Transcript Slide 1

Offshore Asset Protection Trusts vs.
Onshore Asset Protection Trusts
Offshore Asset Protection Trusts vs.
Onshore Asset Protection Trusts
 Same trust concepts govern both
 Both support estate planning and wealth transfer
 Same benefits re: probate and avoidance of estate delays
I.
II.
Accomplish testamentary objectives
U.S. Estate/Gift tax neutral
a)
GST Tax Exemption Credit Trusts
b)
Credit Shelter Trusts
c)
Marital Trusts
d)
Estate Freeze --Techniques available such as Limited
Partnership Planning to take advantage of valuation
discounts
Advantages of Offshore Asset Protection
Trusts over Domestic Asset Protection Trusts
However:
Plus:
 Law of other jurisdictions more
• Access to international
investment opportunities
• Ability to use defined tax
planning opportunities
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favorable than USA
Non recognition of foreign
judgments
Favorable Statute of
Limitations
No contingency fee litigation
permitted
Confidentiality
Other Practical advantages
Equals:
Greater security
Greater certainty
Greater flexibility
Better investment returns &
lower provider costs
• Better tax/estate position
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Asset Protection Trusts
Trust Legal Definitions:
 Grantor or Settlor
 Trustee
 Beneficiaries
 Protector
Popular Foreign Jurisdictions with
Asset Protection Trust Statutes
 Belize
 Nevis
 The Cook Islands
 Bahamas
Case Study
Stella, age 60
 Successful corporate exec, has accumulated
significant personal wealth
 Has invested after tax dollars in variety of
investments
 Investments have grown, but Stella is
concerned about investment costs, consistency
of returns and tax leakage
 Planning retirement in 10 years
Two Goals:
#1. Protect her assets from the threat of litigation
#2. Build the largest nest egg possible
Solution #1:
Basic Asset Protection Trust with Protector
PROS
• Enhanced protection of assets from future
creditors
• Access to funds if needed
• Protection & Certainty
• Privacy
Stella is a
U.S. person
$
Beneficiaries
UNITED STATES
THE COOK ISLANDS/BELIZE
Trustee
Protector
Transfer of $ to foreign trust
Irrevocable
Discretionary Trust
Investment Assets
($)
U.S. Investment Managers
CONS
• Investment income
taxable in Stella’s
hands
• Missing
diversification
opportunities
Solution #2:
Asset Protection Trust with Investment Benefits
PROS
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Stella is a
U.S. person
$
Beneficiaries
Enhanced protection of assets from future creditors
Access to funds if needed
Protection & Certainty
Privacy
+ Greater diversification via international
investment managers
+ Institutional rates vs. retail investment cost
UNITED STATES
THE COOK ISLANDS/BELIZE
Transfer of $ to foreign trust
Stella Trust
XYZ Trust Co.
As Trustee
U.S. Investment Managers
Investment Assets ($)
CONS
• Investment income taxable
in Stella’s hands
• PFIC tax issues from
non-U.S. Investment managers
International
Investment Managers
Solution #3:
Asset Protection Trust with Investment & Tax Benefits
PROS
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Stella is a
U.S. person
$
Beneficiaries
Enhanced protection of assets from future creditors
Access to funds if needed
Protection & Certainty
Privacy
Greater diversification via international investment managers
Institutional rates vs. retail investment cost
+ Tax free shifting amongst investment types
+ Tax free access to policy values
+ Tax free death benefits for portfolio assets
& true insurance benefit
UNITED STATES
THE COOK ISLANDS/BELIZE
Transfer of $ to foreign trust
Stella Trust
XYZ Trust Co.
As Trustee
Pr. Placement LI
U.S. Investment Managers
Investment Assets ($)
CONS
• Investment income taxable
in Stella’s hands
• PFIC tax issues from
non-U.S. Investment managers
International
Investment Managers
…but, once I set this trust structure
up, how do I get my $$ back?
 Ask Trustee for distribution
 Borrow against assets in trust
 For Private Placement structure,
withdraw from policy and/or take
a policy loan
Other Practical Considerations
 An asset protection trust is not for all
assets
 Independent legal advice is important
 Selection of
Trustee/Custodian/Jurisdiction is
important
 Don’t keep control – if you can reach
it so can your creditors
 Reporting requirements
 Establishment process/timeline
 Protector, if needed
Fraudulent Conveyance
or Transfer Statutes
A. General Explanation
1. Definition:
A. Transfer
B. Protected Creditors
2. Intent (Badges Of Fraud)
3. Effect of Court Finding
for Fraudulent Transfer
4. Effect of Court Finding for
Transferee Liability
5. Bankruptcy Issues
B.
