One tool commonly used to provide a high degree of asset protection is the “offshore” foreign trust. Many foreign locations have laws that insulate and protect the grantors who set up such trusts. Basically, when you establish a foreign trust, you are transferring ownership of the assets placed in the trust from yourself to the trust, and the trust is then managed by a foreign trustee. Common destinations for these trusts are the Bahamas, Bermuda, The Turks and Caicos Islands, the Cayman Islands, the Cook Islands, Gibraltar, and the Isle of Man.

Should creditors look for your assets, even if they were to discover the offshore trust, they will still have to deal with foreign trustees in order to reach the assets. If the trustees are uncooperative, the creditors may find that they have no remedy. The United States courts have no jurisdiction over foreign trustees, as long as they have no offices or agents in the U.S. In addition, the physical distance between creditor and foreign trustee may also be a barrier to the creditors.

In the 1990’s, foreign trusts were some of the hottest asset protection devices and law firms earned a lot of money setting up these trusts to help millionaires sleep easier. When some debtors were exposed for establishing the trusts with the specific intention to defraud creditors, offshore trusts fell out of favor for a short time. Currently, such trusts are widely used, but more care is taken prior to setting them up and funding them to not give the appearance of a fraudulent scheme. The grantor generally executes a statement of solvency with a balance sheet or other appropriate financial statement showing a positive net worth.

Additionally, it is wise to not place all of your property into a foreign trust. People of wealth should keep assets sufficient to sustain their lifestyle in the United States, and then transfer the remaining bulk of their estate to the offshore foreign trust for protection. Word to the wise: It may be nearly as difficult for you to recover your money from a foreign trust as it would be for your creditors to do so, so be careful. It is necessary to get expert advice from an attorney well versed in asset protection before considering an offshore trust.