The Offshore Asset Protection Trust

In recent decades, asset protection using the trust format as a vehicle has gained wide popularity amongst people of wealth "in the know."

The foreign asset protection trust (or APT) is a targeted form of trust created by a grantor resident in one nation under the statutes of another nation where the trust operations are based. Because the trust is governed by the laws of the nation in which it is registered or administered, it serves as a shield for the grantor's business and personal assets, deflecting would be creditors, litigation and potential financial liabilities, perhaps even an ex-spouse bent on revenge.

Here are a few reasons why an offshore APT can be so effective:

Claims Start-Over: The courts of foreign asset haven nations do not recognize the validity of US or other nations' domestic court orders in many cases. A foreign judgment creditor seeking collection must re-litigate the original claim in the local court after hiring local lawyers. He may be required to post a bond and to pay legal expenses for all parties if he loses. The sheer legal complexity and cost of such an international collection effort is likely to stop all but the most determined adversaries.

Minimal Needs: An offshore APT need not be complex. Creation can be little more than the signing of formal documents and opening a trust account managed by your local trustee in a bank in the foreign country you choose. Respected offshore multi-national and local banks routinely provide experienced trust officers and staff to handle trust matters. Most international banks have US dollar-denominated accounts, often with better interest rates than US financial institutions offer.

Greater Protection: Under the laws of asset haven nations, assets placed in an offshore asset protection trust have far more protection than permitted under domestic US trust law. The law in such countries is especially drafted to provide an asset protection "safe harbor" that is unavailable in the US and many other nations. With an offshore APT, foreign-held trust assets are not subject to the jurisdiction of your local or home country judicial system.

Fast Acting: The statute of limitations imposed on initiating a foreign creditor's suit varies. In many jurisdictions the statute begins to run from the date the APT was established. Some haven nations, such as the Cook Islands, have a limit of one year for initiation of claims. Others, such as St. Vincent and the Grenadines impose a claims filing limit for certain creditors of within two years after APT formation. As a practical matter, it may take a creditor longer than that just to discover the existence of a foreign APT to which most of your assets have long since been transferred.

Better Investments: An offshore APT is an excellent platform from which to diversify investments and benefit from global tax savings. The APT permits taking advantage of the world's best investment opportunities, without concern about your home nation's legal restrictions. Offshore foreign stock, bond and mutual fund trading are not covered by laws such as the US Securities and Exchange Act or its administrative arm, the SEC. An offshore APT can also purchase attractive insurance and annuity products not available in the US and some other nations. Tax savings may result from deferred investment earnings or capital gains rather than ordinary income that will not only be taxed currently but at a higher rate.

Confidentiality: The APT can provide far greater privacy and confidentiality, minimization of domestic, home country inheritance taxes and the avoidance of the probate process in case of death. It provides increased flexibility in conducting affairs in case of personal disability, allows easy transfer of asset titles and avoids domestic currency controls in your home nation. An APT is also a good substitute for, or supplement to, costly professional liability insurance or even a prenuptial agreement, offering strong protection of your heirs' inheritance.

Estate Planning: An offshore APT can serve the same traditional estate planning goals achieved by domestic strategies. These include using by-pass trust provisions to minimize estate taxes for a husband and wife, trusts that allow maximum use of gift tax exemptions through planned giving and trusts that provide for maintenance and tax-free income for a surviving spouse.