Asset Protection Myths: Offshore, International Trusts for Physicians

June 24, 2014

Offshore or international asset protection trusts can be safe, predictable, and effective, under the right conditions for physicians.

A great deal of myth and legend surrounds asset protection strategies for physicians, most of it secondhand and lacking any basis of experience. Today, we address one such common rumor about the use of "offshore" or "international" asset protection trusts by doctors.

In my previous four part series we introduced asset protection trusts and the right way to use them in detail, covering issues including picking the best jurisdictions. Despite the use of these structures by hundreds of thousands of successful Americans in a legal and predictable way for decades, a variety of myths based on exceptionally fact-specific and often misreported cases - most notably the Anderson, Lawrence, and Thomas cases continue to persist among both doctors and their advisers. The trusts in these cases were drafted by crooked lawyers (or worse non-lawyer, or disbarred lawyer promoters) who rolled the dice on a fraudulent conveyance claim. The idea that any or every client that uses this strategy is subject to harm or that the funds are regularly disgorged by force is frankly ludicrous and ignores the facts, it rarely happens if done right.

The "myth" is essentially this: "I heard those trusts can get you in trouble, they aren’t secret, and they get audited and some people who refuse to make payments from the trust get put in jail."

That sentence actually has a number of problems, not the least of which is the bad idea that any asset protection system should rely on "secrecy". As someone who uses those tools every day (in full disclosure I have a definite bias towards them based on my actual experience and success with my clients), I see this criticism by those who don’t actually use the tools all the time. These are basically attacks on the "impossibility defense" and based on someone reading a very fact-specific article that leads them to believe the sky is falling on all offshore or international asset protection trust, (aka IAPTs).

Sure, there are bad cases out there; nearly all share some combination of the following "bad facts." That said, absent these facts, I’ve yet to see a properly drafted and funded one defeated and only a handful even challenged in the foreign jurisdictions that are the best.

As always, I cannot strongly enough stress one key issue, even if we agree that a particular tool or strategy is subjectively "good" that conversation is meaningless if the tool is not a fit for your very specific fact pattern and financial qualifications. Many different forms and levels of asset protection exist, so this may or may not apply to your facts and assets.

WHEN IAPT PLANING ACTUALLY FAILS
1. They were set up too late, after an exposure (fraudulent conveyance).
2. They were set up early enough but never funded.
3. They involved acts/crimes of fraud or dishonesty (i.e. theft, conversion of marital assets, fruits of a criminal enterprise, etc.).
4. They allowed a defendant grantor or beneficiary to be a trustee beyond the time of formation.
5. They were poorly drafted by a lawyer or promoter as to the rights of the trustee to make distributions in an event of duress or to a judgment creditor.
6. They have issues with the IRS based on tax compliance or failure to report (doing it right means full disclosure and reporting).
7. They are in jurisdiction that is not defensive enough.
8. They use banks with a U.S. presence that are reachable by domestic creditor and courts.
9. The defendant grantor or beneficiary has unlimited access to funds on demand in a demonstrable pattern.
10.  When the planning and its funding has made the client insolvent and the client has no assets or income outside the trust.

Absent these conditions IAPTs have proven to be safe, predictable, and effective for thousands of Americans whom my associates and I have personally worked with for well over a decade. Next week, we will discuss how to find qualified counsel in this area to help you answer these questions for yourself.