The Freedom People

Focus: Foreign Express Trust Protection From Lawsuits and Seizure

Angle/hook (This will also serve as our brief summary): With the prevailing economic headwind, The Freedom People announces its foreign express trust consulting service for individuals and families seeking a more reliable way to protect asset from litigation.

Content from client's website:

Take Complete Control of Your Financial Future
Learn How to Protect, Manage, & Grow Your Wealth by Creating an Express Trust

What is an Express Trust?
Also known as a direct trust or a private express trust, an Express Trust is a legal and lawful financial instrument that can provide wealth protection in perpetuity. This is the only type of trust actually treated like a natural person, giving it powers and protections that other trusts can’t match. They’re purposefully set up so that a court can’t interfere.

Our process concisely details steps you’ll need to take in order to legally and lawfully establish your Express Trust.

What Type of People are Interested in Express Trusts?
In short, those who believe that their life is something that is between them and their maker, not government bureaucrats. We have a right to handle our own affairs, so long as doing so doesn’t harm anyone else.

We believe in family, community, and personal responsibility. Express Trusts are not the only way that we serve these ideas, but they’re a crucial component of our operations.

Our community believes we shouldn’t need to explain ourselves like kids who got caught with their hand in the cookie jar.

What Are the Benefits of Establishing an Express Trust?
Besides the general principles of privacy and autonomy, there are numerous tangible benefits to both you and your family’s lives. Expect to see greater control over decisions with lower personal and financial exposure.


 - The Express Trust operates under common law trust principles - contract law supersedes statutes and codes

 - Enjoy complete privacy with the express trust - live freely and make better decisions when you operate your business in totla privacy

 - benefit form the 0% tax bracket - manage your wealth and income in a way that legally & lawfylly decrease your tax liabilities

- Avoid some of the most overreaching federal requlations while managing your affairs

Learn more about our Trust Process and how it can benefit your specific financial and legal situation. On the call you’ll have the opportunity to ask questions and better understand how we’ll help you take control of your freedom and security.

The Freedom People is a community-driven platform committed to educating, empowering, and mobilizing individuals to stand up for their rights and freedoms.


Trust Education and Trust Structures
Education first, implementation second. Teaches what trusts are, why ownership versus control matters, why most attorney trusts fail, and the difference between statutory and express trusts. Leads into Foreign Express Trusts, Enterprise Trusts, and ongoing guidance. Trusts are positioned as long term infrastructure.

Useful content:
An offshore asset protection trust is a financial tool that can be used to hold the property of U.S. citizens overseas.

While the assets in an offshore asset protection trust must still be disclosed to the United States Internal Revenue Service for tax purposes, they can be extremely beneficial to keeping assets out of the reach of creditors and safeguarding them from potential litigation.

Anyone who wishes to take measures to safeguard their assets from potential creditors or litigation may set up an offshore asset protection trust.

A lawsuit can occur unexpectedly – whether it’s from an unhappy client, an injured guest, a business partner, or a creditor. Asset protection helps ensure that even if you are faced with a lawsuit, your personal property like your house, savings, or investments are protected.

Relevant statistics to work into the article (why this matters?):

According to WebRecon, consumer litigation filings—including FCRA (credit reporting) and FDCPA (debt collection)—rose significantly in December 2025 compared to 2024.
Increased Litigation Risk: Economic policy uncertainty (EPU) directly raises litigation risk for companies by reducing internal control and increasing corporate fraud.

Client Overview
The Freedom People is an education-based organization focused on teaching individuals and families how to operate intentionally within different legal, financial, and administrative systems rather than by default participation.
Their work centers on helping people understand distinctions such as natural law versus statutory law, private versus public operation, and sound money versus debt-based currency systems. The goal is not to reject society, but to choose which systems apply to which areas of life.
Who They Help
Individuals, families, and business owners who feel exposed to regulatory overreach, financial instability, or administrative control and want clearer boundaries around assets, identity, money, and decision-making.
Who They Want to Attract
People willing to learn, take responsibility, and govern themselves through conscience, contract, and structure.

A Foreign Express Trust—commonly referred to as an Offshore Asset Protection Trust (OAPT)—is a legal arrangement designed to shield assets from lawsuits, creditors, and government seizure by moving them to a jurisdiction outside the United States. By placing assets in an irrevocable trust, the settlor (creator) relinquishes legal ownership to a foreign trustee, making the assets difficult to reach for U.S. litigants.
How Foreign Trusts Protect Assets
Legal "Wall": Foreign trusts create legal distance between the debtor and their assets, making them "untouchable" by domestic courts.
Non-Recognition of U.S. Judgments: Favorable jurisdictions, such as the Cook Islands, Nevis, or Belize, do not automatically recognize U.S. court orders. A creditor must re-litigate the entire case in the foreign jurisdiction, facing high costs and foreign laws.
High Burden of Proof: In many offshore jurisdictions, the standard of proof to claim "fraudulent transfer" is "beyond a reasonable doubt," which is significantly higher than the U.S. standard of "clear and convincing evidence".
"Flight" Clause: This allows the trustee to move the trust assets to another jurisdiction if the current one is compromised.
Anti-Duress Clause: This clause mandates that the foreign trustee disregard any instructions from the settlor if the settlor is under duress (e.g., a court order to repatriate assets).
Key Considerations
Timing: The trust must be set up before a lawsuit or threat of litigation arises. Transfers made while in debt or anticipating a lawsuit may be considered fraudulent and voided.
Irrevocability: These trusts must generally be irrevocable, meaning they cannot be easily modified or amended.
Costs: Foreign trusts are more expensive to create and maintain than domestic counterparts.
Tax Reporting: While these trusts offer protection, U.S. citizens must still report them to the IRS and are subject to U.S. taxation on global income.
Contempt of Court: While foreign jurisdictions may not honor U.S. judgments, a U.S. court can still hold a settlor in contempt and potentially jail them if they believe the settlor has the power to repatriate the assets and refuses to do so.
Top Jurisdictions
Cook Islands: Known for the highest level of protection and strong laws against foreign judgments.
Nevis: Popular for its rapid, low-cost "Nevis LLC" and progressive, debtor-friendly laws.
Belize: Offers strong asset protection, especially before a final verdict.
Important Notice: Utilizing a foreign trust to hide assets from the IRS is illegal. These tools are designed to protect against civil lawsuits and potential government seizure, not for tax evasion.

Using Offshore Trusts to Protect Assets from Litigation

An offshore asset protection trust is a financial tool that can be used to hold the property of U.S. citizens overseas. These types of trusts typically offer greater protection than domestic asset protection trusts since they are much more difficult for creditors to reach and are set up in debtor-friendly jurisdictions. While the assets in an offshore asset protection trust must still be disclosed to the United States Internal Revenue Service for tax purposes, they can be extremely beneficial to keeping assets out of the reach of creditors and safeguarding them from potential litigation.

What is an Offshore Asset Protection Trust?
An offshore asset protection trust is a vehicle that can be set up to hold an individual’s assets in an offshore jurisdiction, such as the Cook Islands, Nevis, or the Cayman Islands. Usually, the primary purpose in setting up such a trust is to protect assets from being reached by creditors. Like any other type of trust, there are three parties who play a role: the trustor (also referred to as a settlor or grantor), the trustee, and the beneficiary. The trustor is the creator of the trust and contributes assets to it, while it is managed by the trustee on behalf of the beneficiary who receives trust distributions.

