QUESTION: I have recently established an Offshore APT for my liquid
assets. Its for both asset protection and to have access to
international investing opportunities which the SEC otherwise
"protects" us from accessing. Anyway, I was initially very
comfortable with this Offshore APT, but then started reading some
articles from commentators saying these APT's are looked at
suspiciously by courts. Other commentators by contrast seem to
mention these Offshore APTs quite approvingly. I have now read so
much on the subject that I have
gotten confused! In your opinion, is there a "best" offshore
structure? Also, is perhaps having an LLC a better idea then an APT
for "legitimacy" purposes- or maybe a combination of the two whereby
an Offshore APT owns the LLC, and the investments are made in the name
of the LLC?

REPLY: Lawyers are in the business of arguing different points of
view. The best lawyers are very persuasive, regardless of which point
of view they represent. It's my considered opinion that we should
never expect lawyers to agree on any topic.

However, those who argue that the U.S. courts look at offshore APTs
with suspicion base their claims on a series of court cases where the
judge was convinced that the U.S. settlors/grantors of an offshore
trust had retained indirect powers to retrieve the money in the trust.
In some cases that turned out to be true. In others, it turned out
that the grantors were not able to recover the assets in their foreign
trust. The essence of an asset protection trust, whether domestic or
foreign, is that it is based on trust laws in a jurisdiction that
permits the settlor/grantor of a trust to protect the assets in the
trust from his or her own creditors. (It's referred to as a
self-settled, spendthrift trust) But the trust indenture is written in
a way that instructs the trustee to disregard requests for funds by
the grantor when the grantor is subject to pressure by the courts to
make the assets available to a creditor. By its very nature, the AP
trust is permitted to make distributions for or on behalf of the trust
grantor. Therefore, when creditors are prevented from getting paid
because of the foreign APT, U.S. judges sometimes resort to harsh
methods of persuasion -- such as incarceration for contempt of court.

On the other hand, those who argue that the offshore trust is an
effective way to protect assets base their arguments on the fact that
under the most egregious circumstances, the assets have not been
distributed by the foreign trustee while the trust grantor was under
duress by a U.S. court. And, they argue that the cases where people
have been put in jail for contempt were based on some extreme
circumstances where the trust grantors were generally regarded as con
artists or theives.

As for the offshore limited liability company, every state in the U.S.
has a statute that authorizes the protection of LLC assets from
creditors of the members of the LLC. And many of those states
expressly permit a single member LLC to protect the assets of the
only member. I'm told that offshore LLCs have been based on the laws
of the more protective states and that they generally provide better
protection. One of the key differences between an LLC and an AP Trust
is that the owner of the LLC can manage the money and can make
distributions to himself at any time. That's not the case with an AP
Trust. Therefore, some advisors advocate using a foreign APT that owns
a U.S. LLC that is managed by the trust grantor. Other advisors who
are more cautious or conservative advocate that the LLC also be
offshore. And some advisors believe that using an AP Trust and an
offshore LLC is a bit like wearing a belt and suspenders. The use of
both entities also increases the formation costs and the annual costs
of administration.

Therefore, the "best" choice may be influenced by how much money is at
stake and how much the taxpayer is willing or able to spend.

Please note that the preceding comments are not legal advice because
I'm not a lawyer.

Vern