Foreign Asset Protection Trust

Because malpractice and liability insurance costs are so high -- and lawsuits are so common -- some people are turning to asset protection trusts as a way to protect their assets and still keep control. Those who are at a higher risk include lawyers, doctors, accountants, financial planners, architects, entrepreneurs, contractors, and property developers.

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.

NOTE: This information is designed to provide a general overview with regard to the subject matter covered and is not state-specific. The authors, publisher and host are not providing legal, accounting or any other advice which purports to be specific to your situation. The contents of this website are believed to be completely reliable. Nevertheless, some material may be affected by changes in the laws or interpretations of such changes since the material was entered on the website. If legal advice or other expert guidance is required, the services of a competent professional in the field of law, accounting, insurance or investments should be sought.

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