Protection of assets through offshore trusts
We have talked a lot about how and where to move your residence and States with interesting conditions to set up companies (in fact you can download our ebook for free), what we have not talked about so far is the offshore trust and how to use them to protect your goods.
The concept of trust (or Anglo-Saxon trust) has a lot of strength within the English culture, but outside of it, not many people know exactly what it refers to or consider it as a possible option. Perhaps because it is usually only used by people with many resources or because we simply have not understood its usefulness.
Trusts are very important in international politics. According to unconfirmed sources (private contacts in Brussels) Angela Merkel, the German chancellor, intended to introduce a public registry for the trusts (which would end with the reason for being of these, anonymity). It seems that for David Cameron, the then British Prime Minister, and that alone was enough reason to want the Brexit.
Thus, the British trusts have trillions of euros to their credit and eradicating anonymity for this type of structure would undoubtedly have serious consequences for many people.
Of course, all this is one more reason to dedicate today’s article to the trust structures, that is, to the trusts. The subject is very complex, so I will try to leave it in a general but practical vision.
Definition of common roles in offshore asset protection trusts
For the protection of assets, we have different structures that we can use. The best known is the so-called trust. To better understand asset protection, the trust and its operation we will try to clarify certain concepts at Offshore ciitzen.
In the trust for the protection of property, which as we said, would be something like a fiduciary foundation, involved five figures:
- Founder of the trust (trustor)
- Economic beneficiary
The founder of trust is constituted with the structure he prefers. The founder can be one or several people or organizations, but usually, it is one person.
The founder is often also a debtor because he owes money to someone in the context of a conflict.
The person or entity to which the debtor owes money is the creditor.
The structure or trust itself belongs to a fiduciary, who is the one who administers it. The trustee can be a person, several people, a company, foundations. In any case, it must be licensed and regulated in the country in which it resides. Fiduciaries often not only have to reside in the country in which they are licensed but also have the nationality there.
On the other hand, the trust has one or more economic beneficiaries who benefit from the trust’s assets. Thus, parents could create a trust to pay the children a set amount after a certain time. They could do it to happen, for example, when they turn 18 or when the children have descendants.
In theory, trust can be founded by the same person who is also an economic beneficiary. However, in many cases, when this happens, you do not get all the advantages of asset protection we seek.
What is the protection of assets?
The protection of assets depends on several aspects. On the one hand, confidentiality, so important to avoid problems. On the other, it also requires the proper structure to keep our heritage intact.
Depending on your country of residence, the trust may cause you problems with international tax laws. Thus, in certain countries such as Spain or Germany, it is mandatory to report the existence of the trust to the Treasury (especially if they are in offshore jurisdictions) and also involve problems related to tax law (often the figure of trust is not recognized by the Member States). , which leads to some legal uncertainty).
Normally everything that is owned by a person is considered an asset or good. These properties have a certain value and can be converted into cash. In addition to money in the strict sense, it can also be actions, bonds or similar financial instruments. But they can also be real estate, vehicles, art, precious metals and much more.
We, therefore, understand as protection of assets the protection before third parties that may have an interest in these assets. For example, a court could enforce an attachment due to unpaid debts, bad advice or divorce.
How to bring asset protection to practice
Assets can be protected through different structures. In addition to the trusts, in several jurisdictions, the so-called Limited Liability Companies can be used, often also a combination of both. The Cook Islands of the Pacific and the Isla Nieves del Caribe, which thanks to their special legislation allow very advantageous asset protection, are especially interesting here.
Thus, for example, in Isla Nieves creditors must deposit a guarantee of $ 200,000 in a court for their claim to be estimated and, of course, few are willing to do this to sue an LLC there.
In general, for the successful creation of these structures, it is necessary that the transfer of assets be sufficiently separated from the circumstances that could lead to their seizure. An example of this can be an imminent divorce.
In this case, the spouse must transfer a part of his estate a time before the divorce to a properly structured irrevocable trust. Theoretically, thereafter the other spouse would find it impossible to access said patrimony because, in the end, it does not belong to the other party either.
The assets become part of a fiduciary that probably resides in a distant country. A judicial resolution will not have any kind of effect on that fiduciary. In this way, the debtor would no longer have practically the patrimony to pay the creditor.
Intentional transmission of assets
Intentional transmission could be considered an attempt to transfer assets or assets to trust after an event has already occurred or is about to occur.
Although the laws present differences in this aspect, in general, it is illegal to consciously avoid economic responsibility through this type of structures knowing that imminent actions are coming imminently with negative consequences for oneself.
For this reason, a certain period of time must elapse between the transfer of assets to the fiduciary and the attack on the patrimony. In most jurisdictions, this term is between 4 and 10 years. In contrast, in the Cook Islands, and on Isla Nieves it is only 2 years.
But what is trust?
A trust (which becomes a form of trust) is a fiduciary relationship by which a party known as a trustor or trustee, gives another party, known as a trustee or trustee, the right to own property over a property for the benefit of a trust. third, the beneficiary.
Or as Wikipedia says:
“The trust is a contract by which a person allocates certain goods for a specific lawful purpose, entrusting the realization of that purpose to a fiduciary institution in all companies.”
Coercion and countermeasures
In principle, a court could force the founder of a trust (trustee) to surrender its assets, but in practice, this does not work.
Imagine a creditor that your debtor cannot pay because all your assets belong to a fiduciary that operates in a jurisdiction in which the assets or assets enjoy strong protection.
The only option for the creditor would be to file a claim with the courts and, if all goes well, obtain an enforcement order that would force the founder of the trust to instruct the trustee or entity to transfer the estate, either to himself or herself. (the founder) or economic beneficiaries.
The trustee would then reject this request because the trust is irrevocable. Neither will the economic beneficiaries receive any payment, since the founder of the trust is under duress and the assets would be practically frozen.
The creditor would still have two countermeasures. They can go to the courts of the jurisdiction of origin of the trust or let the procedure go on forever. Going to court in the jurisdiction where the trust is located is usually a waste of time, particularly if it is on Isla Nieves. There, the creditor must make a guarantee deposit of $ 200,000 only for his demand to be estimated, and in very few cases he would have prospects of success.
If the creditor had sufficient financial means, it could at most permanently attack the trust and take advantage of the coercion clause. In this way, the founder of the trust could not order the trustee to pay the assets to the economic beneficiaries.
As long as the trust founder is not in financial trouble, he will not have to worry about this type of attack.
It is important to mention that this practical example is largely theoretical because there are very few cases of this type, which makes it difficult to extract from them binding general conclusions.
Most jurisdictions do not have any experience in this regard to this situation because so far no one has dared to sue their trusts.
It is also important to know that there is no standard solution. It is essential that the trust be well structured, for which the places of residence of the founder of the trust, the fiduciary and the economic beneficiaries must be taken into account, as well as the choice of the offshore bank account and the administration of the economic resources. The smallest detail can have huge consequences here.
Fundamental to have the correct offshore bank account associated with a trust.
Because your life is yours!