The Unreliability of Offshore Trusts

asset protection specialist

asset protection specialistWhen it comes to asset protection, few instruments hold as much renown (and perhaps infamy) as the offshore trust. People love the idea of stowing their funds in a different country to avoid losing it in bankruptcy or divorce. Unfortunately, it seldom works out as planned.

While the thought of hiding your money in a far-away island to keep it completely safe from the government, debtors, or your ex-wife is appealing, the truth is far more complicated. Offshore trusts have proven to be notoriously unreliable for asset protection, and they are rapidly falling out of favor.

Most asset protection experts like recommend forming a well-made and perfectly legal domestic trust instead. But what exactly is the problem with the classic strategy of opening a trust in a different country?

  1. Effectiveness – As mentioned earlier, there is a strong legal precedent for defeating offshore trusts. Defendants in dozens of cases, ranging from bankruptcy proceedings to divorce, have had their offshore assets seized by the court. Some people were even incarcerated after being accused of fraud.
  2. Cost – Despite the relatively imperfect security it provides, creating an offshore trust is still very expensive. Making one can cost you tens of thousands of dollars – making it out of reach of all but the wealthiest people. The annual costs can also be tremendous, further eating into your funds.
  3. Legitimacy – There is a strongly negative image associated with offshore trusts, and having one instantly makes the court suspicious. It has traditionally been used for criminal activities, after all, and will warrant a very close investigation.
  4. Convenience – Offshore trusts have very strict reporting requirements, and taxes can be a major headache to deal with. This will take up hours of your time every year, and any mistakes can be costly.
  5. Privacy – It is illegal to hide your offshore accounts in a bankruptcy proceeding. Unlike some domestic trusts, you must disclose your offshore assets when you fill out the bankruptcy questionnaire – otherwise, you face fines and fraud charges.

As you can see, an offshore trust might be able to protect your assets to a certain extent, but it is definitely not perfect. There are better options out there, so you should do your research before spending time and money setting up an account that will do little for you when it counts.