Offshore

Offshore Asset Protection Trusts: A Complete Guide (2023)

By
Dominion
Updated:
October 4, 2023
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8 min read
Contents

You work hard for your money. At Dominion, we believe you should be able to keep it. Unfortunately, the larger your wealth grows, the more it becomes a target for aggressive creditors, litigators, and other attacking parties.

But you can keep your wealth safe in perpetuity with the right offshore asset protection trust (APT). In fact, the legal and financial experts at Dominion specialize in setting up ironclad, practically bulletproof offshore asset protection trusts for high-net-worth individuals just like you.

Not sure what these are or how these instruments can really keep your wealth safe? Let us explain.

Asset Protection According to the Dominion Standard

"Asset protection" isn't just a matter of protecting your wealth from a few frivolous lawsuits. For high-net-worth individuals such as yourself with $10 million or much more in net worth, like entrepreneurs, business executives, artists, actors, and doctors, asset protection comprises a much more robust and comprehensive set of defenses, including:

  • Protection against legal attacks
  • Defense against claims by creditors
  • Protection of your wealth against tax changes and other “sneaky” threats that can diminish your wealth over time
  • Protection against your wealth being reduced by irresponsible administration or distributions

The more money you make, the more ways there are for that money to disappear, whether it’s through not managing your trust properly or simply attracting the ire of every creditor who conceivably has a bone to pick with you or your business.

Dominion’s asset protection standard is intentionally designed to shield you and your estate against all of these hazards and more. We’re well-equipped for this work, as we have over 100 years of combined experience shared between our members and partners. We’ve successfully administered over $500 million in trust assets in over 20 countries.

When it comes to true asset protection, there’s no one better to trust than Dominion.

History of Asset Protection Trusts

Asset protection trusts are older than you may think, though they have necessarily evolved with laws and civilization. Technically, the first type of trust instrument dates back to the time of the Roman Empire (a progenitor of many classic Civil Law concepts and precedents we take for granted today).

The Romans, in fact, had very sophisticated trust law; in those days, a trust was called a “fidei commissum”. The point of this rudimentary trust was to place property owned by a soldier into a specific legal instrument to safeguard that property in the event the soldier was killed in battle.

That way, if the soldier did die while away, the state didn’t take possession of their property. Instead, the soldier’s family retained possession.

Trust law further developed with the rise of the English Empire. The English further developed and evolved the trust from its Roman iteration and broadened the application of the trust instrument for all kinds of property and benefits. 

Specifically, the English Empire developed so-called inter vivos trusts, which are trusts formed for the benefit of living individuals.

Over further decades and developments, trusts gradually grew in complexity into the effective legal instruments we know today. Modern trusts can be used to protect property not just in the event of an untimely passing but from all kinds of threats and possible attacks.

What is an Offshore Asset Protection Trust?

So, just what is it about an offshore asset protection trust that makes it so good for wealth security for high-net-worth individuals?

An offshore asset protection trust is an irrevocable trust instrument set up in any jurisdiction other than your home jurisdiction. For instance, if you are a US citizen, an offshore asset protection trust is any APT in another country like Switzerland, France, Germany, the Cayman Islands, or elsewhere.

An offshore asset protection trust works similarly to all other trust instruments, just oftentimes with more secure legal terminology and phrasing to maximize protection.

  • You, the grantor or settlor, name the other nature parties of the trust and – with the help of legal advisors – dictate how the trust should operate
  • You appoint the trustee, which is an individual or company that administrates and manages the trust. The trustee is also responsible for distributing any trust funds or assets to beneficiaries
  • You appoint a beneficiary or beneficiaries, such as yourself, your children, or others, who receive assets from the trust

Importantly, with an offshore asset protection trust, the assets in the trust are owned by the trustee, not you. Removing ownership is the cornerstone that makes a good asset protection trust so effective.

Are Offshore Asset Protection Trusts Legal?

Yes. Even though the term “offshore” is sometimes used in contexts to describe sketchy or potentially illegal activities, there’s nothing illegal about offshore asset protection trusts by default. An offshore trust just means it’s set up in a jurisdiction where you don’t live or primarily operate.

Best Practices for Offshore Asset Protection Trust Setup

Going to all the time and effort to set up an offshore asset protection trust won’t matter whatsoever if it isn’t drafted and prepared properly. The durability of an offshore asset protection trust is contingent on where the trust is located, what the trust paperwork says, and when you set up the trust.

Choose the Right Bank and Jurisdiction

First, you need to pick the right bank and jurisdiction for your offshore asset protection trust.

That’s because different jurisdictions have different case precedents and legal statutes that can affect the durability of your trust instrument. Don’t assume that the Cook Islands will be the best choice for your offshore APT just because you’ve heard of it being a good destination for wealth protection.

Every jurisdiction is different, and every trust solution requires a new investigation into different jurisdictions and banks. Speaking of banks, if you already know of the bank and what it offers, it’s probably not the best for your asset protection plan.

