When it comes to secure asset defense, you can’t do better than a durable asset protection trust. If you’re new to this arena – for example, you’re an entrepreneur and just recently crossed the threshold into high net worth territory, with $10 million or so to your name – you might first consider a domestic asset protection trust.
Such trusts are based in the US, so they might seem easier to set up and like better options. In truth, domestic asset protection trusts aren’t ever worth your time, even if some states have stronger asset protection trust laws or options compared to others.
What Are Domestic Asset Protection Trusts?
Domestic asset protection trusts are fiduciary arrangements that involve a grantor, trustee, and one or more beneficiaries. A domestic asset protection trust has one core purpose: to safeguard assets stored within.
It does this by eliminating ownership of vital assets that might be targeted by your enemies. For instance, say that you put $20 million into a domestic asset protection trust.
On paper, even if you are sued and your opponent is successful, they would never be able to claim that $20 million from your trust since you no longer own it.
The truth, of course, is more complicated. But this is essentially how the process works. A domestic asset protection trust is irrevocable, meaning it can't be changed after the fact.
Such trusts are usually run by fiduciary experts like lawyers, who act as neutral third-party trustees that you don't have any personal or professional connection to outside the trust itself.
Which States Currently Offer DAPTs?
The United States lagged behind much of the world in trust law for quite some time, but recent updates to state laws have seen many states follow in the footsteps of other jurisdictions like the Cook Islands. At the time of this writing, the below states offer the mystic asset protection trusts or DAPTs:
- New Hampshire
- Rhode Island
- South Dakota
- West Virginia
That means you can create a self-settled domestic asset protection trust in any of these states. You do not need to be a resident of one of these states to qualify. However, note that each state has different laws, statutes, and case precedents that may affect the overall viability and security of a trust that you set up within its borders.
What State DAPTs Are Strongest?
Right now, only a handful of the above-mentioned states have domestic asset protection laws that are worth mentioning. These include:
- South Dakota
These states have laws that are friendly to debtors or trust owners as opposed to creditors. This matters for your overall asset protection strategy because case precedent heavily influences what a judge will do when push comes to shove.
Say you’re involved in a very complex lawsuit, and it’s up in the air whether a creditor has a right to the money in your domestic asset protection trust. If you are in a state like Delaware or Nevada, a judge is more likely to side with you and say that your trust can’t be breached.
If you are in a state like Virginia, on the other hand, a judge is more likely to side with one of your creditors, turning your so-called protective trust into little more than a waste of time.
Why You Shouldn’t Trust a Domestic APT Anyway
That said, there are “strong” states for asset protection, and then there are offshore trusts. When all is said and done, domestic asset protection trusts aren’t really worth your time and money.
In the United States, case precedent overwhelmingly leans toward creditors and the courts. Even if you have a trust in a state like Nevada, we wouldn’t be surprised if an aggressive lawyer or motivated judge was still able to breach the barriers of your trust to get the liquid capital or other assets you have within that instrument.
A domestic asset protection trust is further subject to US court rulings and demands. Say that you have a trust running Delaware, for example.
That trustee is beholden to US court orders – if a court comes knocking at that law firm trustee’s door, the trustee might have little choice but to give up the goods. They are presumably US citizens as well.
Because of these reasons, a domestic APT isn't the ideal defensive solution for high-net-worth individuals like yourself. Instead, you'll be better off with other asset protection strategies.
Where Are the Strongest Asset Protection Trusts?
The strongest asset protection trusts are invariably in some other jurisdiction than the US. They are “offshore” or foreign APTs.
An offshore asset protection trust just means that it’s based in a jurisdiction other than your own. If you’re a Canadian citizen, the US trust would be an offshore trust! But if you’re a US citizen, a trust anywhere else qualifies.
Offshore asset protection trusts are not illegal or sketchy in the slightest. Instead, they are drafted by attorneys licensed for their jurisdictions and are oftentimes subject to different rules, laws, and case precedent histories. The result?
Durable asset protection solutions that aren’t necessarily vulnerable to the same things as domestic APTs here in the US. It’s for these reasons above all that Dominion highly recommends offshore asset protection trusts for all high-net-worth individuals.
How Do Offshore APTs Work?
An offshore APT works similarly to a domestic one. There’s you, the grantor, a trustee, who administrates the trust and handles any distributions, and one or more beneficiaries. You can be a beneficiary, as can your kids, your grandkids, your spouse, or anyone else you choose to name.
An offshore asset protection trust also defends your property and assets similarly to a domestic one. You give up ownership of vital assets, which can include liquid capital, real estate, or anything else, so you can't be ordered to give those assets up later on.
An offshore asset protection trust is even better at defending your property, however, because such fiduciary arrangements aren’t required to a day US court demands or rulings. Say that you have an asset protection trust set up in the Cook Islands.
Later, you get sued by a patient who claims that you are guilty of medical malpractice. Even if you are found liable for damages in a court case, you can’t be forced to give up assets in your Cook Islands trust. How could the court force it?
You don’t own the assets, after all. The trustee is licensed to operate in the Cook Islands, not the US, and the Cook Islands overall aren’t required to listen to anything the US says. It’s essentially insulating your assets in a place that any US-based legal opponents can’t reach.
At the same time, an offshore asset protection trust doesn't prevent you from using your assets or benefiting from them later on. As we mentioned earlier, you can still be a beneficiary of such a trust instrument. That means you can receive money at regular intervals, or you can receive assets for various business purposes.
Because offshore asset protection trusts are so much more resilient, they are always preferable compared to a domestic asset protection trust. The strongest Nevada APT is nowhere near as strong as an offshore, Dominion-written asset protection trust.
Are Offshore Trusts Hard to Start?
No, but they do require the expertise of trained individuals who know what to write, who to talk to, and how to get the job done. That’s the kind of service that Dominion can provide.
When you work with us, we’ll ensure that your offshore asset protection trust:
- Is based in the right jurisdiction. Every jurisdiction has a different relationship with the US, so it’s imperative that you pick the right jurisdiction for your needs
- Is drafted with perfect language. Just like with a domestic trust, the written language of your offshore trust will affect its actual viability and durability in a legal case
- Is managed by a knowledgeable trustee. The trustee should never be anyone you know personally; that kind of mistake could make it easy for a judge to claim that you actually have influence or control over the assets in the trust and require you to hand over those assets anyway
Discover the Details with Dominion
All in all, any domestic asset protection trust is nowhere near as effective as a Dominion-style offshore asset protection trust. With that in mind, there’s no reason not to get in touch with one of our experts today if you want to learn more about how to safeguard your wealth and how we can help.
We have decades of experience in this industry and have helped clients like you save hundreds of millions of dollars collectively. Even better, we’re committed to remaining long-term partners for each of our clients, so when you work with us, you get the advisors and specialists needed to secure your estate for generations to come. Contact us today to learn more.