O ffshore Asset Protection Trusts vs. O nshore Asset Protection Trusts

1. Offshore Asset Protection Trusts vs.Onshore Asset Protection Trusts

2. Offshore Asset Protection Trusts vs. Onshore Asset Protection Trusts • Same trust concepts govern both • Both support estate planning and wealth transfer • Same benefits re: probate and avoidance of estate delays • Accomplish testamentary objectives • U.S. Estate/Gift tax neutral • GST Tax Exemption Credit Trusts • Credit Shelter Trusts • Marital Trusts • Estate Freeze --Techniques available such as Limited Partnership Planning to take advantage of valuation discounts

3. Advantages of Offshore Asset Protection Trusts over Domestic Asset Protection Trusts However: • Law of other jurisdictions more favorable than USA • Non recognition of foreign judgments • Favorable Statute of Limitations • No contingency fee litigation permitted • Confidentiality • Other Practical advantages • Plus: • Access to international • investment opportunities • Ability to use defined tax • planning opportunities • Equals: • Greater security • Greater certainty • Greater flexibility • Better investment returns & • lower provider costs • Better tax/estate position

4. Asset Protection Trusts Trust Legal Definitions: • Grantor or Settlor • Trustee • Beneficiaries • Protector

5. Popular Foreign Jurisdictions with Asset Protection Trust Statutes • Belize • Nevis • The Cook Islands • Bahamas

6. Case Study Stella, age 60 • Successful corporate exec, has accumulated significant personal wealth • Has invested after tax dollars in variety of investments • Investments have grown, but Stella is concerned about investment costs, consistency of returns and tax leakage • Planning retirement in 10 years Two Goals: #1. Protect her assets from the threat of litigation #2. Build the largest nest egg possible

7. Solution #1:Basic Asset Protection Trust with Protector • PROS • Enhanced protection of assets from future • creditors • Access to funds if needed • Protection & Certainty • Privacy $ Stella is a U.S. person Beneficiaries UNITED STATES THE COOK ISLANDS/BELIZE Irrevocable Discretionary Trust Trustee Protector Transfer of $ to foreign trust • CONS • Investment income taxable in Stella’s hands • Missing diversification opportunities Investment Assets ($) U.S. Investment Managers

8. Solution #2:Asset Protection Trust with Investment Benefits • PROS • Enhanced protection of assets from future creditors • Access to funds if needed • Protection & Certainty • Privacy • + Greater diversification via international investment managers • + Institutional rates vs. retail investment cost $ Stella is a U.S. person Beneficiaries UNITED STATES THE COOK ISLANDS/BELIZE • CONS • Investment income taxable in Stella’s hands • PFIC tax issues from non-U.S. Investment managers Stella Trust XYZ Trust Co. As Trustee Transfer of $ to foreign trust U.S. Investment Managers International Investment Managers Investment Assets ($)

9. Solution #3:Asset Protection Trust with Investment & Tax Benefits • PROS • Enhanced protection of assets from future creditors • Access to funds if needed • Protection & Certainty • Privacy • Greater diversification via international investment managers • Institutional rates vs. retail investment cost Stella is a U.S. person $ + Tax free shifting amongst investment types + Tax free access to policy values + Tax free death benefits for portfolio assets & true insurance benefit Beneficiaries UNITED STATES THE COOK ISLANDS/BELIZE Stella Trust XYZ Trust Co. As Trustee • CONS • Investment income taxable in Stella’s hands • PFIC tax issues from non-U.S. Investment managers Transfer of $ to foreign trust Pr. Placement LI U.S. Investment Managers International Investment Managers Investment Assets ($)

10. …but, once I set this trust structure up, how do I get my $$ back? • Ask Trustee for distribution • Borrow against assets in trust • For Private Placement structure, withdraw from policy and/or take a policy loan

11. Other Practical Considerations • An asset protection trust is not for all assets • Independent legal advice is important • Selection of Trustee/Custodian/Jurisdiction is important • Don’t keep control – if you can reach it so can your creditors • Reporting requirements • Establishment process/timeline • Protector, if needed

