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Trial Lawyers in America

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Trust have evolved, and revolved, for millennia. Today, we look at how trusts evolved to suit our needs in a changing world; and how they revolve around our modern needs. Trusts are like the wheels on the bus in the children’s melody that go round and round, as my daughters used to sing when they were little. Today we can change those words to read:

The wheels of the trust go round and round,
round and round, round and round.
The wheels of the trust go round and round,
all through the times!

Ok ….  if you want to add some frivolity into the serious nature of trusts and join the sing along, then you’ll need to wait until the end of the newsletter. For now, let’s see how trusts evolved up to the 1990s, and then to our current International Trust.

The Wheels of the Trust Go …

Over two thousand years ago, the early recorded trusts were used by Roman soldiers that left their home and chattels in safe keeping with others when they went off to do battle. If they failed to return, the property would be distributed to other parties, as directed. And if they returned home, then they retained their property rights as before.

In later centuries, the British perfected trust planning for private and commercial purposes. Most notably, business and personal property placed in trust could be safe from business debts, personal claims, and lawsuits. This provided the settlor with great protection of assets, so long as the property was not used as collateral for debts. Today, much of the world follows the British Common law model and has adopted these fundamental British trust law principles.

Over two hundred years ago American trust laws also followed British trust law. However, over time, one significant deviation occurred. The difference is that as a general principle of American trust law, an individual creating their own trust could not protect assets from third party claims. For that reason, when America turned litigation crazy following consumer rights movements arising during the 1970s and 1980s, some of us early legal trust pioneers sought offshore trust protection from those jurisdictions that strictly followed its British roots of safely protecting assets from third parties when transferred into a trust.  

This above history is a bit of over-simplification of 2000 years of trust development, but it demonstrates how the wheels of the trust go round and round, and continue to evolve over time.

In 1989, modern offshore asset protection began to take hold as a result of the litigation gone wild society. Modern roots are found in the Cook Islands statutory trust law, which specifically permit a settlor to place assets into a trust to legally protect them from third party claims. US citizens were the primary market for these early trust laws, which sought to correct the strange deviation American trust laws made from their British roots.

Since then, the asset protection industry has grown by leaps and bounds. So too have the trust laws in the Cook Islands, and other venues around the world that attempt to keep up with the Cook Islands model.

Early asset protection trusts were simply called offshore trusts. During the 1990s they took on the more descriptive name of Foreign Asset Protection Trusts and were typically referred to as FAPTs. The basis of the early FAPTs was to place assets into an irrevocable trust and register the trust with a trustee in an offshore venue with strong asset protection laws outside of the jurisdiction where the settor resided. For Americans, that simply meant outside of the US. The objective was to place assets in a trust safely outside of the local court jurisdiction at home. Today, this same basic premise remains, and has withstood major litigation tests over time.

However, using the term “offshore” in the trust description started to fall out of favor in the late 1990s for several reasons. In the US, for federal tax law purposes, trusts registered outside of the US could fall into more complex tax and compliance requirement under US foreign tax laws, or into the much more user friendly version of US domestic tax laws. The term “offshore” used with trusts became increasingly confusing as it was applied interchangeably between the two types of trusts for tax purposes, under either foreign or domestic. What’s more, the term offshore was under attack by some in the media, and by some in the government, to wrongly imply that all offshore trusts were somehow bad or illegal.  This myth unfortunately grew, particularly in the US.

During the 1990s, I first started using the term “international trust” to describe the more user tax friendly offshore trust where US domestic tax laws applied. This term applied to the user friendly trusts under domestic tax treatment that were registered in a foreign venue that integrated asset protection and estate planning. The term international trust made sense to me because it made clear that the trust was truly international in nature, yet applied user friendly, at home tax rules. In the first edition of my book How to Legally Protect Your Assets published in January 2000, the term international trust first went to print.

Today, fifteen years later, the term International Trust (in upper case) stuck and has become the universally accepted term. Here, here, here and here are a few of the past newsletters that describe what that means, and how they are used. I’m delighted to see this identity crisis work through the system, but outdated tax codes and uninformed individuals today still create confusion by incorrectly referring to the two different types of trusts as “offshore trusts”. Change takes time.

