A Foreign Asset Protection Trust (“FAPT”) is a trust structure established in a foreign country that allows you to protect your assets from creditor claims and lawsuits. A Foreign Asset Protection Trust is an irrevocable trust in which the beneficiary can be the same person that created the trust, and the trust’s assets are shielded by that individual’s creditors, including legal complaints, malpractice and negligence claims, divorcing spousal claims, and other legal/financial consequences.
The foreign jurisdiction will require a person seeking to go after the assets in a Foreign Asset Protection Trust within its jurisdiction to jump through several hoops to try to pursue enforcement against the Foreign Asset Protection Trust. While a creditor may be able to meet the preponderance of the evidence requirements in the United States to obtain a civil judgment — a foreign jurisdiction requires significantly more proof in order to attack the Foreign Asset Protection Trust.
Can You Avoid Tax with a Foreign Asset Protection Trust?
The short answer is, “No.” The purpose of a Foreign Asset Protection Trust is not to avoid income or estate tax. FAPTs are designed specifically to provide asset protection from creditor claims.
A US person is subject to tax on his or her worldwide income and entire worldwide estate. Transferring assets into a Foreign Asset Protection Trust is tax neutral for a US person.
What Countries Offer Foreign Asset Protection Trusts?
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Cayman Islands
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Cook Islands
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Nevis
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Belize
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Isle of Man
Cook Islands is typically recognized as the premier Foreign Asset Protection Trust jurisdiction. The Cook Islands’ legal system is extremely favorable toward those defending themselves against creditor claims, including egal complaints, malpractice and negligence claims, divorcing spousal claims, and other legal/financial consequences.
The Asset Protection Trust statutes of the Cook Islands are among the most formidable asset protection laws in the world. In fact, Cook Islands is recognized as being the first jurisdiction in the world to established self-settled Asset Protection Trust laws..
Creditor claims and judgments originating from the United States and other countries will not be able to reach assets in a Cooks Island Asset Protection Trust.