12. Fraudulent Conveyance or Transfer Statutes A. General Explanation 1. Definition: A. Transfer B. Protected Creditors 2. Intent (Badges Of Fraud) 3. Effect of Court Finding for Fraudulent Transfer 4. Effect of Court Finding for Transferee Liability 5. Bankruptcy Issues B. Potential Criminal Issues: 1. Concealment Of Assets 2. Bankruptcy Crimes 3. Tax Crimes 4. Money Laundering Rules C. APTs’ Generally Do Not Work for Pre-Divorce Planning

13. Benefit Summary: Use of an Offshore Asset Protection Trust • Safety of assets when with carefully chosen trustee • Enhanced protection of assets from attack • Tax planning opportunities • Access to best in class investment managers / greater diversification • Supports overall estate and generational planning, and wealth preservation goals • Is not the never-never plan • Flexible, not inflexible tool

14. U.S. Treasury Reporting Requirements of Offshore APTs Various Treasury Reporting Forms: • U.S. citizens and U.S. Resident Aliens are Required to Report their World-Wide Income Annually to the IRS • Form 3520 • Form 3520 A • FBAR Form • Schedule B of Form 1040 “Check the Box”

15. Domestic Asset Protection Trusts Many states have adopted Asset Protection“self-settled” Trust legislation • Alaska • Rhode Island • Nevada • Missouri • South Dakota

16. Domestic Asset Protection Trusts Delaware is the leading jurisdiction • Delaware’s Qualified Dispositionin Trust Act (1997)(12 Del. Code section 3570 et seq.) • Domestic Asset Protection Trusts (DAPTs) offer an alternative to offshore asset protection trusts

17. Delaware Asset Protection Trusts Fraudulent Conveyance Act Principles: • If trust is established with a claim pending, creditor has longer of four years or one year after knew or should have known of trust to file suit. • As long as trust is not established with fraudulent intent, should be completely effective against creditor claims. • All DAPT claims are heard in Delaware’s Court of Chancery – specialized court that hears all DE corporate matters.

18. Delaware Asset Protection Trusts Irrevocable Trust – But Flexible • Grantor can receive income and/or principal – either in trustee’s discretion or as a matter of right. • Discretionary distributions can either be with or without standards. • Grantor may designate advisors for various functions. • Trustees protected from all decisions of advisors unless trustee is acting with willful misconduct

19. Delaware Asset Protection Trusts Permitted Grantor Retained Rights: • Consent to or direct investment changes personally • Veto discretionary distributions from trust • Replace trustee and other named advisors • Receive income and/or principal • Retain a limited testamentary power of appointment

20. Delaware Asset Protection Trusts Who may defeat a DAPT? • Pre-Transfer Claims – must show client had specific fraudulent intent as that particular creditor and bring suit within 4 years of funding or 1 year after knows or should have known of trust’s existence, whichever is later. • Post-Transfer Claims – within 4 years of funding and must show fraudulent intent against that particular creditor. • Claimant must prove case by “clear and convincing evidence” – a very high legal standard. • Trust is NOT seized by bankruptcy court unless it was fraudulent.

21. Delaware Asset Protection Trusts Delaware Asset Protection Trusts Consequences if DAPT is defeated: • Only sufficient funds are removed to satisfy judgment. • If multiple creditors make claims, each one must bring separate action to make case. • Any distributions made prior to a creditor’s successful suit to defeat DAPT will remain with beneficiary unless beneficiary acting in bad faith. Consequences if DAPT is defeated: • Only sufficient funds are removed to satisfy judgment. • If multiple creditors make claims, each one must bring separate action to make case. • Any distributions made prior to a creditor’s successful suit to defeat DAPT will remain with beneficiary unless beneficiary acting in bad faith.

22. Conclusion • What is it: • Structuring wealth and business affairs to: • Preserve accumulated wealth • Meet overall estate planning and investment goals • Minimize exposure to potential lawsuit • Full transparency and reporting • What is it not: • Structuring wealth and • business affairs to: • “Hide” accumulated wealth • Not report income, distributions or transactions as required by the authorities • Establish an offshore trust to protect assets, but then direct the Trustee on what to do with those assets OR reserving substantive powers

23. Thank you!