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How Offshore Asset Protection Trusts Work

Offshore Asset Protection Trusts (OAPTs) protect the assets of debtors from courts

Offshore Asset Protection Trusts (OAPTs) protect the assets of debtors from courts by removing legal ownership from the debtor, while the debtor maintains control and beneficial enjoyment of those assets. The jurisdiction of these trusts are somewhere outside the citizenship nation of the settlor. These trusts use jurisdictional laws to help safeguard financial wealth.

An Offshore Asset Protection Trust is a basic trust with special provisions designed to protect the asset held by leaving the control to the beneficiary and the ownership outside the jurisdiction of citizenship. The assets remain in their place and remain under the beneficial enjoyment of the settlor. OAPTs are not tax shelters or havens for hiding assets. The US government demands that its citizens report income earned from all worldwide assets.

Creating an Offshore Asset Protection Trust discourages creditors. When plaintiffs and creditors discover that they will have to hire a foreign lawyer to try their case in a foreign court, they will often give up on litigation and offer settlement.

Though, creating an Offshore Trust provides additional security, Asset Protection Plans should not be static. It is best for a client to stay informed and active in the ongoing health of their plan. When a client's life or financial situation changes, so should the plan. In the case of duress, movement may be the key to security. A properly conceived Kinetic Asset Protection plan, which can change its original jurisdiction under red alert, is closely analogous to that of a living organism that changes and evolves over time. This plan and its workings are the traceable flow of property, capital and assets through a person's estate or wealth in relationship to the exposure of liability. A plan, like a person, has different stages of life.

An Offshore Asset Protection Trust must be properly implemented to offer protection. The law requires the implementation of an Asset Protection Plan during times when there are no warnings of impending financial attacks. If there is a fraudulent conveyance, it takes place on the day the assets transfer into the plan. In addition, the statute of limitations begins to run from this time. When the financial situation is secure, a Family Limited Partnership may be an alternative to an OAPT.

The first step to move toward more solid protection involves assigning a foreign person as protector of the trust. This person is often a lawyer or solicitor in a jurisdiction other than the US. This protector will also often go onto the accounts with the US trustee. Some clients start out with a foreign person as the protector, particularly if they are in a high-risk environment. When a client is faced with a financial attack the plan shifts status to "red alert." The settlor is removed as a trustee and the foreign protector takes over. When the threat of litigation passes, the US trustee is often reinstated.

If prepared correctly, an Offshore Asset Protection Trust allows the client to enjoy their wealth with the assurance that they have built as much security around their assets as the law will allow.

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