Offshore Asset Protection Trust

What is ‘Offshore’

1. Located or based outside of one’s national boundaries. The term offshore is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion.

2. Offshore can also refer to oil and gas drilling operations that are conducted in the ocean.

BREAKING DOWN ‘Offshore’

Many countries, territories and jurisdictions have offshore financial centers (OFCs). These include well-known centers like Switzerland, Bermuda and the Cayman Islands, and less-well-known centers like Mauritius, Dublin and Belize. The level of regulatory standards and transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions.

DEFINITION of ‘Asset Protection Trust ‘

A vehicle for holding an individual’s assets to shield them from creditors. Asset protection trusts allow, if it is difficult for a creditor to seize assets, settle with the debtor on favorable terms instead of engaging in costly litigation. This vehicle has complex regulatory requirements, such as being irrevocable and contains a spendthrift clause. An asset protection trust does provide for occasional distributions, but those distributions must only occur at an independent trustee’s discretion.

BREAKING DOWN ‘Asset Protection Trust ‘

Only a few U.S. states allow asset protection trusts. As of 2012, these include Alaska, Delaware, Rhode Island, Nevada and South Dakota. However, one can establish an asset protection trust in these states without residing there. Offshore financial centers like the Cook Islands and Nevis also allow individuals to establish asset protection trusts. The trust’s documents and administration, along with some or all of the trust’s assets, must be located in the same jurisdiction where the trust was established.