When it comes to asset protection, few vehicles are as defensible and reliable as irrevocable trusts. But when you’re a high net worth individual with tens of millions of dollars on the line – and with plenty of opponents who would love nothing more than to get their hands on your hard-earned wealth – it’s not enough to know that irrevocable trusts usually work.
You need to know if they do work every time.
The answer? It’s complicated, and highly depends on who you work with to set up your irrevocable trust.
What is an Irrevocable Trust?
True to its name, an irrevocable trust can’t be changed or modified, with a few exceptions.
The vast majority of trusts are “revocable,” meaning that they can be changed or modified by their grantor or other agents if needed. For instance, say that you set up a basic family-planning trust, but you decide you want to add another beneficiary to the list. That’s more than possible with a revocable trust.
It’s not the case with an irrevocable trust. Instead, even if you want to make a change to your irrevocable trust, you won’t be able to do so unless:
- You and all the currently named beneficiaries agree that the changes necessary
- You and the beneficiaries petition a court in your trust’s jurisdiction to make the change
- The court agrees to the modification
In any case, irrevocable trusts are prized for asset protection purposes. By their nature, they are more durable than revocable trusts because a court can’t order you to change the terms of the trust to seize the assets within.
Let’s look at two different examples:
- Say you have a revocable trust, and you are sued by a disgruntled customer or some other legal opponent. If the lawsuit is successful, you won't be able to tell the court that you can't access the assets in the trust because it's set up to only give you occasional distributions.
Since the trust can be changed, you'll just be told to modify the trust's terms and your assets will slip away through your fingers
- If you have an irrevocable trust, on the other hand, the same successful lawsuit won’t be able to access the assets within (given a few other conditionals).
A court can tell you to access the assets, and you’ll legally be able to tell them, “I can’t do that, nor can I change the terms of the trust.” In this way, irrevocable trusts are the best fiduciary instruments you can use to safeguard assets over decades
Asset Protection Explained
Asset protection in a broad sense is about identifying possible threats to your accumulated wealth, then taking steps to safeguard that wealth, typically through using instruments and vehicles like trusts.
However, a comprehensive asset protection strategy might involve several other steps and measures, like taking out insurance policies, investing your assets wisely, and so on. It’s absolutely vital that you take steps toward asset protection now rather than later.
If you're a high-net-worth individual, you have financial enemies, whether you are aware of them or not. Sooner or later, they'll come after your assets, and the only way to guarantee that your assets will stay safe is to sequester them in a properly drafted, durable asset protection trust.
So, Does an Irrevocable Trust Provide True Asset Protection?
Sometimes. That’s an unsatisfying answer, so let’s explain.
Generally, an irrevocable trust provides good asset protection. But like all trust vehicles, the devil is in the details.
If your irrevocable trust contains flaws in the legal terminology, or if it’s set up in the wrong jurisdiction, it won’t be nearly as protective as you imagine.
Say that you set up a so-called irrevocable trust in the US. Then you get sued by someone else in the US. Since the entire case is overseen by a US court, and since your trust is beholden to US laws, a motivated judge could take a proverbial spear to the armor of your asset protection strategy and get to the heart of your assets.
Therefore, whether or not an irrevocable trust provides true asset protection depends on:
- How the trust is drafted
- Who administrates or oversees the trust
- Where the trust is set up
For example, let’s say there’s a US-based doctor who’s worried about malpractice lawsuits. The doctor could establish an irrevocable trust in a jurisdiction like the Cook Islands, which are renowned for their tough asset protection laws.
By appointing a trusted independent trustee in that jurisdiction, the doctor effectively places a legal and geographical barrier between his assets and potential litigants in the US.
This strategy is not foolproof, but it significantly increases the difficulty and cost for a plaintiff to pursue the doctor’s assets. Many legal experts agree that offshore trusts, when properly structured, are a powerful tool to deter frivolous lawsuits and protect wealth in the face of unforeseen legal challenges.
