A very useful legal vehicle for passing wealth to heirs without going through probate is an asset protection trust. Used in an offshore environment, this asset protection vehicle has gained popularity as more and more people have moved assets out of their home country to more discreet and tax-advantaged jurisdictions.
In general, an asset protection trust refers to a series of legal structures that provide a wide degree of freedom in the disbursement of funds. Such a trust is usually established to mitigate or completely avoid the effects of events such as bankruptcy, divorce, and tax liability. Therefore, this type of trust in one’s home country may be subject to legal challenge by those who wish to delve into their assets for a variety of reasons.
Typical arguments in challenging such a trust are that the person setting up the trust can benefit from their own trust, sets up the trust when at risk of losing money, bankruptcy, etc. Although a person will establish such a trust in absolute good faith, subsequent events could result in the invalidation of the trust or substantial loss of assets.
Due to the risk of legal fishing expeditions in an individual’s home country, many choose to move their assets abroad. It is for the same set of reasons that one may choose to set up an asset protection trust in a jurisdiction where the laws will favor the trust and the wishes of the person setting it up, not those who wish to attack it.
The primary purpose of an irrevocable asset protection trust is to preserve and protect assets against all creditors and other claimants. The assets are transferred to a trustee for the benefit of the designated beneficiaries. Such a trust established in an offshore jurisdiction may 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 usually fiscally neutral, which is a clear advantage for the beneficiaries. The addition of several layers of legal protection, each providing a degree of privacy, is appealing 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 establishing 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 established may well require a much higher standard of proof. of plaintiffs than in an individual’s homeland. In fact, certain matters, such as civil tax matters, may not be prosecutable “abroad” if there are no reciprocal tax treaties between a home country and the offshore jurisdiction. The only issues that generally cross national borders are criminal ones, but these would need to be proven in the nation where the claim is filed. Even then, many nations only treat tax as a civil matter and may allow aggressive penalties for matters dealt with more leniently in extraterritorial jurisdiction.
As with all these matters, competent advice from the council is essential. Dealing with the competent authority in the offshore jurisdiction will be the most important issue from the beginning.