While certain types of trusts can be revocable and changed at any time, offshore asset protection trusts must be irrevocable. This means that after the trust has been created, it cannot be easily modified or amended.

Who Can Benefit from an Offshore Asset Protection Trust?
Anyone who wishes to take measures to safeguard their assets from potential creditors or litigation may set up an offshore asset protection trust. However, these types of trusts are particularly advantageous for high net-worth individuals and those who regularly face a risk of litigation. Those who can significantly benefit from having an offshore asset protection trust in place can include the following:

High-risk professionals — Doctors, attorneys, contractors, real estate developers, and others in professions where the risk of litigation or malpractice lawsuits is high should consider setting up an offshore asset protection trust.
Business owners — Entrepreneurs and corporate owners who have significant business assets and wish to safeguard them from potential liability can benefit from putting their assets in an offshore trust.
Individuals with significant estates — High net-worth individuals or those with significant estates can use offshore asset protection trusts to guard their wealth from possible creditors and disputes that could arise concerning inheritances.
Individuals with substantial assets who are divorcing — Offshore asset protection trusts can often be used to shield assets during divorce proceedings.
Before setting up an offshore asset protection trust, it’s essential to speak with an experienced attorney. There can be many tax implications when using these tools that are important to understand. It’s also necessary to choose a jurisdiction that has favorable asset protection laws in order to maximize the benefit.

How Can an Offshore Trust Protect Assets from Litigation?
Although setting up an offshore asset protection trust can be costly, the benefits are substantial in the long run. Critically, if your objective is to shield your assets from being seized in litigation, it could also be the least expensive option. Offshore trust jurisdictions are typically friendly to debtors — foreign trustees are not subject to the laws of the United States and they are not required to comply with any orders issued by domestic courts. In other words, an offshore asset protection trust prevents a judge in your jurisdiction from ordering that the trustee release funds within the trust to a creditor.

In the event a creditor wanted to pursue the assets contained within the trust to satisfy a judgment, they would have to commence a legal action in the jurisdiction where the offshore trust is located. Commencing an action to obtain assets that are protected by an offshore trust can be costly and inconvenient for creditors, and generally serves as a deterrent to litigation. There is also a higher burden of proof to establish a fraudulent transfer of the assets placed in the trust in most offshore jurisdictions than imposed by U.S. courts.

Not only would a creditor need to obtain counsel in the offshore jurisdiction, but they could incur substantial travel costs as they would need to appear at various hearings overseas. In addition, many foreign jurisdictions have much shorter statutes of limitation for claims brought by creditors, further reducing the potential for litigation. Once the statute of limitations expires, a creditor would be forever barred from commencing a legal claim to seize the assets in the trust, regardless of whether it was valid.

Crucially, asset protection trusts must be set up and funded before litigation is on the horizon. It is unlawful to move assets in order to hide them from a known creditor; however, while you have no pending legal claims, you are permitted to set up your estate in any manner you wish.

A foreign express trust is an arrangement established under foreign law, where a settler transfers legal title of property to a trustee to manage for beneficiaries. It is deemed "foreign" if it fails the U.S. "court test" (lacks primary U.S. court supervision) or the "control test" (no U.S. person has substantial control). These are often used for asset protection but carry significant, complex U.S. tax reporting requirements (Form 3520).
Key Aspects of Foreign Express Trusts
Definition & Structure: Created intentionally (expressly) by a settlor to hold, protect, and manage property.
Control and Governance: They are governed by laws outside the U.S.. To be considered foreign, a non-U.S. person or entity must generally have substantial control (over 50% interest or authority).
Purpose: Commonly used for international estate planning, confidentiality, and asset protection.
Tax and Reporting (U.S. Focus):
Reporting: U.S. persons who transfer property to, receive distributions from, or are treated as owners of a foreign trust must report this to the IRS.
Penalties: Failure to file Form 3520 can result in penalties of $10,000 or 5%–35% of the gross value of the trust assets.
Taxation: If a U.S. person is the grantor (creator), they may be taxed directly on the income.
Trust Components:
Settlor: The individual creating the trust.
Trustee: A non-U.S. person or entity, which is crucial for establishing foreign status.
Protector: Often used to oversee the trustee and can have power to remove/appoint trustees.
Key Considerations
It is essential to consult with international tax professionals, as the IRS has strict rules to prevent tax avoidance using foreign trusts.

Foreign Trusts: What They Are and How They Work

When it comes to asset protection, you'll want to set up a secure, legally durable trust that can't be compromised by courts, creditors, and other possible opponents. But as a high-net-worth individual, you aren't limited to setting up a trust in your home jurisdiction, like the United States. In fact, the whole world is your proverbial oyster.

So, what about foreign trusts? If you’re not sure whether you can trust these vehicles or how they work, keep reading – we’ll explain just what a foreign trust is and why it could be the best instrument for your asset protection needs when set up with the assistance of Dominion.

What is a “Foreign” Trust?
A foreign trust is any trust vehicle set up in a jurisdiction other than your home or residential jurisdiction. Say you’re a US citizen. The United States is your home jurisdiction. Therefore, any trust you set up in a country other than the United States is foreign or “offshore.”

When you set up a foreign trust, that vehicle is subject to the foreign jurisdiction’s estate planning laws and legal precedent regarding trusts, court orders, etc. Imagine you are a US citizen and set up a trust in the Cook Islands. That foreign trust is beholden to Cook Islands laws, not US laws.

Aside from that, a foreign trust can do all the same things as a domestic trust. You can use it to store wealth, like liquid capital or property, in perpetuity or for a specific purpose, like future distributions to your grandchildren.

Is an Offshore Trust Illegal?
No, although many people think so because of pop culture and associations between criminal activity and the term "offshore."

An offshore trust is just a foreign trust, and a foreign trust is not necessarily illegal if you set it up correctly. But that’s something of a given – you can’t create a foreign trust without the assistance of a licensed attorney, so every foreign trust you set up is by definition legal.

Offshore trusts aren’t used for illegal activities (at least, not by people who want to keep their money!). Instead, offshore trusts can be used for:

Estate planning purposes
Asset protection
Wealth distribution
And more
If you set up an offshore asset protection trust with knowledgeable experts, like the legal and financial professionals we employ at Dominion, you'll set up a fully legal, highly protective instrument that can keep your estate safe for decades to come.

Not only will it be fully legal, but it will be so legally airtight that no court, regardless of the desire of the judge or lawyers, will be able to breach it.

How Does a Foreign Trust Work?
A foreign trust works just like a standard or domestic trust, with the same basic components and key players:

There’s you, the grantor or settlor. The grantor of the trust names the other members of the trust and is responsible for setting it up/putting assets or money into the trust
The trustee, who manages the trust and handles any distributions. The trustee can be a person or a law firm (and, if you are interested in asset protection, it should be a knowledgeable third party you don't have a personal connection to)
The beneficiary(s). Foreign trust beneficiaries are those who receive assets or other distributions from the trust. You can be a beneficiary, as can other family members, your spouse, etc.
However, foreign trusts by their nature do have different laws and regulations that may govern how they are managed, how they are set up, the fees you need to pay, and so on. So while setting up a foreign trust isn’t exactly the same thing as creating a domestic trust, you can trust your foreign offshore asset protection trust vehicle to accomplish your goals, whatever those may be.

To make sure your foreign trust works properly and to ensure that it helps you achieve your objectives, you need to set it up with experienced foreign trust setup specialists like Dominion.

Why Use a Foreign Trust?
There are lots of reasons why high-net-worth individuals like business owners and medical professionals use foreign trusts. You could benefit from these advantages as well.

