International Asset Protection Trust

by Tom Streissguth

A trust is a structure that allows a grantor to place assets under the control of a trustee, and for the use of beneficiaries. The trust owns the assets, while the grantor can protect the property from estate taxes, creditors, estranged spouses and others who might lay claim to it. An international trust is one that has its "domicile" or legal residence outside of the United States, and in some cases outside the jurisdiction of U.S. law. The country where the trust operates applies its own laws to trusts, but the federal government still investigates suspected tax evasion and money laundering.

Uses of an International Trust

An international trust allows the grantor to place assets out of the reach of creditors. In general, foreign countries do not allow the enforcement of judgments issued by U.S. courts. Establishing a business or a subsidiary in a foreign country may also be easier if the investment capital is already in place, not subject to exchange controls and accessible from a local trust.

Local Rules and Laws

Many foreign countries welcome international trusts with friendly laws and tax rules. Belize, for example, does not require the registration of international trusts; nor does this country impose any taxes, allow the levying of foreign taxes, or require reporting of income or activity from the grantor, trustee, protector or beneficiaries of a trust. In the Cayman Islands, a trust can transfer money without fees or registration, appoint a trustee from anywhere in the world, and is free of all income, capital gains and business taxes.

Grantors, Trustees and Protectors

Financial advisers and attorneys knowledgeable in trust and international law can assist in the creation of an international trust. The international trust has all the features of a U.S.-based trust, including a grantor who sets it up, a trustee who manages the assets according to the grantor's instructions, and a beneficiary who receives income or assets as the trust directs. In addition, a protector appointed by the grantor can oversee the trustee and ensure the terms of the trust are being carried out. By appointing foreign persons or businesses, grantors help ensure that trustees and protectors are not personally subject to U.S. law or taxes.

Repatriation of Funds

In theory, a US tax court or federal agency can order the "repatriation" of funds from an international trust to settle debts, fines or taxes in the United States. However, the laws of the foreign country prevail unless that country has an agreement with the U.S. on a transfer of assets involved in money-laundering, tax evasion, criminal activity or fraud. The trust can also include language that suspends the authority of the protector if he's under duress by the IRS, another federal agency or a court.