Clients that come into our office looking for asset protection in the form of a domestic asset protection trust (“DAPT”) often ask us what additional protections an offshore trust could offer them. Some of those additional protections include a shorter statute of limitations for creditors to attack assets after the assets have been transferred into the trust, a higher standard of proof that creditors must meet to undo a transfer into an offshore trust, and the fact that the creditor must go to the foreign jurisdiction to pursue their claims. After reviewing these benefits, many clients are anxious to set up an offshore trust, but that excitement wanes considerably when the fees for setting up an offshore trust are discussed, as well as the formalities and complexities that must be adhered to in order to obtain those extra protections.
To obtain those protections for our clients, but reduce the upfront costs in setting up an offshore trust and avoid some of the more stringent formalities of an offshore trust, our firm has created the Passport Trust ™. The Passport Trust ™ is an asset protection vehicle that combines the flexibility and simplicity of a domestic asset protection trust (DAPT) with the advantages of an offshore jurisdiction’s additional protections against creditors, if the need arises.
A Passport Trust ™ includes “passport” provisions in the trust agreement that enable a DAPT to be redomiciled in a foreign non-US jurisdiction such as Nevis or the Cook Islands if there is ever a distress event. Typically there will be no new waiting period for creditor claims in the new jurisdiction – the original transfer date of assets into the DAPT will be used as the transfer date for purposes of the foreign jurisdiction’s rules regarding creditor claims.
Passport Trusts ™ lower the entry cost to obtain the additional protection an offshore jurisdiction can provide by allowing you to begin with a NOST and ‘start the clock’ on the waiting period for protection from creditor claims and later convert to an offshore trust, if necessary, for the best of both worlds.
The Passport Trust™ begins as a DAPT with all the protections that Nevada’s self-settled spendthrift law provides, but includes a special passport provision that enables the Trustee to move the trust’s domicile to a foreign jurisdiction. In conjunction with this passport provision, application will be made to a foreign trust company upon the creation of the DAPT to pre-approve the DAPT for re-domiciliation. The foreign trust company shares in the due diligence regarding the creation of the trust. As a result of their early involvement, the foreign trust company agrees to serve as a special trustee, dormant and waiting with ‘open arms’ to receive the trust assets if a distress event occurs.
To find out more about the “Passport Trust” and how it might be a part of your integrated estate plan, please contact our office.