Unfortunately, during the 2000’s as new, inexperienced trust planners started implementing trusts for their clients, some awful planning strategies resulted in terrible results for these clients. In two well-published cases two clients were sent for a short stay in jail: one for contempt of court for creating a self-imposed impossibility to repatriate assets after a court order was entered, and the second for lying to the court while under oath. The lawyers representing these two unfortunate clients did a great disservice to the clients and the industry, and likely committed professional malpractice as a result of their inexperience.

During the 1990s I was selected as a member of the Million Dollars Advocate Club, which recognizes highly successful litigation lawyer’s courtroom success. And during the 2000s I was named by the American Trial Lawyers Association as a Top 100 Trial Lawyer. I am also a former judge and teaching Professor of International Law (see the details at this link.) The reason of pointing out these personal milestones is that there is simply no substitute for over three decades of experience and learning through the school of hard knocks. What's more, there are some very important lessons that can be drawn from the mistakes of others. For example:

First, assets should be placed outside of the local court jurisdiction in the country you reside before a threat materializes - and certainly well before a court judgment is entered. Second, trustees and trust protectors within the court’s long arm of justice should be replaced by other individuals or professional organizations outside the court’s jurisdiction, as a local judge will often apply local law and disregard the foreign law. These lessons mean that when a threat is at hand it’s important that parties with authority to act for the trust - and control the assets of the trust - should be located as necessary outside of the court’s reach. And these steps must be timely taken.

Other important points are that distributions from the trust to the settlor or beneficiaries must be done wisely, especially if a court repatriation order exists. A trustee can generally make payments directly to third party service providers to pay for personal living expenses, but assets shouldn’t be distributed directly to the settlor or beneficiary when such orders occur. Making good use of a settlor loan or other open line of credit may also be a useful strategy.

Sadly, during the past decade as competition between new planners emerged, the result was to cut prices and cut corners by offering one-size fits all planning structures. These packages place clients at great risk, and are frequently marketed today. The two clients that went to jail were certainly not clients of ours, and none of our clients have been incarcerated or fined as a result of our planning. For more tips on how to select a good trust planner follow this link.  

The good news is that today, the wheels on the International Trust for asset protection and estate planning continues to evolve. And the best strategies are stronger and more flexible than early offshore trusts and FAPT varieties.

Here are a couple of other take-aways.

During the 1990s domestic and offshore jurisdictions started passing Limited Liability Company (LLC) legislation. The foreign LLC was, in most instances, superior to International Business Companies (IBC). This was primarily due to being located in foreign venues, asset protection charging order protection, lower costs, user friendly structures, and a streamlined management structure. And they too have evolved.

Today, LLCs have evolved into exceptional planning tools. For example, you can transfer into the LLC assets for equal value membership interests, which makes them more resistant to fraudulent transfer claims. And then the remedy of a member’s creditor is restricted to a charging order. A creditor has the right to LLC distributions only if and when the manager (generally you) makes the distribution. In some jurisdictions a creditor cannot obtain a court ordered distribution, even if you manage the LLC.

Significantly, the best statutory charging order protection laws mean that it is the sole and exclusive remedy available to the judgment creditor. No other remedy of any type is available to a judgement creditor, and applies to both single and multiple members LLC’s.  Although a charging order entitles the judgement creditor to receive a distribution from the LLC relating to a member’s interest, the charging order does not enable the judgement creditor to compel a distribution to be made to a member owner. And fines, penalties, and punitive damages are not allowed.

And importantly, court orders against your foreign LLC member interest is not enforceable, the charging order is not considered  a lien against your  membership interest, and injunctions and restraining orders cannot be issued against your LLC interest by a local or foreign court. And any charging orders that arise will expire after three years and are non-renewable.The above features can result from a properly established LLC, registered in the correct venue, with the best charging order protection.

