Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

Any trust that can help protect your assets from creditors requires that you surrender at least some control over those assets. This goes for an offshore trust; a so-called "domestic asset protection trust"; an irrevocable life insurance trust; and any other trust that gives you creditor protection. If you think about it, this is just common sense. If you retain full control over the assets in a trust, than a judge could order you to hand those assets over to a creditor who has a judgment against you. This is why a revocable grantor trust (frequently used for probate avoidance) provides no creditor protection. Such a trust may be useful to avoid probate, provide asset management, and for other purposes. But it is not going to protect your assets from a judgment creditor.

Surrendering some control of your assets is not necessarily bad, as long as you are willing to do so. But each situation has to be analyzed separately. And, you must be very careful about who you are giving some control to. While this is a broad generalization, it should come as no surprise that the more control you give up, the better creditor protection you get. But surrendering control has its own risks, which should be considered very carefully.

Legitimate asset protection includes a balancing of risks and possible rewards. Always keep in mind that if a particular arrangement looks too good to be true, it probably is. 

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The recent economic downturn has caused creditor problems for many wealthy Americans who never dreamed they would be in this kind of situation. A front page article in the July 9, 2010 New York Times reported that one in seven homeowners with loans in excess of $1 million is seriously delinquent. Foreclosures are occurring at shocking rates in affluent areas. One of several examples given by the New York Times is that the sheriff in Cook County, Illinois is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of the city -- like Wilmette, LaGrange and Glencoe.

In the past, most affluent Americans have paid little attention to asset protection. In better times -- when the real estate market and the stock market seemed to go nowhere but up -- it was difficult for many affluent Americans to imagine they would ever face serious creditor problems. Those days are gone. Focusing on the downside has now become a critical part of the planning process for the wealthy. Part of that focus should include a review of how all your accounts are structured and titled to be sure you have not missed opportunities to protect certain assets from creditors. As I have said many times before: the best time for that planning is before you have any financial problems -- and not once you are facing issues with creditors.

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More than 30 foreign jurisdictions now have asset protection trust statutes.  The Cook Islands was the first to adopt an International Trust Act for asset protection purposes in 1989, and many other jurisdictions have based their statutes in whole or in part on Cook Islands' law.  A number of other jurisdictions have traditionally relied on court cases (rather than a statute) to provide asset protection for trust beneficiaries.  The leading example is the Isle of Man (used by many wealthy individuals long before any offshore asset protection statutes were enacted).

Offshore laws vary widely, and there is no one jurisdiction that will automatically meet the needs of all clients.  There are varying statutes of limitations relating to fraudulent conveyances; differences in whether a U.S. judgment will be recognized or whether a new trial will be required; differences whether contingent legal fees will be permitted; and a variety of other variations.

Beware of anyone who is simply trying to sell a particular kind of trust, like a "Cook Islands Trust", or a "Cayman Islands trust".  There is no way someone can know the best choice for you without a careful analysis of your particular situation.  Whether an offshore trust is even a good idea for you in the first place requires careful analysis.

The bottom line is that there is no foreign or domestic asset protection trust that automatically meets the needs of all individuals.  Each situation must be analyzed on its own.

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