Offshore trusts are established in jurisdictions outside the United States to protect assets. Estate planners can incorporate this type of trust into a comprehensive estate plan to help ensure their assets are protected, and their future wealth is preserved. If you have questions about setting up a trust in a foreign jurisdiction is worthwhile, speaking to an estate planning attorney can be helpful.
The Mississippi estate planning attorneys at Palmer & Slay, PLLC have helped many clients implement trusts as part of a comprehensive estate plan. We can help you evaluate your unique situation and decide whether an offshore asset protection plan can help you achieve your estate planning goals. Don’t hesitate to contact Palmer & Slay, PLLC to schedule a consultation and learn more about our comprehensive asset protection services.
What Is an Offshore Trust?
Offshore trusts are among the most well-known and commonly used strategies for asset protection. An offshore trust allows an estate planner to create a trust in a foreign jurisdiction and transfer assets to the trust. Offshore trusts are advantageous because they offer protection from domestic lawsuits and judgments originating in the U.S. Using one of these allows the estate planner to transfer legal ownership of the assets in the trust to be managed by a foreign trustee outside the United States. In most cases, the offshore trust only holds assets outside the U.S.
Asset Protection with an Offshore Trust
There are several benefits of creating an offshore trust. Offshore trusts decrease legal risk. Creating an offshore trust can help you shield your assets from lawsuits, business disputes, divorce, bankruptcy, malpractice claims, judgment creditor collections, and other creditors. Domestic lawsuits and malpractice claims can significantly decrease the value of an estate. It only takes a single lawsuit to threaten a person’s entire net worth.
Asset protection is especially important if you are a business owner, physician, attorney, or professional with a higher-than-average liability risk. Offshore trusts are highly effective tools to protect wealth and enjoy peace of mind. When creating an offshore trust, an individual transfers his or her assets into a non-domestic asset protection trust managed by a foreign trustee. Legally valid asset protection trusts can protect a person’s wealth from legal action in the United States, even if a U.S. court rules in favor of the plaintiff.
Offshore Trusts Can be Cost Effective
Establishing an offshore trust can help estate planners save on legal fees and costs. The cost of defending a lawsuit in the United States can easily exceed hundreds of thousands, if not millions, of dollars. Transferring your assets into an offshore trust may dissuade potential plaintiffs from bringing a lawsuit against you because recovering damages from you will be difficult, if not impossible.
Additionally, offshore trusts can be used for effective tax planning. Offshore trusts are not meant to conceal assets from the IRS or eliminate tax reporting requirements. However, they are tax-neutral structures. Generally, offshore trusts are set up in tax-favorable jurisdictions and are not subject to local, gift, and capital gains taxes. The creator of the trust and the beneficiaries can benefit from paying lower taxes on the assets in the offshore trust.
Disadvantages of an Offshore Trust
While offshore trusts offer multiple benefits, there are some important disadvantages to consider. Offshore trust laws can vary significantly by jurisdiction and can be complex. The complexity can make it difficult to ensure the trust has been adequately established and well-managed. Additionally, offshore trusts have become a target for regular scrutiny by U.S. lawmakers and agencies. Reporting requirements and the risk of penalties or sanctions for not following regulations properly have increased.
Establishing one of these trusts limits the control of the estate planner. When a person transfers assets into an offshore trust, the trustee will have control over those assets. If the estate planner needs to access the funds in the account or change the strategy to manage those assets, he or she may be unable to do so. There is always a potential for fraud as offshore jurisdictions are often less regulated than the United States. Consequently, there is an increased risk of fraud or mismanagement by the trustee.
Requirements for Creating an Offshore Trust
The two most important considerations for creating an offshore trust include selecting a favorable foreign jurisdiction and drafting a trust agreement with all the necessary and beneficial provisions. Offshore trusts must be set up outside the United States and managed by a non-U.S. trustee.
Creating an offshore trust allows estate planners to decide which type of trust will best meet their goals. For example, an irrevocable offshore trust may be your best option if tax exemptions are your main concern. A discretionary trust may be the best option if there are no fixed beneficiaries because it gives the trustee the legal authority to decide how the profits should be distributed.
Selecting a Location for an Offshore Trust
Several jurisdictions have adopted laws that protect offshore trusts. The Cook Islands passed the International Trusts Amendment Act in 1989. As a result, many estate planners have chosen to create offshore trusts under the jurisdiction of the Cook Islands. The laws of the Cook Islands protect trust assets from civil creditors in the United States. However, multiple foreign jurisdictions are advantageous for creating offshore trusts. At least 20 jurisdictions have enacted legislation games encouraging asset protection trust use.
Multiple factors are important to consider when choosing a location for an offshore trust. For example, the foreign jurisdiction’s specific trust laws, legal system, tax laws, and political and economic stability are all important factors to consider. The presence of modern telecommunication factors and language barriers can also be important. An estate planning attorney can help you determine a strategic plan for creating an offshore trust.
Learn How an Experienced Offshore Trust Attorney Can Help You
Working with a knowledgeable estate planning attorney is crucial when establishing an offshore trust. At Palmer & Slay, PLLC, we provide skillful asset protection advice and legal representation to clients in Mississippi. Contact Palmer & Slay, PLLC to schedule an initial consultation and learn more about our legal services.