Offshore Trusts & Foundations: Getting Asset Protection in an Offshore Jurisdiction
Exploring Asset Protection in Foreign Trusts and Foundations
Table of Contents:
- Exploring Asset Protection in Foreign Trusts and Foundations
- Why Use an Offshore Trust or Foundation?
- Definition of an Offshore Trust & Foundation
- Differences Between an Offshore Trust and Foundation
- What is an Offshore Foundation?
- A Little History on Foundations
- Different Types of Foundations
- What is an Offshore Trust?
- A Little History on Trusts
- Different Types of Trusts
- Who Needs an Offshore Trust Formation?
- Offshore Asset Protection Trust Benefits
- Should I use an Offshore Foreign Trust or Domestic Trust?
- Advantages of an Asset Protection Trust
- Offshore Trust Structure
- Asset Protection Trust Planning - Offshore Trust Strategies
- How Multiple Offshore Jurisdictions Provide More Effective Asset Protection Measures
- What are the Best Jurisdictions for an Offshore Trust?
Why Use an Offshore Trust or Foundation?
Holding assets under your personal name may leave you at a severe disadvantage. In a world filled with lawsuits, creditors, legal battles, and malpractice suits protecting your assets in a safe and tax neutral jurisdiction is more important than ever. If you are a persons of means, are a practicing lawyer, doctor, investor or successful professional it is very likely that one time in your career you will be targeted by a grievous party.
Protection of wealth is not only for protection against litigation but also extends to family and estate planning, formation and holding of a will and testament, as well as holding of physical and non-physical goods, offshore accounts, offshore banking etc...
There really is no limit to the use of an asset protection trust or Foundation. Both formation structures are capable for managing and protecting all forms of financial asset and services. Creating an offshore structure gives any number of benefits to the individual looking to:
(1) diversify wealth by using international non-resident offshore entities
(2) protect assets in a secure and legal financially sound environment
(3) desire privacy for their assets or company
(3) ensure longevity of wealth in a tax-neutral location.
Definition of an Offshore Trust & Foundation
An Offshore Foundation is a commonly used term to refer to a separate legal entity without members or shareholders, established under the wishes of a founder that is outlined in a Charter.
Whereas, an Offshore Trust is formed for the purpose of placing assets of property ownership onto the name of a trustee, who holds it for the benefit of its intended beneficiaries. Though they differ in definition there are many similarities between the two corporate entities as they share many of the same offshore benefits, financial services and management structures.
Differences Between an Offshore Trust and Foundation
There some fundamental differences that should be pointed out. While there are other subtle differences, they largely depend upon the type of Trust and Foundation and the location of the structure.
Offshore Foundation Characteristics
- Needs to be registered to exist
- Foundation Charter is public (not Panama)
- Incorporate legal entity much like a company (not Panama)
- Assets are owned by the Foundation itself
- Foundation can sue and be sued in its own name
- Does not need assets to be placed in Foundation
Offshore Trust Characteristics
- Does not need to be registered
- Trust deed is not public (can be confidential)
- The trust is not a legal entity and so rights fall upon the trustees
- Split between ownership of assets and the assets itself
- Trustees sue and are sued in their own name rather than action taken for or against the Trust
- Assets are to be placed in the Trust
What is an Offshore Foundation?
An Offshore Foundation is used for any number of activities including for personal, commercial or charitable purposes, though its modern use has been mostly associated with its wealth protection, estate planning, and tax savings benefits.
A foundation has many similarities of a regular corporation and the asset protection features of a trust. It also benefits from being free from all local taxation if it does not conduct any transactions or business locally.
A Little History on Offshore Foundations
Foundations have their inception nearly 100 years ago in Western Europe for estate and asset planning in Liechtenstein. Since then, Foundations have become widespread, and are used in countries all over the world. Foundations are used primarily in Civil Law jurisdictions, where ‘Anglo Saxon Trusts’ are unknown.
Private Interest Foundation began in Liechtenstein when with the Law of Persons and Companies in 1926. Today, Liechtenstein capitalizes on its historic fame, charging USD 25,000 or more to incorporate a Foundation and nearly USD 10,000 a year for maintenance. Foundations can be used for any number of reasons including charitable, commercial or family purposes.
Different Types of Offshore Foundations
There are many different types of foundations each with its own specific uses and functions.
- Private foundations
- Public Foundations
- Charitable Foundations
- Corporate Foundation
- Family Foundation
- Community Foundation
Each type of foundation can overlap in their uses and activities whether it is used internationally or domestically. Offshore foundations are not a widely known corporate structure, and that has allowed them to exist without as much scrutiny as for example Offshore trusts or corporations.
