An offshore trust is a trust agreement that is created in a jurisdiction outside of the United States. While not required, typically the offshore trust only holds assets outside of the United States as well. The offshore trust is one of the best-known offshore asset protection planning tools. Typically, an offshore trust is a “self-settled trust” where the trustmaker and the beneficiary are the same. The trustmaker appoints a trustee who is either an individual citizen of a foreign country or a trust company with no U.S. office or affiliation.
A foreign offshore asset protection trust may have additional people serving as trust advisers or trust protectors. Advisors and protectors help administer and protect the offshore trust and its assets while having no beneficial interest in trust property. A protector can be given the power to change trustees, reallocate beneficial interests, or to direct the investment of trust assets.
An offshore trust protects assets from U.S. civil judgments primarily because the trust’s assets and its trustee are situated beyond the legal reach of U.S. state and federal civil courts. U.S. judges have no authority to compel an offshore trustee to take any action with trust assets. Creditors do not have legal means to levy upon or interfere with the administration of an offshore trust’s assets.
In other words, even if a U.S. court ordered a foreign trustee to turn over assets, the offshore trustee could ignore the order. To levy or garnish offshore trust assets, a U.S. judgment creditor would have to file and re-litigate the underlying U.S. lawsuit in the foreign courts and obtain a new foreign judgment. This is difficult, expensive, and rarely done.
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