Austin, Texas Asset Protection • Offshore Trusts
Asset Protection & Estate Planning Attorneys • Serving Lakeway and the Surrounding Austin, Texas Area
For physicians who are serious about protecting their assets from malpractice claims and other attacks, the foreign asset protection plan (aka Offshore Trust) is one of the most protective planning devices a client can utilize.
All other alternatives (Family Partnerships, Partition Agreements, Homestead Protection, Domestic Trusts, etc.) rely upon the uncertainties of the very legal system (domestic U.S. judicial system) that created the legal problems.
How do Offshore Trusts work?
Creating an Offshore Trust is very similar to creating any type of domestic trust (i.e. Revocable Living Trust, Insurance Trust, Children's Trust, etc.). As with any trust planning (domestic or offshore), you would be the Trustmaker (sometimes called "Trustor" or "Grantor") and your attorney would create a written trust agreement. Our Firm can assist you with this process. The trust agreement merely contains your written instructions about (1) who you choose to select as initial Trustee, (2) how the Trustee can be removed and replaced, (3) what trust beneficiaries can receive trust distributions (Tip: You can be a beneficiary), (4) when the trust terminates, and (5) who will be the initial and successor "Trust Protector" (see below).
Do Offshore Trusts work? —"Case Study"
In a study of over 1,000 offshore trust cases created between 1988-2000, about 6% came under some form of attack (i.e. lawsuit, etc.). Of those, 100% of the cases resulted in either having the claim dropped or a quick, favorable settlement.
Why do they work? — the "Ugly Defendant"
Having your unprotected assets (i.e. stocks, cash, etc.) owned by an Offshore Trust requires that the legal battle be moved abroad to a different, non-U.S. legal system. This move creates financial, geographical and psychological barriers to creditors trying to collect a judgment. Several foreign jurisdictions do not recognize U.S. judgments, resulting in the requirement of a new trial. The increased fees and costs of litigating in a foreign jurisdiction make you an ugly defendant. The proper jurisdiction can provide a short Statute of Limitations and can shift a more difficult burden of proof to the judgment creditor.
There is a lot of misinformation out there and Clients have a lot of misunderstandings about Offshore Trusts.
- You do not have to transfer the assets offshore. During non-crisis mode, most if not all of the assets remain the U.S.. Only during crisis mode would you need to have the assets transferred offshore. Most physicians who utilize an offshore trust also have a family limited partnership (FLP). The FLP holds title to your unprotected assets (i.e. brokerage account, etc.) which remain invested within the U.S. Only interests in the FLP are transferred to the offshore trust. The actual assets remain invested within the U.S. during non-crisis mode.
- You have continued use of the assets as the trust beneficiaries include yourself and other family members.
- You can have continued control over the trustee actions by being the "Trust Protector" having the ability to remove and replace the trustee, change jurisdiction, veto investment and distribution decisions.
- Tax reporting requirements are nil during non-crisis mode. Most offshore trusts are drafted to be tax neutral for income, gift and estate tax purposes. The trust is treated by the IRS as a "Grantor Trust" and ignored as a separate tax entity for income tax purposes. The transfers to the trust are incomplete gifts for gift tax purposes and do not trigger any gift tax.
- Offshore Trusts are not just for the "super-rich". There are two primary costs to consider. (1) the initial setup cost can range between $10-20,000 dependent upon the planning structure; and (2) the continued operating costs range between $950-2,500.
Selecting a Foreign Jurisdiction
Anybody want to go to the Bahamas? Legislation governing offshore trusts has been enacted in about 20 offshore jurisdictions. There is not a "Best Jurisdiction" as each has their pros and cons. Clients and their advisors must look at a variety of factors including:
- protective trust laws
- stable economic, political and social environment,
- favorable tax laws
- minimal language barriers
- quality professional services
- modern telecommunications
- reputation in the global financial community
- community property provisions
Currently, some of the better jurisdictions are Cook Islands, St. Lucia, Nevis, and the Isle of Man.
Consider us as a resource for assisting your planning team in developing a comprehensive and integrated asset protection plan.
The information provided in this article is not to be construed as legal advice and should not be relied upon without the specific consultation with a professional.