Offshore Asset Protection Trusts vs. Onshore Asset Protection Trusts

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Offshore Asset Protection Trusts vs.Onshore
Asset Protection Trusts

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Offshore Asset Protection Trusts vs. Onshore
Asset Protection Trusts

• Same trust concepts govern both
• Both support estate planning and wealth transfer
• Same benefits re probate and avoidance of estate
  delays
• Accomplish testamentary objectives
• U.S. Estate/Gift tax neutral
• GST Tax Exemption Credit Trusts
• Credit Shelter Trusts
• Marital Trusts
• Estate Freeze --Techniques available such as
  Limited Partnership Planning to take advantage of
  valuation discounts

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Advantages of Offshore Asset Protection Trusts
over Domestic Asset Protection Trusts

• However
• Law of other jurisdictions more favorable than
  USA
• Non recognition of foreign judgments
• Favorable Statute of Limitations
• No contingency fee litigation permitted
• Confidentiality
• Other Practical advantages

• Plus
• Access to international
• investment opportunities
• Ability to use defined tax
• planning opportunities
•  
• Equals
• Greater security
• Greater certainty
• Greater flexibility
• Better investment returns
• lower provider costs
• Better tax/estate position

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Asset Protection Trusts

• Trust Legal Definitions
• Grantor or Settlor
• Trustee
• Beneficiaries
• Protector

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Popular Foreign Jurisdictions with Asset
Protection Trust Statutes

• Belize
• Nevis
• The Cook Islands
• Bahamas

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Case Study

• Stella, age 60
• Successful corporate exec, has accumulated
  significant personal wealth
• Has invested after tax dollars in variety of
  investments
• Investments have grown, but Stella is concerned
  about investment costs, consistency of returns
  and tax leakage
• Planning retirement in 10 years
•  
• Two Goals
• 1. Protect her assets from the threat of
  litigation
• 2. Build the largest nest egg possible

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Solution 1Basic Asset Protection Trust with
Protector

• PROS
• Enhanced protection of assets from future
• creditors
• Access to funds if needed
• Protection Certainty
• Privacy

Stella is a U.S. person
Beneficiaries
UNITED STATES
THE COOK ISLANDS/BELIZE
Irrevocable Discretionary Trust
Trustee
Protector
Transfer of to foreign trust

• CONS
• Investment income taxable in Stellas hands
• Missing diversification opportunities

Investment Assets ()
U.S. Investment Managers
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Solution 2Asset Protection Trust with
Investment Benefits

• PROS
• Enhanced protection of assets from future
  creditors
• Access to funds if needed
• Protection Certainty
• Privacy
• Greater diversification via international
  investment managers
• Institutional rates vs. retail investment cost

Stella is a U.S. person
Beneficiaries
UNITED STATES
THE COOK ISLANDS/BELIZE

• CONS
• Investment income taxable in Stellas hands
• PFIC tax issues from non-U.S. Investment
  managers

Stella Trust XYZ Trust Co. As Trustee
Transfer of to foreign trust
U.S. Investment Managers
International Investment Managers
Investment Assets ()
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Solution 3Asset Protection Trust with
Investment Tax Benefits

• PROS
• Enhanced protection of assets from future
  creditors
• Access to funds if needed
• Protection Certainty
• Privacy
• Greater diversification via international
  investment managers
• Institutional rates vs. retail investment cost

Stella is a U.S. person

Tax free shifting amongst investment types
Tax free access to policy values Tax free death
benefits for portfolio assets true
insurance benefit
Beneficiaries
UNITED STATES
THE COOK ISLANDS/BELIZE
Stella Trust XYZ Trust Co. As Trustee

• CONS
• Investment income taxable in Stellas hands
• PFIC tax issues from non-U.S. Investment
  managers

Transfer of to foreign trust
Pr. Placement LI
U.S. Investment Managers
International Investment Managers
Investment Assets ()
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but, once I set this trust structure up, how do
I get my back?