Potential Criminal Issues:
1. Concealment Of Assets
2. Bankruptcy Crimes
3. Tax Crimes
4. Money Laundering Rules
C.
APTs’ Generally Do Not Work
for Pre-Divorce Planning
Benefit Summary: Use of an
Offshore Asset Protection Trust
 Safety of assets when with carefully chosen trustee
 Enhanced protection of assets from attack
 Tax planning opportunities
 Access to best in class investment managers / greater
diversification
 Supports overall estate and generational planning, and wealth
preservation goals
 Is not the never-never plan
 Flexible, not inflexible tool
U.S. Treasury Reporting
Requirements of Offshore APTs
Various Treasury
Reporting Forms:
 U.S. citizens and U.S. Resident
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Aliens are Required to Report
their World-Wide Income
Annually to the IRS
Form 3520
Form 3520 A
FBAR Form
Schedule B of Form 1040
“Check the Box”
Domestic Asset Protection Trusts
Many states have adopted Asset Protection
“self-settled” Trust legislation
 Alaska
 Rhode Island
 Nevada
 Missouri
 South Dakota
Domestic Asset Protection Trusts
Delaware is the leading jurisdiction
 Delaware’s Qualified Disposition
in Trust Act (1997)
(12 Del. Code section 3570 et seq.)
 Domestic Asset Protection
Trusts (DAPTs) offer an
alternative to offshore asset
protection trusts
Delaware Asset Protection Trusts
Fraudulent Conveyance Act Principles:
 If trust is established with a claim pending, creditor has longer
of four years or one year after knew or should have known of
trust to file suit.
 As long as trust is not established with fraudulent intent, should
be completely effective against creditor claims.
 All DAPT claims are heard in Delaware’s Court of Chancery –
specialized court that hears all DE corporate matters.
Delaware Asset Protection Trusts
Irrevocable Trust – But Flexible
 Grantor can receive income and/or principal – either in
trustee’s discretion or as a matter of right.
 Discretionary distributions can either be with or without
standards.
 Grantor may designate advisors for various functions.
 Trustees protected from all decisions of advisors unless trustee
is acting with willful misconduct
Delaware Asset Protection Trusts
Permitted Grantor
Retained Rights:
 Consent to or direct investment
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changes personally
Veto discretionary distributions
from trust
Replace trustee and other named
advisors
Receive income and/or principal
Retain a limited testamentary
power of appointment
Delaware Asset Protection Trusts
Who may defeat a DAPT?
 Pre-Transfer Claims – must show client had specific fraudulent
intent as that particular creditor and bring suit within 4 years of
funding or 1 year after knows or should have known of trust’s
existence, whichever is later.
 Post-Transfer Claims – within 4 years of funding and must show
fraudulent intent against that particular creditor.
 Claimant must prove case by “clear and convincing evidence” – a very
high legal standard.
 Trust is NOT seized by bankruptcy court unless it was fraudulent.
Delaware
DelawareAsset
AssetProtection
ProtectionTrusts
Trusts
Consequences if DAPT is defeated:
Consequences if DAPT is defeated:
 Only sufficient funds are removed to satisfy judgment.
 Only sufficient funds are removed to satisfy judgment.
 If multiple creditors make claims, each one must bring
 If multiple creditors make claims, each one must bring
separate action to make case.
separate action to make case.
 Any distributions made prior to a creditor’s successful suit
 Any distributions made prior to a creditor’s successful suit
to defeat DAPT will remain with beneficiary unless
to defeat DAPT will remain with beneficiary unless
beneficiary acting in bad faith.
beneficiary acting in bad faith.
Conclusion
What is it:
What is it not:
Structuring wealth and
business affairs to:
Structuring wealth and
business affairs to:
• Preserve accumulated wealth
• “Hide” accumulated wealth
• Meet overall estate planning
and investment goals
• Not report income, distributions
or transactions as required by
the authorities
• Minimize exposure to
potential lawsuit
• Full transparency and reporting
• Establish an offshore trust to
protect assets, but then direct the
Trustee on what to do with those
assets OR reserving substantive
powers
Thank you!