Legal Defense
Because foreign trusts are managed and subject to the laws and statutes of different jurisdictions than your own, legal attacks from your home jurisdiction will not be as effective against them.

Imagine that, as a surgeon, you are sued by the family of a former patient. The family can try to file a lawsuit against you. If they are successful, they may come after your money, estate, or other assets. But if those assets are stored in an offshore or foreign asset protection trust, they won’t be able to claim them.

US courts don’t have any authority to order that foreign asset protection trust to fork over your wealth. If your trust is set up properly and managed by the right trustee, any requests made by the US courts will be as effective as foam darts fired at a brick wall.

That said, your trust must be set up and managed correctly for this to be the case. It is possible for certain legal attacks to circumvent the jurisdictional barriers mentioned above.

For instance, if you set up a foreign asset protection trust but use a bank that has branches in your home jurisdiction, a court could theoretically use its authority in your local bank to gain access to your trust in the same bank in a foreign jurisdiction.

This just highlights the necessity of working with experts who know the ins and outs of asset protection laws, jurisdictions, and so on. The last thing you want is for your foreign asset protection trust to not be as defensive as possible.

Creditor Protection
In addition to legal protection, foreign trusts can provide significant creditor protection. Just like US courts don’t have any jurisdiction or authority over foreign trusts (in most cases), US creditors also don’t necessarily have the same powers or authority over foreign trusts that they exercise over US citizens and banks.

Again, imagine that you are a high-net-worth individual like a business owner. A creditor comes after you because of your net worth. If your assets are safely stored in a foreign trust, that creditor can't easily or at all access those assets, even if they have a reason to do so.

In theory, a creditor could try to hire lawyers in the same jurisdiction as your foreign trust. However, this is costly and time-consuming, and it may not be successful.

Many aggressive or predatory creditors oftentimes move on in favor of chasing different targets when they discover high-net-worth individuals like you have their assets safely tucked away in an offshore asset protection trust.

Tax Reduction
Offshore or foreign trusts don’t allow you to escape all taxes, of course. But it is possible that some foreign trusts can mitigate or reduce the estate taxes you and your beneficiaries have to pay, especially when it comes to inheritances.

For instance, you can put wealth, property, and real estate into a foreign trust with the intention of preserving that wealth for your future grandchildren.

Then, after you pass away, your grandchildren receive those assets through distributions, but without as many taxes whittling away at the total net amount.

In this way, foreign trusts can play a similar role in estate planning as domestic trusts, just with more complexity and, oftentimes, with more benefits.

Foreign trusts can also give you momentous asset protection. Placing assets in a jurisdiction that comes with strong creditor protection laws enables you to keep your wealth safe from potential lawsuits or claims.

Economic Insulation
Lastly, foreign trusts may provide your estate and wealth with some measure of economic insulation. The worldwide economy is fairly interconnected, so it’s not truly possible for you to sequester your wealth in a foreign jurisdiction and expect it to be unaffected by something like a global market crash.

At the same time, assets stored in a foreign trust may not be subject to the same economic upheavals or ups and downs as assets stored in a domestic trust.

For instance, if you have assets stored in a foreign trust, they may not be as affected as the same money you have stored in your US bank account during a minor recession.

With so many different use cases for foreign trusts, there's no reason not to consider making one as a high-net-worth individual, especially if you want to set your estate up for success in the coming decades.

Foreign Trust vs. Domestic Trust
Still not quite sure what distinguishes foreign trusts? You can understand foreign trusts a little better by comparing them to their domestic counterparts.

Ease of Setup
Foreign trusts are more difficult to set up than domestic trusts in terms of paperwork and legal complexities. But don’t take this to mean that it’s so difficult you shouldn’t do it!

Just like with other financial vehicles and legal plans, having the right experts at your side can significantly streamline the process and remove huge burdens from your shoulders. When you work with Dominion, you’ll tell us your goals and let us handle the legwork.

Foreign trusts are tougher to set up because the attorneys preparing the paperwork have to consider the laws and jurisdictional statutes for both your home jurisdiction and the offshore jurisdiction. They also have to have an in-depth understanding of the foreign nation’s laws and various case precedents.

However, remember that the complexity is a benefit in terms of asset protection purposes. The additional complexity and layers of legal defense between your assets and potential attackers make it harder for lawyers, creditors, and others to get to your wealth.

In contrast with foreign trusts, setting up a domestic trust is pretty straightforward. In most cases, you can set up a basic estate planning domestic trust in a matter of days or weeks with a licensed attorney.

Ultimately, these are simpler instruments and aren’t meant for the comprehensive and multilayered asset protection strategies we create for our clients at Dominion.

Jurisdictional Vulnerabilities
In addition, foreign trusts aren’t the same as domestic trusts in terms of their jurisdictional vulnerabilities (or lack thereof).

When you set up a US trust, for example, that trust is completely subject to the whims and the rules of local courts. If a US judge orders you to open your trust and take your assets out, or if they order you to do something else with your trust, you’ll be hard-pressed to ignore them.

An offshore trust is not vulnerable to US courts because it is held in a completely different jurisdiction. However, that trust might be vulnerable to courts in the same jurisdiction. For instance, a Cayman Islands trust does have to abide by rules and regulations from the Cayman government.

Therefore, when you set up a foreign trust, your lawyers must consider all the different ways that national laws, case precedents, and international statutes interact with each other.

A certain type of foreign trust might be more durable against legal inquests from your home jurisdiction than another simply because of the relationships that the two countries have or how their federal governments interact.

Once more, this can seem like a lot to wrap your head around and might even be complex for you to tackle. But that’s why you don’t need to do it alone. Instead, you’ll hire premium asset protection specialists at Dominion to do it all for you.

With our decades of expertise, we’re the best people to make sure you set up your trust in the ideal jurisdiction for your needs.

Foreign Trusts

U.S. owners and beneficiaries of foreign trusts can have some pretty complicated reporting requirements, depending on the trust’s specifications. Learn more about foreign trusts and foreign trust taxation in the U.S. below.

What is a foreign trust?
From a legal standpoint, a foreign trust is a trust over which a U.S. court is not able to exercise primary supervision or a trust over which U.S. persons don’t have the authority to control substantially all decisions of the trust.

Whether in the U.S. or abroad, a trust is an arrangement where a third party (the trustee) holds and or manages assets for the benefit of the trust’s beneficiaries. If your trust cannot pass one of the following two tests, you can assume it is a foreign trust:

Control Test: U.S. persons control the substantial decisions of the trust
Court Test: U.S. courts have jurisdiction over trust administration
Example of a foreign trust
An example of a trust for U.S. taxpayers would be a 401(k)–retirement plan. In this scenario, the employer would be the grantor because they open the plan on the employee’s behalf and transfers assets (wage income) from the employee’s pay to the plan. In this arrangement, the employee will be the beneficiary.

An example of a foreign trust would be a New Zealand Superannuation fund, or any other trust or retirement plan/pension held by a foreign entity. If you’re unsure whether your pension counts as a foreign trust or the reporting requirements for it, it’s best to speak with an Expat Tax Advisor.

Get started with an Expat Tax Advisor now.

