Individuals who wish to take part in offshore investments have many options to protect their assets. However, asset protection trusts are particularly suited to serve the needs of international investors due to their favorable terms.
These trusts hold an individual's assets in order to protect them while severing ownership from the trust. Asset protection trusts are considered self-settled trusts. “Self-settled” means that a grantor creates a trust for his or her benefit. It is also a spendthrift trust, which provides protection from creditors.
It makes it difficult for a creditor to seize assets in the trust because the creditor can only use a beneficiary's interest in the trust to satisfy a judgment against the beneficiary. These types of trusts are often established offshore, creating an avenue for international investors.
For these trusts to meet all of their regulatory requirements, they must be irrevocable and contain a spendthrift clause. The trust's documents and administration must be located in the jurisdiction where the grantor has established the trusts.
Part of the assets must also be located in that jurisdiction. While the assets are insulated from creditors, there is no concealment or evasion of taxes, making this investment vehicle a safe and compliant option.
The trust beneficiaries are the owners of the equitable interest in the assets that form the trust. They do not actually own the assets, however. Occasional distributions are allowed as part of the trust, but these distributions can only occur at the discretion of an independent trustee.
The trust is maintained through various forms. First, a trust protector is an office that overlooks the trustee. There may be a distress clause that states that the trustee can disregard an instruction from the trust protector or the grantor in case there is some distress. Distress may mean that there is a judicial order to repatriate trust assets to the original country of citizenship because a creditor has received a judgment against the beneficiary in a court of law.
The creditor may try to exercise the judgment against the property. There may also be a flight cause that allows the trustee to remove the trust assets from one jurisdiction to another so that the assets are protected if there is a meaningful possibility that a creditor may be able to reach the trust property. Because of the spendthrift provision in the formation of the trust, the goal of these types of trusts is usually to limit the interests of its beneficiaries in a manner that prevents creditors from being able to collect against the assets that form the trust.
The international lawyers that make up the Nagel Law firm help investors with protecting their assets, plan their estates, establish corporate structures and assist with emigration residency and citizenship.