What is the best asset protection structure available?
The best asset protection structure available might involve a well constructed offshore asset protection trust or a private foundation. High net worth individuals (HNWI), wealthy families and those aspiring to be included in this group must think about preserving the assets that they have worked so hard to acquire and continue to accumulate. Half of the work is getting to this point. Thereafter care must be taken not only to invest wisely and in a tax efficient manner but it is equally important to put in place the best asset protection solution possible to ensure those assets and wealth are protected from potential future financial enemies. Unfortunately the world is becoming increasingly more litigious, governments continue to encroach on civil liberties and privacy and technology continues to make it easier for financial enemies to search for assets while making the decision whether or not you are “sue worthy”. This is especially the case when you are a high net worth individual (HNWI) or a wealthy family. Whether the situation calls for establishing an offshore asset protection trust, private foundation or another solution, Sterling can assist you or your clients by setting up best asset protection structure and thereafter providing the necessary ongoing support services.
In order to establish the best asset protection structure, a variety of entities must be considered including private foundations, offshore trusts, offshore companies, offshore bank accounts, various types of insurance policies and/or an offshore brokerage account. Usually some combination of these are utilized. It is also often possible to maintain assets in their current location to be managed by trusted investment advisors while merely transferring ownership of the assets into an offshore asset protection structure. In this way, the client enjoys the comfort of having the best asset protection structure along with the assets held in “onshore” financial institutions.
Regardless of the location of the entities, the goal is to create a legally compliant structure offering the best asset protection available. Once established, existing assets are legally transferred to the structure. Once lawfully transferred, the assets thereafter enjoy the best asset protection available when it comes to fending off potential financial enemies. It is important that the assets when transferred are unencumbered in any way and are not being transferred with the intent to hinder, delay or defraud any current creditors of the party transferring the assets. If either of these requirements are not observed, it is possible that the transfer of the assets can be declared a fraudulent conveyance by a court of law with resulting legal repercussions.
Clients are advised that in order to set up a proper offshore asset protection structure, the assets must be legally transferred into one or more of the entities within the structure. Thereafter the assets become the property with full legal title of an offshore company, offshore trust or offshore foundation depending on the composition of the offshore asset protection structure. It is often possible for the client to appoint a protector, guardian or similar (e.g. trusted family lawyers, financial advisors, accountants, etc.) as well as other roles within the structure to provide the necessary comfort level for the client. Where tax planning is not an object or where it will not otherwise introduce a level of tax risk, the client (i.e. HNWI or family members) may even be able to fill one or more of these roles.
For those living in a civil law country where the concept of a trust may not be recognised, the best offshore asset protection structure would usually include an offshore private foundation. However, this may be the best asset protection structure even for those resident in certain common law countries as well. The key difference from a an asset protection trust is that a private foundation is usually found in civil law countries where it is a product of specific legislation. Additionally, unlike a trust, a private foundation is a separate legal entity and is “incorporated” similar to a company. Thus it is not susceptible to any “validity” issues as could be the case with a poorly structured or improperly administered asset protection trust. Offshore private foundations offer a wide variety of structuring options making them quite flexible to meet various requirements and easily adapted to a bespoke offshore asset protection structure.
Please click here for an explanation to illustrate the offshore trust vs. private foundation comparison.
For those mainly living in common law countries where the concept of a “trust” is recognised, the best asset protection structure would usually include a properly structured offshore trust (i.e. an “offshore asset protection trust”). This can provide a wealth of benefit for estate/succession planning, avoidance of forced heirship and inheritance taxes, protection against future financial enemies and other adversaries and more. In order to achieve these benefits, it is imperative that the offshore asset protection trust is structured and administered properly. When properly structured and administered an offshore asset protection trust can be an excellent tool; however, a surprising number of these trusts are not structured properly and as such run the risk of being deemed invalid. This means they would not hold up in a court of law for a variety of reasons which can bring a host of negative issues to the Settlor. It is as if the trust never existed and thus all of the normal benefits that would otherwise be enjoyed by having an offshore asset protection trust are nullified. The most common issues are that the Settlor never officially transfers any assets to the Trustee or the Settlor maintains so much control that the intention of the offshore asset protection trust is called into question by a judge.
An offshore asset protection trust must be carefully crafted after a close consultation with the client to ensure it serves the intended purposes and to ensure that the validity of the trust cannot be challenged at a later date.
A popular addition to an offshore asset protection trust or private foundation is a type of insurance policy called an insurance wrapper. This can be in the form of a type of portfolio bond or a life insurance wrapper. Not only does the addition of an insurance wrapper create a virtually impenetrable asset protection structure, it often provides for completely legitimate tax mitigation where a trust or foundation alone may not provide same by allowing assets to grow within the insurance policy in a lawful tax exempt manner.
When combined with an offshore asset protection trust or private foundation, the policy owner would be the trustees of the offshore asset protection trust or the private foundation respectively.
Please click here for more information about offshore insurance wrappers and how they can enhance an asset protection structure.
Contact Us today for a free consultation regarding our offshore asset protection services to get started on a structure designed specifically for your or your client’s bespoke requirements.
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