Questions to Ask Before Getting an Offshore Trust
For anyone who has been offered an offshore trust, sometimes called a foreign asset protection trust, and wants to question the attorney or trust company proposing it before signing. The questions follow the order the decision usually takes: whether it fits you, the jurisdiction, the trustee and the control you give up, what it does and does not protect, tax and costs, then the adviser. Each has a note on what a sound or a worrying answer sounds like; the rules differ by country and state, so take the answers to your own lawyer and do not read the notes as legal advice.
The questions
Each question, and why to ask it
Whether it fits
What specific risk in my life is this offshore trust meant to protect against?
Why ask it
A useful answer names something real: a profession that draws lawsuits, a business where you sign personally, a kind of claim your insurance would not cover. 'Anyone with assets should have one' is a sales line. If no risk is named, there is nothing to measure the structure against, so stop there until one is.
If offshore trusts did not exist, what would you recommend for me instead?
Why ask it
This brings out the plainer tools: a larger liability insurance policy, a company around the risky activity, a domestic trust where your state or country allows one, and whatever local law already shields. An adviser who has weighed them can say where each falls short for you. One who dismisses them all in a sentence has a single product to sell.
Is there any claim, dispute or debt in my life right now that makes this the wrong time?
Why ask it
Before you ask, tell them everything: a demand letter, a marriage in trouble, a tax bill under dispute, a loan you co-signed. Transfers made when a claim exists or can be seen coming are the ones courts are most willing to undo, and the test for that depends on where you live. Worry about the adviser who says timing does not matter, or who seems keener once you mention a lawsuit.
Which of my assets would this really protect, and which stay within reach of a court at home whatever the deed says?
Why ask it
A house, land or a local business sits where a local judge can deal with it directly, so putting a foreign trust's name on the title may change little. Go through real estate, retirement accounts and business interests one by one, under the law of the place each asset is in. The reply often shrinks the plan to the liquid part of what you own, which is worth knowing before you price it.
How much does someone need at stake before the yearly cost of this is worth paying?
Why ask it
Push for a figure, then compare it with the liquid assets you would really be moving. Firms differ on where the floor sits, and hearing 'for you, not yet' from one of them is a sign you are being advised. If you are told there is no floor, remember who collects the fee either way.
How much of what I own would go in, and how much stays in my own name?
Why ask it
A careful plan leaves you plainly able to pay your bills and every debt you know about after the transfer. Being urged to move nearly everything is a warning, because a person left with nothing in their own name is commonly one of the things courts look at when a transfer is challenged. Have them run the arithmetic on your real figures and keep a copy.
What checks will you and the trustee run on me before accepting me, and who have you turned away?
Why ask it
Expect questions about where the money came from, identity documents, and often a sworn statement that you are solvent and not facing claims. Being examined is a good sign. A firm that can describe clients it declined, such as someone already being sued or someone whose funds could not be explained, has standards; 'we can help anyone' tells you what its checks are worth.
Jurisdiction
Which jurisdiction are you recommending, and why that one over the others people use?
Why ask it
The Cook Islands, Nevis and Belize are among the names you will hear, but the reasons are what you are after: how its law treats foreign judgments, how long a creditor has to act, how its courts have ruled. 'It is the strongest' is a slogan. Follow up by asking whether the firm has a standing business relationship with a trustee there, since convenience for the firm is also a reason.
Does that jurisdiction enforce a court judgment from my home country, or would a creditor have to sue again there?
Why ask it
This is the center of the pitch, so ask for the section of the statute and read it, not the brochure's summary of it. Then ask what suing again would involve for the creditor: local lawyers, a deadline, a standard of proof, any bond to be posted. Write the answers down, because they are the claims a second lawyer can check for you.
How long after I fund the trust can the transfer still be challenged, there and at home?
Why ask it
There are two clocks, and they rarely match. Get each one in years, along with what starts it running and whether a creditor who did not know about the transfer gets longer. An adviser who quotes only the foreign deadline is giving you the flattering half.
