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Asset Protection – Offshore or Domestic Trusts

Jay Adkisson breaks it down in Forbes. What is better – offshore asset protection or domestic asset protection trusts?

Offshore trusts were all the rage in 1990s until FTC -v- Affordable Media LLC cases in 1999 where court ruled that former options trader Stephen J. Lawrence had to release his offshore assets to creditors or go to jail. (He spent over 6 years in jail.)

Then some states like Alaska, Delaware and Nevada rewrote thier law to established Domestic Asset Protect Trusts – DAPTs. The idea behind DAPTs is they will protects the assets of the trust from creditors of the person who created the trust, even though the person who created the trust is also the beneficiary of the trust. Most states don’t allow such trusts, but those with DAPT statutes do. And now as of this week, Hawaii is now one that does.

While DAPTs appear to be a good solution if you have considerable assets to protect, most experts will tell you that the level of protection is uncertain if you don’t live in the DAPT state. For example, if you live in California and create a Nevada DAPT to own your California assets, it is uncertain that the DAPT will work for you because there isn’t enough case law out there showing how if the California courts will uphold the Nevada DAPT law for Californiaassets owned by a California resident.

Don’t let the fact that the herd is heading in a particular direction affect your judgment, since the history of asset protection planning is that the herd is often just headed for the cliff. Plus, the more popular something becomes for beating off creditors, the higher the likelihood that the laws will change to favor creditors. I can’t get across enough that popular often means bad in asset protection planning; the best asset protection planning is that which does not appear to be asset protection planning at all.


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