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The Pandora Papers reveal millions of supposedly ‘leaked’ records by a group of media outlets. These documents are said to demonstrate how some of the world's wealthiest use trusts to protect their assets. It’s not well published, but many of those trusts were established in the U.S., and not offshore.

There is no evidence the documents were really ‘leaked’. Instead, from the information I’ve seen, the information was stolen by hackers, and then sold or passed on to so-called investigative journalists with a personal agenda.

Today’s newsletter looks at some truths.

Trusts are nothing new.

Trusts have been around for many hundreds of years. The Romans developed the first recorded trusts (fideicommissum) for solders going off to war as early as 625 BC. The first living trusts were developed in England during the 12th century crusades.

For well over 2,500 years, trusts have been used for a variety of purposes including privacy, estate planning, tax planning, pension funds, charities, investment trusts, and asset protection.

One person agrees to hold on to someone else's assets – property, money or whatever, - for the benefit of someone else. The person holding the assets is called a trustee, and is responsible for distributing the assets over time.

Perhaps, first to you during retirement, then to a surviving spouse, and eventually to kids, grandkids, charitable organization, or other friends and family. Trusts go way back, long before so-called investigative journalists came on the scene.

What's still appealing about trusts are the integrated estate planning and asset protection aspects. If properly implemented, the assets can be safe from creditors. If you get sued, no one can touch the assets as they technically belong to the trust. And up to a point, the assets are not subject to U.S. estate taxes. But if you give money directly to your descendants it could be taxed by the federal government at 40%.

An added benefit is that a trust can offer various levels of anonymity. This makes it easier for higher-net worth (HNW) individuals to keep their wealth private. The Pandora Papers show many people have taken advantage of these benefits, including world leaders, celebrities and every day hard-working business and professional people. HNW generally means anyone with assets of $1,000,000, or more.

Another reason for trusts is that HNW individuals have greater options and more places to put their money.

What stands out in the Pandora Papers is how HNW individuals living overseas are implementing trusts in certain U.S. states. In some respects, this has become more appealing than traditional offshore jurisdictions, as the U.S. offers a sense of security and the ability to fly under the radar.

But still, U.S. state's asset protection laws are not nearly as good as foreign jurisdictions. However, when stand by provisions are used alongside a U.S. trust, you have an option to apply the laws of a superior offshore asset protection jurisdiction, if and when, needed. In the meantime, you can save considerable set up and ongoing fees and costs, and initial and ongoing compliance requirements.

Re-read the last paragraph again. More detail is discussed below on Standby International Trusts. The correct implementation of these trusts is important.

In the meantime, you don’t have to worry about a trustee in another country not doing what they're supposed to do, charging for services not needed, and assets can be seen as more secure at home than in another country.

But in the U.S., trust critics are now calling for more transparency, more information about who controls trusts, and who benefits from them. Going forward, this could lead to stronger reporting requirements in the U.S., similar to Europe.

What are Trust Options Today?

In the past, there were two types of trusts integrating estate planning and asset protection: either a domestic trust, or an offshore trust. In the past, most trusts fit into one category or the other. But today there is a hybrid option, the Standby International Trust ©.

In a nutshell, the offshore variety, is significantly more asset protective reliable, offers greater international investment diversification, but comes at a higher cost to set up and maintain. The domestic variety is generally more user friendly, with minimal U.S. tax compliance, and with lower costs to set up and maintain, but comes with a higher risk of asset protection uncertainty.  

Today, you can have the benefits of both types of trusts, without the added risks and costs. And this is where the Standby International Trust © comes into play, and is discussed further below.

The Offshore Trust Variety

Some of the benefits of registering a trust offshore in certain venues include trust laws that do not recognize U.S. judgments or judicial proceedings. This means attempting to enforce a U.S. judgement elsewhere is not possible. If a judgement creditor wishes to enforce a judgement where a trust is registered, they are then forced to commence their claim from the beginning in that venue.  

The plaintiff is forced to post large cost bonds, pay costs of litigation, and lawyer contingency fees are generally illegal in the offshore jurisdiction. And short statute of limitations beginning from the date the trust was first registered may already preclude the claim.

The above factors alone are generally enough to discourage plaintiffs from trying to enforce a judgement offshore, and provides a renewed opportunity to discourage or settle litigation swiftly.

