Disadvantages of an Offshore Trust

An offshore trust is one of the best asset protection tools available for U.S. residents. The trust allows you to transfer your assets to an offshore trustee. tHe offshore trustee is not subject to U.S. jurisdiction, so a Court cannot compel the trustee to transfer any assets back to the U.S. for execution on a judgment.

However, there are three distinct disadvantages to offshore trusts:

• Legal complexity
• High initial and ongoing costs
• Limited control

Legal Complexity

An offshore trust setup involves three roles: the trustmaker, the trustee, and the beneficiary. In most setups, you are the trustmaker and the beneficiary. A company in the Cook Islands is the trustee. With an offshore trust, you transfer your assets to the trustee to be held for your benefit.

Having an offshore trust own your assets adds complexity to your financial setup. In most circumstances, you have to work with the trustee company to make significant transfers. You will also have extra reporting requirements with the IRS every year.

High Initial and Ongoing Costs

Offshore trusts are some of the most expensive asset protection tools available. The legal fee for an offshore trust will be $15,000 to $20,000. The trustee company will charge a base fee of $4,000 to $5,000 per year, depending on the type of trust. The trustee company may charge additional amounts for certain tasks related to the trust, such as opening certain financial accounts.

Because of the high initial and ongoing costs, offshore trusts are usually not worth it unless you plan to transfer at least $1,000,000 into the trust.

Limited Control

With an offshore trust, you give up some direct control in exchange for better asset protection. Once there is a legal issue, you will not be able to directly control the assets and investment in the trust structure. You will need to direct the offshore trustee company to make any transfers, purchases, sales, and wires.

The lack of control is necessary to make the offshore trust work. Without direct control, you do not have the legal ability to withdraw assets from the trust and pay the creditors. A court cannot force to you to do something you do not have the legal power to do.