With so many events occurring in the world at one time that threaten your assets, our newsletter today is short and serves as a reminder the importance of taking steps today to protect your assets.
We look again at the Standby International Trust© and compare it to the International Trust. Today's newsletter looks again at what makes them different, and why they are superior at protecting assets.
Our long time readers and clients know we implement trusts for our clients integrated with asset protection, retirement planning, and estate planning. This means that both the life and death side are integral parts of the overall planning. But there are important differences between the Standby International Trust© and the International Trust.
Read on to learn more.
A Standby International Trust© is a U.S. domestic trust with a standby provision that allows you to make a future election to add an additional trustee in a superior asset protection jurisdiction, anywhere in the world. When the Standby International Trust© is first implemented, it does not have a foreign trustee located outside the U.S. But after the election is made, it can become an International Trust.
What's important is that the terms and provisions of the trust allow you to elect in the future, and to register the trust in a more favorable asset protective venue. Upon exercising the standby election, the trust will then have the full powers and benefits of asset protection of an International Trust where it is 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, and avoid the ongoing annual foreign trustee fees, until the standby election is exercised.
What’s more, when you initially create the trust, you can use either a U.S. personal trustee of your choosing, or a U.S. corporate trustee that we set up for you. We work with professional corporate trust companies in the U.S. and offshore so both options are available.
And going forward, if required, the U.S. trustee can always be changed from a personal trustee to a corporate trustee - or corporate to personal trustee - at any future time.
The benefit of using a U.S. personal trustee is there are no trustee fees. It's 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, for tax purposes this can be also be 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?
The International Trust is also generally created and implemented as a U.S. domestic trust. It can be established one of two ways: 1) after the standby election is made and completed from the original Standby International Trust©, or 2) initially designed and implemented as an International Trust.
In either case, one of the benefits of registering a trust outside of the U.S. includes, for example, trust laws that do not recognize U.S. judgements, 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 many other venues they must start all over again with litigation. This is a huge burden to the plaintiff, and a tremendous benefit to you when protecting your assets.
Not only must the plaintiff (again) pay all costs of litigation, and fly to the offshore venue to litigate their claim, but plaintiff lawyer contingency fees are generally illegal. And, there is a very short statute of limitations. This means the claim may already be precluded from proceeding.
The above factors alone generally 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 (at least the trusts we create for our clients) create very high barriers to claims against your assets. And litigation challenges when attempting to enforce U.S. 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 somewhere else - now or in the future - for investment and safety diversification. Assets are generally held directly in a U.S. LLC, or sometimes in an offshore LLC. In either case, the LLC is primarily owned and protected by the trust provisions.
And, too, you, as the LLC manager, control the assets directly on day-to-day matters. When properly implemented, LLCs can also offer a significant added layer of asset protection through Charging Order Protection. This means that court ordered, forced LLC asset distributions can be avoided.
Further, 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, what jurisdiction the trust is registered, and the laws of the venue that protect the assets.
When using a U.S. domestic trustee, it brings added convenience. It 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 this means the trust can maintain its tax neutral status.
For those individuals looking to implement superior asset protection, the International Trust is a superior choice. There is an added cost to implementing the trust, and additional, ongoing annual trustee's fees. But for many this is a small price to pay for the added immediate benefits of superior asset protection and international diversification, today, rather than later.
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, sadly, some trusts create nothing more than an illusion that assets are protected in a fashion similar to an International Trust. They do not.
And we have never believed that a standalone, pure, domestic asset protection trust (known as DAPTs) with all assets in the U.S. should ever be used for serious asset protection planning. DAFTs would be a better descriptor.
Yet, for some individuals, 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 why the Standby International Trust© is still useful, but with the standby election.
Think of the Standby International Trust© as having the potential benefits of both trust worlds. This means the option for superior asset protection in the future, but with simplicity and lower costs today.
In a nut shell, the Standby International Trust© is implemented as 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. The ‘standby’ provision feature in the trust is ready for when a threat appears, to allow the trust to be converted into an International Trust.
And when converted, the full 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