• Ask Trustee for distribution
• Borrow against assets in trust
• For Private Placement structure, withdraw from
  policy and/or take a policy loan

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Other Practical Considerations

• An asset protection trust is not for all assets
• Independent legal advice is important
• Selection of Trustee/Custodian/Jurisdiction is
  important
• Dont keep control if you can reach it so can
  your creditors
• Reporting requirements
• Establishment process/timeline
• Protector, if needed

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Fraudulent Conveyance or Transfer Statutes

• A. General Explanation
• 1. Definition
• A. Transfer
• B. Protected Creditors
• 2. Intent (Badges Of Fraud)
• 3. Effect of Court Finding for
  Fraudulent Transfer
• 4. Effect of Court Finding for
• Transferee Liability
• 5. Bankruptcy Issues

B. Potential Criminal Issues 1. Concealment Of
Assets 2. Bankruptcy Crimes 3. Tax Crimes 4.
Money Laundering Rules   C. APTs Generally Do
Not Work for Pre-Divorce Planning
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Benefit Summary Use of an Offshore Asset
Protection Trust

• Safety of assets when with carefully chosen
  trustee
• Enhanced protection of assets from attack
• Tax planning opportunities
• Access to best in class investment managers /
  greater diversification
• Supports overall estate and generational
  planning, and wealth preservation goals
• Is not the never-never plan
• Flexible, not inflexible tool

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U.S. Treasury Reporting Requirements of Offshore
APTs

• Various Treasury Reporting Forms
• U.S. citizens and U.S. Resident Aliens are
  Required to Report their World-Wide Income
  Annually to the IRS
• Form 3520
• Form 3520 A
• FBAR Form
• Schedule B of Form 1040 Check the Box

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Domestic Asset Protection Trusts

• Many states have adopted Asset Protectionself-se
  ttled Trust legislation
• Alaska
• Rhode Island
• Nevada
• Missouri
• South Dakota

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Domestic Asset Protection Trusts

• Delaware is the leading jurisdiction
• Delawares Qualified Dispositionin Trust Act
  (1997)(12 Del. Code section 3570 et seq.)
• Domestic Asset Protection Trusts (DAPTs) offer
  an alternative to offshore asset protection
  trusts

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Delaware Asset Protection Trusts

• Fraudulent Conveyance Act Principles
• If trust is established with a claim pending,
  creditor has longer of four years or one year
  after knew or should have known of trust to file
  suit.
• As long as trust is not established with
  fraudulent intent, should be completely effective
  against creditor claims.
• All DAPT claims are heard in Delawares Court of
  Chancery specialized court that hears all DE
  corporate matters.

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Delaware Asset Protection Trusts

• Irrevocable Trust But Flexible
• Grantor can receive income and/or principal
  either in trustees discretion or as a matter of
  right.
• Discretionary distributions can either be with or
  without standards.
• Grantor may designate advisors for various
  functions.
• Trustees protected from all decisions of advisors
  unless trustee is acting with willful misconduct

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Delaware Asset Protection Trusts

• Permitted Grantor Retained Rights
• Consent to or direct investment changes
  personally
• Veto discretionary distributions from trust
• Replace trustee and other named advisors
• Receive income and/or principal
• Retain a limited testamentary power of
  appointment

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Delaware Asset Protection Trusts

• Who may defeat a DAPT?
• Pre-Transfer Claims must show client had
  specific fraudulent intent as that particular
  creditor and bring suit within 4 years of funding
  or 1 year after knows or should have known of
  trusts existence, whichever is later.
• Post-Transfer Claims within 4 years of funding
  and must show fraudulent intent against that
  particular creditor.
• Claimant must prove case by clear and convincing
  evidence a very high legal standard.
• Trust is NOT seized by bankruptcy court unless it
  was fraudulent.

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Delaware Asset Protection Trusts
Delaware Asset Protection Trusts

• Consequences if DAPT is defeated
•  
• Only sufficient funds are removed to satisfy
  judgment.
• If multiple creditors make claims, each one must
  bring separate action to make case.
• Any distributions made prior to a creditors
  successful suit to defeat DAPT will remain with
  beneficiary unless beneficiary acting in bad
  faith.

• Consequences if DAPT is defeated
•  
• Only sufficient funds are removed to satisfy
  judgment.
• If multiple creditors make claims, each one must
  bring separate action to make case.
• Any distributions made prior to a creditors
  successful suit to defeat DAPT will remain with
  beneficiary unless beneficiary acting in bad
  faith.

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Conclusion

• What is it
• Structuring wealth and business affairs to
• Preserve accumulated wealth
• Meet overall estate planning and investment
  goals
• Minimize exposure to potential lawsuit
• Full transparency and reporting

• What is it not
• Structuring wealth and
• business affairs to
• Hide accumulated wealth
• Not report income, distributions or
  transactions as required by the authorities
• Establish an offshore trust to protect
  assets, but then direct the Trustee on what
  to do with those assets OR reserving
  substantive powers

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Thank you!