Irrevocable Trusts in the US vs. Irrevocable Trusts in Offshore Jurisdictions
If an irrevocable trust is based in the US, it’s automatically beholden to US courts and case precedent. If an irrevocable trust is set up in an offshore jurisdiction, the reverse is true.
Say that you have an offshore trust set up in the Cook Islands. You are sued by a former patient of your medical practice. Even if the lawsuit is successful, if your valuable assets are stored in the offshore trust, what can the court or patient do?
- You don’t own the assets, so you can’t be compelled to give them up
- The offshore trust isn’t beholden to US court rulings, so the trust or trustee can’t be compelled to give them up
- The trust is irrevocable anyway, so even if the above things were true, the trust can’t be changed, and you can’t be ordered to modify the terms of the trust to get access to early distributions
All in all, an irrevocable trust in an offshore jurisdiction is much more effective than a domestic counterpart. An offshore irrevocable trust is truly the best of the best when it comes to asset protection, which is why it’s the ideal strategy that we promote at Dominion.
The Drafting Details Matter
Naturally, the actual drafted legal language of your trust matters a great deal. However, any good irrevocable trust will be set up with legally impenetrable language and terminology.
Importantly, your offshore irrevocable trust can be drafted with language that allows you to receive regular distributions from the trust’s assets, investments, and dividends. In this way, you can continue to monetarily benefit from your trust and the wealth you’ve accumulated, all while keeping the lion’s share of that wealth safe and secure in perpetuity.
If you’re worried about drafting details, you don’t need to be. Dominion has specialized in offshore asset protection trusts over the years, so we know:
- Which jurisdictions are best for your asset protection needs
- Which banks can be trusted – they aren’t the banks you already know about, and they don’t have subsidiary branches in the US
- How to draft the language of your trust so that it is truly impenetrable and yet flexible enough to provide you with regular distributions/provide distributions to your beneficiaries
An irrevocable trust can provide true asset protection if it’s drafted in the right place and in the right language. Dominion can guarantee both.
How to Ensure Your Irrevocable Trust Guarantees Comprehensive Asset Protection
The best way to make sure that your irrevocable trust provides you with the comprehensive asset protection you deserve is to get in touch with Dominion right away.
You need to set up your irrevocable trust in a jurisdiction that:
- Doesn’t have case precedent regarding trust breaches an asset seizure between the trust’s jurisdiction and the US
- Has a good banking partner for you to set up the trust
- Has the right legal resources, like trustees and law firms, to make sure that your trust can continue to be managed for a long time to come
With Dominion, you won’t have to do the painstaking and long-term research necessary to make sure all of these things are set. We’ll do it for you.
More than that, we’ll guide you on what assets you should place in the trust, who your beneficiaries should be, and how to set up the perfect trustee to make sure your trust is managed according to your exact wishes. We’ll also provide other advice, like recommending against a trust protector (who can compromise your asset protection trust’s overall defenses).
What if you’re worried about the irrevocability of your trust? For instance, you worry that – once your trust is set up – you’ll change your mind about something later on but be unable to make modifications.
If you plan ahead and account for every possibility, you won’t ever need to make modifications to your trust. In addition, there are ways to change asset distribution schedules or make modifications to your asset protection plan after the fact, but you’ll have to get in touch with one of our representatives to learn more.
Speak to Dominion Today
In the end, you can guarantee that your irrevocable trust protects your assets and your accumulated wealth for decades to come, but only if you work with the top experts in the industry. That’s Dominion.
Over the years, we've protected hundreds of millions of dollars for our clients, and our team members have over a century of experience shared between them. More importantly, we specialize in the art and science of setting up durable, highly resilient asset protection trusts in a variety of offshore jurisdictions.
If you have questions, or if you want to make sure your offshore asset protection trust is truly irrevocable and protective, contact us today. We’ll make it happen.
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