Worldwide: New Reality In Asset Protection Offshore: How Trusts And Foundations Compare To Asset Protection Insurance™ (API™)

Traditionally, trusts and foundations were often used as tools to obscure the ownership of assets as tax shelters thereto. Often the motivation for seeking an offshore account or foundation to hold assets was for the purpose of tax evasion rather than asset protection. The term "off shore" for most, conjures images of some palm tree laden sandy beach island in the tropics. In reality, it also includes many mountain enclaves and former breakaway and newer rouge states thousands of miles from the nearest beachfront.

Can Offshore Accounts And Structures Prevent Being Taxed On Assets Placed There?

In the past it was relatively easy for financial advisors and experts to help clients move their assets to offshore centers in order to avoid being taxed on those assets. Because of the lax reporting rules that surrounded some of these offshore transactions, it provided an easy platform for abuses like money laundering and tax evasion which, in turn, have also supported terrorism and other criminally motivated organizations. In the post-911 world, the application of The Patriot Act and other similar legislation, like the OECD mandate on offshore jurisdictions and financial reporting of transactions, an atmosphere of collaboration and transparency exists across borders, between financial institutions and governments. More recent legislation has attempted to also make the intermediary agent as responsible for their actions as the rightful owner of the obscured and illegally placed assets. In spite of the risk of culpability, some unscrupulous agents who craft trust and foundation structures in far off jurisdictions still continue to act in this manner and willingly, take on the joint liability of their clients for remuneration.

How Can One Know If An Offshore Jurisdiction Is Safe And Legitimate?

Clearly, the only places that remain a possible haven for such illegal structures would be second rate, off shore jurisdictions. These jurisdictions are second rate from the standpoint of commercial and legal recognition, but obviously first rate to money-hiding, tax-avoiding clients and their "professionals". Would honest, law-abiding clients be interested in such risky environments to put their assets for safe keeping or to pass on these "tainted" assets to next and subsequent generations decades later? Not likely. Sadly, many honest clients who happen to have hired an aggressive (marginally dishonest) advisor or representative to secure their assets, have lost assets and have been left criminally exposed. A slightly altered Warren Buffet quote captures this well, "If you are unwilling to invest your assets in that jurisdiction for five years (and buy and hold), why would you think of it for five minutes?" Unless, of course, you are looking for tax avoidance (which will result in an extended stay in small rooms with bars all around them) only a premium, law abiding and established jurisdiction can offer you the safety needed for asset protected estate planning. Clearly, it is time for the legal and accounting community to stop advising their clients that there are legal ways to avoid taxes and protect assets by simply going offshore through a structure. It is simply not true (unless you plan to live in this jurisdiction as a resident or give up citizenship for Americans). All known ways to protect assets have to incorporate transparent methodologies that are protected by the application of the law, not the avoidance of it. If you cannot legally use the full access and benefit of the judicial system, how do you propose to legally defend your assets? The law will not defend an illegal transaction (the legal axiom is "you can't come to the court with dirty hands"). To insure that assets are protected, they also must be transferred by way of an irrevocable and declared disposition on behalf of the owner for value.

Today, in response to the need for legal, secure, transparent, offshore asset protection, there are several variations of asset protection products (also referred to as "structures") such as trusts and foundations that can offer limited legal protection. These structures can work effectively if there has been an irrevocable, declared disposition of the asset transfer from the owner and the management of the asset is not a sham trust or foundation (essentially a "sham" is where the assets are controlled or influenced by the owner through a third party trustee or nominee who controls the structure). Assets transferred into Trusts and/or foundations are not securely protected and have far less recourse in terms of being supported (or defendable) by the legal system if they are non-declared, revocable, or influence is still held by the person who set it up. This type of trust is still a just a hiding place for assets and may be only partially legal. The structure only works based upon obscuring the ownership, influence and/or control of the assets, and it's always a concern as to who knows the secret and will they protect it? In the case of revocability, there is no protection of the asset from predators, as judges will simply decree that if it's revocable than it shall be revoked and attachable (subject to a contempt of court action for not abiding).