Have that jurisdiction's courts been tested on trusts like this one, and how did the cases go?
Why ask it
A statute describes what should happen; cases show what did. Someone who works in this field can talk through decisions where the trust held and ones where the person who set it up still lost at home. If you hear only wins, ask for the losses by name and look them up.
How stable is the country itself, and is it on any international watch list?
Why ask it
A place on a tax or money-laundering watch list can make banks at home slow or unwilling to send money there and back. The lists are public and they change, so check them yourself after the meeting. It is also fair to ask how often the trust law there has been rewritten, and why.
Where will the cash and investments be held, and is that the same country as the trust?
Why ask it
It is common for a trust under one country's law to keep its account at a bank in another. Each added country is another court that may have a say and another set of account-opening forms and fees. If the plan leaves the investments with an institution in your home country, ask what a judge there could order that institution to do.
Can the trust be moved to another jurisdiction if the law or the politics there change, and who decides?
Why ask it
The provision is often called a flight clause. Find out who can trigger it, whether you would be told first, what the move costs, and whether moving has any tax effect at home. Then read the clause itself, since a power the trustee holds alone is a different thing from one a protector must approve.
Will there be a company underneath the trust, and what is each layer for?
Why ask it
Many proposals add a limited liability company owned by the trust, often registered in a different country again, sometimes with you as its manager until trouble arrives. Each layer brings its own renewal fee, filings and rules about when you must step aside. If the adviser cannot give each one a one-sentence purpose, assume the diagram was drawn for the fee.
Trustee and control
Who exactly will the trustee be, and which regulator licenses them?
Why ask it
Get the company's full legal name, license number, regulator and years in operation, then find it on the regulator's public register yourself. Who owns it and how many staff handle accounts like yours are fair follow-ups. A trustee you cannot find on a register is a reason to walk away, however good the rest sounds.
Once the money is in, what would I have to ask the trustee's permission for?
Why ask it
Go through ordinary acts one at a time: taking cash out, changing an investment, paying a child's tuition, adding a beneficiary. The protection generally comes from your not being able to compel the trustee, so a promise of full control together with full protection deserves suspicion. Some people hear this list and decide against the trust, which is a fine use of the question.
If I ask for a distribution and the trustee refuses, what can I do about it?
Why ask it
The candid answer may be 'very little, and that is the design'. Follow with how long a routine request takes and on what grounds this trustee has said no before. Then picture needing the money in a hurry and decide whether you could live with that.
Who would the trust protector be, and what exactly can they do?
Why ask it
A protector is usually a person or firm with power to replace the trustee or veto certain decisions. Three details matter: whether you may choose them, whether they have to live outside your home country, and who steps in if they die or resign. A protector picked and paid by the firm selling the trust is not much of a check on that firm.
What does the duress clause say, and who decides when it has been triggered?
Why ask it
Many deeds tell the trustee to ignore any instruction you give under pressure from a court. Have the clause read to you, then have the first week after it is triggered described: who is told, what is frozen, how you pay your living costs. If nobody can describe that week, the clause has been sold to you and not explained.
Can I be a beneficiary of my own trust, and how do courts where I live treat that?
Why ask it
A trust you set up and also benefit from is handled very differently from one place to another, and some home courts give its protection little weight. You want the position in your own state or country, with the statute or case behind it. Whether your spouse and children are also beneficiaries changes the answer, so say who you want provided for.
Who decides how the money is invested, and can my current adviser stay involved?
Why ask it
Some trustees accept an investment manager you nominate and others insist on their own, at their own fee. Find out who has signing authority on the account. The awkward follow-up is whether your hand in investment decisions could later be pointed to as evidence that you never gave up control.
How do I replace the trustee if the service is poor or the fees climb, and what does leaving cost?
Why ask it
Four things to pin down: who holds the power of removal, how much notice is needed, any exit or transfer fee, and how long a handover takes. A trustee at ease with the subject will also say how often clients move away and why. Reluctance to discuss leaving before you have even arrived is a preview of the day you try.