A private foundation has many of the same functions and management structures of a private company as well as the asset protection benefits of Trusts. There are a host of associated benefits and uses of Foundations, the most popular being the Panama Foundation which has been a leading centre in establishing international Foundations.
What is an Offshore Trust?
An Offshore Trust trust allows for a piece of property held by one party for the benefit of another. A foreign trust is the best offshore structure for asset protection as it shields the beneficiary from the assets that are placed in the Trust, keeping the structure at arms length.
An offshore trust if paired with an LLC, for example, is currently the best combination that money can buy. We recommend a Cook Islands Trust, paired with a Nevis LLC as it has time and time again proven its effectiveness.
An individual can be the Manager or Director of the LLC which is paired with an offshore bank account where the assets can be transferred. The Cook Islands corporate law that governs Trusts is the strongest in the world and it is notoriously difficult for foreign court orders to penetrate the local Cook Islands law. As long as there is no criminal activity foreign court orders will be useless in trying to open the account.
Combining it within another structure is something we generally recommend as having corporate ownership generally distances the individual from the property. An Offshore Trust arrangement often referred to as a ‘trust deed’ is used as a recorded document outlining the specifics of the Trust. The use of Trusts shifts the ownership of property onto a third-party, or trustee, for a beneficiary.
A Little History on Trusts
A trust is a contract in which an individual (called a Settlor/Creator/Trustor/Grantor) transfers property to one or more Trustees to be held or managed for one or more Beneficiaries. There are many types of trusts in use today for a variety of purposes.
Contractual Trusts were the first recorded trusts, which originated back in the time of the Crusades in the 12th century when knights leaving for the Holy Land would set up trusts and convey their properties into them.
Their goal was to protect them from appropriation or seizure while absent or in case of their death to ensure their chosen heirs inherited their estates. Two famous early 19th-century Contractual Trusts in England were Lloyds of London (1811) and The London Stock Exchange (1802).
The use of trusts has since been used in nearly every field of human activity especially in the field of commerce and trade when used in combination with a corporation or limited liability company. There are two distinct advantages of having a trust, in that they are usually bound by contractual arrangement and can be easily changed and transported to other jurisdictions.
Different Types of Trusts
There are a variety of names used for an asset protection trust, that can be used synonymously for the sake of this article. While there can be subtle differences between each name, it has more to do with the specifics of the trust itself, the corporate laws surrounding the entity, and the jurisdiction rather than the name or title used.
A Trust can be referred to as a:
- Foreign Trust
- Non-Resident Trust
- International Trust
- Offshore Trust
While they all can have a degree of variance, they all are distinct from a Domestic Trust, as they all are meant to be formed as a non-resident entity in a country other than one's primary country of residence. This is in fact one of the primary security features of an offshore trust, in that it falls under a different jurisdiction other than where you live.
This offers a degree of protection that can not be found with domestic trusts. Freign trusts because they reside in a tax haven or overseas country exist outside of the legal jurisdictions of where the creditor of or suit resides. In order to proceed to go after the assets held inside the trust, the creditor must bring forward the suit in the country where the trust is located.
While that may not sound difficult, countries such as the Cook Islands and Nevis make it very difficult for anyone to bring forward a case to ward off and unscrupulous lawsuits. Barriers to entry such as there
- being only a two-year statute of limitations in which to prove that there was a fraudulent conveyance
- 100,000 bond must be posted in order to proceed
- suit must be brought forward in person inside the country
This deters nearly anyone who would seek to try and break into the trust.
Who Needs an Offshore Trust Formation?
Many people look toward a non-resident trust if they are in need of a secure space outside of the reach of malpractice suits, governments, spouses, creditors, etc. Not for any explicit wrongdoing, but simply to protect themselves against those who might not have the best of intentions.
Often people establish a Trust for:
- Family planning
- Estate management
- Offshore bank account holding
- Real-estate property holding
- Physical goods
- Will and testament
- Investment holding
An asset protection foreign trust is especially for individuals and professionals who are:
- hedge fund managers
- estate planners
- family planning
- wealth individuals
Or anyone who does business in any high-risk occupations or has a high risk of being targeted by claims, creditors, or legal disputes.
In fact an asset protection trust is for anyone who is looking to get the greatest form of asset protection afforded through the legal system. By creating a separate legal entity that is separate from you as a person you are giving the assets protection from the liabilities that would be linked to you as an individual. What that means is that, if a creditor or lawsuit that is formed against you
In today's world, many are targeted simply by having assets, or by being having a job title that exposes you to the public. A Trust can act like many other offshore corporate entities, and yet has many unique attributes that make it a stand-alone in the world of offshore financial structuring.
