Asset protection that puts your wealth beyond reach.

Offshore Asset Protection (OAPT)

The Offshore Asset Protection Trust (OAPT) is an irrevocable trust domiciled in a jurisdiction outside of the United States. It is the strongest asset protection tool available and is often used in conjunction with a Limited Liability Company (LLC), Family Limited Partnership (FLP), or Corporation to provide even stronger protection, flexibility, and control for the Settlor of the trust.

Favorable offshore jurisdictions

There are multiple jurisdictions where the Offshore Asset Protection Trust can be domiciled. Jurisdictions that have specifically passed very favorable OAPT laws include the Cook Islands, Isle of Man, Belize, Nevis, Cyprus, Caymans, Bahamas, Gibraltar, and St. Vincent. Certain jurisdictions have distinct legal advantages over others, which we match against your needs and desires. We will assess your situation and select the most appropriate jurisdiction to maximize advantages for you.

The strongest asset protection tool

The Offshore Asset Protection Trust is the strongest asset protection tool because it removes your assets from United States court jurisdiction under U.S. law and places ownership of your assets in the trust, in the jurisdiction where your trust is domiciled. This change of ownership does not mean that you will lose control of your assets. By combining entities (OAPT plus FLP or LLC), you can remain in complete control over your assets.

We typically recommend to our clients to keep their assets here in the United States. Essentially, we are importing foreign law without exporting your assets. Because you are removing U.S. court jurisdiction, it becomes extremely difficult for an adverse party to gain access to the assets that are owned by your Offshore Trust.

Fraudulent conveyance

The only way your adversary can gain access to those assets is to prove fraudulent conveyance. In the commonly used offshore jurisdictions, the statute of limitations for fraudulent conveyance is often as short as two years from the date of the transfer of the assets into the trust. This is not a long time in the legal world. Your adversary will likely run out of time and will either have to settle with you or pursue steadily mounting legal costs with no guarantee of success.

Legal advantages

If your adversary does wish to bring a lawsuit against your Offshore Asset Protection Trust alleging fraudulent conveyance, they will have to start the legal process over in the trust’s legal domicile offshore. Since most lawyers outside of the United States are generally not allowed to take contingency fees, the plaintiff will have to pay real money to hire them. Since the United States is the only country that does not have a “loser-pays” system, the court of the trust’s domicile will most likely require a cash bond of up to $150,000 just to file a lawsuit in that jurisdiction.

Burden of proof

Once a lawsuit has begun, and depending on the jurisdiction, the burden of proof lies with the plaintiff. Not only do they have to prove fraudulent conveyance within the statute of limitations, they have to prove it beyond a reasonable doubt, which is an extremely high standard of proof and difficult to attain. Your adversary will have to jump through numerous hoops just to begin and pursue a lawsuit against your trust. This process is both time-consuming and costly and usually deters adversaries from pursuing a lawsuit against your Offshore Asset Protection Trust.

Tax treatment

The Offshore Asset Protection Trust is a tax-neutral entity. It is a “grantor trust” for tax purposes and is deemed a “disregarded entity,” which makes the administrative burden minimal. The OAPT is purely an asset protection and estate planning tool and provides no tax advantages or disadvantages. All income from the Offshore Trust must be reported and paid annually. The IRS has specialized reporting forms specifically for this purpose (Forms 3520 and 3520-A) that must be filed when establishing and maintaining an Offshore Asset Protection Trust. Staying in compliance by filing annually can be some of your best evidence of the legality and legitimacy of your Offshore Trust if faced with a skeptical judge during a lawsuit.

Combining entities

The best way to receive the ultimate in asset protection and gain the most out of your estate planning is by using a Family Limited Partnership (FLP), Limited Liability Company (LLC), or Corporation in conjunction with your Offshore Asset Protection Trust. The FLP is the most commonly used entity with the Offshore Trust because it allows the trust to be the 99% owner (or 98%, depending on how many General Partners there are). You, as the General Partner, will have all the control and decision-making power over the assets in the trust, but only very little (1%) ownership in the FLP, allowing for the best in personal protection.

