Advantages of Foreign Asset Protection Trusts (FAPTs)

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Although some clients may have concerns about involving offshore trust entities in the asset protection and estate planning process, a properly established FAPT provides a much more substantive degree of asset protection than a domestic trust. Normally, it is more expensive and it requires more sophisticated and competent advisors because of the increased legal and tax complexities involved. The major advantages and purposes of the FAPT include:

1. No Comity of Law in Foreign Jurisdictions

Most foreign jurisdictions do not recognize U.S. judgments. This may force a trial de novo on the merits under the laws of the foreign situs trust in order for the creditor to impose liability on the trustor and reach the assets of the FAPT. Obviously, the fees and expenses of this trial de novo and the burden of having to select offshore counsel can be substantial. Moreover, the FAPT jurisdiction generally requires plaintiffs to employ attorneys who are licensed in that jurisdiction.

2. More Favorable Law

Most foreign situs jurisdictions require that the burden of proof in challenging asset transfers to a FAPT is always on the creditor and does not shift to the trustor. Moreover, many foreign jurisdictions impose a higher standard of proof upon civil litigation plaintiffs such as the “beyond the reasonable doubt” standard. This is in sharp contrast to the “preponderance of the evidence” principle utilized in U.S. domestic civil cases.

3. Statue of Limitations

The FAPT legislation of many jurisdictions establishes a statute of limitations for challenging asset transfers to a FAPT that begins to run on the date of transfer. This is contrary to U.S. law where the statute may begin to run from the date the transfer is “discovered” by someone with a claim against the trustor. Additionally, the statue of limitations of many FAPT jurisdictions is much shorter than the typical four year statute found under U.S. law.

4. Fees and Expenses Litigating in Foreign Jurisdictions

Manifestly, it is going to be much more expensive and inconvenient to prosecute a claim offshore. Think of the inconvenience of having to pursue a claim out of state and then multiply that by two to three times the cost to pursue the matter in a foreign jurisdiction. Many foreign jurisdictions prohibit contingency fee arrangements, forcing the claimant to finance a litigation process entirely on his/her own. Creditors may think twice about having to deal with a completely different legal system out of the country, and this unfamiliarity, plus the additional expenses and costs, and the entire uncertainty with respect to the process, adds a substantial element of protection to the FAPT.

5.  Non Asset Protection Purposes

The FAPT may assist the trustor in achieving several other objectives and planning goals independent of asset protection planning. Traditional estate planning issues such as the orderly transfer of property at death, the avoidance of probate, the strengthening of spendthrift provisions, greater privacy than under U.S. law, the management of offshore assets and businesses and premarital planning can all be addressed by FAPT.

Contact us today for individualized planning strategies to meet your unique needs.

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