Foreign asset protection trusts (FAPT) are often called offshore trusts, because they are created under the laws of a foreign country (often the Isle of Man, Cayman Islands, or the Cook Islands) that does not enforce the U.S. judgments.
A common way to set up an FAPT is to transfer your assets to a limited partnership. As the general partner, you could keep only 1% of the shares, but full control. The other 99% of the shares would be transferred to the foreign trust. Your assets, however, do not have to leave the country until they are actually threatened. Even so, to be on the safe side, your attorney may suggest that you transfer your assets now to your offshore trustee.
If you are sued in the United States and a judgment is awarded, it has no effect in the country where title of your assets is held (in your FAPT). The case would have to be retried in the foreign country. But first a local attorney would have to be hired and the witnesses would have to go there to convince the court to even accept jurisdiction over the case. This can prove to be an effective deterrent.
An FAPT cannot be set up after someone has filed suit against you or a lawsuit is imminent. That would be considered a fraudulent transfer. must already be in place before a judgment, or the threat of a judgment
Also, an FAPT does not affect your taxes. You would still pay income, gift and estate taxes as you do now. But it can potentially save money by reducing the need for insurance. Eliminating your insurance "deep pockets" and having your assets held by a foreign trust can go a long way toward discouraging lawsuits.
Of course, an asset protection trust is not
without risk. It is subject to foreign rules, which can
change at any time, and a foreign trustee must be
involved. Domestic U.S. courts frown upon these trusts,
so they must be established in strict compliance with
the law in order to be effective.
Price & Farrington,
PLLC - Attorneys and
Counselors at Law