AHOY! The (very) Basics of Offshore Asset Protection
What is a Foreign Asset Protection Trust, what do they do, and who benefits from having one?
01/What is a Foreign Asset Protection Trust?
A Foreign Asset Protection Trust (FAPT) is a trust that is created in a jurisdiction other than the United States. The trust functions under the law of the offshore jurisdiction and is administered by an offshore trustee.
02/What does a Foreign Asset Protection Trust Do?
FAPTs are used primarily for asset protection. A grantor transfers assets, usually liquid assets or business interests or accounts receivable, to the FAPT so that the assets are out of reach of potential domestic creditors. How does this work?
The FAPT jurisdiction does not recognize judgments from the United States, so the creditor must bring a lawsuit in the trust's jurisdiction. The inconvenience and cost associated with bringing a lawsuit in a foreign jurisdiction, including hiring local counsel, is usually prohibitive.
The FAPT jurisdiction typically has more favorable asset protection laws, such as requiring a higher standard of proof, than the US.
The FAPT jurisdiction typically has a statute of limitations that begins when assets are transferred to the FAPT, rather than when the transfer is "discovered" by the creditor. In many jurisdictions, that statute of limitations is much shorter than the 4 years provided by US law.
03/Who Benefits from having a Foreign Asset Protection Trust?
Generally speaking, FAPTs are used by people who, by the nature of their work or professional relationships, face ongoing or significant threats of lawsuits or professional liability, whose assets do not already receive creditor protection under US law, and/or who are looking for greater privacy. This might include people like doctors, lawyers, business owners, developers, and contractors, but it could be anyone who prioritizes protection and privacy.
Establishing the FAPT is usually tax neutral. While several documents need to be filed with the IRS upon creating the FAPT, the forms simply demonstrate that the grantor is a responsible and law-abiding citizen.
There are a variety of ways to structure the FAPT, such as combining it with an LLC to give the client direct signature control over bank and brokerage accounts, but this isn't always advisable. The point is, there is flexibility in how assets are managed and the degree of control the client can exercise.
Here's the stuff we always put at the end: If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 or send an email to email@example.com to set up a free consultation.
Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.