

Even with this enhanced financial privacy, in a given situation there can be great tactical advantage in letting a harassing party know your assets are securely placed well beyond their reach. The cost and difficulty of pursuit may well discourage any action on their part.

In litigation-crazed countries like the US (with the UK rapidly joining the law suit game) a sensible professional person does not wait for disaster before adopting an asset protection plan. Professional malpractice law suits are now as common as the cold. One recent survey noted that the increase in the number of civil suits filed annually in the US now is seven times greater than the rate of population growth.

An active business person can suddenly find himself held personally liable for alleged corporate environmental pollution, a bank failure or a judgement for a dissatisfied employee or client who sues. The seriousness of the situation is made plain by the huge premiums for all types of malpractice and other insurance coverage. Malpractice suits as well as legislative and judicial imposition of no-fault personal liability on corporate officers and directors are now sad facts of business life. In this climate one must find and adopt the strongest defense available.

To achieve litigation protection - to minimize the chance of lost assets - you must shrink yourself and your assets as targets. That target is made smaller by relinquishing legal title and, when necessary, reducing control over your current assets. Transferring property to an offshore APT can accomplish that goal quickly and efficiently.