Importing law without exporting your assets

A typical structure goes back to the idea of importing law without exporting your assets. You have the advantage of your assets being under the laws of an offshore jurisdiction, without physically moving your assets offshore. The structure removes your legal ownership of your assets while allowing you to maintain control of them. Simply put, this structure removes you as the legal owner, and if you are not the legal owner of an asset, the United States courts do not have the legal support to take that asset away and give ownership to your creditor.

There is no bridge to offshore protection

Effective planning must be in place prior to any adverse events. Any attempt to move assets after a lawsuit has been filed will likely exacerbate the problem with the added vulnerability of fraudulent conveyance, which can compromise all of the assets you sought to protect. When a legal crisis occurs, you need the right structure already in place. At Tresp, Day & Associates, Inc., our unparalleled planning experience, and Principal Attorney Elizabeth A. Tresp’s courtroom experience litigating trust and estate disputes, set us apart.

Domestic Asset Protection

Domestic Security Trust (DST)

The Domestic Security Trust is an irrevocable trust, domiciled within the United States, used for basic asset protection, estate planning, and estate and gift tax considerations. As with any other irrevocable asset protection trust, the goal is to remove ownership over your assets. Whoever owns asset “A” can lose asset “A” to a creditor. By establishing a DST, the Settlor removes ownership by creating a legally recognized “ultimate owner” (the DST). The trust can own assets, and no individual or entity can own the trust. Because the DST stands alone and cannot create liability, a judgment cannot be attached to the trust itself, and it is protected from your personal creditors. Another entity, such as an LLC, FLP, or Corporation, is often used in conjunction with a DST so the Settlor retains a legal right to control the assets.

Master Protection Trust (MPT)

The Master Protection Trust is very similar to the Domestic Security Trust, with one primary distinction: the MPT has provisions that allow it to decant to an offshore jurisdiction at a future date. This trust is ideal for someone who wants the additional protections of an Offshore Asset Protection Trust but is unable to establish one at present due to timing or budget. The MPT can be established in the United States and later transferred to an offshore jurisdiction such as the Isle of Man, Gibraltar, Nevis, or the Cook Islands.

Domestic Asset Protection Trust (DAPT)

The Domestic Asset Protection Trust is a self-settled spendthrift trust that allows the Settlor to be the Primary Beneficiary during his or her lifetime. This is the only type of domestic irrevocable trust that allows for this, and it is modeled after the Offshore Asset Protection Trust. This is very new law, currently available in a limited number of states.

Our firm favors Nevada, which has traditionally supported business owners’ rights to privacy and lawsuit protection through its legislation; its judiciary is predisposed to and experienced in accepting these rights. Nevada’s DAPT law also has a two-year statute of limitations on attacking the transfer to the trust, whereas most other states have a four-year statute, a very important and powerful advantage.

DAPT advantages & considerations

Advantages of a DAPT include the shorter statute of limitations for fraudulent conveyance and the Settlor/Beneficiary structure. We also recommend clients have us draft these with decanting provisions that allow the trust to move offshore in the future if appropriate. Distributions can be made to the Settlor/Beneficiary by a Special Trustee to maintain the integrity of the irrevocable trust. The DAPT is a budget-friendly alternative to the OAPT and mirrors its more favorable provisions.

While the DAPT mimics the OAPT, it does not afford the same level of protection. The two most pronounced drawbacks are: (1) U.S. courts still have jurisdiction over your trust (whereas under U.S. law they no longer have jurisdiction over an offshore trust), and (2) DAPTs are so new that there is limited court precedent to give certainty they would be upheld. These points do not diminish their utility but are significant, material issues to consider. The Offshore Asset Protection Trust remains the strongest asset protection tool available and should not be overlooked simply because a domestic alternative exists.