Asset protection is the legal protection of assets from creditors. This covers a wide range of legal techniques that are used to insulate assets from being pursued by creditors resulting from various situations like bankruptcy, taxation, and alimony payments. Asset protection is commonly connected with offshore banking and offshore trust accounts but is in no way limited to it. The US model is known as Spendthrift trust while the UK model is called Protective trust.
Because asset protection is a form of trust, it works much like how trusts works. Assets are held in trust, protected and managed by a trustee for the benefit of the beneficiary. The trust is governed by the terms contained within the document and by local law. Because of the latter, some trusts are still subject to challenge under the common law doctrine of sham. Creditors can attack any trust if it has been proven that the settlor (the one who created the trust) is a beneficiary, at risk financially, or becomes bankrupt or divorced soon after the creation of such trust.
Because of this, some advocate the use of offshore asset protection or more commonly known as offshore trust. It works much the same way like any trust except that foreign courts have no capacity to enforce its ruling where it has no jurisdiction. Furthermore, laws where offshore banks are based are tailored allowing settlors to serve as beneficiary without being vulnerable to contrary laws.
The way this works, foreign based trust companies sets up their companies in such a way that their companies will have no business or any assets in any countries with rigid common law doctrine of sham or with countries having weak bank secrecy laws. In this way, they avoid the legal pressures a local court can exercise to force foreign trustees to open up the trust to creditors that have won the court decision. This pressure usually comes in the form of freezing or seizing of trust company assets located within court jurisdiction.
Because of this, offshore trusts are generally more attractive to those planning to set up trusts accounts. Also, asset protection is in no way immune to challenges from within the country where the trust company is based. This is why it is important for trust accounts to properly delineate the separation of the settlor and the trustee in such a way that settlors will have no way of exercising control over the assets. The only exception is in cases where they are beneficiaries, and still then, they are only slated to receive income from such account, and no legal right to control it in any way. Again, settlors can only become beneficiaries in such countries where there are no laws against this.
So that the purpose of asset protection cannot be defeated, either the trustee or trust companies hold trust accounts in fiduciary duty. Fiduciary duty entails accountability such that those entrusted with it cannot act in conflict of duty and interests, and conflict of duty from person to person, or gain or profit from such position. Anyone found in breach of their fiduciary trusts can be held accountable by law with remedies usually dealing with property, personal, and monetary compensation.
Because asset protection is a form of trust, it works much like how trusts works. Assets are held in trust, protected and managed by a trustee for the benefit of the beneficiary. The trust is governed by the terms contained within the document and by local law. Because of the latter, some trusts are still subject to challenge under the common law doctrine of sham. Creditors can attack any trust if it has been proven that the settlor (the one who created the trust) is a beneficiary, at risk financially, or becomes bankrupt or divorced soon after the creation of such trust.
Because of this, some advocate the use of offshore asset protection or more commonly known as offshore trust. It works much the same way like any trust except that foreign courts have no capacity to enforce its ruling where it has no jurisdiction. Furthermore, laws where offshore banks are based are tailored allowing settlors to serve as beneficiary without being vulnerable to contrary laws.
The way this works, foreign based trust companies sets up their companies in such a way that their companies will have no business or any assets in any countries with rigid common law doctrine of sham or with countries having weak bank secrecy laws. In this way, they avoid the legal pressures a local court can exercise to force foreign trustees to open up the trust to creditors that have won the court decision. This pressure usually comes in the form of freezing or seizing of trust company assets located within court jurisdiction.
Because of this, offshore trusts are generally more attractive to those planning to set up trusts accounts. Also, asset protection is in no way immune to challenges from within the country where the trust company is based. This is why it is important for trust accounts to properly delineate the separation of the settlor and the trustee in such a way that settlors will have no way of exercising control over the assets. The only exception is in cases where they are beneficiaries, and still then, they are only slated to receive income from such account, and no legal right to control it in any way. Again, settlors can only become beneficiaries in such countries where there are no laws against this.
So that the purpose of asset protection cannot be defeated, either the trustee or trust companies hold trust accounts in fiduciary duty. Fiduciary duty entails accountability such that those entrusted with it cannot act in conflict of duty and interests, and conflict of duty from person to person, or gain or profit from such position. Anyone found in breach of their fiduciary trusts can be held accountable by law with remedies usually dealing with property, personal, and monetary compensation.
