The basics of offshore asset protection trusts or asset protection for dummies
The issue of asset protection is widely discussed in society, especially today in the era of deoffshorization and the mass identification of individuals who evade taxes. However, how this happens and what exactly needs to be protected is understood not by everyone. The main recommendations are the establishment of an offshore company (LLC), trust or fund, and then the assets will be protected. But what exactly will be protected? And how is it protected? We will talk about fraud and assets.
Offshore trusts: Assets protection
An asset can be everything that belongs to someone – basically, it is something that has value and can be converted into cash.
Basically, assets mean money or financial instruments, such as property or rights to something. However, assets can be real estate, cars, art, musical instruments, precious metals, and so on.
Protection is a fairly simple definition that limits the risk of fraud, harm, and loss of the above assets.
The reasons for the need for protection may arise as a result of either hostile actions or resonance from the own actions of the owner of the assets, which may lead to the confiscation of the assets on the basis of a court order. Loss of funds or other assets may be due to unpaid debt, medical negligence, divorce, and so on.
It does not matter how ethical the asset protection side is, but these are precisely the risks that people want to avoid.
Often in the process of choosing a mechanism to protect assets, not everyone understands the terminology used. For example, the founder is the person who established the trust. These may be several persons or even organizations, but in the context, they are indicated as one person. These persons are also debtors in the context of the proceedings, which determines who lends something (usually money) to someone who is a creditor.
When it comes to so-called trust, it means a certain person, or a group of people, companies, funds, another trust, and so on, who owns the trust and is responsible for managing the funds in the trust. As a rule, trusts are licensed and regulated representatives who have their own office, representative offices, and even the citizenship of tax havens.
Trusts also have beneficiaries. This is again a person, a group of people, a company, a foundation, another trust, and so on, who can and will profit from the trust. For example, parents can establish a trust for their children and establish that the funds will be transferred to them under certain conditions (when the children have reached the age of 18, or at the time of the birth of their children).
Trusts can be established even under such conditions when the founder is the beneficiary. This is called personally-established trusts. In many cases, these trusts are not subject to the same level of asset protection as trusts, where a third party is a beneficiary.
Protect your assets
How to protect your assets? This is a question that each of us asked more than once.
Very often, if you contact a trustworthy consultant, you will be offered a ready-made asset protection package, for example, Nevis offshore in tandem with the Panama Fund.
Panama’s offshore fund, recognized as one of the best asset protection tools, also in the context of real estate planning. Panama’s Law No. 25 of 12 June 1995 defines the concept of a private foundation and explains its principles of operation. In August of the same year, a decree was adopted, the provisions of which created the basis of the law, which stated that the fund is governed on the basis of the Foundation’s Charter and its provisions. This means that the founder of the foundation at its discretion, based on personal motives, can come up with its own rules and features that are not required to be registered with the State Register. This means that the foundation provides absolute confidentiality.
As funds exist, the law of 1995 is constantly updated and improved, and the fund is currently a separate entity, regardless of its founders.
In fact, it is necessary to separate assets and probable events and consequences that could lead to losses and damage to your assets. An elementary example is a divorce. A spouse can protect all of their assets in a trust. A properly structured trust will create conditions where the spouse/hectare no longer own the assets in the trust, which will limit the possibility of separation of these assets during a divorce.
This will happen because all assets will be transferred to trust management. Trust must be a person who is not a resident or citizen of the country where the dispute occurred. Court decisions cannot affect trust.
Thus, the debtor will no longer have funds in his name or will have a very small amount. And the lender will face a situation where the debtor will no longer have the assets that the lender expected.
Fraudulent acts, also known as fraudulent transfers, are actions that were taken after the incident. More precisely, the money was transferred to the trust, already on the basis of some problems and proceedings.
Laws differ significantly between jurisdictions, but equally everywhere it is considered illegal to evade financial responsibility at the international level as a result of actions that have already been taken or will be taken.
Must pass a certain period of time between the transfer of assets to the trust and the moment when the assets fall under the attack of the creditor. In most jurisdictions, this term is between four and ten years. Therefore, if you establish a trust and divorce in a year, the trust can be considered fraudulent.
What attracts many investors is attractive trust jurisdictions, where the term for recognizing trust as fraudulent is very small. For example, the Cook Islands and Nevis offer only two years, during which you can recognize the trust as fraudulent.
Our company can quickly help you establish an offshore trust in Nevis that protect your assets for many years to come.
So why the court can not force the founder to return the money from the trust?
They can, but no one does. Suppose the court ruled that the debtor must pay the assets to the creditor, but the debtor said that he no longer has these assets since they now belong to the trust. As a result, assets are protected by trust in a strong trust jurisdiction.
The creditor may return to the court and receive a request for the debtor to request the return of funds from the trust in order to return them to the creditor. But the trust will refuse this request because it cannot return the funds from the irrevocable trust, and it cannot return the funds to the beneficiaries since the instructions from the founder are given under duress. Funds blocked at an impasse.
After that, the lender will have two paths: he can try to get a court order in a court of jurisdiction of the trust or to conduct court proceedings indefinitely.
To get a positive decision in a court of trust institution is hopeless. For example, in Nevis, a lender must purchase a government bond for 25 thousand ECB (circa 8,200 EUR / 9,200 USD) before proceeding to court. A creditor with sufficient funding, however, may use a coercive clause and repeatedly attack a trust, and the founder is not able to give any instructions for the trust.
Theory and reality in asset protection
All that in reality can be said about asset protection is unlimited and everything depends on the situation. There are very few cases where someone has achieved his in the framework of legal proceedings on protected assets.
In asset protection, every detail is important, because no one knows what comes to life in the future. Jurisdiction, as the founder, trust, and the beneficiary can have a huge role, as well as the location of the bank where the assets are stored. In this case, the method of using assets in a trust is also important (stored, invested or spent). All this can play a dramatic impact on the decision of the court when considering a trust in a particular case.
However, trust remains one of the most possible and important tools in asset protection. The main thing is that a trust or a similar structure was established, correctly, with minimal risk possibilities.
In conclusion, you can say whether you should establish a trust or not, you decide. However, tools such as an offshore structure with an account in a reliable bank are mandatory for everyone. Planning to protect your assets may not seem so important today, but it is definitely vital for your future.