Should You Set up an Offshore Trust?

An offshore trust works just like any onshore trust. It involves legally transferring assets out of your name. A person known as a trustor or settler sets up the trust to benefit a beneficiary, giving charge of the trust to a trustee. This entails the trustor transferring assets to the trustee. It’s hard to get exact numbers on just how many offshore trusts there, as in many jurisdictions there is no requirement to register trusts. However, many wealthy individuals commonly use trusts to protect their assets.

Offshore Trusts & Mitigating Risk

So, when is it advantageous to set-up an offshore trust? Well, if you’re concerned about protecting your assets, you may want to consider an offshore trust. Offshore trusts are commonly used to diversify sovereign risk. In other words, it helps you to minimize risk by spreading your assets out geographically as opposed to holding them all in your home country. If something does go wrong in your home jurisdiction, the assets in an offshore trust will remain safe and secure.

In addition, an offshore trust is an excellent asset protection strategy that will put a comprehensive layer of protection between your wealth and any third party who may be trying to make a claim to your assets. For example, if a US citizen with an offshore trust were to go bankrupt, his or her creditors would be able to repossess domestic assets, but they would not be able to reach the offshore trust. This is because the assets wouldn’t be held in your name, but in the name of your trustees or protectors, and US judges do not have jurisdiction over foreign citizens, nor do they have jurisdiction over the trust itself.

Many offshore jurisdictions add an additional layer of protection to this. For example, in jurisdictions like the Cook Islands, Belize, and Nevis, judgments that originate in a foreign country are not recognized, meaning that local judges cannot compel your trustees or protectors to release any funds or assets to someone that claims to be your creditor. In these jurisdictions, a creditor would be forced to sue you in the country where you maintain your trust, and doing so would be a lengthy and costly process. In Nevis a creditor is required to put down a $25,000 cash deposit in order bring any kind of legal action against a trust in Nevis, while in the Cook Islands the plaintiff must prove beyond a reasonable doubt that the assets were transferred into the trust to defraud a creditor in order to have any claim to them.

Setting up an Offshore Trust

If you’re considering setting up an offshore trust, it is critical to keep in mind that doing so can be quite expensive and a pretty lengthy and tricky process. You’ll need to have a decent amount of capital to put in the trust. Otherwise, the costs may be prohibitive. You will also need to ensure that you adhere to all reporting requirements.

Therefore, if you are considering setting up an offshore trust, it is advisable to seek out professional help. You’ll find a number of professional offshore trust companies and trust experts based in Panama, Seychelles, Switzerland, and the Cayman Islands.