Offshore Trust Benefits
Most people look to an Offshore Asset Protection Trust to keep their wealth or assets secure. Thankfully, in offshore countries, a local judge can not legally force a foreign trustee to release funds due to a foreign court order. Someone who is seeking grievances or are pursuing a case against the Trust much do so in the territory where the Trust is located.
There are many obstacles preventing the continuation of a case against a non-resident trust. Many offshore countries make pursuance against such an entity troublesome, time-consuming, and costly, to prevent unlawful claims and would-be trouble makers from gaining access. Cook Islands Trust is considered to be one of the world's toughest places to make such claims because of their statute of limitations on fraudulent conveyance.
As such, there is a limited amount of time, (one year from the date of the lawsuit or two years from the claimed 'fraudulent' transfer), where a claim can be made against a foreign trust. This makes pursuing lawsuits very difficult as by the time the suit is finished in the US or UK, for example, and is being pursued in the Cook Islands, the time will have been or shortly will be expiring.
Similarly, proving intent to defraud, must be done in places like Belize or Cook Islands, where a creditor has to prove beyond a reasonable doubt that transfer was made to intentionally defraud. These barriers to litigation prevent only the most determined creditor from bringing forward the suit, as most would calculate the benefits of success against battling an international trust and usually drop the case before it begins and agree to settle out of court. These barriers to success limit the creditor's ability to bring a suit forward and acts as a strong deterrent from starting a lawsuit against the Trust in the first place.
Should I use a Foreign Trust or Domestic Trust?
A foreign trust structure gives you a number of protection mechanisms that are exclusive to a foreign trust. Because the trust is located outside of the country where you reside it acts as a barrier for anyone looking to break into the structure.
All of this prevents autocratic regulators, government or tax authorities from improperly seizing or freezing your assets without a proper due process, an event that is becoming all the norm in today's brave new world. Diversifying assets across different foreign jurisdictions in offshore entities also creates barriers preventing the wrong people from pursuance of claims against you from: malpractice suits, scam artists, creditors, and false claimants.
Having extra hurdles that claims have to go through is extremely valuable in safeguarding you against any potential problems. A second layer of protection is found by having corporate laws and a legal system that does not respond to foreign court orders but must follow a process of proving intent to defraud which is a difficult thing to prove.
This process is often expensive (1000,000 USD in the case of Nevis) and time-consuming, which often deters individuals from pursuing the claim in the first place. An asset protection trust does this by having a statute of limitations of 1-2 years (ex. Cook Islands) for making a claim to prove if there was any fraudulent transfer occurred.
At lastly, but certainly not least, foreign trusts as well as foundations, when placed in a zero tax or tax neutral jurisdiction benefit from having the assets held without incurring local taxation.
So what's the main difference: foreign trusts vs domestic trusts?
A domestic trust does not enjoy any of these asset protection benefits, is often closely linked to the individual personally, must respond immediately to local court rulings, is taxed and does not enjoy the added layers of protection enjoyed by international offshore structures.
Advantages of an Asset Protection Trust
There are many benefits from an offshore trust as that helps shelter your assets from unscrupulous parties.
- Asset Protection to protect one's assets, bank accounts and investments
- Proven intent to defraud to pursue claims against the Trust
- Fixed time limited against pursuing lawsuits or fraudulent conveyance claims
- Difficult barriers remain to prevent claims
- Local courts do not recognize foreign court orders judgments
- No bankruptcy laws nor clawback provisions in many offshore jurisdictions legal codes
- Must show criminal intent beyond a reasonable doubt
- Laws prevent 'fishing expeditions' by creditors
Offshore Trust Structure
Settlor - Individual who owns the assets of the trust
Trustees - Administrators of the trust
Protector - Oversees trusts operation
Beneficiary - The individual benefiting from the trust
This is the individual who places their assets in the trust for the trustees to manage for their benefit.
The trustee(s) hold the title to the assets within the trust, though they can not in anyway benefit from taking anything from within the trust. A Trustee is one who looks after the trust in case is any legal action taken against the Trust. The Trustee is limited in their abilities to distribute the assets only to the intended beneficiary.
A protector has oversight over the offshore entity, though is usually optional in most offshore jurisdiction, but gives another failsafe as they are given power to appoint and dismiss the trustees and make decisions on the beneficiaries' behalf.
A beneficiary is one who is to benefit from the trust. They ultimately have the sole authority of the trust. The trust is structured in such a way to ensure that they are protected.
How do Offshore Trusts Work?
An offshore asset protection trust works by giving the legal title of an individual's assets to a trustee who exists outside of the country where you live. A trustee is the one who legally holds the title of the trust on behalf of the beneficiary. A creditor can not go after the beneficiary of the trust as they in no way are legally responsible for the contents and so must go after the trustee if they seek to break into the entity. Because the trustee is located in a country outside of where the creditor is located they must approach the court within that specific country.
