International Asset Protection

Yes, within three limits. The transfer must be made while you are solvent and before a claim is in view, because fraudulent-transfer law applies to a gift to a Cook Islands trustee exactly as it applies to a gift to your brother. Every account, entity and trust must be reported, since U.S. persons are taxed on worldwide income and report worldwide holdings wherever they sit. And the structure cannot be used to defy a court that has jurisdiction over you personally. Inside those limits, choosing a forum whose law favors the trust over the creditor is ordinary planning, and we have done it since 2014.

Three recur. The FBAR, FinCEN Form 114, is due when the aggregate balance of your foreign accounts exceeds $10,000 at any point in the year; it is filed by April 15, with an automatic extension to October 15. Form 8938 attaches to your income-tax return once specified foreign financial assets pass $50,000 at year end for a single filer living in the United States, with higher thresholds for joint filers and for people living abroad. A foreign trust adds Form 3520 for the owner or beneficiary and Form 3520-A for the trust itself, and a foreign holding company usually adds Form 5471. The non-willful FBAR penalty is assessed per unfiled report; the willful penalty can reach half the account balance. We run this calendar for every structure we build, and we represent clients in matters before the IRS when a filing is questioned.

By changing the forum and the burden of proof. A judgment from an Illinois court is enforceable in any other state on registration; it is not enforceable in the Cook Islands at all, so the creditor must bring a new action there under a statute that requires proof of fraudulent intent beyond a reasonable doubt, filed within two years of the transfer. The trust deed adds a duress clause, which tells the trustee to ignore directions the settlor gives under compulsion, and a flight clause that lets the trustee move the trust if the jurisdiction comes under pressure. None of this helps a settlor who keeps a hand on the assets, because a U.S. court can hold that settlor in contempt for failing to bring them home. The protection is a function of the trustee's independence, and we draft for that rather than for the brochure.

We start by eliminating. A jurisdiction on the FATF grey list or the EU list of non-cooperative jurisdictions is struck, because its banks lose their correspondent relationships and the structure becomes impossible to operate. What remains is tested on three points: a trust statute that declines to enforce foreign judgments and limits the time to bring a fraudulent-transfer claim, a court record of applying that statute as written, and banks that will open an account for a trust with a U.S. settlor. Treaty posture with the United States is checked last, so the structure does not add withholding or disclosure the plan never priced. Political stability is assumed by then; a jurisdiction without it never reaches the shortlist. The choice is then matched to the assets, since a jurisdiction that suits a securities portfolio may be wrong for an operating company.

For a U.S. person, almost never, and we design on that assumption. A foreign trust with U.S. beneficiaries is a grantor trust under section 679, so its income is taxed to the settlor each year as if nothing had moved. A foreign corporation owned by U.S. persons is usually a controlled foreign corporation, and its income flows through under subpart F and the related anti-deferral rules. Income that a foreign trust accumulates and distributes to a U.S. beneficiary in a later year carries a throwback tax plus an interest charge, which is a penalty rather than a saving. The structure buys a forum and creditor protection; the tax position stays what it was. A promise to the contrary is the surest sign of a structure that will not survive an examination.

When the domestic tools have run out or never applied. Illinois does not protect a self-settled trust from the settlor's own creditors, so an Illinois resident who wants that protection must use another state's statute or a foreign one, and the foreign statute is the harder of the two for a creditor to test. It also fits clients who already have family, business or accounts abroad and want one structure rather than a collection of them. It does not fit anyone facing a current claim, anyone unwilling to report every account, or anyone who needs the assets back on short notice. A foreign trustee charges an annual fee, so the structure makes sense only when the exposure is large relative to the cost of carrying it, a judgment we make with you before anything is drafted.