But there's much more. The hurdles are very strict when trying to attack an offshore trust under local trust laws. For example, short statutory laws create extremely high barriers before fresh litigation can even commence.

No doubt, offshore asset protection venues can offer superior asset protection and wealth preservation. And there are over 30 years of case law reinforcing the asset protection features of an offshore trust in some venues. 

With an offshore trust, assets can still be located at home, if preferred, or elsewhere for investment diversification. And commonly, assets are transferred into a U.S. LLC or an offshore LLC, wholly or partially owned by the trust. You control the assets directly as the LLC manager when assets are not under threat. When properly implemented, LLCs offer an added layer of asset protection through charging orders protection, which means that forced asset distributions can be avoided.

Further control of the trust occurs when you are the trust Protector. As the trust Protector, you maintain veto powers and controls over the trustees. A U.S. domestic trustee is also generally established as a trustee.

When the offshore trust is created as a ‘US domestic grantor trust’, the tax requirements are user friendly, and minimal. This means the trust is treated by the IRS as tax neutral, and is taxed as part of trust settlor's personal income.

Since the early 1990s we have implemented the International Trust for our clients with the above offshore trust features. Learn more at this link.

A drawback to the offshore trust is the added cost when first created and annually to maintain. For those individuals motivated to keep assets close to home and costs minimal they sometimes opt instead for the domestic trust variety, noted next.

The Domestic Trust Variety

U.S. trust laws for over the past 200 years have not always been beneficial for those serious about protecting their assets. Assets placed into a trust created by U.S. individuals were once strictly prohibited by U.S. trust laws from establishing a trust restricting or prohibiting creditor’s claims. For this reason, self-settled trusts for asset protection never really existed domestically throughout American trust law history. But now - in marginal ways - that has started to change, although there is still a long way to go.

The litigation frenzy that took hold in the 1990s was eventually seen as a revenue stream to tap into by state treasurers. Beginning in 1998, Alaska passed the first U.S. state domestic trust law for asset protection purposes hoping to compete against the well-established offshore trust institutions. Since then, fifteen other states have passed their own legislation allowing for a version of the U.S. domestic asset protection trust.


The U.S. domestic trust variety became popular with lawyers and their clients during the past decade. But too often lawyers marketing domestic asset protection trusts have no background in litigation, have little or no training in asset protection strategies, and have little or no knowledge or experience with offshore trusts. Yet, the domestic trust was seen as easy service for some law firms looking to ramp up revenues for clients looking to protect assets domestically in a cost effective fashion.


Domestic trusts are frequently marketed to American clients by keeping assets in the U.S. to minimize costs, and avoid offshore compliance matters. Is some respects they are correct, and it's no surprise the domestic trust has become popular.


But the question remains: Why you would want to keep assets in the same place where a threat arises?


Like anything in life, you get what you pay for. And too frequently, domestic trusts are nothing more than standardized, boilerplate documents provided at reduced prices.


The reality is that domestic trusts often create nothing more than an illusion to a client that their assets are protected in a fashion similar to offshore trusts. But don't be fooled.  


Follow this link for what to look for in an asset protection planner.


Unfortunately, there are many serious problems with the domestic asset protection trusts. One problem is Article 4, Section 1 of the U.S. Constitution providing each state to honor the judicial proceedings of every other state, known as the Full Faith and Credit Clause. This means that a claim against you or the assets can be adjudicated in a state where no asset protection exists, and then the state where your trust is registered must honor the judgment.


Another problem is conflict of law issues arising between different state's laws. And fraudulent conveyances laws. And bankruptcy ‘claw back’ provisions. And the ‘results-orientated’ judges creating more problems bringing their personal biases into the courtroom.


Any one of the above problems leave the domestic trust vulnerable to attack by plaintiffs and lawyers going after your assets.


As such, I have never believed that a standalone, pure, domestic asset protection trust with assets located in the U.S. should ever be used for serious asset protection planning.


However, a trust featuring the lower costs of a domestic trust, combined with a standby provision to switch it to an offshore trust, offers superior asset protection opportunities. This alternative is a valuable option to both of the above trust varieties.


The Standby International Trust ©


Think of having the benefits of both trust worlds, without the downsides. This means having superior protection, with simplicity and lower costs.


In a nut shell, you implement a domestic trust that costs less, and is easy to maintain. Yet the trust includes all the added asset protection and estate planning features found in an offshore trust, without the offshore asset protection being activated until needed. The added feature is a standby provision, so that when a threat appears the trust can be immediately altered into an offshore trust.


