Asset Protection

1.1  "Asset Protection" can be defined as the process of organizing one's assets and affairs in advance, so as best to guard them against future financial loss.  As used in relation to Offshore Trusts, the expression "Asset Protection" is a confusing concept and merits further definition.

1.2  Traditional Offshore Trust planning is generally passive and long-term in nature, and is often designed to last for two or more generations.  Protection against "political risks" has been a common theme in the establishment of Offshore Trusts for the last several decades.

1.3  By contrast, the expression "Asset Protection Trusts" and its acronym "APT" are of recent coinage, and refer specifically to a form of highly focused and pro-active Trust planning that is designed to place specific assets beyond the reach of future creditors.

1.4  This type of planning became popular during the 1980s, largely in response to the problems certain groups of "high risk" professionals experienced in the United States in obtaining affordable professional liability/malpractice cover.

1.5  If used in the right circumstances, this type of Offshore Trust will protect and provide a 'nest egg' against the financial rainy day that would otherwise follow a substantial adverse judgment in the countries of the professional's residence and domicile (referred to herein as the 'home' country).

1.6  To emphasize the distinction being drawn between Offshore Trusts in general and this type of planning in particular, this Paper will use the expressions "Creditor Protection Planning" and "Creditor Protection Trusts", and the acronym "CPTs" in relation to the latter.

1.7  The Offshore dimension is a key ingredient in CPT planning.  Although the existence of a CPT cannot prevent creditors from bringing proceedings in the professional's home country, they invariably affect the outcome.  It is the deliberate arbitrating of two legal systems whose laws differ that produces this effect, and ensures there is some form of (albeit reduced) financial life once the home country proceedings have been concluded.

1.8  In its simplest terms, the laws of the professional's home country (being also the creditor's home country), are of no effect in the Offshore jurisdiction.  Likewise, judgments of the home country's Courts are generally unenforceable in the Offshore jurisdiction.  The Trust Fund thus remains secure in the Offshore jurisdiction (referred to also as the 'host' country) for the benefit of the individual concerned, and his/her family.

1.9  The rest of this Paper will review in some detail:

• The economic and business context that created the need for CPT planning;
• The different types of CPT planning that may be encountered; 
• The historical evolution of legal rules and restrictions protecting creditors;
• Legal limits to the scope of CPT planning, both in the home and host jurisdictions;
• Offshore jurisdictions that encourage CPT planning; 
• The different legislative frameworks Offshore jurisdictions have adopted in relation to CPTs; 
• CPT structures involving the use of Offshore Trusts; and planning issues, and procedural safeguards.

1.11 Creditor Protection Planning is one of the current areas of concern in the Offshore world.  In the last two or three years, CPTs have been increasingly marketed by American Law Firms, and by International financial service businesses and Offshore Trust Companies. 

1.12 This Paper will explore the issues relating to CPTs in detail, enabling those involved with CPTs to understand and identify the kind of business they wish to attract, and thereby avoid taking unnecessary or undesirable risks in their own business.