Offshore Trusts are considered one of the most effective mechanisms for asset protection. An Offshore Trust is a “self-settled” trust, meaning that the settlor and the beneficiary are same person (although the settlor may or may not be the only beneficiary). The structure of foreign trust involves formation of domestic and foreign entities, and is generally considered a sophisticated form of planning for high net worth individuals and families.
Although some states allow self-settled trusts to provide asset protection for the settlor-beneficiary, the degree of protection varies by each state, and the desired asst protection may not be recognized by some states altogether. Additionally, because such trusts are domestic trusts, the trustees are subject to the jurisdiction of the U.S. courts. Conversely, the trustees of foreign self-settled asset protection trusts are not subject to the jurisdiction of U.S. counts and do not recognize U.S. judgements and claims. However, it is important to remember that if the settlor retains control over the trust property, or an appointment of the offshore trustee, or if the trust advisors are US-based individuals or entities and have the power to replace the offshore trustee, a U.S. court may force these parties to reach the assets of the Trust or put parties in place that could reach the assets of the trust. Therefore, it is of utmost importance to properly structure such trusts, which requires the settlor to relinquish a certain level of control over the trust assets. Additionally, such trusts can serve as protection only against future creditors of the settlor, but will generally not provide protection against existing creditors.
This technique is suitable for individuals involved in high-risk businesses with substantial assets at stake.