OFFSHORE ASSET PROTECTION TRUST
Our society has experienced a disturbing rise in litigation in recent years. Creative lawyers and judges have become ever more imaginative in finding ways to dip into any available “deep pocket” to satisfy often spurious and costly legal claims. However, those who are exposed to a higher risk of injurious litigation now have a weapon with which to fight back.
WHAT IS AN APT AND HOW DOES IT WORK?
A common misconception is that by merely placing assets in trust, the assets are beyond the reach of creditors. In reality, many trusts offer no protection against creditors whatsoever. Furthermore, those trusts that do provide creditor protection require that you part with ownership and control of the assets conveyed to the trust.
By contrast, the Offshore Asset Protection Trust (“APT”) allows you to enjoy the benefits of both control and protection. With the goal of putting as much distance as possible – both literally as well as figuratively – between your assets and future potential creditors, the APT is designed to allow you to retain control and enjoyment over your assets while locating title to those assets in a trust established in a foreign jurisdiction, out of reach of potential creditors.
The premise upon which an Asset Protection Trust provides protection is, in part, based on the fact that certain foreign jurisdictions do not recognize the judgments of United States courts. If a judgment is obtained against you in the United States and your creditor seeks to enforce that judgment against your assets held by a foreign trust, the foreign trustee will not be required to submit to the jurisdiction of the United States court. The trustee, therefore, cannot be compelled to surrender the trust assets.
If the creditor really wants to reach the assets held by the foreign trust, it will be required to retry the case in the foreign jurisdiction where the trust is located. Faced with such a costly prospect, the creditor will usually either walk away entirely or settle the suit for pennies on the dollar.
In addition, some foreign jurisdictions prohibit attorneys from accepting a case on a contingency fee basis. This acts as a further deterrent since many lawsuits are often stopped in their tracks because the claimant must actually pay the attorney regardless of the outcome of the litigation. Where a bar to contingency fee exists, defendants are placed on a more equal footing with claimants, since claimants are also exposed to the “hazards of litigation” from a cost standpoint.
Another practical barrier offered by the APT is simply the expense of having to pursue judgment and collection in an overseas jurisdiction. Many litigants, confronted with costs in both time and travel, opt either to drop their claims or, again, to seek settlement on terms much more favorable to you.
Finally, individuals with substantial wealth often represent a potential “deep pocket” and therefore become targets of litigation. Transferring title in significant assets to an APT can make you a less desirable target for litigation by diminishing your financial profile.
The foregoing illustrates some of the formidable barriers constructed by an Offshore Asset Protection Trust against creditors and their attorneys. And while an APT may not deter every potential creditor or claimant, the vast majority will elect a much cheaper resolution simply because they lack, or are not willing to expend, the resources necessary to seek satisfaction of their claims.
APT COUPLED WITH AN LLC
Typically, an Asset Protection Trust is formed in conjunction with a limited liability company (“LLC”). If an LLC is used, the trustee of the APT receives a membership interest and thereby becomes only a passive investor in the entity. However, you would retain full control of the assets as the LLC’s manager.
If unanticipated creditor problems develop later, the LLC assets are distributed to the APT. This effectively renders the assets exempt from execution under an order from a United States court.
Moving assets around the world has become a much simpler process with the growth in global communications and financial markets. Many domestic brokerage firms, for example, have foreign offices, so accounts may be established worldwide to facilitate transfers.
Thus, with an APT, the assets need not be held in the situs country of the trust, but may be located to any major international financial center of your choosing. There is one important note, real estate is not a favored asset for an APT because the protection of the APT-LLC arrangement comes from the ability to move assets quickly out of the United States.
TAXES AND PROBATE
The Asset Protection Trust is not designed to offer any tax advantages. The objectives of an APT are to provide creditor protection and meaningful economic diversification for your property. Therefore, there are no income, estate or gift tax opportunities to be gained with an APT. However, the APT does allow you to avoid probate with respect to property placed in the APT.
The APT is one of the most costly estate planning tools to form and administer. With other domestic asset protection techniques available, we recommend the APT only to those clients with substantial liquid assets. If you are prepared to place a substantial amount of assets in an offshore trust, you may find the APT to be an excellent tool for providing you with peace of mind.
Contact our office to discuss what method of protection works best for you.
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Gerrard Cox Larsen
2450 St. Rose Parkway, Ste. 200
Henderson, Nevada 89074
9139 W. Russell Road
Las Vegas, Nevada 89148
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