OFFSHORE ASSET PROTECTION
Offshore planning is a well-publicized method of asset protection. Offshore planning involves establishing legal entities in favorable foreign jurisdictions under the control of trustees who are neither United States citizens nor persons having a business presence in the United States. The purpose of offshore planning is to remove legal battles with creditors to jurisdictions beyond the reach of the United States courts. Offshore planning works, formost, because certain offshore jurisdictions do not recognize judgments rendered by U.S. courts. In order for judgment creditors to reach assets located in such jurisdictions, a creditor must start over and reinstitute the lawsuit against the defendant to establish a new judgment in the foreign court system.
The second advantage of offshore planning is that favorable offshore jurisdictions have relatively short statutes of limitation on fraudulent transfers. Domestic asset protection is often vulnerable to a creditor’s allegations that the debtor has transferred assets, or has converted one type of asset to another asset, in an effort to defraud or delay creditors’ collection. Most states have four-year statutes of limitations, which means that a creditor’s attorney can attack asset transfers up to four years after the transfers took place. People who wait until they are sued to begin asset protection most often find their efforts, at least, challenged as fraudulent transfers if done four years or less prior to a judgment being entered. In favored offshore jurisdictions, however, the courts have statues of limitations on fraudulent transfers of only two years. The shorter statute of limitations makes it easier for debtors to delay judgments until after the statute of limitations has expired to challenge asset protection transfers.
The primary legal tool involved in offshore planning is the offshore asset protection trust. Simply stated, the offshore trust resembles a typical U.S. trust except that the offshore trust is a “self-settled trust” where the settlor and the beneficiary are one and the same. The trustee is a person nominated by the settlor and is either an individual who is not a U.S. citizen or a business with no U.S. offices or affiliation. Most often, an offshore asset protection trust will have additional people serving as trust advisors or trust protectors. These are individuals not under the settlor’s control who have certain powers in the administration and protection of the trust and its assets but who have no beneficial interest in trust property.
In addition to asset protection benefits, offshore trusts provide a means of transferring assets between generations free of probate. Upon the death of a settlor, the trust usually provides that assets pass automatically to named successor beneficiaries. Offshore planning also provides investment flexibility because offshore trustees may make certain investments not permitted by trustees of domestic trusts.
