1. Introduction to offshore asset protection trusts

An offshore trust refers to a trust established in a jurisdiction or country other than the place of residence of the grantor. When the term “offshore trust” is mentioned in international business, it generally refers to a trust established in an “offshore financial center” such as the Cayman Islands, the British Virgin Islands, the Bermuda Islands, or Samoa and other regions. In addition to providing comprehensive legal protection or tax reduction or exemption for foreigners’ assets, offshore financial centers also provide a variety of trust planning flexibility in their trust-related regulations in response to the special needs of the grantors. Most offshore financial centers also have legislation ensuring strict confidentiality of privacy, which makes trust assets quite confidential. With these advantages, people with asset planning and management needs have chosen to set up offshore asset protection trusts in offshore financial centers and transfer their overseas assets to trustee as a tool to manage overseas assets and prevent potential creditors from claiming their assets.

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2. Terms and Conditions often seen in offshore asset protection trusts:

Both ”management of overseas assets” and “preventing potential creditors from claiming the grantor’s assets” are often the major reasons a grantor sets up an offshore asset protection trust. Thus, a typical offshore asset protection trust structure would design many protective clauses, including: (1) trust protector clause; (2) anti-duress clause; (3) flight clause.

(1) Trust Protector Clause：

In an offshore asset protection trust structure, there is often a trust protector who is responsible for ensuring that the trustee would administer the trust property according to the directions of the grantor. Such trust protector would be given the power to modify trust clauses in response to a variety of changes. For example, the clause might stipulate that the trust protector may change the trustee(s) or place of trust establishment.

(2) Anti-Duress Clause：

In offshore asset protection trust practices, in order to protect the trust property, an anti-duress clause is often stipulated, giving the trustee the power to resign, dispose of trust property in an emergency, or change out other trustees.

(3) Flight Clause：

Flight clause is often designed to grant the trustee(s) the power to move the trust to another legal territory or jurisdiction. The triggering requirement of such clauses are often based on the threat of political instability in the place where the trust is established, the change of the personal data protection law of the place where the trust is established, or when the trustee or the trust protector resigns and needs to be replaced, and it would then permit the trustee to transfer the trust to another legal territory or jurisdiction.

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3. Conclusion

Lately, many individuals with high net asset values utilizes offshore asset protection trusts as tools for asset protection through the help of international wealth management planners. In addition to the aforementioned clauses which are often seen in offshore asset protection trusts, one needs to note that offshore trusts involve many complex transnational legal and tax issues. When necessary, do not hesitate to seek the professional assistance of an attorney or accountant.

(Author: Yu-Wei Lin, Esq.)

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References：

1. Chih-Cheng Wang, “The Establishment, Recognition, and Legal Issues of Offshore Trusts,” Modern Public Finance, Vol 35, Nov. 2013, pp. 8-26.

2. Richard C. Ausness, The Offshore Asset Protection Trust: A Prudent Financial Planning Device or the Last Refuge of a Scoundrel?, 45 Duq. L. Rev. 147 (2007).

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