Foreign trusts and U.S. taxes
If you are treated as a U.S. owner of a foreign trust, you do need to report the trust interest and its income. For example, a taxpayer holding a foreign IRA plan (such as an Australian Self–Managed Superannuation Fund), may be required to file some or all the forms below:

Schedule B Part III
Form 3520
Form 3520-A
Form 1040NR
FBAR
Form 8938 (due to interest in a specified foreign financial asset)
There are very high penalties if the applicable forms are not filed. For example, if you received qualifying distributions from a foreign trust and you either don’t file Form 3520 or file incorrectly, your fine could be whichever is greater — $10,000 or 5% – 35% of the gross value of all the property, assets, and trust distributions that weren’t reported.

That’s why it’s worth it to make sure you’re filing with an absolute expert.

Foreign express trusts offer advanced asset protection, enhanced privacy, and potential tax optimization by placing assets under the legal jurisdiction of a foreign country. They help bypass local court systems, protect wealth from creditors, and facilitate international estate planning. These structures are ideal for diversifying holdings globally and securing assets against domestic, legal, or political risks.
Key Benefits of Foreign Express Trusts
Superior Asset Protection: By moving assets outside the reach of domestic courts, foreign trusts make it difficult for creditors to seize assets, often deterring legal action entirely.
Privacy and Confidentiality: Many jurisdictions offering foreign trusts have strict confidentiality laws, ensuring that information about beneficiaries and trust assets remains private.
Tax Optimization: Properly structured foreign trusts can reduce income, estate, or capital gains taxes. For instance, non-US persons or specific structures can avoid US taxes on foreign income.
Asset Diversification and Flexibility: They provide access to global investment opportunities and, unlike some domestic options, can hold diverse asset types without strict limitations.
Succession Planning: They facilitate the efficient transfer of wealth to beneficiaries, bypassing costly and time-consuming probate processes in the home country.
Important Considerations
Costs: Setting up and maintaining a foreign trust can be expensive, with fees often ranging from $10,000 to over $100,000.
Reporting Requirements: Stringent IRS reporting, such as Forms 3520 and 3520-A, is required for U.S. persons, and failure to comply can lead to heavy penalties.

Foreign trusts offer advantages over domestic options

Foreign trusts are neutral for estate, gift, and income tax purposes for individuals residing in the United States.

Foreign trusts are irrevocable, but usually provide a third party with a power to amend and provide the settlor (the creator of the trust) with controls over the trust. Such trusts almost always have one non-U.S. trustee acting at all times (regardless of whether the trust assets are situated in the United States), and the foreign trustee holds the trust powers and, in particular, the power to distribute income and principal of the trust. Foreign trusts typically contain provisions that allow the foreign trustee the power to change the situs (location) of the trust assets to another jurisdiction if the trust assets are under attack. Clauses known as "duress provisions" direct a foreign trustee to ignore an order of a U.S. trustee if given under duress, such as a court order directing the trustee to turn over trust assets.

In addition, unlike domestic trusts, certain foreign laws allow a settlor to effectively create an asset protection trust for his or her own benefit, thereby giving the impression that a settlor can "have his cake and eat it, too." Other favorable aspects of offshore jurisdictions are their tendency toward "pro-debtor" fraudulent transfer laws that generally require a creditor to prove a fraudulent transfer beyond a reasonable doubt.

The perception surrounding foreign trusts often results in a misconception that they offer "tax avoidance" benefits. In reality, foreign trusts are neutral for estate, gift, and income tax purposes for individuals residing in the United States.

A negative impact of a foreign trust may come into play in bankruptcy court. In particular, if a foreign trust is dated within 1 year of a bankruptcy filing, the bankruptcy court may deny a discharge of debts, thereby allowing creditors to pursue collection indefinitely. Other obvious disadvantages to offshore trusts include the cost, maintenance fees, political uncertainties of a particular foreign country, language and currency barriers, and conflict of law issues.

In spite of these disadvantages, creation of an offshore trust is perhaps the most advanced level of asset-protection planning. Often, its mere existence deters a creditor from pursuing collection of a claim. Overall, foreign trusts provide much greater asset protection than many domestic planning options, mainly due to the expense, delay, and additional hurdles encountered when proceeding against assets held in such an entity.

It is important to keep in mind that an asset-protection plan can be as simple or as complex as required. While offshore trusts are appropriate for a select segment of the population, establishing conventional trusts for family members or transfers to a spouse faced with less professional exposure may be all that is needed for others.

Why and where to set up a Trust for Asset protection, Estate planning and Corporate structuring
Nowadays, with an increasingly litigious society, a judicial system that favors plaintiffs and not defendants, with courts clogged with thousands of civil suits demanding huge sums, and increased asset seizure by governments, protecting your assets can be a daunting challenge.

Corporations who are subject to product liability beyond insurance coverage limits, medical doctors and lawyers who could be exposed to malpractice lawsuits, contractors and construction companies or any person or company, may be subject to litigation and subsequent asset seizure.

Asset protection is extremely indispensable to deal with adverse situations such as: divorce, frivolous lawsuits, bankruptcy or simply as a wealth planning tool.

International trusts are one of the most robust means for asset protection and estate planning, which allow to put legal distance between the owner and his or her assets, separating legal ownership and economic ownership, providing an extra layer of protection.

Trusts facilitate inheritance by reducing the effects of forced heirship rights or by ensuring that certain persons are protected while allowing the estate family to be maintained.

Furthermore, trusts are an effective tool for separating personal assets from risks arising from business activities.

Trusts can be used for commercial transactions, management of assets related to the payment of pensions by multinational corporations and to locate them overseas in a low tax jurisdiction or as vehicles for investment funds or to structure real estate investments, or even use them for charitable and public interest purposes.

This article is for illustrative purposes, it is not, nor intends to be legal or tax advice. Before taking action, always speak with an attorney. We have access to a global network of attorneys and accountants worldwide and we can refer you to an expert in your relevant jurisdiction, who can give you the proper advice according to your specific circumstances.

What is a trust
Trusts are legal contracts with an extensive use and application in common law jurisdictions.

A trust is a legal relationship, not a separate legal entity, for which a person, settlor (also called trustor or grantor), transfers his or her assets, through an inter vivos act or mortis causa, to another person, trustee, who is entrusted with the legal ownership of the trust assets, not for his own benefit, but for the benefit of other persons, the beneficiaries, or for the benefit of a specific purpose.

The assets constitute a separate fund and are not part of the trustee’s own estate. The trustee has the power and the duty, for which he is accountable, to manage, to use or dispose of the assets according to the terms of the trust and the special duties imposed by the law.

trust for asset protection

Settlor

The settlor (also known as grantor or trustor) is the person who creates the trust by placing certain assets that he or she owns into the trust.

A settlor can create a trust by expressing the intention to create it. In most countries, formalities are not required to create an inter vivos living trust over personal property, but there are often formalities associated with trusts on real estate testamentary trusts.

For a settlor to validly create a trust, in most common law systems, must satisfy three certainties:

Establish certainty of intent – if the settlor has expressed intent to create a trust.

Establish certainty of the matter – if the property identified as liquidated is identified with sufficient accuracy.

Establish certainty of the objects – the beneficiaries or purposes must be clearly determinable within the established/allowed period of perpetuity.

Depending on the jurisdiction and the terms in which the trust has been established, the settlor may also be determined as a beneficiary and reserve powers to be able to control the trust.

The settlor can be an individual person or a corporate body.

Trust deed

In the trust deed, there are stated the instructions of the settlor on how the trust must be arranged, the assets used or managed and to whom or to which has to benefit.

The trust instrument will generally provide that the trustee has the power to manage the assets of the trust in accordance with the terms of the deed and the strict duties imposed on the trustee under the charter.