If the trustee company fails, is sold or loses its license, what happens to the assets?
Why ask it
Trust assets are meant to be held apart from the company's own money, so the real question is how that is done and what you would see as evidence, such as accounts titled in the trust's name. Whether the company is audited and insured, and by whom, belongs in the same answer. A licensed trustee hears this often, so a vague reply is worth noting.
What happens to the trust when I die or can no longer make decisions?
Why ask it
Your family may one day be writing to a trustee in another country whom they have never met. They will need to know who becomes entitled, whose instructions the trustee will take, and how the trust sits beside your will at home. A good provider offers to meet or call the people who will inherit while you are still around to introduce them.
Protection
What does this trust not protect against?
Why ask it
A straight adviser has the list ready. It tends to include claims that already exist, taxes, family support orders, anything tied to a crime, and assets a court at home can physically reach, though the exact list depends on where you live. If the answer is 'nothing', leave.
If I were sued for a large sum, how would you expect it to play out, step by step?
Why ask it
Advisers in this field often describe the benefit as bargaining position: a creditor facing a second lawsuit overseas may accept less to settle. Get the realistic sequence, including what you would spend on lawyers in two countries along the way. Honest replies talk about better settlement terms; be wary of the word 'untouchable'.
If a judge at home orders me to bring the money back and the trustee refuses, what happens to me?
Why ask it
The trust may be out of the court's reach while you are standing in the courtroom. What a judge where you live can do to a person in that position, contempt included, is a question for a litigator as well as for whoever drafts the trust. A reply that skips over your personal exposure has left out the hardest part.
How would this trust be treated if I ever filed for bankruptcy?
Why ask it
Bankruptcy law can carry its own look-back period for transfers into trusts you benefit from, and it may be much longer than the ordinary one. Get the period that applies to you and what a bankruptcy trustee could demand to see. An adviser who does not practice in that area should say so and name someone who does.
How does it hold up in a divorce, and does my spouse need to know about it or consent?
Why ask it
Family courts in many places look at everything both spouses have, whoever's name is on it, and take a dim view of assets moved out of sight. How judges where you live have treated these trusts when dividing property is the part to press on. Any firm that pitches this as a way to hide money from a husband or wife is inviting you into trouble.
What privacy does this give me, and from whom?
Why ask it
Being hard to find in a casual asset search is one thing. Secrecy from tax authorities is another, and with account information now exchanged between many countries it should not be on offer. Check also what you would have to disclose under oath if you were sued; a pitch that depends on nobody ever knowing is a pitch for something else.
Would this transfer breach anything I have already signed with a lender, insurer or business partner?
Why ask it
Loan agreements, personal guarantees and partnership agreements can require you to disclose your assets or forbid moving them. Bring the documents and have the adviser read the relevant clauses instead of guessing. You will also be asked about the trust on future loan applications, so ask how to answer truthfully.
Tax and costs
Does this trust reduce my tax bill at all?
Why ask it
In many countries the expected answer is no: the income stays yours to report at home and the structure is built to be tax-neutral. An adviser who sells an offshore trust as a way to stop paying tax may be describing evasion. Put the same question to your own accountant before you believe either answer.
Which forms and disclosures will I have to file at home every year because of this, and who prepares them?
Why ask it
You want the list by form name and due date. For a US taxpayer it usually includes foreign trust returns and a foreign bank account report, and other countries have their own versions. A general tax preparer may never have filed these, so get the name of the accountant who will, how many they file a year, and their fee.
What are the penalties for a late or missed filing, and who is tracking the deadlines?
Why ask it
Penalties for foreign trust and account reporting can be large compared with the sums involved, even in a year when no tax is due. Have them state the figures for your country. Then settle whose job the calendar is, yours, the law firm's or the trustee's, and get it into the engagement letter.
Is moving assets into the trust a taxable event or a reportable gift?
Why ask it
Depending on the country and the drafting, a transfer can mean a gift filing, a capital gains bill, a transfer duty or nothing at all. Go asset by asset, and be most careful with anything carrying a large unrealized gain. Settle this before the first asset moves, since it is hard to reverse afterward.
