A number of offshore jurisdictions have enacted trust laws that provide significant protection for debtors. One example is St. Vincent in the West Indies. Its trust laws have a number of separate provisions that make assets held in a St. Vincent trust very difficult for a U.S. creditor to reach. One such provision is that St. Vincent simply does not recognize foreign judgments with respect to trusts. If a U.S. creditor has a judgment against a debtor in the United States, the creditor cannot collect assets of that debtor held in a St. Vincent trust without filing a new action in St. Vincent. That new action will be subject to numerous requirements that put obstacles in the creditor’s path. Legal proceedings in jurisdictions like St. Vincent often move very slowly. Several years ago one of my clients was involved in a real estate transaction in St. Vincent. I learned that navigating various St. Vincent legal requirements was difficult and very time consuming. Jurisdictions such as St. Vincent also provide very short statutes of limitations for fraudulent transfers, which favor debtors over creditors.
There are many other choices for offshore trust arrangements including the Isle of Man, the Cook Islands and the Cayman Islands.
While offshore trust can provide valuable asset protection, they are expensive to set up; there will be annual maintenance fees; they all involve loss of control of your assets to some degree; and they have various other risks. They can also sometimes do more harm than good because many judges are naturally skeptical of entities formed in places most Americans have never heard of.
The bottom line is that an offshore trust arrangement may be an appropriate part of an asset protection plan, especially for certain high net worth individuals. Generally, however, there will be simpler and less expensive alternatives available.
Finally, it is important to note that offshore trusts cannot be used to avoid U.S. income taxes. This continues to be a big misconception that many Americans have about offshore trusts.