Setting Up An Offshore Trust That Works

Setting Up An Offshore Trust

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Setting Up An Offshore Trust That Works

If you want the best, strongest, most bulletproof protection possible, keep your assets outside of a U.S. judge's reach - keep them offshore. However, there are some exceptions to that rule. If you don't have any creditor threats right now, then it's an acceptable compromise to keep your liquid assets in the U.S. as long as they are held by an offshore trust. However, I strongly recommend setting up a foreign bank and/or trading account. Place at least some assets offshore while seas are calm, so that the transfer of the rest of your wealth offshore (after creditor threats arise) seems less suspicious. It's also a good idea to place most types of assets (excepting strictly personal, non-investment assets such as a personal residence) into an LLC or a Limited Partnership (LP). Since LLC's and LPs provide protection under U.S. law, your personal creditors normally cannot get assets inside those entities (assuming the entities are set up and operated correctly, of course). Just keep in mind that LLCs, LPs, and other domestic entities are still inside a U.S. judge's grasp.

That judge may decide to disregard the protection normally afforded by LLCs and LPs by way of a reverse-pierce or other argument (see, for example, the recent landmark Florida case, Shaun Olmstead v. FTC (2010)). In a worst-case scenario, an offshore trust that owns your business entities will dissolve the entities and take those assets into its possession. Liquid assets are physically moved offshore. Non-liquid assets, such as rental real estate, would have rent checks go to an offshore bank account, for example. Furthermore, placing an LLC or LP in an offshore trust may well prevent a creditor from obtaining a charging order or other creditor remedy against the LLC (a charging order gives a creditor the right to receive distributions from the LLC or LP if and when made. It does not generally allow the creditor to become an owner of the entity, gain control of the entity, or force distributions from the entity.)

Another strategy would be to use a foreign LLC, instead of a domestic LLC, to own assets. For those more willing to place wealth offshore while creditor seas are calm (which is a stronger strategy than keep wealth in the U.S. until creditor threats arise), an offshore LLC owned by an offshore trust is often ideal. A great aspect of the offshore trust/LLC combo is you can be the manager of the LLC, often times even while under creditor attack. This keeps control of assets in your hands without compromising the effectiveness of your offshore trust. And, you get an extra layer of asset protection with the OAPT/LLC strategy. Above all, remember to avoid the don'ts of asset protection planning, and set up your plan now before you have creditor problems. The old saying "an ounce of prevention is worth a pound of cure" is especially true when it comes to asset protection.

That's all for now. I hope this information on setting up an offshore trust has been helpful.


Thanks!
Ryan Fowler

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Education

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• offshore trusts
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• offshore trust services
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