How is it taxed when money comes back to me, or goes to my children after I die?
Why ask it
Some tax systems treat a foreign trust more harshly once the person who set it up has died, and distributions of old income can then be costly for heirs. Two things to get: what changes at your death, and what your beneficiaries would have to file. If your children live in a different country from you, mention it, because that can change everything said so far.
What happens to the tax position if I move abroad or change my tax residence?
Why ask it
A new country may classify the trust differently, tax it differently, or charge you on the way out of the old one. People tend to ask this after the move, when the options have narrowed. If relocating is even a possibility, say so in the first meeting.
What does it cost to set up, item by item, and who is paid each part?
Why ask it
One all-in figure hides who is paid what: the law firm for drafting, the trustee for accepting the trust and running its checks, a registry for any company, the bank for the account. Find out whether any of it comes back if the trustee declines you after its checks. An itemized quote is also the only kind you can set beside another firm's.
How many weeks from signing your engagement letter to money in the trust, and which step is the slow one?
Why ask it
The usual sequence is the trustee's checks on you, drafting, signing, opening the account abroad, then moving the assets. Which of those drags depends on the provider and the bank, so get a week count for each and find out whether you would ever have to travel or sign in front of a notary. If the whole thing is promised in days, find out which of the checks is being shortened.
What will it cost each year to keep running, all in, and what does that come to over ten years?
Why ask it
The yearly bill has several parts: the trustee, the company renewal, bank custody, investment management, and the accountant at home. Get a total in currency and not a percentage, along with how often this trustee has raised its fees. Then set ten years of that total beside the amount being protected.
What does the trustee charge for work outside the yearly fee, such as distributions, amendments or answering a lawsuit?
Why ask it
Charges by the hour are common for anything out of the ordinary, and a trust under attack is when the hours pile up. Ask for the fee schedule as a document and take it home. Find out too who pays the trustee's own lawyers if a creditor brings a claim over there; the answer you are likely to hear is the trust.
What would it take to unwind the whole thing in five years, and what would that cost?
Why ask it
Find out whether it can be wound up at all, whose consent is needed, the fees, and the tax effect of bringing the assets home. Lives change: a business is sold, a risk goes away, the cost stops making sense. A structure whose exit nobody can describe has not been thought through to the end.
The adviser
Are you licensed to practice law where I live, and will I be your client or the buyer of a package?
Why ask it
Check the license on the bar's or regulator's public register before the second meeting. An engagement letter that names you as the client generally creates duties toward you, while a consultant or a website selling kits may owe you far less. Ask who you could complain to if it went wrong; a real law firm can answer that at once.
How many offshore trusts have you set up, and how many have been tested by a creditor?
Why ask it
Drafting these and defending them are different experiences. For the tested ones, find out what happened and what the firm changed in its documents afterward. None tested is not disqualifying, but it means you are hearing theory.
Do you receive any fee, commission or referral payment from the trustee, the bank or anyone else in this structure?
Why ask it
Such arrangements exist, and a disclosed one is something you can weigh. One you find out about later colors every recommendation you were given. Get the answer in writing, including any ownership stake the adviser holds in the trustee company.
Will you put in writing that this structure is lawful for me and how you expect it to work?
Why ask it
The usual form is an opinion letter addressed to you, so find out what it would and would not cover. A letter is not a promise about any outcome. Still, a firm that will say things across a table and decline to write any of them down has told you how far it stands behind them.
May my own attorney and accountant read the draft documents before I sign?
Why ask it
Yes, said without hesitation, is what you want to hear. Resistance, or being told that outside professionals will not understand this area, is one of the clearest marks of a promoter. Pick reviewers who do not sell these trusts, and pay them for an hour or two of reading.
Can I speak with the trustee directly before I commit?
Why ask it
You may be dealing with this company for decades, long after the lawyer who introduced you has retired. A half-hour call shows how they explain a refusal, how fast they reply and whether they speak plainly about fees. If the adviser insists on being the only channel, ask why.
