Using an Asset Protection Trust

Sept. 8, 2010 - PRLog -- A very useful legal vehicle for passing wealth to ones heirs without going through probate is an asset protection trust. Used in an offshore setting this asset protection vehicle has gained in popularity as more and more individuals have moved assets away from their country of origin to more discrete as well as tax advantaged jurisdictions.

In general an asset protection trust refers to a number of legal structures providing for a wide degree of latitude in disbursal of funds. Such a trust is typically set up to mitigate or totally avoid the effects of events such as bankruptcy, divorce, and tax liability. Thus this sort of trust on ones homeland can be subject to legal challenge from those wishing to delve into your assets for a variety of reasons.

Typical arguments in challenge of such a trust are the person setting up the trust can benefit from his own trust, sets up the trust when under risk of losing money, bankruptcy, etc. Even though a person will set up such a trust in absolute good faith subsequent events could lead to invalidation of the trust or substantial loss of assets.

It is because of the risk of legal fishing expeditions in an individual’s country of origin that many choose to move assets offshore. It is for the same set of reasons that one may choose to set up an asset protection trust in a jurisdiction where laws will favor the trust and the wishes of the person setting it up, not those wishing to attack it.

The main purpose of an irrevocable asset protection trust is to preserve and protect assets against all creditors and other claimants. Assets are transferred to a trustee for the benefit of designated beneficiaries. Such a trust set up in an offshore jurisdiction can include a wide variety of assets including but not limited to offshore solutions such as international business corporations, a Panama Private Interest Foundation, or a New Zealand Offshore Financial Company.

It is with the inclusion of other offshore asset protection vehicles that many choose to protect assets and pass them on to their heirs. Such a vehicle is typically tax neutral which is a distinct advantage for the beneficiaries. The addition of various layers of legal protection, each affording a degree of privacy, is attractive to many who have worked hard for their wealth and choose to preserve it for the benefit of their children and grandchildren.

The legal benefit of setting up an asset protection trust and, perhaps, other asset protection vehicles under its wings, is that the laws of the jurisdictions where the trust and other vehicles are set up may well demand a much higher standard of proof of claimants than in an individual’s homeland. In fact certain issues such as civil tax matters may not be pursuable “offshore” if there are not reciprocal tax treaties between one home country and the offshore jurisdiction. The only issues that typically cross national borders are criminal but these would need to be proven in the nation where the claim is made. Even then many nations only treat taxes as a civil matter and may allow aggressive penalties for matters treated more leniently in the offshore jurisdiction.

As with all such issue competent advice from council is essential. Dealing with competent authority in the offshore jurisdiction will be the most important matter from the very beginning.

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