The trust deed will also contain a wide range of administrative powers designed to facilitate its administration by the trustees. These powers must be carefully drafted and agreed before the trust deed can be concluded.

Trustee

This term applies to the person or institution to which the property in the trust is transferred for the benefit of third parties or a purpose. The trustee typically has the following responsibilities:

Follow the terms expressed in the Deed of Trust
Defend the trust against settlor and beneficiaries’ creditors.
Perform or manage investments appropriately.
Acting impartially among beneficiaries.
Be responsible to all beneficiaries, keep them informed and act in their best interest.
Do not delegate functions.
Do not benefit from transactions.
Manage trust assets prudently.
The trustee may be an individual, such as a relative, a trusted friend or counselor, a trusted banker or professional, a private trust company, or a public trust company.

A public trust company is a body licensed by the authorities of a jurisdiction to act as a trustee, while a private company might not be subject to license.

The trust deed will provide the terms for the removal of the trustees and the appointment of new ones. This power will often be conferred on persons named or described successively.

Protector

Usually, it is possible to appoint a protector, who will monitor whether the obligations of the trustee in the terms established in the trust deed have strictly complied.

The appointment of a protector and the provisions for the removal and appointment of the successor protectors will be set forth in the deed of the trust.

The appointment of a protector can facilitate checks and balances, particularly when the settlor needs to be removed from the trust.

In many cases, the protector is usually a close friend or professional adviser to the settlor, who is familiar with his or her wishes, the circumstances and needs of the beneficiaries and with the family background and dynamics.

The protector can be an individual or a committee, a combination of individuals, or a corporation. The powers and duties of a protector may vary from case to case, but usually, the protector will have the power to appoint and remove the trustees and, in some cases, change the terms of the deed governing the trust.

It is possible to set a clause so that the trustees must obtain the consent of the protector before exercising certain powers.

Beneficiaries

The beneficiaries are those who receive the return of assets transferred to the trust. These can be specifically named or can be referred by the class on a schedule in the deed.

Usually, the settlor can also be appointed as beneficiary.

It may be possible to elaborate the terms of the trust so that the beneficiaries cannot have any control and/or information on the assets transferred to the trust. To prevent beneficiaries from draining the trust of their assets, and spending in a thrifty way, as we will see below.

Trusts can be established for the benefit of individuals and/or corporate bodies and/or purposes.

Main types of trusts
Revocable or Irrevocable
The deed of trust may be expressed as irrevocable or may include a provision that grants a power of revocation or amendment to any person (usually the settlor).

Trusts may be revoked at any time with the terms set forth by the settlor, or they may have a predetermined life without provisions for revocability and only conclude when certain terms established in the deed of trust are met.

In the case of trusts for asset protection, these are usually established as irrevocable.

In the event that a creditor wins a lawsuit to the settlor, if he has revocation powers, the judge may force him to change the terms of the trust to benefit the creditor. In the case of an irrevocable trust, the settlor has limited powers to amend the trust.

Fixed or Discretionary
In a discretionary trust, the settlor does not set the fixed beneficiaries or their interest amounts on the trust. The deed of trust grants broad powers to the trustees that allow them to decide, at their discretion, to distribute income or capital to the beneficiaries.

In a discretionary trust, none of the beneficiaries has a legally enforceable right to any part of the property of the trust.

A discretionary trust provides flexibility by allowing trustees, when distributing earnings and assets, to consider factors that were not anticipated at the time of its creation and to act in a protective manner with respect to the beneficiaries. Protecting the beneficiaries of a spendthrift, the claims of the creditors or the influence of those who could try to take advantage of their vulnerability.

In addition, since none of the beneficiaries has an interest or legally enforceable right in any part of the trust fund, discretionary trusts might have beneficial tax consequences in the country of domicile, residence or citizenship of the beneficiary.

In a discretionary trust, the settlor generally expresses his wishes regarding its administration and the distribution of assets to the beneficiaries through a letter of wishes or a privileged client/attorney memorandum so that the trustees are aware of his or her intentions.

In this type of trusts, the settlor relinquishes a lot of authority over the trust to a trustee, this is why it is required a careful selection of a competent and reputable trustee or trustee company with good references. With a dignified reputation and the necessary experience to faithfully meet and honor the terms of the deed.

By contrast, fixed trusts allow the settlor to control money and property for the benefit of the beneficiaries. The beneficiaries of a fixed trust receive the property at a specific time set by the settlor.

The trustee of a fixed trust has little or no discretion to distribute funds.

Typically, fixed trusts are established for estate planning or life interest. By which an individual will be entitled to all the income during his or her lifetime. In the death of the settlor, the property will generally be paid to the named beneficiaries.

The settlor can also choose multiple beneficiaries and provide a fixed benefit or percentage for each of their beneficiaries.

Trusts may be established as a hybrid, combining the fixed life interest with discretionary power for the trustee, to create other interests that may override or follow the fixed interest.

Self-settled or third-party beneficiary trust
Trusts can be established allowing the settlor to transfer assets to the trust while at the same time retaining a beneficial interest. As long as the terms of the deed are carefully written, creditors may find it difficult to penetrate the wall built around the assets.

On the other hand, they can also be established exclusively for the benefit of third parties.

Beneficiaries or Purpose trusts
Instead of for the benefit of individuals, a trust can be established for the benefit of a specific purpose, without having verifiable beneficiaries.

Generally, the deed will appoint an enforcer, who has a similar role to that of the protector.

For those seeking a neutral party in a business transaction network, the purpose trust, in combination with a fully owned trust, provides a further layer of asset protection, while allowing “off balance” transactions or as an “orphan” structure in relation to its settlor.

Purpose Trusts are used in conjunction with asset finance transactions, securitizations, and private trust companies.

In its commercial function, the trust is established in order to acquire and maintain the shares of a company, which participates in certain transactions.

Purpose trusts are also attractive when used in tandem with private trust companies.

Once again, their insulation qualities come into play, providing the opportunity to separate the settlor from the company’s property, and the company acts as trustee of a family trust.

While in turn the company could be managed by the settlor as director or manager. This allows the owner to have complete control of the business or assets, without being its legal owner.

A number of offshore jurisdictions (notably the Cayman Islands, with STAR trusts, and the British Virgin Islands, with VISTA trusts) have created special forms of trust that may be expressly settled without imposing an obligation of the trustees to interfere in the company management.

Main uses of foreign trusts
Estate and succession planning
The trust used to be a valuable tax and asset planning tool, where the settlor, by transferring assets to trustees located in low tax jurisdictions, could mitigate the high tax burden in their country of residence.

Although legislative measures in the United States, Canada, the United Kingdom and other countries have progressively reduced these tax mitigation opportunities, a trust continues to be an attractive vehicle in terms of estate planning to avoid in certain cases taxes on inheritance and wealth, as well as taxes on capital gains, which might be minimized by transferring assets in a trust.

Avoid probate

When the settlor dies, there is no change in the ownership of the assets, as they legally belong to the trustee, thus avoiding the need to legalize a will with respect to the assets of the trust.

With a trust, certain persons entitled by law may be prevented from receiving a copy of the will. A trust deed is a private document and can keep the information confidential. It is common to replace wills with a trust.

The use of a trust can also avoid the difficulties involved in inheritances in one country in a will executed in another, which can be a complex and time-consuming process and can add to the anguish of grieving relatives.

In addition, it can avoid legal battles initiated by someone who feels they were unfairly treated in their will and that the will be changed. A properly drafted trust can be a wall, so the will cannot be modified.

