Offshore Trusts and Real Estate

Real estate is the hardest asset class to protect with an offshore trust. With cash, securities, or cryptocurrency, the trust moves the asset itself outside U.S. jurisdiction by transferring it to a foreign trustee or a foreign account. Real estate cannot be moved. A property in Florida, California, or New York remains subject to the jurisdiction of the courts where it sits, regardless of who holds the title. A U.S. court can order the sale of real property located within its jurisdiction, enter a judgment lien against it, or foreclose on it, even if the property is titled in the name of a foreign entity.

This does not mean an offshore trust has no role in protecting real estate. It means the mechanism is different. Instead of removing the asset from U.S. court reach, the strategy focuses on either interposing structural barriers between the creditor and the property’s equity or converting the equity into a movable asset that can be protected offshore. Both approaches have limitations, and clients who own significant real estate should understand what the trust can and cannot do before committing to either.

Domestic Real Estate That Does Not Need an Offshore Trust

Before evaluating offshore strategies, it is worth noting that some real estate is already well-protected under domestic law. In Florida, the homestead exemption protects an unlimited amount of equity in a primary residence from most creditors. Property owned jointly by married couples as tenants by the entireties is exempt from the individual debts of either spouse. These protections apply automatically and cost nothing to maintain.

Clients whose primary real estate exposure is a homestead property in a strong exemption state may not need offshore planning for that asset at all. The offshore trust becomes relevant when the real estate portfolio includes investment properties, commercial real estate, or properties in states without meaningful homestead protections, where no domestic exemption applies, and the equity is fully exposed to creditors.

Strategy One: LLC Owned by the Trust

The most common approach is to hold the real estate in a domestic LLC whose membership interests are owned by the offshore trust. The client serves as manager of the LLC, retaining day-to-day control over the property, including leasing, maintenance, and sale decisions. The offshore trust owns the LLC membership interests, not the real estate directly.

This structure does not remove the property from U.S. court jurisdiction. A court can still enter a judgment lien against real property held in an LLC, and in some states a court can order the sale of the property to satisfy a judgment against the LLC itself. What the structure does is change the creditor’s point of attack. A creditor pursuing the client personally cannot seize the LLC membership interests directly. In many states, the creditor’s sole remedy against an LLC membership interest is a charging lien, which entitles the creditor to distributions if and when the LLC makes them, but does not give the creditor control over the LLC or its assets.

When the LLC membership interests are owned by an offshore trust rather than by the client individually, the charging lien remedy becomes even less effective. The creditor must pursue the trust to reach the membership interests, and the trust is administered by a foreign trustee outside U.S. jurisdiction. The practical result is that the creditor holds a charging lien against an interest in an LLC that the creditor cannot control, owned by a trust that the creditor cannot compel to make distributions.

This is meaningful protection, but it is not the same as the protection an offshore trust provides for financial assets held in a foreign account. The property itself remains in the United States, visible and encumberable. A creditor who obtains a judgment against the LLC (as opposed to the client personally) can reach the property directly. And if a court determines that the LLC is the alter ego of the client, or that the transfer of membership interests to the trust was a fraudulent transfer, the LLC structure can be disregarded.

Strategy Two: Equity Stripping

Equity stripping converts the property’s equity into cash that can be held offshore. The basic mechanics work as follows: an offshore lender, typically coordinated through the offshore trust structure, extends a loan to the property owner or the LLC that holds the property. The loan is secured by a recorded mortgage on the property. The loan proceeds are deposited into the offshore trust’s bank account.

The mortgage has priority over any subsequent judgment lien. A creditor who obtains a judgment after the mortgage is recorded stands behind the lender in the priority line. If the mortgage consumes most of the property’s equity, the creditor has little remaining value to pursue through the property itself. The equity that was in the real estate is now cash held in an offshore account under the trust’s control.

Equity stripping has two advantages over the LLC-only approach. First, it protects the value, not just the ownership structure, of the property. Even if a creditor reaches the property, the mortgage lien reduces or eliminates the recoverable equity. Second, the transaction resembles a standard commercial mortgage, which makes it more defensible against fraudulent transfer challenges than a simple transfer of title. The property owner receives loan proceeds in exchange for granting a mortgage, which constitutes reasonably equivalent value under fraudulent transfer analysis.

The costs of equity stripping include lender origination fees (typically one to two percent of the loan amount), annual administration fees, mortgage interest to the extent the cost exceeds interest earned on the deposited funds, mortgage recording fees, and legal fees for structuring the transaction. These are in addition to the base offshore trust setup and annual costs. For clients with significant real estate equity, the combined cost is meaningful but proportionate to the protection achieved.

Limitations

Neither approach eliminates the fundamental constraint: U.S. real estate stays in U.S. jurisdiction. A creditor who sues the LLC directly (for example, a tenant injury claim against a rental property) may reach the property without needing to pierce the offshore trust at all. Equity stripping reduces the value available to such a creditor but does not prevent the judgment itself.

Equity stripping also requires ongoing maintenance. The mortgage must be serviced, interest payments must be made, and the loan documentation must reflect a legitimate commercial transaction. A court that examines the structure and concludes that the mortgage is a sham, that no real economic substance underlies the loan, or that the entire arrangement was created solely to defraud a specific known creditor, can set the mortgage aside. Timing matters: equity stripping implemented well before any litigation threat is far more defensible than a mortgage recorded after a lawsuit is filed or foreseeable.

Real estate held in an offshore trust structure also does not receive the same favorable treatment in bankruptcy as financial assets held entirely offshore. The property is within the bankruptcy estate because it is located in the United States. The bankruptcy trustee can challenge the mortgage under avoidance powers if the timing or circumstances support a fraudulent transfer claim.

When Each Approach Applies

For most clients, the LLC-plus-trust structure is the starting point. It adds a layer of protection against personal creditors, creates charging lien barriers, and integrates naturally into a broader offshore trust plan that also protects financial assets. Clients who hold rental or investment properties routinely use this approach as part of their overall asset protection strategy.

Equity stripping is appropriate when the client has substantial equity in properties that are not protected by homestead or other exemptions, and when the litigation exposure justifies the additional cost and complexity. It is most commonly used for commercial properties and high-value investment real estate where the equity at risk is large enough to warrant a dedicated lending structure.

Clients should not expect an offshore trust to protect U.S. real estate with the same effectiveness as it protects financial assets held offshore. The trust adds meaningful barriers, but the property remains within the reach of U.S. courts in ways that a foreign bank account does not. The how offshore trusts work article explains the core mechanics that apply to all asset types, and the offshore trust overview provides the broader evaluation framework.