WHAT IS AN ASSET PROTECTION TRUST?
An Asset Protection Trust is legally no different than any other form of trust formed under Common Law and the Rules of Equity. One of the common objectives however of any asset protection trust is essentially to protect the assets of the settlor against the claims by future unknown creditors, expropriation of hostile governments, or from excessive estate or death duties.
IS ASSET PROTECTION PLANNING A NEW CONCEPT?
The concept of using trusts to protect assets has been established for several centuries. As the litigation and theories of civil liability have expanded however, particularly in the United States, the need for trusts to protect assets from future creditors has created an increased demand for the trust to be used for asset protection purposes.
CAN ANYBODY SET UP AN ASSET PROTECTION TRUST?
The starting point of any asset protection plan is a consideration of the laws of the client's domestic jurisdiction. Most countries prohibit an individual from settling a trust if the transfer of assets to the trust will render the client insolvent, or if the transfer is made to delay, hinder or defraud an existing or known or ought to have known creditor's claim. The Cook Islands similarly will not allow defrauding existing creditors, nor condone a transfer of assets that results in the Settler becoming insolvent.
ARE TRUST ASSETS PROTECTED FROM FUTURE CREDITORS ?
The Cook Islands does specifically protect assets in a Cook Islands trust, from future creditors, that arise after the trust is created. This protection extends to past dealings with the creditors if it was not perceived at the time the trust was set up, that the individual would be a creditor of the Settlor.
SHOULD THE ASSET PROTECTION TRUST BE OFFSHORE?
There are a number of reasons why most advisors would recommend that Asset Protection Trusts be established offshore. Primarily of course, assets held in a domestic trust are more susceptible to attach by a creditor. A trust established offshore will be harder for the creditor to locate, and more expensive to pursue. Perhaps more importantly however, one of the principal attractions for placing assets in an offshore trust is the legislation which has been introduced in offshore jurisdictions, such as the Cook Islands, specifically to facilitate asset protection. The assets will then be dealt with according to the Offshore Legislation, rather than the domestic legislation which may be more creditor friendly.
More detailed information is contained in our next article on Asset Protection Trusts.
The content of this article is intended to provide general information on the subject matter. The reader should therefore obtain professional advice specific to their circumstances.