Keeping your assets outside of the United States, or wherever you may live gives you leverage allowing you to usually settle the claim without having to go through any long legal battles.
How much does an offshore trust cost?
Offshore trusts are typically more expensive than domestic trusts because of the associated costs of having a trustee in a country outside of where you live and generally range between 10,000 - 20,000 USD although it varies depending upon the country as well as if there are any additional services.
Asset Protection Trust Planning - Offshore Trust Strategies
Creating an asset protection strategy is an important step in safeguarding your wealth. The most popular form of asset protection comes in the form of an irrevocable trust. This type of trust in comparison to a revocable trust, is almost possible to amend once it is formed and most importantly because it is held by a third party, who is normally called a trustee, it is much more difficult to break into.
While asset protection planning can you other protection tools other than trusts such as, LLCs, LPs and IBCs, foreign trusts are the strongest form of asset protection that you can currently get.
How Multiple Offshore Jurisdictions Provide More Effective Asset Protection Measures
Proper offshore structuring is extremely important as it maximizes the leverage the offshore trust formation entity has in a given jurisdiction. To diversify the structure of the entity by spreading the management through different forms under the protection of multiple corporate laws that seek to ensure its safekeeping.
Combining a Trust (for instance a Cook Islands Trust), with a Limited Liability Company (such as a Nevis LLC) or a Foundation (Panama Foundation) gives you the maximum confidentiality and asset protection availability today. The account or assets are placed inside the foreign trust which is then owned by the LLC.
The multi-jurisdictional advantages of using two offshore jurisdictions with two separate offshore corporate entities enables you extra protection by:
Providing space between you and the assets
Having two different sets of corporate laws to protect those assets, and
Creates more anonymity by having structures own your assets rather than you as an individual
Using a Corporate Structure to hold your assets give you a Level protection that otherwise would be impossible
Creating a multilayered offshore entity is becoming the standard practice in today's offshore financial corporate industry due to the changing nature of the offshore financial markets and industry. The offshore trust market is not operating under any illegality but is merely existing within the statutes of the laws dictated by individual nation-states.
The problem is that some nation-states do not like watching people take their assets out of their jurisdiction and so act within their self-interest to ensure this does not happen but forcing compliance amongst offshore financial centres or risk being blacklisted or faced with trade barriers.
This seems to be the current state of the offshore banking and offshore company formation industry, as is continually changing due to the global environment, so be sure to check with local laws and have a knowledgeable tax consultant and service provider who can give you up-to-date information.
What are the Best Jurisdictions for an Offshore Trust?
While there are a number of International Trusts available for persons looking for asset protection. We have limited ourselves to providing offshore trusts only in jurisdictions that have a reputation that precedes them with corporate legislation that is time tested and has proved to be effective against lawsuits, creditors, and legal harassment of all kinds.
For those reasons there are a few Non-Resident Trusts that we can stand-by, there are three offshore trusts which are often regarded as the best offshore trust jurisdictions in the world.
Cook Islands Trust
1. Cook Islands Offshore Trust
The Cook Islands Trust has some of the world's toughest asset protection legislation has given this country a name for itself. Many barriers to prevent from claims being pursued. Local courts do not acknowledge foreign claims and there are fixed time limits from pursuing claims.
2. Nevis Offshore Trust
The Nevis Trust is a highly regarded asset protection structure that has strong corporate laws that have been used to ensure that a trust can not be broken into.
There are a great many barriers used to prevent creditors from accessing the assets in the trust making it one of the most popular trusts in the world.
3. Belize Offshore Trust
A Belize Trust is one of the world's most popular International Trusts formations that offer flexible arrangement, strong asset protection clauses, as well as tax reduction possibilities as well as strong confidentiality clauses.
There have been many changes within Belize's corporate laws over 2019. With so many changes happening it is best to speak with us prior to pursuing this Trust, in case there are any significant amendments that are currently in the works.
How to Setup an Offshore Trust
In order to set up an offshore trust you need to form a trust deed which includes:
- name of the trust
- name of the trustees
- purpose of the trust
To set up an offshore trust requires a list of documents including:
- Passport copy
- Notarized Proof of address
- Banking reference letter
- Deed of indemnity
- Trust Documents
- Affidavit of Solvency
An offshore structure gives you a level of asset protection that otherwise would not be possible. While domestic structures afford some level of protection, because they are located in the same country where you reside they do not provide the same level of asset protection as foreign structures. Whether you chose an offshore trust or offshore foundation, an offshore structure is much more efficient in its ability to protect your assets from foreign influences.
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