How Can A Client Prevent Assets From Being Moved Into An Illegal Structure?

Firstly, if the motivation for seeking some exotic, offshore structure is to evade taxation, it is likely not secure nor legally defendable; if this structure cannot be defended in a court of law, as stated, it is usually somewhat illegal or questionable in purpose. Secondly, it is important to find and hire a fastidious, principled advisor or representative. If an advisor or representative has advised the creation of a complex system of nominees obscuring ownership, or if the offshore jurisdiction where assets are held is so exotic or foreign that normalized relations with other countries do not exist, then the structure will not be effective in protecting assets, let alone an intergenerational transfer of those assets. Sophisticated forensics, technology and cooperation by global regulators are such that it's simply a matter of time before such illegal structures are found.

So, What Makes An Asset Protection Structure Effective?

Effective asset protection structures must be as defendable and as easy to access as a domestic structure while providing all the benefits of an offshore structure. To begin, a transfer of the assets by way of an irrevocable disposition into the structure must occur regardless of whether it is an insurance product, trust or foundation. There is no court that would defend an illegal structure. In order to seize any asset (in a law abiding country) the process must go through the court system at some point. Thus, the legal system must recognize and embrace the structure and the status of the assets within it. The laws of that jurisdiction in which the structure is placed must also be predictable to insure that they will defend those assets if they are challenged. This is precisely why an exodus to a new rouge regime or island in Micronesia makes little sense. Where there is no recognizable court system with an observed and steeped legal case law tradition to defend the assets, a lack of any predictability and/or international acceptance by the financial and legal global community of any outcome or decision, there is little ability to use the judicial system to protect the assets

Is There A Completely Legal And Secure Way To Protect Assets?

What is unique and in fact one of the best ways to legally provide asset protection that is defendable and works is Asset Protection Insurance or APITM. Allied Sovereign and Equitable Assurance Company Ltd. created APITM and has made this insurance product available through select, limited providers internationally. APITM can easily replace the use of an offshore or domestic trusts and foundations in application and is an ideal tool in asset protection and estate planning. APITM is not a tool for evading taxation or hiding assets. In fact, it works only because it is transparent and declared. There are tax advantages in some applications in business; however, generally, APITM in application, remains tax-neutral.

What Makes APITM Such An Effective Tool In Asset Protection?

APITM addresses most of the issues regarding the legitimacy of asset protection, like those presented in the use of some offshore trusts and foundations previously. In the case of a properly formed trust or an APITM policy, a domestic judge will have difficulty seizing assets if they have been irrevocably transferred, are fully disclosed and with their pertaining taxes paid. The most critical aspect of any asset protection structure is that it must be an irrevocable, declared structure because only then can the law be used to defend it. In this case, the ownership of the assets has changed - and therefore is unassailable (assuming no undisclosed liabilities).

There is an inability to deal in a deceitful manner with an APITM policy, as it could and would invalidate the policy. The APITM format derives all of its strength from the fact that the assets are irrevocably transferred and declared, and thus the policy is defendable in a court of law. This is not to imply that foundations or trusts cannot go to court to defend their assets. Unfortunately, a court will not uphold an illegal contract or sham proposition against creditors. In the case of the APITM, even if creditors gained access to the assets held in the policy, the insurance component will replace the asset at book value, making it a guaranteed asset protection structure. Thus, APITM is approaching asset protection from the standpoint of insuring the assets (similar to a property casualty insurer protecting the loss to an asset from theft or fire as an example), and not by trying to hide its existence or fake that it's changed hands from a transfer of title standpoint.

The Application Process

Failure to report any liability (including taxation) while filling out the APITM policy would likely invalidate it. As a result, the application information provided must be detailed and correct and can only protect fully disclosed assets and liabilities. The APITM policy application specifically requires a full accounting and disclosure of all assets and liabilities, real or contingent. The application process is far more detailed than the current anti-money laundering standards and is designed to capture the full profile of the assets to be protected.

Who Oversees And Protects The APITM Structure?