The best banks are those that get new clients via reputation. Work with Dominion, and we’ll connect you to the perfect banks for your asset protection needs.

Include the Right Clauses in the Trust Deed

Naturally, you need your trust instrument to include the right clauses to prevent legal exploits. Here are just a few examples:

  • Anti-duress clause. When this clause is triggered, the trustee won't make a distribution from the trust if the trustor or beneficiary is under duress, like when a creditor makes a claim against them
  • Choice of law clause. This clause says that the trust has to be governed by the laws of the jurisdiction where it is set, which can prevent laws in your home jurisdiction from affecting the instrument
  • Flight clause, which lets the trustee move the location of the trust to another jurisdiction if needed. Again, this can be beneficial in instances where, for instance, a creditor hires a local attorney to go after your wealth

Working with legal experts and advisors at Dominion will ensure that your trust documents include the right clauses to bolster your legal defenses.

Set Up Your Trust Before You Need It

Most importantly, you should set up your trust well ahead of actually needing it. The sooner, the better.

If you set up an offshore asset protection trust right before you run into legal trouble, you could get in hot water with the law. A judge might accuse you, for instance, of committing a fraudulent transfer by trying to move wealth from your bank account into a trust right before you have to pay a creditor.

By having your offshore asset protection trust set up ahead of time, you can escape accusations of fraudulent transfers or fraudulent conveyance and ensure that your wealth is safe while you continue to build your business or professional empire.

Offshore Asset Protection Trust Timeline

Offshore asset protection trust, for all its complexity, doesn't have to take forever if you work with the right partners. 

In general, you should expect offshore asset protection trust setup to take anywhere from one month to a few months, depending on which jurisdiction you need and what your trust requires. Here's a more detailed breakdown of the asset protection trust timeline you can expect:

  • Initial meeting and consultation with tax advisors and legal experts – 1-3 weeks
  • Trust documentation preparation and drafting – 1-3 weeks
  • Trust signing and funding – 1-2 weeks

Because setting up a proper, durable offshore asset protection trust takes a month or more at minimum, we must once again reiterate the importance of setting up your trust well ahead of time. 

You can’t rely on an offshore asset protection trust to protect your funds or other elements of your wealth in an emergency (e.g., you are suddenly sued by an aggressive litigator). 

Even if you manage to set up an offshore asset protection trust in a week or two, there's no guarantee that the trust will be properly resilient and free of loopholes or potential exploits.

At Dominion, our trust setup timeline follows a similar process. Here's a brief breakdown of what you can expect:

  • First, you'll meet with Dominion's tax and legal advisors for an initial consultation. During our consultation, we'll learn everything we can about the challenges, financial situations, and goals you have in mind to develop the proper trust structure for your needs. Trust setup isn't a one-size-fits-all science – it's a unique approach developed for every individual
  • Next, we’ll form the trust and draft the paperwork. As the trust grantor, you’ll choose the trustee, beneficiary or beneficiaries, and other elements. All the while, our advisors will be right at your side to ensure you make the best choice possible for your financial situation and your long-term goals, plus be able to answer any questions you may have
  • After that, it’ll be time to fund your offshore asset protection trust. Once you sign all the paperwork, you can fund the trust by tapping into our global, secure network of different banking partners. Whether you want to fund your trust with liquid cash, real estate, or other property, rest assured your asset protection trust will be funded quickly
  • Last comes stewardship. Working with Dominion doesn’t mean our partnership ends as soon as your trust is set up. Instead, we’ll provide you with knowledgeable, trustworthy administration of your trust and its assets for years to come. Our work will continue throughout the lifetime of your trust, giving you peace of mind and guaranteeing that your wealth works for you in the way you’ve always imagined

Key Legal Protections from an Offshore Asset Protection Trust

When it's properly set up, an offshore asset protection trust will provide your estate and wealth with a number of key legal protections.

The most important of those are claims against your wealth by creditors, lawsuit plaintiffs, and other interested parties. 

In most court proceedings, whether that's a claim against you through a lawsuit or a claim for your money because of a bill or loan, the only money or assets you can be compelled to hand over are those that you own.

With an offshore asset protection trust, you no longer own the assets in that trust instrument. Let’s take a look at a detailed example so you can imagine how this may play out in the real world:

  • You’re an entrepreneur who invented a brand-new type of product in a competitive niche
  • Over the years, you’ve built up your company from scratch, generating millions of dollars and expanding to worldwide operations
  • A previous business partner with whom you split up years ago now comes after you for a lawsuit. The partner says that the idea for the product was actually theirs and you engaged in intellectual property theft
  • Whether or not it is true is irrelevant in terms of asset protection; you need to guard your hard-earned cash, as you’ve been the one running the business, growing it, etc.
  • If your former business partner sues you and the court decides to side with them, they may come after you for a significant amount of money
  • The court or judge asks you to pay $10 million. If you don’t have that money, they can’t make you pay $10 million (obviously)
  • What if you have $10 million or more in an asset protection trust? If it’s properly developed and it’s offshore, the court still can’t force you to pay the $10 million from that offshore asset protection trust
  • After all, you don’t own or control any of the assets in the trust instrument. If you tell the court that you simply can’t access the assets within, the court will check the paperwork and shrug its shoulders at your former business partner

This is just one example of how an offshore asset protection trust can legally shield you against all manner of financial threats. Of course, whether or not your offshore APT is set up properly makes all the difference in terms of whether you can rely on it in a tough situation!

Traps to Avoid with Your Offshore Asset Protection Trust

With that in mind, it’s a good idea to note certain traps that you can run into during asset protection trust formation. Many newcomers to asset protection trusts make these mistakes, often because they don’t work with experienced, knowledgeable advisors.

Choosing the Wrong Jurisdiction/Trust Company

The worst thing you can do is choose the wrong jurisdiction in which to set up your trust, or put your trust (quite literally) in the hands of the wrong trustee. Either can happen if you aren’t prepared or don’t work with the right advisors.

If you set up your trust in the wrong jurisdiction, your legal opponents can still get to the assets within the trust if there is sufficient case precedent for them to do so. 

Similarly, if you set up your trust with a bank that has branches in your home jurisdiction, it’s quite possible that a creditor or judge can access your trust through that bank branch, even if the headquarters is located in a different jurisdiction.

If you can’t trust your trustee, meanwhile, there’s no telling what they can do with your assets. Vetting trustees is something in which we excel here at Dominion. 

Using a Trust Protector

Many law firms may recommend implementing a trust protector for your offshore asset protection trust. But in our opinion, this is a trap, not something that actually bolsters your protection in any way.

A trust protector is essentially another third party that has the ability to remove or replace the trustee for your APT. If you install yourself as a trust protector, a court can tell you to remove the trustee and replace them with someone who will compromise your assets for them.

In a sense, it’s introducing needless complexity into your trust instrument and making it more vulnerable at the same time. It’s never a good idea to use a trust protector if you want to ensure your APT is truly resilient.

Using the Trust in a Compromising Way

The way you use your trust – and the way your trustee behaves – can also impact whether your offshore APT is really defensive. 

For example, if you know the trustee and are in constant communication with them, a court might reasonably determine that you are the one really in charge of the offshore asset protection trust. They might order you to tell the trustee to give up your assets or something else.

Therefore, setting up your trust is just the start of your long-term asset protection strategy. You also need to be sure that you use the trust wisely and that your trustee behaves in a way that is legally airtight.

Offshore Asset Protection Trust Distribution Best Practices

Just as there are mistakes you can make with your offshore asset protection trust, there are also best practices you should keep in mind in terms of distributions. Odds are you’ll want your offshore asset protection trust to provide you or your beneficiaries with regular distributions of cash, property, etc.

How those distributions are set up, and who is in charge of those distributions, can further impact the effectiveness of your trust instrument and your legal defenses. At Dominion, we’ll administer your trust with these best practices at the forefront of our strategy.

Limit Distributions

It might be wise to limit the distributions you or beneficiaries receive, especially if the majority of the trust’s assets or wealth doesn’t need to be dipped into for the foreseeable future (e.g., you set up the trust with the intention of your kids benefiting from it decades from now).

Limiting distributions minimizes the likelihood that any money from the trust can be used against you or taken against your will. 

Give the Trustee Pure Discretionary Powers

Alternatively, you may wish to set up your trust so it gives the trustee "pure discretionary powers." With a pure discretionary trust, the trustee has complete, total discretion regarding beneficiary distributions and rights. 

In this way, you can give your trustee – like a knowledgeable third party – the ability to decide when they distribute money, if they distribute money, etc.

This only works if you trust your trustee, of course. But it gives them even more power to resist legal orders from a judge or creditor to access your stored wealth. 

Whether or not this is a good strategy for your asset protection plan is something you can determine by meeting with your legal advisers as you set up the trust and its core documents.

Ultimate Wealth Protection, Preservation, and Generational Growth

Overall, a Dominion-style asset protection trust is the best way to maximize your wealth protection now and for the future. The offshore asset protection trust we can help you set up won’t just guard your funds and property for the next few years. 

It will preserve that wealth and enable it to grow over time to ensure generational prosperity and financial security for your family.

That's why you should contact us at the earliest opportunity. When you leverage our extensive network of financial planners, trust administrators, tax advisors, and other specialists, we can provide you with the asset protection you need as a high-net-worth individual.

Keeping your money is just as important as making it. While you grow your business venture, start a new company, and pursue your other goals, Dominion can keep your wealth safe and secure. Contact us today to get started.

Dominion

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