Avoid forced heirship

In some countries, there are fixed inheritance laws, where inheritances must be equally distributed among the descendants. In these cases, foreign trusts can avoid forced heirship, and obtain flexibility in terms of distribution of part or all of the assets to beneficiaries.

Preservation of family wealth

Trusts can be used to hold specific assets such as land or an interest in a family business, which would not be appropriate or practical to be split between individuals.

The use of a trust allows these individuals to benefit from the assets even though they do not own them. A trust will also help maintain the whole capital value of such assets for future generations.

Corporate offshore schemes
Foreign trusts may also be established by corporations for employee benefits (including share schemes) and retirement benefit plans, the employer as the settlor, and employees and their dependents as beneficiaries.

They can also be used as vehicles to own other entities or structures. This can help maximize the efficiency of planning and control of interrelated entities while maintaining confidentiality and protecting beneficiary owners.

Spendthrift protection
Trusts can be useful to protect beneficiaries, in case of inability to manage money. This can be achieved by establishing a trust with a trustee who can only distribute funds to beneficiaries for causes specifically articulated in the trust deed.

Confidentiality
Trusts can be created exclusively for privacy. Trusts are private documents and usually no need to be registered, so they are an additional layer of confidentiality over the real ownership of the assets. For instance, as we have seen previously, the terms of a will that may be public and the terms of a trust are not.

Unit Trusts
Trusts can also be set up as an investment vehicle, usually in properties, securities, mortgages and cash equivalents, known as a Unit Trust.

The Unit Trust consists of a structure of unincorporated mutual funds that are more flexible, allowing to maintain assets and provide benefits directly to the owners of individual units rather than reinvesting them back into the fund. The investor is effectively the beneficiary under the trust.

Charitable purposes
A charitable trust is normally an irrevocable purpose trust established for charitable purposes. A charitable trust benefits from several tax breaks in most countries.

Asset protection trusts
Asset Protection Trusts are a powerful tool to place assets out of the reach of creditors and provide substantial protection against unpleasant scrutiny, bankruptcy and litigation.

Usually, asset protection trusts are established as irrevocable, with an independent trustee, distributions of earnings subject to the trustee’s discretion and with a spendthrift clause.

Establishing a foreign trust may add a layer of protection.

Certain jurisdictions have a strong law with significant obstacles to creditors trying to reach assets held in a foreign trust. Having to overcome a complicated and long process.

The foreign trust is governed by the laws of the foreign country, and these laws may not be favorable to the creditor.

A foreign jurisdiction may not recognize a judgment from a court in another country. In addition, the laws of the foreign country may not allow contingency legal fees and the creditor will have to pay a local attorney of the foreign country to litigate the claim.

In addition to the risk that the unsuccessful creditor will have to pay their own foreign legal fees, plus the legal fees of the prevailing party.

A judge has the right to issue court orders to the national trustees. That privilege is not granted to members of the local judiciary for foreign trusts. The trustee in a foreign jurisdiction is not required to comply with a foreign court order.

It should be borne in mind that if the assets are located in the national territory, such as real estate, businesses and personal property, a judge may have jurisdiction over these assets, even if these are held in a foreign trust. As well as in bank accounts in financial institutions that have corresponding branches in the country of residence of the settlor.

Courts can assert their jurisdiction over any property located within the national territory. Therefore, it is recommended that none of the assets transferred to the trust to be within the borders of the settlor’s country of residence.

However, if the trust is in a foreign jurisdiction and the assets are in a foreign bank account or foreign jurisdiction, a duly drafted trust deed will be a powerful tool for asset protection.

Generally, in addition to a spendthrift clause, asset protection trusts will contain the following clauses:

Anti-Duress Clause. As soon as this clause is invoked, the trustee shall not make a distribution if the settlor or beneficiary is under a claim, or is involved in a judgment against him. This prevents the creditor from filing a claim against the assets of the trust without obtaining a new judgment in the foreign jurisdiction.
Trust Protector Clause. This clause designates a protector and allows him to remove the trustee and, in some cases, veto some or all of the trustee’s actions.
Flight clause. This clause allows the trustee to move the trust to another jurisdiction. In the event that the creditor files a claim in the jurisdiction where the trust is established, the trust may be moved to another jurisdiction, so the creditor would have to start again by filing a suit in the new jurisdiction.
The clause of choice of law. This clause mandates that the trust is governed by the laws of the jurisdiction in which it is located.
Thus, when a foreign court orders the settlor/beneficiary to compel a distribution, he or she can invoke what is termed as the impossibility defense because of certain clauses contained in the trust.

An asset protection trust should prevent the settlor from being the protector or a trustee, they should be independent, and it is advisable that they do not reside in the same jurisdiction as the settlor. This prevents a judge from concluding that the settlor has the ability to control the trust and therefore the ability to force a distribution.

Also in the case of a judgment, the settlor should avoid communicating it personally to the foreign trustee to avoid not being accused of personally execute the anti-duress clause.

Where to form a foreign trust
Aspects to consider when choosing a jurisdiction
Establishing a foreign trust requires in-depth research and assistance from the appropriate and experienced advisors who can realistically and honestly assess the objectives and intentions of the settlor, the solutions most suited to their needs, as well as optimal management of transferred assets.

Different factors must be considered when choosing a jurisdiction to establish a trust:

Protection of settlor
Can the settlor (the grantor) also receive trust assets?

Are there mechanisms for the depositor to retain control of the trust?

Is there any protection against a subsequent bankruptcy after the assets are transferred to the trust?

Protection of beneficiary
Are there specific provisions to prevent beneficiaries from draining the trust of their assets, and spending in a thrifty way?

Is there an ability to avoid forced heirship?

Protection from foreign judgments
Are there specific provisions within the trust to ignore foreign judgments?

Is the Hague Convention applicable?

The Hague Trust Convention is a multilateral treaty developed by the Hague Conference on Private International Law on the Law Applicable to Trusts. The Convention aims to harmonize not only the municipal law definitions of a trust but also the Conflict rules for resolving problems in the choice of the lex causae.

Protection from creditors
Is there an exclusion of the statute of Elizabeth laws?

The statute of Elizabeth is an important provision in a 1571 English law, under such legislation it is sometimes possible to set aside transfers into trust even if the settlor transferred the property many years before the debt arose and, at the time of making the transfer, had no indication that the particular debt would arise in the future.

Will the trust be declared invalid if a fraudulent transfer is proven?

Should the creditor prove the fraudulent transfer?

Is there a clear definition of a fraudulent transfer in the law?

Is there a separation of creditor claims or can they be brought jointly?

Is there a statute of limitations on the fraudulent transfer?

Other protections
Are there retroactive protections for immigrant trusts?

When community property is transferred to a trust, the property of that property would be lost. However, is there a possibility to retain its characteristic community property notwithstanding that it has been transferred to the trust?

Is there a specific exclusion in the legislation to be able to exclude foreign law?

Are Trusts subject to the rule against perpetuities which, in practical terms, puts limits on the length of time within which all trust property must be distributed?

Is the choice of law binding?

Is a custodian trustee permitted?

Furthermore, must be considered the ease to set up a bank account to deposit cash assets, political, economic, and social stability of the jurisdiction, the jurisdiction’s reputation, tax laws of the jurisdiction, whether language barriers exist and whether the jurisdiction offers adequate legal, accounting, and financial services.

Jurisdiction Comparison
trust for asset protection
Click to enlarge

Cook Islands Trusts
The Cook Islands trustThe Cook Islands was one of the first jurisdictions to enact an explicit asset protection and international trusts law, being one of the most popular for such matters.

