It’s believed that a majority of the most popular forms of offshore asset protection trusts are for entrepreneurs. They’re are used to hold ownership interests in various business entities such as corporations and limited liability companies (LLCs).
Furthermore, many start-up owners are said to find that an offshore trust gives them much-needed asset protection during their ventures’ early years where vulnerability to lawsuits and possible assets seizures are the highest.
What Is An Offshore Asset Protection Trust
An offshore asset protection trust or ‘offshore trust’ is held outside the country of your residence. The primary purpose of this trust is to protect the assets held in the trust from lawsuits and creditors.
Like other trusts, it protects assets from officials by placing legal ownership of withholdings in the hands of another party, making it difficult for seizures to take place. Offshore trusts are also known as foreign asset protection plans or foreign asset protection trusts.
Attorneys and online resources, like blakeharrislaw.com/asset-protection/offshore-trusts and others similar to it, explain that it’s best to set up your trust early on. This way, the trust is written with your specific needs in mind and you can have peace of mind knowing that you’re protected from legal concerns and the like.
Why Do Entrepreneurs Need Offshore Asset Protection
Start-up businesses are believed to be more vulnerable to lawsuits than established companies. It’s because they generally lack the financial resources to fight a lengthy court battle. A trust provides asset protection during this critical early stage when many entrepreneurs need it the most.
An offshore trust can be used to protect your business interests. For example, you may be required to contribute to a state unemployment insurance fund. These payments can be substantial to some budding firms. An offshore trust is efficient in sheltering these contributions from taxes and others.
The primary purpose of holding your assets in an offshore asset protection trust is asset protection. It also has tax benefits for the capital gains and income generated by the assets under the trust are generally tax-free. The main reason behind it is the fact that the trust is located in a foreign country and the authorities from your native government don’t have taxing jurisdiction over it.
How Does It Work
When you set up an offshore asset protection trust, you transfer assets, such as cash, stocks, and real estate, into the trust. A trustee is a person listed as responsible for managing the trust property. You can also name yourself as trustee, or more commonly, you name a trusted spouse, friend, or business partner as co-trustee to help with management decisions.
The most important part of an offshore asset protection trust is the protective provisions included in your trust document. These legal elements make the trust a true asset protection plan.
How To Set Up An Offshore Asset Protection Trust
Deciding to set up an offshore asset protection trust is easy. The hard part is getting it done. If you’re looking to prop up one for your business’ best interests, here’s how:
1. Select A Trustee And Successor Trustee
The first step in setting up offshore trusts is choosing a trustee and a successor. A trustee is responsible for managing the assets in the trust. The successor trustee will take over when the first one leaves office, either through retiring or them passing away.
You may select individuals in your country who’ll be responsible for managing the trust and its property like yourself or your spouse, a friend, or a business partner. You’ll also need to name a successor trustee who’ll take over if something happens to the original trustees and they can’t possibly perform their duties.
2. Choose A Country Where You’re Going To Place The Trust
The next step is choosing a country for the trust. It can be any offshore country that offers asset protection trusts such as Panama, the British Virgin Islands, or Belize.
In selecting a country, you should first check out its international reputation. For instance, Panama is well-liked because it doesn’t require financial accounts or taxes on trust income. You may also want to choose a territory that offers other beneficial incentives like low minimums for trust formation and annual fees.
In addition, the trustee of the trust should be a resident of the chosen country to take advantage of its laws.
3. Draft The Trust Documents
Once you’ve selected a trustee and a country, it’s time to draft the trust documents. It’ll include the trust agreement, which is a contract between the settlor and the trustee, as well as the trust protector agreement, which is the contract between the trustee and your chosen successor trustee.
The trust agreement should list all the settlor’s assets and identify those transferred to the trust. It also generally includes a clause indicating what should happen if a creditor claims a settlor holds money or property in a foreign country other than where he usually lives.
4. Fund The Trust
The final step to complete the setup is to fund the trust. It means transferring funds and assets into the trust, such as your business interests, real estate, money market accounts, and brokerage account. Once all of the settlor’s funds are in the trust, it’s funded and ready to go. You can then add property or cash held in the trust.
Benefits Of An Offshore Asset Protection Trust
Perhaps the most significant benefit of an offshore asset protection trust is that it protects your property from lawsuits and creditors. Your trust agreement can even go so far as to prohibit courts from enforcing judgments against the trust assets, making them immune to seizure by creditors.
Offshore trusts also increase privacy, as it’s much more difficult for a creditor to gain access to information about the trust. Furthermore, you can name a trustee and successor trustee who live far away from your home country that makes gaining access to them even harder.
Another benefit is that an offshore trust can be set up very quickly and at a fraction of the total cost of setting up a domestic trust. The minimums for forming an offshore trust are also much lower, making it a more affordable option.
An offshore asset protection trust can offer you peace of mind knowing that your assets are safe from creditors and lawsuits.
Final Note
Entrepreneurs already have their plates full with their business operations. Having to worry about protecting your assets from lawsuits and creditors shouldn’t be one of them. You can keep some of your assets away from potential lawsuits and creditors with an offshore trust.
An offshore asset protection trust is a powerful tool for protecting your assets from creditors and lawsuits while you strive for company growth. Still, it shouldn’t be used as an excuse to skip your legal responsibilities.
If you’re ready to set up an offshore asset protection trust, be sure to consult with an experienced attorney who can help you choose the right trustee and country and draft the necessary documents.
