Asset Protection Trusts, Part One
These trusts are quite popular among the rich because they shield assets from creditors, from litigation, from bankruptcy and from divorce. Many have been known to use them for tax evasion as well. There are Foreign Asset Protection Trusts—think Switzerland, The Cook Islands, and Belize—and there are Domestic Asset Protection Trusts in Alaska, Delaware and Nevada, among others. According to many, the Foreign Asset Protection Trusts are the only way to go because they protect the trustee from being subject to U.S. jurisdiction, they are not entirely private, and the U.S. courts will not uphold the state laws governing the protections allowed by the particular states which allow asset protection trusts.
When a person is really committed to personal privacy and asset protection, many stand by the Foreign Asset Protection Trust as the only way to go to ensure a sound financial plan.
In the case of a Foreign Asset Protection Trust, even though the trust itself is established in an offshore jurisdiction, typically the assets will remain in the United States. Those assets will be under the control of the person establishing the trust, although that control will be an indirect control, rather than a direct control.
Typically, that is established by making the assets untouchable for a period of years, and making the trust itself irrevocable for that same period of time, so that the person who established the trust is not a beneficiary. During that period of time the person who established the trust—also known as a trustor, grantor, or settlor—is unable to access the assets, but then neither are the creditors.
Once the risk to the assets is gone, again, from creditors, from litigation, from bankruptcy and from divorce, then the Asset Protection Trust is terminated and the entirety of the undistributed assets of the trust are returned to the trustor. At that time, the trustor once again gains direct control over the assets.
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