Asset Protection With A Foreign Trust

One way to protect assets is to transfer those assets to a foreign trust. Under the terms of a foreign trust, a trustee is charged with the responsibility of overseeing the trust assets for the benefit of the beneficiaries of the trust. In order for a creditor to seize assets held in the trust, the creditor must overcome the complicated and lengthy process of gaining access to trust assets. The foreign trust is governed by the laws of the foreign country in which the trust is located, and these laws are not favorable to the U.S. creditor.

For instance, the foreign country will not recognize a judgment of a U.S. court. In addition, the laws of the foreign country do not allow for contingency legal fees, which means that the creditor will have to pay a foreign lawyer to litigate the claim in the foreign country, and pay that lawyer whether or not the claim is successful. In many cases, the unsuccessful creditor will have to pay its own foreign legal fees, plus the legal fees of the prevailing party.

For all of these reasons, a U.S. creditor faces significant hurdles in attempting to reach assets held in a foreign trust. U.S. citizens who have transferred assets to foreign trusts are no longer seen as "deep pockets" in the eyes of creditors, potential litigants and plaintiffs' attorneys.

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