Trust laws in the Cook Islands limit fraudulent transfer claims for 2 years and in some circumstances, it may be less than one year.

If the assets are transferred in a period in which the settlor is solvent, the transfer of funds cannot be set aside.

The legal provisions in force also establish certain conditions for a person to be able to be considered as creditor and able to file a lawsuit before a court in the Cook Islands.

These provisions raise the burden of proof beyond reasonable doubt, for such reason, confidentiality laws prohibit the disclosure of banking information, except if there is the consent of the client.

The Government of the Cook Islands requires compliance with certain provisions that must be met in order to ensure the honesty and integrity of the funds transferred to the rust. Therefore, the assets that make up the trust cannot come from the exercise of illegal and fraudulent activities such as drug trafficking and money laundering.

Foreign judgments are not enforceable. If any person wants to file suit against the trust, he must hire an attorney in the Cook Islands to initiate the action, which is subject to strict compliance with requirements for him to proceed.

The settlor can maintain control over the trust and its property if it so provides.

Foreign bankruptcy rules are excluded.

The law specifies that fraudulent transfers are understood to require compliance with requirements to be assessed by a court.

The trust cannot be affected by the rules regarding heirs or spendthrift beneficiaries in the settlor’s jurisdiction.

Trusts may hold shares in underlying companies, without concern about the financial benefits of retaining such shares. Likewise, in relation to the foregoing, the ability of the settlor to supervise and intervene in the affairs of an underlying company may be limited.

Nevis Trusts
nevis trust asset protection

Nevis has one of the most robust legislation in terms of asset protection. An asset transfer can only be set aside by factual evidence of actual fraud.

The general statute of limitations in Nevis for fraudulent transfers to the trust is two years.

Nevis does not recognize a foreign judgment. The creditor must file a new claim in Nevis and prove the actual fraud in the new case there. Furthermore, the creditor must hire a lawyer licensed in Nevis, and post a $25,000 bond to file the lawsuit.

Once the new litigation is filed in Nevis, the creditor must prove the actual fraud by a “beyond a reasonable doubt” standard, stating that there is a probability of more than 90 percent that his allegations are true.

Spendthrift provisions are valid and enforceable. This clause is one that essentially blocks a creditor from attacking the assets of the beneficiary’s trust.

Self-settled trusts are valid.

Elizabeth’s statute is invalidated in Article 49 of the Trusts Act of Nevis.

The law protects the confidentiality of information for a trust legally registered in Nevis.

Cayman Islands STAR Trusts
A Trust established under the Special Trust (Alternative Regime) Act 1997, is a form of legal trust for the benefit of persons, purposes (charitable and non-charitable) or both.

STAR Trusts have an Enforcer, which executes the STAR Trust, and causes a separation between benefitting from Trust assets and being responsible for the application of the Trust.

As for trustees, it is required to appoint at least one licensed in the Cayman Islands.

STAR Trusts can be established for an unlimited period of time, is an effective way to create private perpetual family trusts.

They are also commonly used as Trustees of a Private Trust Company. The STAR Trust is established to hold shares in a Cayman Islands Private Trust Company, assuring that it performs its role as trustee of a trust or series of related trusts.

This structure can be used even when the trusts are not all within the same jurisdiction. For instance, a single STAR Trust may own shares in a Private trust company, and it may act as a trustee in the Cayman Islands or in other jurisdictions.

It is also common for a business owner to use a STAR Trust to run a family business, making sure the business continues to operate after the owner’s death. The STAR Trust may be the holder of such shares for the purpose of allowing directors to continue to manage the business for a designated period of time.

STAR Trusts also serve as a vehicle for limiting the information that beneficiaries can access. Unlike ordinary trusts, where beneficiaries may have the right to access a great deal of information in connection with the trust. With a properly drafted STAR trust, those rights may be restricted or even eliminated. The execution of the trust and rights associated with the information are held by the Enforcer.

STAR Trusts are often used as an SPV (Special purpose vehicle) in structured finance and other transactions. They allow the structuring of off-balance/bankrupt transactions, since the STAR Trust entity may not be connected to the original parties of the transaction.

In addition, STAR Trusts provide flexibility to carry out philanthropic donations, where the settlor’s requirements are outside Cayman Islands’ limited definition of what is and are not charitable.

British Virgin Islands VISTA Trusts
bvi company formation ibcTrusts established in the British Virgin Islands under the Virgin Islands Special Trusts Act 2003 (Amended 2013) are specifically designed to hold shares of a corporation incorporated in BVI.

The owner establishes a trust consisting of the shares of his company under which can be held indefinitely. The trustee’s supervision and intervention obligations under the general law are eliminated and discharged of all management responsibility in the company, which can be carried out by the directors without interference in the affairs of the company by the trustee.

The trustee has a statutory duty to retain the designated shares, which are the object of the VISTA trust and any duty to preserve or improve the value of the trust fund will be subordinated to this obligation.

However, its powers are limited to dispose of the actions in the circumstances expressed by the terms of the trust deed, not being able to intervene in the management of the company except to solve specific problems and only in a prescribed number of circumstances that must be stated expressly in the deed.

The deed specifies the rules of the “Office of the Director” that establishes how the trustee must exercise his voting powers regarding the appointment, removal and remuneration of the directors.

Although the VISTA regime is strictly limited to a trustee who holds shares only in a company incorporated into BVI, the underlying company may retain ownership of any other type of assets.

VISTA trusts are allowed to have more than one trustee, but at least one of them must be a designated trustee which is defined by the Act as a trustee licensed to carry out trust business in the BVI under the Banks and Trust Companies Act, 1990.

VISTA reduces the level of risk faced by the trustee who will be more inclined to hold high-risk assets and enter into speculative transactions as their obligation to monitor and manage the trust funds or intervene in highly complex financial transactions and any liability for any resultant losses for its failure to do so is removed by the VISTA Act.

The VISTA Act removes the trustee’s obligation from the prudent investor and the trustee has no obligation to oversee the management of the underlying company.

Tax implications of an offshore trust
Usually, when a trust is established in a foreign jurisdiction there may not be local taxes applicable to the assets and income of the trust, provided that no residents of the jurisdiction benefit from the trust and no assets are located there.

It must be noted that the choice of law of the trust would not be applicable to tax matters, which would be governed by the respective jurisdiction where the settlor, beneficiaries, assets or trustee are located, as applicable.

You should consult with your tax advisor or accountant to know the tax implications in your jurisdiction of residence when establishing a foreign trust, transfer assets to it and receive profits from said assets.

For instance, in the United States, the IRS may consider that a settlor having an interest in the funds belonging to the trust cannot be understood as a separate entity and therefore, the settlor has the obligation to report said assets in the tax return (IRS form 1040).

Contributions to a trust can reduce exemption from unified gift tax unless it is taken advantage of the annual donation tax exclusion.

Furthermore, for the creation or transfer of money to a foreign trust, to receive directly or indirectly any distribution or to receive gifts or legacies from foreign entities, you will be required to file the IRS Form 3520.

US citizens are taxed on their worldwide income. This means that the beneficiary may be taxed on all income of the trust, even if it is not distributed.

Generally, a foreign trust is not a vehicle for a resident of the United States, to avoid US income tax.

In addition, consider that in accordance with the appreciation in the value of the assets of the trust, this can be treated as a taxable gain. Although the trust may be structured in a way to legally avoid that.

Also, consider that Trusts are institutions with use and application in common law legal systems.

