The Asset Protection Trust

Even if you are not a lawyer, you undoubtedly have heard something about the trust concept. Trusts are widely known because the trust is one of the most popular estate planning vehicles, used both for the inter-generational transfer of wealth and for avoidance of the burdensome probate process required when an estate is passed under the terms of a last will and testament.

A trust is a formal legal arrangement voluntarily created and funded by a person (the grantor) that directs another person (the trustee) to take legal title and control of the grantor's donated property, to be used and managed for the benefit of one or more other persons the grantor designates (the beneficiaries). The beneficiary of a trust receives income or distributions of assets from the trust and has an enforceable equitable title to the benefits, but does not control trust assets or manage trust operation.

As explained below, as a matter of custom or law, an offshore asset protection trust may also allow another party in trust operations, the protector, a person vested with certain powers to monitor the performance of the trustee and the trust itself.

The creation of a trust arrangement is usually a planned, calculated, intentional act. It can serve a specific purpose or as part of a general estate plan. The trust grantor signs a written declaration describing his or her intentions, stating specific details of trust operation, income distribution and the extent and limits of trustee powers.

A well-drafted trust document will reflect the grantor's precise intentions. Drafting a trust declaration as part of an overall estate plan requires expert advice based on a thorough examination of all existing arrangements that affect the grantor's estate. To create a proper estate plan, the status of all other legal documents or devices such as a will, or jointly owned assets, must be reviewed and co-ordinated with the trust. Conflicts must be resolved consistent with all applicable trust and tax laws. However, a targeted trust is drafted only to accomplish limited or even a single goal, such as asset protection.

Most offshore asset protection trusts are drafted as discretionary trusts, a form which allows greater planning flexibility. This means the trustee is given the power to decide how much will be distributed to beneficiaries and, in some case, who qualifies as a beneficiary. The trust declaration may vest a trustee with the right to make payments for purposes, at times, and in amounts, the trustee decides. A trustee often is given the authority to recognize beneficiaries within a named classes of persons ("my children and their heirs"), or the trust may contain a right known as a "power of appointment" allowing the trustee to choose beneficiaries from a class of eligible persons.