Asset protection trusts allow you to shield your trust assets from external threats such as government seizures or predatory litigation, something you cannot do with a domestic trust.

Some jurisdictions offer highly fortified offshore asset protection trusts, backed by an iron clad legal system to offer the maximum protection.

Offshore trusts have become an indispensable structure for high-net-worth individuals, entrepreneurs and investors.

Offshore Trusts – Overview

Ok let’s just come out and say it. If you are a high-net-worth individual seeking to protect and grow your wealth, there’s no way around it, sooner or later, you will need to set up an offshore trust. And when we say sooner, we do mean it since the sooner you take advantage of it, the more money you will save in the long term. Which is why you’ll be wishing you had, in fact, set one up long ago.

So why, exactly, should you set up an offshore trust?

Through the use of offshore asset protection trusts, you can ensure that your wealth is safe from outside interference, be that via the government, predatory litigation or otherwise, helping to keep it safe for you and for future generations.

Of course, most people, when they think of trusts, think of trust funds, structures set up for transferring wealth to family members, usually children or other dependents, and you can also use an offshore trust for this purpose.

The fact is, you can use an offshore trust for a variety of reasons or set up an offshore trust company, a commercial entity that can fulfil very much the same fiduciary functions as a regular offshore trust.

The key thing to keep in mind, however, is that setting up a trust after the fact, when you’re already in trouble, isn’t going to work, so you need to be proactive to ensure your assets are protected before the fact.

What Is An Offshore Trust?

An offshore trust is a highly flexible type of structure which can be used for a wide variety of purposes and often used by wealthy individuals for the purposes of asset protection.

Trusts are a type of entity which fulfils a fiduciary relationship between the settlor and the beneficiary, allowing assets to be transferred from one party to another. These types of structures exist across the world and have their origins in common law.

By establishing a trust in a foreign jurisdiction, however, you have the opportunity to take advantage of country’s local trust laws, which can provide additional layers of asset protection as well as a more favourable tax regime.

Benefits Of An Offshore Trust

The main benefits of an offshore trust are:

1. Enhanced asset protection

2. Enhanced privacy

3. Asset transfers

4. Legal Tax reduction

5. Access to offshore investments/banking

Enhanced Asset Protection: Many offshore trust jurisdictions offer far more robust asset protection, ensuring that your assets are shielded from creditors or predatory litigation.

Enhanced Privacy: Your assets are also not only protected, with an offshore trust, you also gain the benefit of enhanced privacy, shielding your assets from unwanted scrutiny.

Asset Transfers: Using an offshore trust is also a more efficient way of facilitating the transfer of assets to beneficiaries. This can include family members, allowing the transfer of assets without incurring any inheritance tax.

Legal Tax Reduction: Why pay taxes you don’t need to? An offshore trust allows you to reduce your tax liability by establishing a structure in a jurisdiction with more favourable tax laws. This helps you save on a variety of taxes, including income tax and capital gains tax.

Access To Offshore Investments/Banking: By establishing a foreign trust you will need to set up a bank account, which means you also get the benefits of an offshore bank as part of the process. These, in tandem, give you greater freedom, allowing you to further broaden your portfolio with exciting new foreign investments. For example, since you can use an offshore trust to hold assets, you can even use the structure for the purposes of real estate investment.

Offshore Trust Structure

An offshore trust structure is essentially the same as that of any other form of trust.

So there’s a settlor, who creates the trust and bequeaths the trust’s assets, and the beneficiary or beneficiaries, the ultimate recipient or recipients of the assets which are placed in trust by the settlor. Acting as an intermediary is the trustee, who manages the trust on behalf of the settlor and acts in a fiduciary capacity towards the beneficiary or beneficiaries.

When setting up the trust you can determine how beneficiaries receive distributions and the type of trust income they receive, e.g. whether the money is divested as ordinary income, or perhaps as a lump sum.

The trustee can be an individual, though generally an offshore law firm is employed when managing an offshore trust.

Offshore Asset Protection Trusts

One of the most common uses of offshore trust structures is for the purposes of asset protection.

Depending on the jurisdiction, an offshore trust can offer far greater asset compared to domestic asset protection trusts.

By establishing a trust in a foreign jurisdiction you can enjoy the benefits of both enhanced privacy and additional layers of asset protection.

This has the double effect of removing trust assets from unwanted scrutiny while also working to protect assets from dangers such as predatory litigation.