The civil law system does not recognize, in general terms, a difference between formal and beneficial ownership while the common law does.

In Civil law countries, that have not signed The Hague Convention on Trusts, trusts might be disregarded, therefore any transfer made by the settlor to the trust would be considered as not carried out from a tax perspective, and the settlor might continue to be the owner of the assets transferred.

Eight Benefits of Creating an Offshore Trust

Over many decades, trusts have proven to be popular vehicles for wealthy individuals and families to protect their assets, preserve their wealth and pass their property on to younger generations. Establishing such financial structures in an offshore location, moreover, yields an additional number of attractive benefits that may not be available in the home country. As such, it is worth examining whether offshore locations can offer sufficient perks that are in line with wealth goals.

A trust enables one party (the settlor) to transfer the legal title to a property (the trust fund) to one or more parties (the beneficiaries). It is an equitable obligation that requires a trustee, who is responsible for overseeing and protecting the trust property, to abide by the terms of the trust and administer it for the beneficiaries’ benefit. The settlor typically establishes the terms of the trust agreement (often known as the “trust deed”), including the identity of the beneficiaries and the duties of the trustee.

Given that the settlor and the beneficiary can crucially be the same person, a trust can be a flexible way to not only protect your assets during your lifetime but also decide when you want to transfer your wealth to beneficiaries, such as your offspring. Trusts can be set up for both charitable and non-charitable purposes, moreover, and can hold a variety of assets, including cash, shares, bank deposits and investment portfolios.

An offshore trust relates to a trust as described above that is subject to the laws of a jurisdiction located outside of the settlor’s country of residence. Choosing between an offshore and an onshore trust depends on the aims of the settlor, with distinct benefits arising from pursuing each route. Nonetheless, there are several advantages of going offshore that make this option distinctly appealing:

Asset protection: One of the most popular reasons why so many choose to create a well-structured, well-administered offshore trust is the strong degree of protection it provides for one’s assets.
Not only do trusts protect assets against the risks of economic volatility, uncertainty and instability, but they also guard against creditors who may seek to register a claim against your assets. By placing your assets under the jurisdiction of a foreign legal system, which is unlikely to recognise domestic court judgements, it becomes difficult for creditors to gain access to the assets.

Offshore trusts also normally have robust legal frameworks in place—they are usually located in common-law jurisdictions—in order to prevent such scenarios as asset seizures by overzealous, predatory litigants. While your assets are more exposed to such seizures when held in domestic trusts, placing the assets in an offshore trust keeps them further out of reach of creditors.

Family-wealth preservation: An offshore trust is a popular way for wealthy families to not only protect their assets but also preserve their wealth over the long term. Families are increasingly opting to consolidate their assets into a single, well-structured vehicle that can be professionally managed by an experienced trustee who can identify the ideal offshore trust location that aligns with the family’s wishes.
Pursuing the offshore-trust route also means that families will neither be required to divide up their assets nor have to transfer ownership of assets to specific family members—the distinct asset classes that comprise the family’s wealth remain intact. This is especially beneficial should the family’s wealth be represented by assets that are not easily divisible or depreciate upon being divided, such as real estate or a family business.

Tax benefits: It is clear that most offshore trusts are domiciled in tax havens, with the likes of the Cayman Islands, Bermuda, the British Virgin Islands (BVI), the Bahamas and Labuan proving popular locations as tax-free or low-tax jurisdictions. So long as the trustees are residents of the jurisdiction for tax purposes, therefore, these offshore trusts are not liable for local taxation, such as the income taxes or taxes on capital gains produced by the trust fund.
The eventual death of the settlor is also unlikely to trigger inheritance tax having to be paid on the trust’s assets, moreover. And it is also possible to set up an offshore bank account to more conveniently manage the wealth accrued in the trust.

Succession planning: Offshore trusts can be extremely effective structures for succession and estate planning for both individuals and families. “A trust can adapt to the uncertainty of the future, because of the trustee’s discretion in exercising its powers and duties, which means that a trust can evolve over time with a family’s changing circumstances and needs,” according to South African lender Standard Bank. “This ensures a timelessness to a family’s estate and succession plan and means that wealth is passed between generations in a controlled and well-thought-through manner.”
Trusts can also bypass the public and onerous probate process. “Trusts are not subject to probate because the wealth and assets held in trust no longer belong to the settlor,” Caribbean law firm Webster LP explained in an article discussing the benefits of Anguilla offshore trusts. “Instead, the trust owns them until they are passed along to the beneficiaries. Avoiding probate can save a lot of time and effort and reduce costs.”

By establishing a trust, a smooth, secure and efficient transfer of wealth to younger generations can be achieved in accordance with the individual’s or family’s wishes—a transfer that is largely free of the legal complexities and tax liabilities that can often prove substantial when dealing with other asset structures and vehicles.

Confidentiality: If anonymity is particularly important to you, an offshore trust can provide the ideal layers of additional protection and confidentiality for your assets. Under common law, trustees are required not to breach the affairs of the trust.
While more recent updates to laws such as the Cayman Islands’ Confidential Information Disclosure Law, 2016 have decriminalised the disclosure of confidential information, thus placing less responsibility on local prosecuting authorities to level criminal punishments, any party that is impacted by a breach of the duty of confidence can nonetheless initiate civil proceedings for damages.

Placing your assets in an offshore trust with a robust legal framework will provide adequate protection against disclosure of the trust’s details. The trust deed is also crucially required to remain undisclosed to the public, ensuring that your trust’s contents remain classified, which, in turn, provides you with a high level of privacy.

Philanthropy: An offshore trust can also prove highly beneficial for supporting philanthropic causes, namely by providing a structured vehicle to manage and distribute assets for charitable giving at a time determined by the trust deed.
This can be particularly effective for administering a family’s philanthropic shared objectives, with the trust proving the optimal structure for building a meaningful legacy for successive generations. Again, the high level of asset protection provided by offshore trusts can be crucial for this particular endeavour, as your assets will be protected from creditors, predatory litigation and potential tax issues, thus allowing you to remain focused on your charitable goals.

Flexibility: Given that virtually every asset class can be contained within an offshore trust—real estate, cash, family businesses or commodities—wealthy individuals, families and organisations favour this type of vehicle for its distinct flexibility.
What’s more, with the settlor and beneficiary permitted to be the same entity, you can nominate yourself as a recipient of the assets. Or you can choose anyone you want to be a beneficiary—he or she does not have to be you or a member of your family. As long as the beneficiaries are clearly identified in the trust deed, your assets can be passed on to whomever you desire, as and when you see fit.

Indeed, the trust deed ensures that settlors are able to determine the terms of the offshore trust, including how and when assets are distributed, and establishes robust strategies that reflect the goals and values of individuals, families or organisations.

Global investment opportunities: By choosing to place your assets in an offshore trust structure, you can capitalise on a multitude of global investment opportunities. “By establishing a presence in a jurisdiction with favourable investment climates, families can access a broader range of investment options, diversify their portfolios, and potentially achieve higher returns on their investments,” according to the Seychelles-based Sterling Trust and Fiduciary. “This diversification strategy enhances the family’s wealth preservation efforts.”
This diversification strategy can be further expanded to mitigate global currency risks. “Offshore trusts allow families to diversify their currency exposure, mitigating the risks associated with fluctuations in exchange rates,” Sterling also observed. “By holding assets in different currencies, families can safeguard their wealth from currency devaluations, ensuring the financial stability and longevity of their international businesses.”