The $10,000 Cook Islands Trust?

Photo by Hugh Stickney

In the past several years many, many planners have entered the field of Asset Protection.  The challenge as a consumer of this service is that it is getting more and more difficult to understand your options.

Do You Need a Fully Triggered Offshore Trust RIGHT NOW?

One such option being offered aggressively is a “Fully Triggered” Cook Islands Offshore Trust.  And for many people who call me, this seems like a dream come true.  It feels to them like finding a parachute in the back of a plane which just developed severe engine troubles. Their first instinct is to put on the parachute and jump as soon as possible.

The problem is that 99% of the time, jumping out of the plane is NOT the best solution.  What they actually need is for the pilot to talk with them and help them analyze all of their options, the safest of which is to simply land the plane.  Of course if someone is selling parachutes, then its even more difficult to recommend a thoughtful and unbiased decision.

And this is the real challenge for you if you are considering a Cook Islands Trust.  I am a big fan of the Cook Islands Asset Protection Trust (just like I am a fan of parachutes) – but in both cases only when it is necessary, and when it is the the right time to use one.

Why a FULLY Offshore Asset Protection Trust is (sometimes) a Bad Idea

Here is what you need to know (and may not be being told) when you are considering a fully Offshore Asset Protection Trust, in any jurisdiction:

1. A foreign APT is expensive to maintain. The  costs can range for maintaining a foreign trust, but it is safe to say that, especially considering the IRS compliance requirements, it will come it more than a non-foreign trust.
2. Can I cancel my Cook Islands Trust? This is a question I get a lot from callers about 4 years after they have done a fully foreign Trust.    The top reason cited was excessive maintenance fees and reporting requirements.  Many times these trusts were done when the client felt like there was a pending issue, and then once that issue was resolved, they started to feel uncertain about the ongoing reporting and costs.
3. Foreign asset protection trusts are required to file multiple forms with the IRS. You are required to file a Form 3520 with the IRS, and a Form 3520A every year.  This is a full balance sheet disclosure and extensive return detailing all assets held by the trust. You can check with your own CPA on the cost, but it is not free for either the CPA time, or the trustees time to facilitate and execute.
4. If you transfer assets offshore, or open an offshore bank account, then you must file at a minimum an additional IRS form TD F 90-22.1.  Failure to file this timely has significant penalties.  Additional reporting may be required and the IRS is adding new requirements all the time including the new FinCEN 114a.  If your Trust is a foreign Trust, then you also have FATCA reporting.
5. Dealing with and working with any offshore trustee or trust company requires experience and ongoing support by your attorney. Budget this into the ongoing costs and make sure that you both have an attorney (and not a document preparation firm) and that he or she is very experienced in this complicated field of law.

Are You Getting a Sustainable Asset Protection Plan for $10K?

In addition to understanding the real costs of an Offshore APT, it is equally important to evaluate the support of the firm establishing your plan.

1. Is the asset protection company you are working with a law firm? If not then you can have NO EXPECTATION of ATTORNEY CLIENT CONFIDENTIALITY or PRIVILEGE.  This is a huge issue and simply cannot be ignored as many of the low cost asset protection providers are not law firms and do not offer ongoing professional counsel and support, or an attorney client privilege.
2. How long do you plan on keeping your Trust? If you are simply reacting to an emergency, then creating the Trust at the lowest possible cost should be your last priority, while getting the most experienced advice should be your first.  If you plan on keeping your plan for many years to protect you and your family, then be aware of what the total maintenance cost of your plan will be over the life of the plan.

In many cases clients determine that it’s too expensive to keep a plan that is not actively being used for many years.  The exception would be a “Nest-Egg” trust in which you will fund with $5,000,000 or $10,000,000 and forget about.  In this case a fully triggered plan makes a lot of sense.  The second exception is when you are actually going to USE the plan to actively defend against an attack.  In that case you are getting the protection you are paying for.

Get an Asset Protection Trust That Is sustainable in the Long Haul

Your other option is to consider a The Bridge Trust®   which provides the protection of a fully triggered Cook Islands trust when you need it, and the ease of maintenance, control and simplicity of a domestic trust until you need it.  Full details about this trust are available throughout this website.

While the initial cost may be higher (or may not), the setup and simplicity gives you an asset protection plan that scales with your needs.  It also creates a sustainable structure that does not require the considerable IRS filing requirements, unless and until you truly need to activate the plan and “Cross the Bridge”.

The best Asset Protection Plan you can have is the one that is in place when you actually need to use it.  If there is an area of your financial life to think long-term I would suggest that it is your Asset Protection Planning.

It’s your money- Act like it!