When it comes to asset protection, a trust could be your best bet for long-term peace of mind, legal defense, and wealth preservation. However, there are two big types of asset protection trusts: domestic and foreign trusts.
Foreign or offshore asset protection trusts are known for their security, reliability, and overall effectiveness. But what about domestic asset protection trusts or DAPTs? Let’s break down the pros and cons of domestic asset protection trusts in detail.
Pros of Domestic Asset Protection Trusts
Domestic asset protection trusts do have some potential benefits. At Dominion, we feel it’s important that our clients understand these upsides before deciding on the asset protection strategy that’s right for them.
Somewhat Easier to Set Up Than Offshore Trusts
Because domestic asset protection trusts only require knowledge of one jurisdiction (the US), they are a little easier to create, and therefore are a little less time-consuming. When you work with lawyers to set up a domestic asset protection trust, that lawyer/legal team doesn't have to:
- Look into other jurisdictions and their rules/case precedents for trusts
- Do a lot of research regarding how different jurisdictions interact
- Find offshore banks with the right resources and trust options
- And more
However, this benefit isn’t all that advantageous for asset protection purposes. Good asset protection relies on setting up a sturdy, legally resilient trust well ahead of when you need it. If you need an asset protection trust in a few days, it’s already too late to create an instrument that will be durable enough for proper legal defense.
Easier to Access Assets (if Applicable)
Similarly, domestic asset protection trusts might make it easier for you to access the assets within those trust vehicles. However, you can also make an argument that if it’s easy for you to access the assets within such a trust, it’s not worth the time and money it takes to set up in the first place!
Imagine a court ordering you to access the assets within your asset protection trust. If there’s already evidence that you can get to the assets in that trust through some form or fashion (e.g., you know the trustee, and you can exercise social control over the trustee to dip into the assets when you want), the trust isn’t much more effective than a blank piece of paper.
Cons of Domestic Asset Protection Trusts
Though domestic asset protection trusts have some limited use cases, there are far more disadvantages to these instruments compared to their benefits.
Limited State Recognition
For starters, domestic asset protection trusts aren’t widely recognized throughout the US. Right now, only 17 states let US citizens settle asset protection trusts in their jurisdictions:
- Alaska
- Delaware
- Hawaii
- Indiana
- Michigan
- Mississippi
- Missouri
- Nevada
- New Hampshire
- Ohio
- Oklahoma
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Utah
- Virginia
- West Virginia
- Wyoming
Essentially, not every US state lets you set up any kind of domestic asset protection trust. This limits your options even further. Given these limits, you’ll be better off opting for an offshore asset protection trust right from the start.
No Guarantee of Privacy
Domestic asset protection trusts do not guarantee your privacy in any way. Since it's relatively trivial for a court or lawyer to cut through such a trust's defenses, any of the assets within the trust could become a matter of public record or otherwise be exploited in a number of ways.
If you have sensitive business assets, documents, or other information stored in a domestic asset protection trust, become comfortable with the idea of it seeing the light of day sooner or later. This is just another reason why an offshore asset protection trust is a much better option for asset defense.
Not Nearly as Protective as Offshore Trusts
Indeed, offshore asset protection trusts are much more defensible and secure compared to their domestic counterparts.
This is because of jurisdiction. By definition, a domestic asset protection trust is under US court jurisdiction. Courts have the ultimate power to penetrate that trust and take the assets within if they deem it necessary.
Laws are all well and good, but they’re subject to interpretation by a judge, and they’re only as effective as that interpretation says they are. And if you have a sufficiently motivated judge after your money or assets, don’t expect your domestic trust to put up much of a fight.
That's not necessarily the case with offshore jurisdictions. Offshore jurisdictions are not subject to US court rules or orders unless there is sufficient case precedent for it. That's why, with Dominion’s help, you can set up an offshore asset protection trust in a jurisdiction:
- That is in no way controlled by US courts
- That doesn’t have a history of submitting to US court rules or orders
- That is as legally defensible as can possibly be
Lack of Case Law History
Part of the above lack of protection is because there isn’t a long list of case precedents or laws in favor of trust owners. In other words, there aren't successful defense cases you or your lawyers can fall back on if a creditor or lawyer comes after your money into a domestic asset protection trust.
Case precedent in the US is firmly on the side of the courts and creditors. Again, this isn’t the case for offshore asset protection trusts, which have their own case precedents that the legal experts at Dominion can consider when helping you find the ideal jurisdiction for your needs.
While offering some asset protection, DAPTs are still relatively untested in the legal arena. They lack the extensive case law history of offshore trusts, meaning fewer successful defense cases exist to rely on if challenged.
This lack of legal certainty can be a major drawback for those seeking maximum asset protection. While a DAPT may offer protection on paper, its effectiveness in a real-world legal battle remains uncertain.
And what’s ironclad in one state might be easily circumvented in another due to differing legal interpretations. This means a DAPT’s effectiveness can be undermined by local laws, even if it appears to be a safe haven for assets.
Why Offshore Asset Protection Trusts Are Superior
When you tally up all the benefits of offshore asset protection trusts, it’s easy to see why these are superior defensive choices:
- They can protect your assets by insulating them from US courts and creditors
- They are set up in jurisdictions that don’t follow the same rules as domestic asset protection trusts
- They can be managed with banks that are under no obligation to follow US court rules or obey US court requests
At the same time, offshore asset protection trusts can be set up for a variety of different financial needs. They can protect you from lawsuit plaintiffs, creditors, ex-spouses, and anyone who may wish to take your money.
That’s not all they can do, either. Dominion can help you set up an effective asset protection trust that not only safeguards your wealth and property, but also allows it to make money for you while it sits in the trust. Clever investments can help your trust generate enough income to keep up with inflation or even make money in aggregate.
Then you and future beneficiaries will have a steady stream of income arriving from the asset protection trust. This is a great way to use your money to make more money while protecting it at the same time.
If you're a high-net-worth individual and want your money to be as efficient as possible, Dominion can help.
Speak to a Dominion Representative Now
To reiterate, an offshore asset protection trust is an overall better choice for asset protection, whether you're a high-net-worth entrepreneur looking to build wealth and protect it from lawsuit plaintiffs or an experienced business owner wanting to set up a trust for long-term wealth preservation.
In these instances and more, the right offshore APT can set you up for success. More importantly, it will protect your estate from all kinds of legal attacks and ensure you and other beneficiaries can still receive the contents of the trust through distributions.
Get in touch with a Dominion Representative to learn more about your options and how we can help you set up the perfect offshore asset protection trust.
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