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STANDBY INTERNATIONAL TRUSTS, & MORE

In past newsletters we discussed the Standby International Trust© as compared to the International Trust. Since there has been considerable interest in the two, today's newsletter expands on the differences.

 

For starters, the trusts we provide for our clients are generally integrated with asset protection, retirement planning, and estate planning. This means that both the life and death side are important, integral parts of the overall planning. But there are significant differences between the Standby International Trust© and the International Trust. 

 

First, a Standby International Trust©. The trust is a U.S. domestic trust with a standby provision that allows you to elect to add an additional trustee later in any jurisdiction, worldwide. The Standby International Trust© - when first implemented - does not have a foreign trustee registered outside the U.S.

 

However, the terms and provisions of the trust allow you elect to register the trust at a later date with an additional trustee in a more favorable asset protective jurisdiction. Upon completing the standby election, the trust would then have the full international asset protection benefits provided for in the trust and in the jurisdiction where it becomes registered.

 

Another benefit of the Standby International Trust© is that you can avoid the added annual cost of registering the trust with the additional trustee when initially implemented. And, you can avoid the ongoing annual foreign trustee fees.

 

What’s more, when you initially create the trust, you can use either a U.S. personal trustee of your choosing, or alternatively, a U.S. corporate trustee that we set up for you. We work with professional corporate trust companies in the U.S. and offshore.

 

The U.S. trustee can always be changed from a personal trustee to a corporate trustee at any time. The benefit of using a U.S. personal trustee is there would be no trustee fees, it is someone you know, and someone that knows you and your family. And the benefit of a corporate trustee is that they are generally more knowledgeable and designed to handle more complex matters than most personal trustees.

 

At the onset, the trust is designed and implemented as a U.S. domestic trust, for tax purposes, and not a foreign trust. When a standby election is made to convert the trust to an International Trust the trust can (and usually does) continue as a U.S. domestic trust even after the additional trustee is added from a foreign jurisdiction. However, this can be subsequently altered.  

 

As a U.S. domestic trust, it is tax neutral. This means that all asset-generated income and expenses pass through the trust to your personal tax return, as the trust grantor. However, even though generally no trust taxes are due, we still recommend that the trust file an informational return indicating all income and expenses are reported on your personal tax return, which you or your accountant can easily prepare.

 

So what happens after the standby election is made and completed?

 

Next, the International Trust. This trust is also generally created and implemented as a U.S. domestic trust. It can be established one of two ways: 1) Initially designed and implemented as an International Trust, or 2) After the standby election is made and completed in the Standby International Trust©.

 

In either scenario, one of the benefits of registering a trust outside of the U.S. includes, for example, trust laws that do not recognize U.S. judgments, or U.S. judicial proceedings. This means that attempting to enforce a U.S. judgement against your assets in some jurisdiction is not possible. 

 

And if a judgement creditor and their lawyer seek to enforce a U.S. judgement in some jurisdictions, they must start all over again with their litigation. This is a huge burden to the plaintiff, but a tremendous benefit to you when protecting your assets.

  

Not only must the plaintiff then pay all costs of litigation (including flying to the offshore venue to litigate their claim), but plaintiff lawyer contingency fees are generally illegal. And very short statute of limitations means the claim may already be precluded from proceeding.

 

The above factors alone often discourage plaintiffs and their lawyers, and provide you an opportunity to discourage frivolous lawsuits, or settle litigation swiftly for significantly less. 

 

But these are only the beginning of the benefits of using an International Trust for asset protection.

 

The trust terms, provisions and statutory laws (for the trusts we create for our clients) create very high barriers to claims against your assets. And litigation challenges when attempting to enforce US judgements abroad will become daunting for even deep pocket plaintiffs looking to attack your assets. 

 

The above are only a few of the ways some asset protection venues offer superior asset protection and wealth preservation when using an International Trust. 

 

Assets can still be located at home. Or assets can be located elsewhere - now or in the future - for diversification. Assets can be held directly in a U.S. LLC, or in an offshore LLC. In either case, the LLC is primarily owned and protected by the trust. 

 

However, you, as the LLC manager, control the assets directly on day-to-day matters. When properly implemented, LLCs can offer a significant added layer of asset protection through Charging Order Protection, which means that court ordered LLC asset distributions can be avoided.

 

You, as the trust Protector, also have significant controls over the trust and trustees. As the trust Protector, you maintain veto powers and control over who are trustees, and the laws of the venue that controls the asset protection. 

 

When using a U.S. domestic trustee, it brings added convenience, and is also part of maintaining the trust's tax status as a U.S. domestic trust. This means that for U.S. tax purposes, the trust tax filing requirements are user friendly. And it means the trust can maintain its tax neutral status.

 

For those individuals looking to implement superior asset protection now, the International Trust is a superior choice. There is an added cost to implement the trust, and additional, ongoing annual trustee's fees, but for many this is a small price to pay for the extra benefits of superior asset protection and international diversification, now, rather than later. 

 

If, and when, offshore activities or transaction occur, there may be added accountant compliance or tax reporting, but this will vary from individual to individual circumstances.

 

Since the early 1990s we have implemented the International Trust integrated with asset protection and estate planning for many of our clients with the above, and other, features. Learn more at this link.

 

So why would you would want to keep assets in the same place where a threat or litigation arises?

 

Depending on how implemented, some domestic trusts create nothing more than an illusion that assets are protected in a fashion similar to an International Trust. They are not.  

We have never believed that a standalone, pure, domestic asset protection trust (DAPTs) strategy with all assets in the U.S. should be used for serious asset protection planning.

 

Yet, for some individuals, a U.S. domestic asset protection may still be beneficial. For those insisting upon keeping everything local, for the least amount of money, and willing to accept the limitations, this option may be useful as compared to no asset protection at all. This is when the Standby International Trust© becomes useful.

 

Think of the Standby International Trust© as having the potential benefits of both trust worlds. This means having superior protection, with simplicity and lower costs.

 

In a nut shell, you implement a domestic trust that costs less, and is easier to maintain. Yet the trust includes the added asset protection and estate planning features found in an International Trust, without the offshore asset protection being activated until needed. 

 

This added feature is a ‘standby’ provision in the trust, so that when a threat appears the trust can be converted into an International Trust.

 

When converted, the benefits of an International Trust are designed to come into play. In the meantime, you can avoid the added offshore costs and compliance burdens until the standby provision is exercised.

  

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

 

Start Now

 

If you’d like to learn more or 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.

 

Both books are available at reduced prices right here at our web site in quality soft cover, pdf, or Kindle.

 

More International Trust tips can be found at DavidTanzer.com. 

 

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

 

Until next time…

 

 

David