, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. 

Ike Devji, JD

Offshore asset protection trusts for physicians can provide an exceptionally high level of protection and predictability. Like with any complex legal structure, there are some important details and compliance issues to be aware of to do it right.Here’s a first look at what you need to know.

Our last installment in an ongoing series on trust basics for doctors covered some of the basics of 

 (DAPTs). This week we start a look at the vastly misunderstood world of ‘offshore asset protection trusts’ or OAPTS, also often referred to ‘international asset protection trusts’ or or IAPTs.

Contrary to popular lore, using offshore trusts and banks does not typically involve Bond girls moving briefcases full of money to secret accounts in beachside resorts on private jets, 

. It is a relatively boring paperwork and compliance heavy process that ensures compliance with U.S. tax law, the laws of the offshore jurisdiction and the compliance burdens of the custodial banks and trust companies involved, many of which are meant to protect you.

The trustee of the trust is outside the jurisdiction of the U.S. Court system and can’t be ordered to pay a judgment from a “foreign” U.S. court

U.S. court judgements are not valid or enforceable in the best trust jurisdictions

The assets themselves are held by banks outside the jurisdiction of the U.S. court system

The laws of the trust jurisdictions have short statutes of limitation, may prohibit distributions to judgment creditors, distributions made under duress and strictly limit any available cause of action to a fraudulent conveyance claim

Pursuing an offshore trust requires significant time, expense and specially qualified legal counsel

Separating Fact from Fiction - Important Basics to Know

It is completely legal for a U.S. taxpayer to use complaint offshore trusts and bank accounts

OAPTs are not “secret”. If you are questioned about their existence or asked to list your financial assets in a formal legal proceeding like a deposition, debtor’s exam, in response to written interrogatories, etc. you must disclose them. NOTE: 

Disclosure does not make a properly timed and structured OAPT any less secure.

WARNING: Any strategy, domestic or offshore, that relies on “secrecy”, 

. Such strategies rely on several fatal flaws including hoping that no one will find out about the assets or ask you about them, your willingness to lie under oath and commit perjury if you are asked about them and probably, your willingness to commit 

, in an effort to conceal the existence of the trust.

OAPTs are not tax free. U.S. taxpayers must report the existence of any offshore trust or bank account 

 and pay taxes on any profits made offshore. Although painted in a negative light in recent popular lore because of issues with large numbers of tax evaders (many of who are American doctors) the defensive value of the IAPT remains intact. The simple mistake made by most of the people you read about having trouble with offshore accounts can be reduced to simply failing to report the accounts as the law requires. You do have a well-established right to have offshore bank accounts and trusts and the event of moving money to a foreign bank account owned by a trust is typically not taxable in and of itself.

Merely having money in an offshore bank, titled in any of the following ways, is not considered the most effective asset protection available by most experienced practitioners, (but it admittedly does provide additional distance, expense and delay for plaintiffs).

An offshore account held by an LLC or IBC (international business corporation) you control or controlled by an agent you direct

An account held by a “private offshore foundation” that you control directly or indirectly

Using trustees and banks with a U.S. presence is not effective offshore asset protection. If the U.S. court system has or can get jurisdiction over either the trustee or the bank holding the trust assets, it will do so to enforce a judgement. As such, using banks like Credit Suisse and UBS, that have U.S. offices, is not recommended.

Our next installment will provide additional detail on OAPTs, 

Articles

Like with any complex legal structure, there are some important details and compliance issues to be aware of to do it right.

Trusts 101 for physicians part 11 – Offshore trusts 

Asset protection trusts for physicians can be domestic, offshore, or may utilize the best aspects of both structures. We examine the question of 

 on the trust law basics every doctor should understand we introduced some of the features common to most asset protection trusts, regardless of whether they are domestic asset protection trusts, commonly referred to as 

 or offshore or foreign asset protection trusts, or 

There are currently about 19 states that have legislation that allow the formation of a DAPT in their jurisdiction. This number has grown over the last few years due to both consumer demand and the jurisdictions’ realization that the trust business can generate significant fees and draw wealth to their states. Among the most popular of the DAPT jurisdictions are Nevada, Montana, Delaware, and Wyoming but there are many others that have similar or even better statutes.

Experienced planners have strong opinions about which domestic jurisdictions are best and why and should be able to explain the benefits of the DAPT state they use and how they effectively protect you and your assets well beyond just, “Because we are in state X”. Among the best analysis of the various state DAPT statues is a 

 created by Las Vegas estate planning attorney Steve Oshins.

DAPTs are typically less expensive to set up and maintain than their offshore counterparts but are not as well tested and long proven on any wide scale and rely on the hope that, for instance, a judge in California with jurisdiction over a California defendant will refrain from trying to grab that defendant’s assets in Nevada because Nevada says they are in a special trust. DAPTs also unfortunately face “full faith and credit” challenges. Legally, a judgment in any state is good and enforceable against a defendant and their assets in every other state. As such, the main issue or flaw with DAPTs is that the trust’s assets remain in the jurisdiction and a the subjective judgment and control of the U.S. court system, regardless of the validity of the threat you may face.

The laws in these states the level of protection they provide vary widely as do many of the other details, so professional guidance by experienced asset protection attorneys is highly recommended. This provides both guidance on the correct usage and operation of the tool itself and the protection of a “privileged” relationship with a licensed professional. Your communications with various non-attorney promoters and document preparers are not confidential, are discoverable in a lawsuit and they do not have professional liability for any malpractice. There are significant ramifications for making transfers to these kinds of vehicles including tax, estate, and fraudulent conveyance issues that you must understand or have counsel that does. Some DAPT promoters may apply form documents without a full understanding of their use and how it will affect your future defense, control, and use of those assets. Get personalized help from an experienced attorney who can help make sure that you are following the letter of the law to get any and every possible benefit the trust may provide.

Large numbers of DAPTS have been established over the last few years in various jurisdictions by planners of widely varying skill for clients with questionable timing. Unfortunately, “bad facts make bad law” and given the number of bad fact-planning cases that have been executed in the last few years, we may see many of these structures pierced. Although these cases should be judged individually on their merits, human nature makes it more likely that they will begin to be viewed as a group by the courts and either generally upheld or viewed as ineffective. Until that drama plays out, I advise against participating in the legal equivalent of a clinical trial.

In short, if you live in a DAPT state and fund a fully compliant DAPT with the right assets, and the legal challenge you face never leaves a state court, it may very well work. Outside that specific fact pattern, consider using multiple layers of proven legal tools, and for the highest level of protection for those who are financially qualified, offshore trusts and hybrid ‘Bridge Trust’ structures that will be the focus of our next installment.

JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. 

Trusts 101 part 10: Domestic vs. offshore trusts

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