Why does this need to be signed now?
Why ask it
There is a legitimate reason to act before trouble appears, and the adviser can explain it calmly. A seminar discount that expires on Friday, or a deposit taken before you have seen a draft, is a different kind of urgency. Take the papers home and get a second opinion; a sound plan will still be sound in two weeks.
What would you tell me never to do with this trust once it exists?
Why ask it
Careful advisers keep a list: do not treat the trust account as your wallet, do not leave it off a loan application or out of sworn testimony, do not miss a filing. Those are the habits that undo these structures from the inside. No rules for you after signing suggests the firm has not thought about how its trusts fail.
How to question an offshore trust proposal
Practical guidance for the conversation itself
Before the meeting
Write the risk down in one sentence
Say what you are afraid of losing and to whom: a malpractice claim above your insurance, a business debt you signed for personally. If you cannot finish the sentence, the first question on the list is one for you before it is one for the adviser.
List what you own, what you owe and what is in dispute
Note where each asset sits and whose name is on it, then every debt, every agreement you signed as a backer and anything that could turn into a claim. Leaving a problem off the list does not make it go away. It only means the advice was written for someone else.
Look the people up first
Search the lawyer on the bar's public register and the trustee company on its regulator's register. Then search both names alongside words like complaint and enforcement. It takes ten minutes and occasionally saves the meeting.
Ask for the papers ahead of time
Request the engagement letter, the fee schedules of the firm and the trustee, a sample trust deed and a diagram of the structure. A firm that sends them expects to be read. One that will only show documents in the room prefers you not to study them.
In the meeting
Open with the limits
Begin with what the trust does not protect and what it costs each year, and leave the benefits for later. How someone handles the two least welcome questions tells you more than the presentation does.
Ask for sources, not assurances
Each time a statute, a deadline or a court case is mentioned, ask for its name and write it down. Those are the items a second lawyer can check in an hour. 'Trust me, this is how it works' cannot be checked by anyone.
Count the questions you are asked
A careful firm wants to know where your money came from, whether you can pay your debts, who might sue you and who you want provided for. If the only thing asked is how much you plan to transfer, you are in a sales meeting.
Leave without paying or signing
Take the proposal, the fee schedules and the draft deed home. Nothing about a legitimate structure requires a deposit on the day you first hear about it.
Checking what you were told
A second opinion from someone who does not sell these
Hire a trusts or asset protection lawyer licensed where you live, by the hour, to read the proposal. Give them one job: say what would happen to you and to this trust if you were sued in your home courts.
The tax answers, to your own accountant
Hand over the list of yearly filings you were given and ask three things: whether the list is complete, whether they could prepare those filings themselves, and what they would charge. If the accountant and the adviser disagree about whether the trust changes your tax, sort that out before anything is signed.
Ten years of cost on one page
Add the set-up fee to ten years of trustee, company, bank and accounting charges. Put that beside the price of more liability insurance or a domestic arrangement covering the same assets. The comparison is rough, but it is the one the proposal will not make for you.
A test of the trustee
Email the trustee company two practical questions, such as how a distribution request is handled and how often statements are sent. The speed and plainness of the reply is a preview of the next twenty years.
Signs you are hearing a pitch
Tax savings in the headline
Legitimate advisers tend to say early that the trust is there for protection and has to be fully reported at home. When lower taxes lead the presentation, ask how, in writing, and take the reply to an accountant.
Full control and full protection together
The two pull against each other. Whatever lets you reach the money at will is something a court can order you to use, so a structure sold as giving up nothing should be examined hardest on that point.
Secrecy as the selling point
A plan that only works while nobody knows about it stops working the first time you are asked under oath. You should be able to disclose the trust on a tax return, a loan application and in sworn testimony and have it still do its job.
A deadline that belongs to the seller
Seminar-only prices, a few places left this month, a package with no named lawyer behind it. Your own timing matters, because acting before a claim exists is the point, but that is a reason to start early and not a reason to skip the second opinion.