But remember, charging orders are not all created equal. At the end of the day, charging order protection properly created, with LLCs registered in the correct venue, is extremely valuable.

What’s more, many LLC setup and maintenance costs are on par with most domestic LLCs, yet with superior asset protection benefits than are found at home. And while trusts in general are not recognized in some civil law countries, a foreign LLC is, for the most part, recognized and supported by most of these same jurisdictions.

Caveats: Some claim the foreign LLC is as good or better than an International Trust. This is simply not true. The LLC has different strengths and weaknesses. The superior formula is to use the two together with the LLC membership interest held primarily in the name of the trust. And overall, conduct affairs as legitimate arm’s length transactions and avoid the classic alter-ego scenario, which goes against the fabric of LLC law.

The good news is that when you combine the International Trust with an LLC, they can complement one another and strengthen the overall planning structure. When properly combined, they are a great combination, although there are still instances when a standalone International Trust or LLC might suffice.

Some less experienced planners claim that a trust registered in a US state is just a protective as an International Trust. This is also simply not true. Follow here to learn why.

The beauty of the International Trust combined with the LLC is that you can act as the manager of the LLC, maintaining direct control over the LLC assets. Meanwhile, the trust is the primary LLC member owner afforded with charging order protection. Both you and the assets have the combined protection of the LLC, the International Trust, and the statutory asset protection laws of the jurisdiction where the trust is registered. Further, you, as the LLC manager, can make distributions to either yourself or the trust without violating accepted LLC practices.

If you take nothing else away from our newsletter today, it is that international planning is often far more beneficial than domestic planning alone. Although the strongest plans are completely foreign, a domestic hybrid structure is almost as protective, and has other intangible benefits. However, avoid a domestic trust that is registered in the same country you reside, as the asset protection is often illusionary. Essentially, some planners use these inferior trust strategies because they cost a little less to set up, and the planner is generally not well-versed in international laws or planning.

Today, the humble trust that that began 2000 years ago has evolved to the International Trust. The International Trust is often best when combined with LLCs that directly own the assets, where you as the manager control the assets. When implemented and maintained properly, this is a superior planning tool.

What’s more, the best planners today have taken the lessons learned since 1989 and developed new tools to make international planning more affordable, flexible, and protective than ever.

Make no mistake: trusts have evolved. And trusts will continue to revolve around the needs of the individual. For that reason you are now free to join the sign-along below.

For More Information:

There are numerous complimentary past newsletters and articles on our website at, which is a good place to learn more about asset protection, offshore planning, and more.

To learn more about the legitimate use of international trusts for integrated estate planning and asset protection, start with How to Legally Protect Your Assets, 2nd edition. And to learn more about the correct way to go offshore, read Offshore Living & Investing, 2nd edition.

And if you wish to start now and learn how to proceed with a confidential consultation to review your personal situation to accomplish your objectives, then contact me here.

The Sing Along

And if you’re ready to introduce some levity with the updated version of the Wheels on the Trust Go …. you can listen to the music at this YouTube link. And here are the latest lyrics:

The wheels of the trust go round and round,
round and round. round and round.
The wheels of the trust go round and round,
all through the times!

The lawyer for the trust goes zoom, zoom, zoom.
zoom, zoom, zoom. zoom, zoom, zoom.
The lawyer for the trust goes zoom, zoom, zoom,
all through the times!

The heirs in the trust go waa, waa, waa.
waa, waa, waa. waa, waa, waa.
The heirs in the trust go waa, waa, waa,
all through the times!

The settlors of the trust go shh, shh, shh.
shh, shh, shh. shh, shh, shh.
The settlors of the trust go shh, shh, shh,
all through the times!

The trustees for the trust go swish, swish, swish.
swish, swish, swish. swish, swish, swish.
The trustees for the trust go swish, swish, swish,
all through the times!

The protector of the trust goes beep, beep, beep.
beep, beep beep. beep, beep, beep.
The protector of the trust goes beep, beep, beep.
all through the times!

The words in the trust say, I love you.
I love you, I love you
The words in the trust say, I love you.
All through the times.

Until next time ……