Asset Protection can be accomplished in several different ways. The ultimate goal is to protect your assets, while leaving you in the position to both control them and have beneficial use and enjoyment. Over the past 20 years a lot of different structures have been tried and are being promoted on the internet. I was recently referred to a website which is just one of many, which promotes a SPA or Special Power of Appointment Trust. I believe the SPA trust is a far inferior structure to planning using a true International Asset Protection Trust. Here is why:
First Major Issue – Jurisdiction
The First Issue is “Jurisdiction“. Basically it can be broken down into 2 categories:
- US
- Somewhere else
If your plan is exclusively US based, then by definition it is dependent on a US judge respecting the plan. And the short answer to the question of will they is – Maybe.
Regardless of how technically correct or protected a US based plan may be on paper, there is simply no way to guarantee a US court or judge will not disregard the planning altogether. It is for this reason that until you have removed yourself from the discretionary and arbitrary US legal system, no plan can be considered complete.
Second Major Issue – Ownership & Control
The Second Issue is “Ownership & Control“. If you have no assets then you have no need to protect anything. Then again, most of us aren’t ready to simply give everything away just to protect it, in trust or not. We want to have both direct control and direct access, we just don’t want our creditors to have that same access.The trust I most often use with my clients utilizes what I call “The Best of Both Worlds”. This planning would most commonly be comprised of an AZ Asset Management Limited Partnership as well as an The Bridge Trust™(Aka Asset Protection Trust).
By structuring 2 layers we are able to access an extremely high level of domestic protection with the Limited Partnership and the strong charging order limitations any creditor would face when attempting to access your assets.Additionally with the Asset Protection Trust, you have an “escape route” built into your plan which solves the all important jurisdictional issue should it be necessary or desirable to remove yourself from the discretion of the US courts.
You also have direct control of your assets as the General Partner of the LP, as well as the Trustee of the Trust, during the time when you are not under threat, which in most cases is virtually all of the time your planning exists.
In other words, you have the maximum protection should you need it, and the maximum control when you want it – now.
What Jurisdiction does Work?
There is consensus within the asset protection community of planners who agree that having a non-US jurisdiction is important, that The Cook Islands stands as the single best jurisdiction. I have been working there for over 15 years and I can verify that when we actually have to defend a Trust, The Cooks is by far the most protective jurisdiction in the world. The case law relating to cases there is strongly supportive of this fact.
Why the SPA Trust Fails the Asset Protection Test
As far as the SPA Trust that the website my client referred me to, I consider it a poor planning choice because it fails on both fronts.Firstly, if is purely domestic, and should a court decide to disregard the Trust, there is no fall back option at all.
Second, It requires you to give up the control of your assets, as well as all beneficial interest in them, in favor of a weak Power of Appointment. As you can see from the website which I quote here (note that you are NOT a beneficiary of the Trust):
The Trust is an irrevocable trust that includes the following features: 1. The settlor is not a beneficiary and no distributions can be made to or for the settlor’s benefit. 2. The settlor retains a “special power of appointment” which allows the settlor to change the trustees, the beneficiaries, or the terms of the trust at any time (except that the assets cannot be distributed to or for the settlor’s benefit). In addition, the settlor can appoint assets to any other person at any time.
Basically they are taking a very commonplace tool called Special Power of Appointment Trust, used in the estate planning context, and are attempting to re-brand it as an asset protection tool. It was not designed as such and is not well-suited for the purpose.
I believe that something as important as asset protection should be designed specifically for that purpose from the ground up. This is precisely what my client have in place.
I forget what its called but if you create an entity after an event to shield the assets, the court can penetrate the entity. It may be called a faulty conveyance. You have the two entities, one domestic and one International. If you transfer ownership and/or control to the off shore entity after a threat has been lodged, won’t the courts look at that the same?
The term you are looking for is “Fraudulent Conveyance” and the answer is that it depends. First it is important to understand that Fraudulent Conveyance is not “Fraud” as you may be familiar with it. It would be more properly thought of as an “Improper Conveyance”. The second issue is that this is determined by looking at the transferors mental state of mind at the time of the transfer. This will necessarily mean that there are many considerations. Finally, if the transfer has already been made to a Limited Partnership, which is in turn owned by an International Asset Protection Trust, then a transfer from the LP to the Trust itself is not a “conveyance” for this purpose. The bottom line is that any transfer done in these circumstances should be individually analyzed by a expert before being completed.