A properly drafted offshore asset protection trust constitutes an entirely legal and highly effective means of sheltering one’s assets from wrongful seizure or attachment. In addition, asset protection trusts also offer the only truly legal method of deferring income tax on passive income.
Offshore asset protection trusts operate by transferring or assigning either individual or corporate assets to an offshore trustee that is not subject to the general jurisdiction of U.S. courts, while at the same time providing ready access to those same assets. Generally, individuals create offshore asset protection trusts in conjunction with previously established estate plans.
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An expertly crafted offshore asset protection trust devised by a lawyer who is highly experienced in the field can create a virtually impenetrable shield around one’s assets. The offshore asset protection trust also allows the settlor (or grantor) of the trust to serve as one of the lifetime income and principal beneficiaries. The trust settlor also may name additional lifetime income and principal beneficiaries such as their spouse or children. Upon the settlor’s death, the specific terms of the trust dictate to whom and when the remaining income and principal of the trust are paid out.
Under the Internal Revenue Code, an offshore asset protection trust is a "grantor trust," which simply means that all income, deductions and credits received by the trust in any given tax year effectively "flow through" to the settlor of the trust. The trust itself is responsible for filing an informational tax return each year, but the trust settlor has sole liability for any tax due.
In addition, an offshore asset protection trust can be completely domesticated, i.e. converted into a domestic trust based in the U.S., at any time except when the settlor is operating under an "event of duress", such as being the subject of litigation, bankruptcy or divorce proceedings.
A highly effective offshore asset protection trust can be established in any number of offshore jurisdictions, including the Bahamas, Cayman Islands, or St. Kitts and Nevis. The initial cost of setting up such a trust ranges from $5,000 to $25,000 depending on its complexity, with yearly trustee and management fees ranging from $5,000 to $10,000. Perhaps most appealing of all is the fact that an offshore asset protection trust can be coupled with an offshore corporation or limited liability company to facilitate the continued operation of the settlor’s business concerns with extremely limited fear of creditor attack on the assets of the business entity.
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