Within an APITM structure, there are three separate parties involved in the governing process: 1) the Financial Advisor whose role is limited to investment advice; 2) the policy Ombudsman; and, 3) the Policy Trustee.

How Are Trusts And Foundations Overseen?

In the case of many so-called irrevocable trusts, there is an independent third party who works with the trustee as the proxy of the person who set up the trust and whose powers are limited to certain situations, referred to as the "Protector". The Protector's powers are limited or the trust may be viewed as an administrative sham trust and will be treated as an extension of the grantor and no protection will afforded to the asset. In the case of a foundation, the role of the Protector is served through the use of a board of directors who have almost a dual role of Protector and Trustee. Of course, legal trickery has eliminated this perceived independent buffer through the use of nominee's and nominee boards of directors. This is also the case for trust in which the Trustees or "sham Protectors" have the will of the trustee. Foundations employ similar techniques like a straw board, whereby nominees are members of the board through the use of powers-of-attorney and sometimes, even the client-beneficiary is a member in some manner. In comparison, the three-tiered accountability structure present in an APITM structure also leads to complete cooperation and disclosure by the third-party service providers to the policy because of the nature of such thorough disclosure.

What Is The Role Of The Ombudsman In An APITM Policy?

In the case of APITM there truly is an independent third party, referred to as the Ombudsman, his powers are also limited, and he is truly in a third party position to the trustee and to the applicant of the insurance. In an APITM, there is always an irrevocable disposition of the assets and an independent role exists for all three overseeing parties. These clearly defined, independent roles will not allow for the creation of evasive, illegal or sham structures. In the case of a trust or foundation, these layers of accountability and transparency are not present and, in fact, many employ the nominee layer to specifically evade and obscure ownership. This compromises the continued control over the assets presumably being protected and thus, renders it potentially a sham or, in fact, fraudulent.

Are Domestic Trusts Any More Secure In Protecting Assets?

A domestic trust or foundation is always a viable option; however, domestic solutions only work on a limited basis. In the case of a domestic foundation as well as a trust, they remain subject to and within the reach of local laws, courts and creditors and therefore minimize their function as an asset protection device. If a creditor gains access to the assets held in a domestic foundation or trust, there is no insurance to replace their value. With a trust, one must also consider the issue of the limited lifespan a trust can exist which is usually no greater than 21 years depending on the regional laws where it is held. Subsequent to the 21 years (or local laws against perpetuities) the assets will be taxable, in most cases, and also completely open and exposed to creditors. Furthermore, assets held domestically are still subject during the time period they are functional held in a structure, to (excessive) domestic taxation and are assailable if they remain in the same domestic jurisdiction as the owner of those assets. This can encourage and increase the likelihood of provoking litigation and discovery, (allowing a plaintiff the ability to easily be discovered from a legal action vantage point) and obtain leverage in a proceeding, even if unsubstantiated or dubious. APITM is a very viable choice to the domestic trust or foundation structure, especially for business applications or for intellectual properties. This insurance format will protect assets inside a business as well, while remaining on the company's balance sheets since there is complete disclosure and taxes have been paid.

What Is The Lifespan Of An APITM Policy?

An APITM policy can last slightly over 100 years, which becomes great for long-term asset protection planning and inter-generational estate planning. Generally, the lifespan of a domestic trust is about 21 years depending on its jurisdiction's laws in regard to perpetuities.

In today's society, lawsuits are common and pose one of the greatest risks to the preservation of wealth. An APITM policy will provide the ability to legally creditor-proof and pass on these assets, ensuring smooth intergenerational transfers with the security of an insurance backing should unforeseen issues arise at a later date.

In conclusion, it's time for professionals to wake up and realize that there is a huge difference between giving advice about asset protection versus tax-assisted offshore planning. To protect a client's assets, they can no longer be hidden in antiquated "secret" structures. The law must be able to serve and protect the structure to make it feasible and authentic. It's time to espouse irrevocable, declared, regulated, and legal asset protection planning because it works. APITM provides that kind of guaranteed, ironclad asset protection planning and is therefore the superior choice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions