Those who have an interest in protecting their assets have probably considered establishing a trust. A trust can offer legal protection to those who want to defend their resources from creditors or lawsuits. It’s a way to transfer your assets to a third party, allowing them to hold them for you on behalf of a beneficiary or beneficiaries.
Frequently, trusts are established as part of an estate planning arrangement to allow your beneficiaries to gain access to assets more quickly than they might for assets you are transferring using a will. Trusts can also be used to control your wealth, enhance your privacy, and potentially reduce taxes.
While these are the features of normal trusts created within your home country, creating an offshore trust can enhance the level of protection for your assets.
Essentially, an offshore trust has the same features as a regular trust. However, it allows you to legally move your assets to a different jurisdiction located internationally.
Thus, if a creditor or arbitrary person decides they want to sue you, the costs of their lawsuit will be very expensive and probably unsuccessful, as it will need to be handled with the assistance of an international lawyer.
While offshore trusts may lead you to think of shady dealings in locations with high levels of corruption, in reality, they are entirely legal and can be a very powerful way to protect assets from lawsuits or creditors.
Establishing an offshore trust — particularly for those who have a high net worth or work in a field that encounters lots of lawsuits — can give an individual peace of mind that their assets are secure.
If you are considering setting up an offshore trust, you’ll need to first understand how they work.
There are three (and potentially four) parties involved in an offshore trust. These include the settlor, trustee, and beneficiary. Occasionally, an individual setting up an offshore trust will also include a protector. The protector is the potential fourth party.
The settlor is the person who creates the offshore trust and owns the assets that they plan to transfer. In the initial creation of the trust, they will indicate the following:
Note that the settlor may also be a beneficiary of the trust.
A trustee is responsible for ensuring the proper administration of the trust once it is established. Common obligations that a trustee may have include:
The trustee is required to be entirely impartial to the other parties involved in the trust. They act on behalf of the settlor and may not earn any profits from transactions that occur as part of the trust.
Beneficiaries include all individuals, entities, or institutions who are chosen by the settlor to receive assets from the trust. Assets can include cash distributions, property, art, or anything else that the settlor has transferred to the trust.
While beneficiaries are often family members, they may also be extended relatives, friends, charities, companies, public institutions, or others.
The settlor has complete discretion in determining who they will include as a beneficiary, and the deed that is created when the trust is established will outline the terms for the distribution of trust assets. Once a beneficiary receives an asset that is distributed from the offshore trust, they will be free to use it in whatever way they wish.
Protectors are most common in offshore trusts. In some cases, settlors may not be entirely comfortable handing over their valuable assets to a trustee in a foreign country that they aren’t familiar with.
Thus, they hire a protector to watch over the trustee. The protector can be an individual or an institution, and their responsibility is to ensure that the trustee handles their role appropriately.
Protectors are given various responsibilities that are established when the offshore trust is first created. Some of these obligations may include:
The role of the protector can be expanded or restricted depending on the terms established in the trust agreement. It’s very important that if a protector is appointed, the settlor establishes what their abilities and responsibilities are as they relate to the trust.
There are several key steps involved in setting up an offshore trust.
First, you’ll want to hire an attorney. If you’re strongly considering an offshore trust, make sure to hire one that has experience in opening them. They should be able to provide you with a list of locations that may best suit your purposes and outline the costs associated with each. When choosing an attorney, make sure that:
You don’t want to choose an attorney who doesn’t have much experience in this area. International jurisdictions can be complicated, and you want someone who can comfortably navigate the rules within the country that you choose as a temporary home for your valuable assets.
This establishment is one of the most important parts of the process. Your trust documents will outline the assets that you wish to transfer to the trust, as well as the beneficiaries of your property.
Trust documents also indicate the name of the trustee and their duties as they pertain to your trust. Finally, if you choose to include a protector, their name and responsibilities will also be established within the trust documents.
Once your deed of trust has been filed, it becomes a legal and operational entity. The terms and conditions that you’ve established for the trust will become very hard to change once the deed is filed.
That’s why it’s incredibly important to review the documents before the deed is established to ensure that they reflect your wishes as the settlor.
After the deed of trust is filed, the assets that are a part of the trust must be formally given to the trustee to hold. Once the assets have been transferred, they cannot be retrieved. The trustee is responsible for distributing them to the designated beneficiaries according to the terms established in the deed of trust.
There are a number of benefits to establishing an offshore trust, especially for those who are potentially liable to creditors or who may be the target of a lawsuit. For high-net-worth individuals, in particular, offshore trusts can give a layer of protection that domestic trusts can’t.
If you, as the settlor, establish yourself as a beneficiary, you can receive regular cash distributions from your trust. This approach can be helpful in a number of situations:
While it should be noted that a trust is certainly not just a bank account, it can be helpful for protecting large sums of money while giving you a certain amount for living as determined in the terms of your deed.
The number one reason for establishing an offshore trust is to protect your assets. If there are numerous layers of legal protection that a potential creditor or lawyer must penetrate to gain access to your property, the chances are they’ll let their claim go or accept a settlement offer. This insulation is the kind of protection that an offshore trust can provide.
Protection is particularly important for high-net-worth individuals or those who are commonly exposed to lawsuits. Those who fall into the following categories are the best candidates for offshore trusts:
When your assets are locked up in an offshore trust, they become less accessible to domestic courts which don’t have jurisdiction over a foreign country.
In some cases, courts can freeze or seize your assets instantaneously without you having a chance to refute claims. This seizure can impede your ability to fight an allegation, especially if you don’t have access to your cash.
Contrary to popular opinion, simply having an offshore trust does not remove your requirements to pay taxes as they come due. You’ll still owe taxes to the U.S. government, usually as though no trust existed.
To be clear, determining the average cost of establishing an offshore trust is quite difficult. Legal fees in different countries can vary wildly. You’ll also need to pay for the services of a lawyer within the United States.
Once your trust has been established, there will be a fee paid to the trustee to manage your assets annually. All in all, you can expect to pay an average of $15,000 to $45,000 to set up an offshore trust and $5,000 to $10,000 to manage it annually.
Thus, when determining whether an offshore trust is right for you, you’ll want to consider its costs and the relative benefits associated with it to determine whether it’s worth setting up.
If you’re looking for the cheapest offshore trust, you can consider various well-known jurisdictions to determine whether their regulations and reputation meet your needs. However, keep in mind that you shouldn’t decide on a location just because it’s inexpensive. Here are some of the options when you’re considering offshore trusts:
The Cook Islands are known as one of the world’s leading locations for hosting offshore trusts. They have one of the strongest reputations for upholding the rights of those who choose to open an offshore trust.
Cook Islands courts do not accept foreign government court orders demanding account information or asset seizure.
Local Cook Island laws make it illegal for local trustees to give assets to foreign governments. If this were to occur, penalties and fines in excess of $100,000 might apply. Trusts in the Cook Islands can be used to protect assets, including investment portfolios, intellectual property, life insurance policies, or any type of financial asset.
The total cost to open a Cook Islands trust generally ranges between $15,000 and $45,000. Annual fees vary from $5,000 to $10,000, including the registration and administration of the trust.
Similar to the Cook Islands, Nevis is highly regarded for being very protective of its assets. It is open to individuals and corporate entities from anywhere, but beneficiaries are not allowed to be residents, and they may not own local real estate. A trust established in Nevis must be annually renewed and will exist for up to 120 years.
For a legal action to be pursued against a Nevis Trust, a $100,000 USD bond must be placed with the Ministry of Finance. Trustees will not be able to make distributions of the trust other than what is outlined in the trust’s terms and conditions. Creditors are also prohibited from trying to make distributions against the wishes of the settlor.
The cost to set up an offshore trust in Nevis is comparable to the Cook Islands and generally ranges between $15,000 and $45,000. Annual fees vary from $5,000 to $10,000, including the registration and administration of the trust.
Belize is another frontrunner for those considering an offshore trust.
Similar to the Cook Islands and Nevis, there are laws in Belize that protect trusts from being accessed by foreign governments. Trust deeds are not publicly registered, which means that the owner maintains the privacy of the assets and terms of the trust.
If you are seeking taxation benefits, you can be assured that Belize offers a tax-friendly option. There are no gift, estate, income, corporate, or capital gains taxes imposed on Belizean trusts.
The cost to set up an offshore trust in Belize is comparable to Nevis or the Cook Islands and generally ranges between $15,000 and $45,000. Annual fees vary from $5,000 to $10,000, including the registration and administration of the trust.
The Cayman Islands are located just south of Cuba and are known for being very friendly to offshore investment and companies wishing to reduce their global tax burden. This country has no corporate or personal income taxes.
If a creditor chooses to bring action against a trust established in the Caymans, they will have to do so locally — which can be an extremely expensive endeavor. Thus, establishing an offshore trust in the Cayman Islands can be a good way to ensure asset management, flexibility, and probate avoidance.
Establishing a trust in the Cayman Islands is generally more expensive than in the Cook Islands and will run between $30,000 and $100,000 to set up. Annual maintenance fees can cost as much as $30,000. The additional expense is due to the cost of services in the Caymans.
Many foreign financial advisors and specialists choose to service high-net-worth clients from the Caymans, as it is also known for its benefits to companies that choose to establish a presence there. Most of the financial advisors who choose to work there are from countries such as the U.S., U.K., and Canada.
Jersey is widely used by Europeans seeking to protect their assets offshore. Located off the coast of France, Jersey is a small island that is still within European time zones, allowing easy communication for those who need to speak to their trustees or protectors regularly.
The island is known for being a stable, tax-neutral country that hasn’t experienced economic or political unrest. Jersey trusts have no time limit, meaning they can now run forever, allowing assets to be passed down for many generations.
There are no inheritance taxes placed on assets held in an offshore trust in Jersey, which makes it a primary location for those seeking to pass their assets to family members once they pass on.
To set up a trust in Jersey, you can expect to pay a minimum of $25,000, with annual administrative costs ranging from 0.5% to 5% of overall trust asset value.
When choosing a location to protect your assets, you want to pick one that has a strong reputation, a stable government, and low taxation on trust assets. Since those who establish these types of trusts typically have high-value assets, it’s worth paying extra for a jurisdiction that you feel will comfortably protect your property.
The three countries that are generally recommended over and over again are the Cook Islands, Nevis, and Belize.
These three countries have a well-established reputation and laws protecting offshore trusts from foreign government and creditor interference. While a trust there may be more expensive to establish and maintain than one on lesser-known, you’ll benefit from the expertise and professionalism they offer.
The experienced attorneys at Blake Harris Law can assist you with designing an asset protection strategy that involves opening an offshore trust. These mechanisms can give you peace of mind knowing that your money and property are safe from creditors and lawsuits.
Contact us to learn more about our offshore trust options. We’ll help you determine whether one would be a good fit for you.
Attorney Blake Harris is the founding principal at Blake Harris Law where he assists clients with domestic and international Asset Protection Planning. Blake's extensive experience helping families protect their property has made him well regarded as an authority in handling the difficult and sensitive issues surrounding asset protection planning. Blake has a degree in Finance from the University of Florida and a Juris Doctorate from the University of Florida College of Law, a top tier law school.