At that time, all of the benefits of an offshore trust are designed to come into play. However, no added offshore costs and compliance requirements arise until, or unless, the standby provision is exercised.


When the standby provision is exercised, the trust can become a full-fledged International Trust, as we have created for many individuals seeking superior asset protection during the past thirty some years.


In essence, the original domestic trust stands by ready to become an International Trust at your demand. Hence the name: the Standby International Trust ©.


How Does the Standby International Trust © Work?

As noted above, the original trust documents contain a standby provision to alter or change the trust. Until such time, you have the benefits of simplicity and lower costs. Then when you, the assets, or the planning structure are under threat, you can utilize the benefits of an International Trust.


Until the standby provision is exercised, the offshore trust asset protective provisions remain dormant. Only when the standby provisions are called upon by the trust Protector – generally you, or your selected successor trust Protector – do they become active. And only then does an offshore trustee replace a domestic trustee. In some cases a personal domestic trustee (a friend, relative or colleague) can continue to act as a domestic trustee, but they too can be terminated, if necessary.


The Standby International Trust springs into action not only through the trust provisions, but through the added documentation that makes it occur.


There are different options for an offshore trustee replacing a domestic trustee. For example, an offshore trustee can be designated when the trust is first implemented and they remain on standby until called upon. Or, an offshore trustee can remain unnamed, and decided upon when needed. Alternatively, a trustee can be selected now, but altered in the future.


The pros and cons to each standby foreign trustee option can be weighed to fit your circumstances.


Typically, the assets would be in the US when the trust is first implemented. And initially they could continue in the US when the standby option is exercised. At that time you can decide whether to keep the assets at home, or move them offshore. But when exercising the standby option, you would minimally consider the options for relocating assets to safer shores at a later date, if required. Naturally, you could also elect to relocate the assets at that time.


A decision could also be made whether to create one or more new offshore LLCs. Assets could be transferred from an existing trust domestic LLC to a new trust offshore LLC. If a new offshore LLC is created, you can also determine whether it is appropriate that you act as the offshore LLC manager controlling and managing the assets, or whether a different option is more desirable.


So long as the assets remain within the trust structure, the date the trust was first created continues as the trust formation date even when exercising the standby feature. This is consistent with statutory trust law features found only in select offshore jurisdictions. What’s important about this feature is that it mitigates or avoids claims of fraudulent transfers. In other words, the assets were in the trust and remained in the trust, and only certain trust options were exercised.  


As another standby option, you can elect - for US tax purposes - to maintain the trust as a US domestic grantor trust, or to include the added benefits of a true foreign trust (for tax purposes), if desired. 


With the overwhelming number of trusts we’ve created over many years, the mere fact of assets being held inside an International Trust – whether on standby or initially - is often enough to discourage even the most determined plaintiff and their lawyers to bring about a low cost outcome to a claim.


And if extra-ordinary litigation circumstances arise, there always remains a number of other different asset protective measures that can be exercised. The circumstances, the asset types and values, and your objectives, will ultimately determine which, if any, of the more aggressive offshore asset protective measures become necessary.


The Standby International Trust © provides numerous standby options to flee to safety.


The bottom line is that when a threat arises against you, your assets, or the trust, a more aggressive trust structure remains on standby. Until such time, you can minimize the costs, and keep life simple.


The cost to establish the Standby International Trust © can save you several thousand dollars to establish and to maintain.


One caveat – timing is everything. This includes that taking the necessary steps now is essential, so that when a threat arises, your Standby International Trust © is ready to protect you, your hard earned assets, and your family in the years ahead.


Start Now


If you’d like to learn more and discuss your planning objectives in a confidential initial review, contact me here.


The book How to Legally Protect Your Assets, 2nd edition, explains how you can use an International Trust to accomplish your objectives. Offshore Living & Investing, 2nd edition, takes it to another level.


More International Trust tips can be found at Both books are available at reduced prices right here at our web site in quality soft cover, pdf, or Kindle.


And visit our site for nearly 100 other complimentary Past Articles.


Until next time…




David A Tanzer, Esq.

JD, BSc, Ph.D (Hon)


For more information visit or email to David is the author of “How to Legally Protect Your Assets” and “Offshore Living and Investing.”