Asset Protection Trusts, or APTs, are complex structures that can be custom made to fit the needs of a particular individual and his goals. They are often confused with Trust Companies but are very different. The history of wealthy families using trusts dates back to Roman times when trusts were used as an instrument for holding property. More recently, trusts were common in England as early as the 11th century. It is generally accepted that the modern trust, used for asset protection and estate planning, has a history extending some four hundred years.

In the United States, it was possible to obtain substantial tax benefits prior to the Tax Reform Act of 1976. “Under the prior law, a United States citizen could create an irrevocable accumulation trust that would be taxed in basically the same manner as a nonresident alien individual. Thus, it was possible to defer United States taxes indefinitely or until distributions were actually made to its US beneficiaries.”[1] While tax law reform has eroded much of the tax-planning power of the trust in United States, it remains a powerful tax planning weapon elsewhere. For citizens of the United States, the Offshore Asset Protection Trust is a formidable tool for asset protection against creditors and litigators.

An APT with the objective of protecting assets should divest the settlor of just sufficient ownership of assets to deter potential future claims by creditors or litigators. For United States’ citizens, ownership of a foreign trust will frustrate the efforts of creditors as assets are the property of a trust and not a named individual. Offshore courts are hesitant to set aside a transfer to a trust if it is properly established under their law. In addition, a judgment from a U.S. litigator is difficult to enforce offshore; most litigation stops at the border. If for any reason, the jurisdiction was approached and asked to disallow the trust, it can often be easily moved to another country before any such action would take effect.

Much like any offshore contemplation, anyone considering an offshore trust should seek the advice of a competent, professional advisor. There are several terms regarding trusts that your advisor will use frequently:

  • SETTLOR or GRANTOR: A person placing property into a trust.
  • TRUSTEE: Professional who manages trust named beneficiaries.
  • BENEFICIARY: Individual(s) named to benefit from the trust.

Finally, it is important to keep in mind that there are many types of trusts. One specific type of trust cannot be all things to all people. The best approach is to know your main objective, and then consult a professional.

[1] Marshall J. Langer, “Practical International Tax Planning” p.57

Posted in: Asset Protection, Miscellaneous, Uncategorized on March 21, 2014

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