Foreign Trust Structures

Foreign Trust Structures


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Exotic Offshore Trusts


So far, we have focused our discussion on entities which are recognized under what is labeled "Anglo-American jurisprudence", that is, those entities which are formed under the well-documented statutory law and common law of the United States and England. Even the relatively recent U.S. LLC, an entity which does not have a direct counterpart, under English law, is in truth just a hybrid, combining attributes of U.S. partnerships and corporations. Read for more about offshore trusts, but we recommend Irrevocable Wyoming Trusts .

It is easy to note a majority of popular offshore havens are English in nature, including, but not limited to, the Bahamas, Bermuda, B.V.I., the Caymans, St. Kitts and Nevis, and the Cook Islands. While the particular laws of these jurisdictions are clearly debtor-friendly, their laws are still fundamentally English in nature and thus fit easily into English and U.S. norms.

Even given the above list, Anglo-American Jurisprudence is has limited geographic expanse. Though Britain may wield considerable influence over the most common offshore centers, and the U.S. dominates commerce, many jurisdictions have adopted unique legal systems, mostly falling under the concept of civil law jurisprudence which is forumlated off the Napoleonic Code. A majority of European countries uphold civil law traditions as do the plethora of former French, Spanish and Dutch colonies.

Though civil law jurisdictions enable various entities considered similar in structure and formulation to their common law entities, they also form entities which are quite alien, to say the least, to Anglo-American sinsibilities. Some U.S. asset protection planners have taken an interest in these novel arrangements, primarily for tax reasons. Some are under the impression the IRS may struggle with how to conceptualize such formulations with regards to taxability, thus leading to the distinct possibility of a more favorable tax consideration than that traditionally received by traditional U.S. entities.

The treatment of these structures is beyond our websites scope; though, one should be cautious while pursuing these as the heightened hopes of favorable tax treatment may lead to disappointment. The IRS may very well characterize such an entity in a decidedly worse fashion than if the entity were of a well-recognized domestic variety and disregard the structure altogether. This makes exotic trusts a very uncertain strategy for protecting assets.

Nevertheless, however the IRS chooses to treat these civil law organizations, they do raise unique possibilities from the perspective of asset protection because of the simple fact U.S. creditors, and the U.S. legal system, may find it difficult to grasp the inner-workings of unfamiliar civil law trusts. Not all these entities require individual persons or entities as owners or beneficiaries. Similar to U.S. non-profits, they can be created for a, often vaguely, defined purpose or intent. They can be thought of as being similar to a “purpose trust”, a common law trust lacking defined beneficiaries.

Remember, an integral goal in asset protection planning is the creation of doubt in the creditor's mind about the possibility of recovery. Should a creditor have difficulty understanding a particular entity, and thus in formulating an attack plan against the entity, the creditor is increaslingly likely to agree to a settlement.

In the above case, should an entity have no specifically defined beneficiaries, then it's more difficult for the creditor to argue a transfer was made with a fraudulent intent rather than being altruistic. Further, lacking specific beneficiaries means there are no creditors of beneficiaries which need to be considered. For so long as the original contribution was not fraudulent, the assets in question are protected from creditors. These are some of the reasons such “exotic” civil law entities/trusts may potentially play a role in asset protection planning.

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