Asset Protection Through Foreign Trusts

Foreign trusts can be powerful and legitimate asset protection tools against creditors when created and maintained legally.  Like ordinary trusts, foreign trusts transfer control of one person’s assets onto someone else, helping keep money out of creditor’s hands.  When trusts are outside of the United States and jurisdiction of American courts, anyone wishing to get the money must go to greater lengths to navigate other countries’ legal and banking systems, creating a powerful incentive to settle.  “Once creditors realize the huge Mount Everests they would have to climb, and there are multiple Mount Everests, it’s just easier to settle for some minuscule amount.” 

The key to establishing any trust for protection from creditors is that it must be created well before a specific creditor or lawsuit enters the picture.  Otherwise, it will be a fraudulent transfer.  It is vital that planners discuss asset protection issues with clients at the same time they discuss estate planning or insurance.  “Clients don’t think about this on their own . . . [planners] need to raise awareness that there are strategies for clients to insulate themselves from risk.” 

Yet, foreign trusts are not for everyone.  They will not work to shield assets such as property or business equity.  “The burden of tax and other regulatory disclosures is onerous,” and penalties for errors are enormous.    

See Paul Hechinger, Foreign Trusts Can Increase Asset Protection Power for Clients, Financial Planning, Oct. 10, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.