Are You Really Better Off with an Offshore Trust?
Better Than an Offshore Trust
There are many different opinions about the best way to protect your assets. In the end, unless those opinions are backed by actual court cases, they have little relevance. As a general rule, if an asset protection strategy is proven to work well in many court cases over many years, then it is a good strategy. In contrast, if an asset protection strategy is new and untested, it is difficult to know whether it is a good strategy or not. Furthermore, if an asset protection strategy is proven to fail in many court cases, then it is a poor strategy despite any alluring marketing materials.
There are law firms and trust companies that strongly favor offshore trusts and market their effectiveness in protecting assets. Unfortunately, the court cases tell a different story—that offshore trusts don’t work.
The cases show that a court may order the debtor to turn over money that is held in an offshore trust. Often, the debtor will refuse the court order, claiming that he cannot get the money because it is in an offshore trust that will not, and cannot, transfer the money. The court’s response is not favorable to the debtor, and the debtor will go to jail for contempt of court if they refuse to comply. Impossibility fails as a defense to contempt because “a self-created impossibility is not a defense to contempt.” As such, the debtor will go to jail until they decide to turn over the money in the offshore trust. End of story.
This is not a rare occurrence. A relatively fast cursory search will show case after case where this has been the result. The fact is that the courts have learned how to use contempt to defeat an offshore trust—making offshore trusts a faulty asset protection strategy.
So, based on court cases, what is a better option? Our preference is to use a third-party spendthrift trust as circumstances permit. Third-party spendthrift trusts are supported by statutory laws and court cases in all fifty states, and these laws have not changed for hundreds of years. Not all third-party spendthrift trusts are the same in quality or structure. We have spent more than 25 years designing, operating, and improving our third-party spendthrift trusts. Our primary third-party spendthrift trust is known and trademarked as “The 541 Trust ©”
Why Choose The 541 Trust®?
In addition to the case law supporting third-party spendthrift trusts, The 541 Trust has the following advantages over an offshore trust:
- It is less expensive to maintain than an offshore trust. In fact, it involves no required ongoing costs.
- It has much simpler IRS reporting requirements than an offshore trust.
- It isn’t affected by the contempt of court issue because available defenses comply with the law, rather than trying to evade the law.
- It is infinitely flexible and if you change your mind, assets can be transferred out of the trust, or the trust can be terminated, without tax consequences.
- It is easy to sell a home or another asset that is owned by The 541 Trust®.
- It is never taxed at a higher tax rate, and it can own your home without giving up the tax benefits of home ownership.
When we create a 541 Trust, we anticipate potential problems that may arise in the future, including but not limited to the following: What if the client gets divorced? What if the client dies leaving a surviving spouse in need of access or control of the trust? What if the client decides that they no longer want or need the trust? What if federal or state tax laws change? What if other laws change? How will this trust coordinate with the client’s other estate planning documents? For over 25 years, we have developed, refined, and integrated solutions for each of these issues into our client’s plans.
People deserve asset protection strategies that are supported by case law and experience. Our goal is to provide you with asset protection strategies that provide security if you are sued, declare bankruptcy, or have serious financial problems. Our law firm has the staff, staying power, and succession plan needed to provide our clients and their estate continual support.