For example, if you are based in the United States and worried about losing key assets to litigation, setting up a trust in the US would make no sense. But, if you were to set it up in a foreign country with a foreign trustee this automatically becomes harder. If your chosen jurisdiction is known for having tough offshore asset protection trust laws, for example the Cook Islands or St Kitts and Nevis, this becomes harder still. Using an offshore asset protection trust, you can safeguard your significant assets, while also adding new assets to your portfolio, holding them securely in your offshore trust.

Offshore Trust Company

An offshore trust company is a legal entity which acts in a fiduciary capacity, managing funds and assets for the beneficiary.

By using a foreign trust company, outside of your home country’s jurisdiction, the offshore trust company can manage your assets according to the laws of the offshore jurisdiction, providing additional lawyers of security and confidentiality to your assets.

Offshore Trust Jurisdictions

There are plenty of countries where you can set up an offshore trust, including popular banking jurisdictions like Switzerland and Liechtenstein.

However, since trust law has its origins in English common law, it should come as no surprise to hear that many of the most common offshore trust jurisdictions are also Common law jurisdictions.

Some of these are also no tax jurisdictions, or at the very least, low-tax jurisdictions. So by setting up in these offshore jurisdictions you can also ensure that your worldwide income is not taxed, online local sourced income. Many are located in the Caribbean including Antigua and Barbuda, Barbados, the British Virgin Islands, the Cayman Islands and Saint Kitts and Nevis. Bermuda, though technically not in the Caribbean, usually gets lumped in with these countries also. In addition to being tax friendly and providing robust offshore trust legislation, many of these countries also offer highly competitive citizenship by investment programs, making them ideal for anyone looking to obtain a second passport.

For maximum security of your assets, you need a jurisdiction that does not accept foreign judgements, which means that anyone looking to seize assets contained within your offshore trust would therefore have to go through the foreign courts. This can be prohibitively expensive and, more often than not, futile, since the jurisdiction will invariably rule in your favour.

Take St. Kitts and Nevis, for example. This tiny Caribbean nation pretty much invented the citizenship by investment game, and its program is well worth investigating, allowing you to get a passport for just $250,000 within as little as four months.

In addition, the country has no income tax, no inheritance tax and their trust law is known for being particularly unassailable, so not only are you able to ensure your assets are getting a high degree of protection, you’re also able to safeguard them for future generations and pass them along to your descendants. And if anyone tries to take it away, they’re in for a bumpy ride, legally speaking.

Since St Kitts and Nevis does not accept foreign judgements they would have to go through the courts there and pay a lot to do so, and pay even more if they lose. This legal liability is based on the fact that the burden of proof is on the plaintiff. So if you have established a trust on the island of Nevis, for example, they would need to make a clear-cut case Nevis law, which generally sides with trust beneficiary.

So, as you can see, that solution ticks a lot of boxes, but that’s just to demonstrate a point, St Kitts and Nevis might be just the solution you need, or perhaps you might prefer to go further afield and set up an offshore trust in the Cook Islands.

One benefit of a Cook Islands offshore trust is the variety of assets you can hold there, which includes crypto. As with St. Kitts and Nevis, the Cook Islands offers enticing tax benefits and, since foreign judgements are not recognised, your assets can enjoy a far greater degree of security.

How To Set Up An Offshore Trust

The exact process of setting up a foreign trust will largely depend on what jurisdiction you choose.

While every jurisdiction will conduct their own due diligence checks, something which is required by law, the level of detail will vary.

The first obvious starting point would be to set up a foreign bank account in that jurisdiction and for that you will need to provide the usual materials, identification, financial accounts and information about your tax residence. These are the standard checks every financial institution will run, no matter where you go in the world.

The next step is to talk to a local lawyer who will help you to draw up the terms of the trust and define who the beneficiary is who will ultimately gain access to the trust assets.

Once the trust is established you can then transfer assets into the trust, with all the security and tax benefits that entails.

Establishing Your Trust

Setting up a trust in an offshore jurisdiction makes sense.

Firstly, unless you like to pay taxes that are higher than necessary, using an offshore trust structure can help you enjoy significant tax savings. It should be pointed out also, that in many of these jurisdictions, not only are there less taxes, your taxable income itself is lower. (And indeed some jurisdictions have no taxes whatsoever.)

Offshore asset protection trusts, meanwhile, provide far more robust asset protection and privacy compared with their domestic counterparts.

Put these together and you get an added lawyer of financial security, allowing you to grow your wealth while safeguarding it for future generations.