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Offshore Asset Protection Planning: Offshore Trusts and LLCs

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In many situations, Asset Protection (“AP”) planning includes combining (i) domestic and/or Offshore LLC, and (ii) Offshore Trusts, designed to remove assets from the U.S. legal system and into foreign legal systems offering some of the strongest asset protection laws in the world.

AP plan makers using LLC and Offshore Trust structuring can maintain control over the assets while “times are good” and must relinquish controls to an independent Offshore Trustee (“Trustee”) “when times are bad.” That said, the Trustee is often overseen by a Trust Protector who makes sure the terms set forth in the Trust by the plan maker are followed.

Why consider Offshore planning?
With Offshore AP planning, creditors and other legal opponents must overcome very high practical and legal hurdles established under unfamiliar non-U.S. jurisdictions that many times do not recognize U.S. based judgments. In addition creditors are burdened with additional lawsuits, local counsel legal fees (e.g., creditor’s existing attorneys usually are unable to practice in the foreign jurisdiction), advances for pre-suit committee proceedings (akin to a grand jury type pre-lawsuit evaluation of case), and filing fees. In many situations, such obstacles alone will end the legal pursuit; however, even if the creditor reaches court, strict discovery rules and statutes of limitations must normally be addressed. These procedural hurdles, combined with the time, costs and odds of the creditor prevailing, can become insurmountable.

Sketch of planning process

You settle an Offshore Trust.
You establish a limited liability company (“the LLC”) owned by an Offshore Trust.
You transfer assets into the LLC.
“While times are good” you control the day-to-day activities of the LLC.
If “bad times come” the Trustee is required to remove the Manager (you) to protect trust assets.

Offshore Asset Protection Planning

Offshore planning benefits

“While times are good” you control the LLC.
If you come under legal duress, the Trustee takes over. The Trustee can accept advice from the Trust Protector.
U.S. Courts do not have jurisdiction over the Offshore Trustee, and do not have the authority to attach and seize trust assets.
Fraudulent transfer arguments may be avoided by establishing the Plan while “times are good”.
If assets are transferred after legal issues arise, the statute of limitations on a fraudulent transfer is often set at 2 years and usually must be proven in an Offshore jurisdiction’s courts beyond a reasonable doubt (this is a very high legal hurdle, especially when international investing and diversification reasons can be given).

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