Offshore Asset Protection Trusts

For over 25 years, the law firm of Weisman, Young & Ruemenapp, P.C. has assisted clients with the establishment of offshore asset protection trusts. While some states have made changes to their trust laws in order to allow individuals to both establish and be a beneficiary of a trust that is protected from his or her future creditors which has lessened the uniqueness of the offshore trusts, offshore trusts still present viable planning opportunities in the right circumstances.

As a bit of background, much has been written about the offshore trust. Created in a jurisdiction that is debtor friendly, it is often lauded as the perfect solution for the client who wants to protect his assets from both current and future creditors. Take a short trip on the internet and Google "offshore asset protection planning." The results yield an array of sites from lawyers who allegedly specialize in this area, to financial institutions desirous of having you park your assets with them and then to blogs and articles on a number of tangentially related areas. For example, one cannot delve too far into the topic of offshore trusts without mention of tax abuse and criminal activity. So what is the real scoop on these very common yet still mystical trusts.

An offshore asset protection trust is typically an irrevocable trust established in a jurisdiction outside of the United States which has adopted laws that are particularly beneficial to debtors and, conversely, very burdensome to creditors seeking to reach the assets of the trust. The typical offshore jurisdiction offers the following benefits:

  1. Self-settled spendthrift trusts are permitted. Accordingly, the client can create a trust with himself as the beneficiary and his creditors cannot access the assets.
  2. The jurisdiction has no comity with the United States. As a result, U.S. judgments cannot be enforced in the jurisdiction and if a creditor wants to pursue trust assets a lawsuit must be commenced in the offshore location.
  3. The income of the trust is not subject to tax in the foreign jurisdiction. But in the usual structure the income is fully taxable for U.S. purposes. The U.S. grantor (client) must disclose to the IRS the existence of the trust. The income of the trust is then reported on the grantor's 1040. However, the structure is tax neutral; there are no additional taxes incurred by virtue of implementing this structure so the client is in the same position taxwise had he not established the offshore trust.
  4. It is extremely expensive for a creditor to attack the trust. The creditor must hire a law firm in the applicable offshore jurisdiction and rarely are contingency fee arrangements permitted.
  5. There are generally short statutes of limitation on the time period for challenging transfers to the trust as fraudulent transfers - in some cases as short as 6 months.
  6. Management of assets can remain with the client's U.S. money manager.

For years the offshore asset protection trust has been the preferred method of obtaining the greatest level of protection for the client. However, such trusts are only viable if there is a substantial amount of assets that can be committed to the structure. The cost of setting up the trust combined with the continuing trustee fees make it a viable alternative only if there are enough assets to justify the cost.

In recent years, as the domestic asset protection industry has gained traction, more and more asset protection planners are establishing domestic asset protection trusts in Alaska, Delaware and Rhode Island. Some 11 states have now adopted laws geared to compete with the offshore asset protection community.

Please contact Weisman, Young & Ruemenapp, P.C. at 248.258.2700 for additional information and to discuss how an offshore asset protection trust or a domestic asset protection trust can benefit you and protect your assets from creditors.