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Offshore asset protection means setting up entities such as trusts and holding companies in different jurisdictions in order to take advantage of those countries’ more favorable laws. The main goal of offshore asset protection is to remove assets from the reach of plaintiffs and courts located in the United States.
This is achieved by transferring title and nominal control of unprotected assets to legal entities located outside the borders of the U.S. The effective implementation of these legal solutions allows our clients to be better prepared to defend their wealth against future legal threats or to settle claims in much more favorable terms.
In the world of offshore asset protection, there are several competing entities with their own specific strengths, weaknesses, and legal requirements. Unsurprisingly, there is no one solution that works best for every case.
The right answer often depends on individual circumstances, needs, and goals. For this reason, understanding the differences between offshore asset protection alternatives is important for anyone considering setting up or updating their asset protection plan.
In this article, we will explore in detail the main distinctions between two of the most common offshore asset protection entities, the Cook Islands Trust and the Nevis Limited Liability Company (LLC).
An offshore asset protection trust established in the Cook Islands is one of the most secure legal structures currently available. An asset protection trust is a specialized type of irrevocable trust designed to protect against lawsuits and other legal threats.
The trust is a written contract between the grantor or settlor, who establishes the trust and the trustee, an independent third party who accepts the responsibility of supervising and administered the trust according to its written terms and provisions. The beneficiaries do not need to sign or review the trust, they are merely the person or persons who stand to receive the trust property.
With an offshore asset protection trust, the owner transfers title of any assets he wants to protect to a professional trustee located outside of the U.S. while still being able to enjoy the use of the transferred assets and maintaining a degree of control.
Many offshore trust jurisdictions such as the Cook Islands specifically state in their laws that foreign judgments, such as those issued by courts in the United States, are NOT recognized within the country. If both the trustee and the assets are outside of the country, it is highly unlikely that a domestic court will be able to gain jurisdiction over either.
This makes offshore asset protection trusts ideal lines of defense in case of potential lawsuits. A plaintiff trying to reach assets held in an offshore asset protection trust is left with the options of pursuing his lawsuit in the offshore jurisdiction or settling the case under unfavorable conditions.
At any rate, the plaintiff loses much of his leverage since pursuing a lawsuit in a foreign country is often a much more complicated and expensive endeavor, not to mention having to litigate in foreign court systems that strongly favor defendants.
The Cook Islands and the Island of Nevis are among the safest offshore jurisdictions available for asset protection. Both jurisdictions’ laws are based on the English common law framework and are very well regarded for their commitment to offshore asset protection.
While the Cook Islands is perhaps considered the leading jurisdiction in terms of legal protections, the island of Nevis is not far behind. Both a Cook Islands Trust and a Nevis LLC benefit from extremely favorable legislation in their respective territories.
An entity established in either jurisdiction, properly funded and maintained, would be quite a challenge for a plaintiff based in the United States. Both a Cook Islands Trust and a Nevis LLC offer strong protection against foreign judgments, defendant-friendly laws, as well as a range of established professional services companies catering to offshore clients.
A Cook Islands Trust and a Nevis LLC can both be used to hold a variety of different assets such as cash, securities, bonds, cryptocurrencies, other liquid or illiquid financial instruments, and a variety of other assets.
Neither the Cook Islands nor Nevis imposes income or estate taxes on offshore entities, and neither country has capital controls or other impediments that may obstruct funding. Additionally, both the Cook Islands Trust and Nevis LLC have strong laws protecting the privacy of owners and managers of offshore asset protection trusts and companies.
Both a Cook Islands Trust and a Nevis LLC are entirely legal for citizens or residents of the U.S. These are simply overseas entities that need to follow the local laws and regulations.
Of course, the purpose of the offshore trust or company needs to be legitimate, and protection from potential lawsuits is a valid and lawful purpose. Transferring funds and other assets outside of the U.S. is also perfectly legal provided the mandatory reporting requirements are made timely to the tax authorities.
Cook Islands Trusts, Nevis LLCs, and other offshore entities are not a means to conceal funds or evade income or estate taxes.
Neither a Cook Islands Trust nor Nevis LLC requires the assets held to be physically located within its borders. However, in order to take full advantage of the legal protection provided by offshore entities, any assets held in either a Cook Islands Trust or a Nevis LLC should be outside of the United States.
Generally, a foreign bank account in an established banking center such as Switzerland is used for this purpose. The foreign bank account can in turn be owned by the offshore trust or LLC. In the case of U.S.-based real estate, offshore asset protection entities can still be used to protect such assets using a process known as “equity stripping”.
The most obvious difference is in the location of these jurisdictions. While the Cook Islands are located in the middle of the South Pacific Ocean, the island of Nevis is located in the Caribbean, a short distance east of Puerto Rico and the U.S. Virgin Islands.
Although that doesn’t necessarily mean it is any easier to bring a lawsuit in Nevis than in the Cook Islands. The laws of both countries are designed to protect the privacy and property rights of those who decide to benefit from their legal system.
For the average plaintiff, the prospect of litigating in either jurisdiction is daunting, as it requires finding and retaining legal counsel, clearing potential conflicts of interest, paying upfront legal fees, and potentially paying their opponent’s legal fees if they lose the case.
Next is the distinctions between entities, as there are significant differences between a trust and an LLC. An asset protection trust is a legal instrument that is specially designed to protect against potential legal threats.
The trust deed contains provisions that establish how the assets should be administered during ordinary times as well as what should be done in case a threat of litigation ever arises. In addition, the title to any assets transferred into the trust is changed, from the person who establishes the trust to the person or entity who administers the trust.
This creates a degree of legal separation between the original owner and funds, or assets held in trust. After the trust is funded, it is the trustee, not the grantor, who is now the legal owner of the assets held in the trust. If the grantor is ever threatened by a lawsuit, he can reliably state that control of the trust funds is out of his hands.
Due to the fees and requirements set by the offshore banks and trustees, Cook Islands Trusts generally require larger sums of funds as initial deposits. For a Cook Island Trust to be cost-effective, an initial investment in the six figures is recommended and oftentimes required by the prospective trustees or bankers.
Thanks to our connections to numerous offshore service providers, Blake Harris Law is able to help clients establish a Cook Islands Trust with reduced initial investment, but this alternative needs to be evaluated on a case-by-case basis.
A Nevis LLC, much like domestic LLCs that have become so popular in the United States, is primarily intended as business entities, or holding companies. LLCs are provided standard limited liability under the terms of the country’s Limited Liability Company Ordinance of 1995.
Of course, there is a high degree of legal protection provided by segregating assets using an LLC. While Nevis LLC is often considered as an alternative to an offshore trust, they have not tailored asset protection solutions like asset protection trusts are. The protections afforded to Nevis LLCs are not as comprehensive as those of a full-fledged asset protection trust.
A Nevis LLC requires significantly less legal work and has faster processing times when compared to an offshore trust. A Nevis LLC does not require a complex legal document such as a trust deed, the only documents required are the Articles of Organization which need to be filed with the Registrar of Companies.
An Operating Agreement is not technically required but highly recommended in most cases. Ordinarily, a Nevis LLC does not require an outside professional manager, but only at least one member and one manager. The members are the beneficial owners of the company, and the managers are those exercising control.
In the case of a Nevis LLC, the person setting up the company can be both the member and the manager. This means greater control over the entity, its assets, and transactions, as no third party needs to be necessarily involved. While greater control and flexibility are great advantages, the downside is the degree of protection afforded is reduced.
In terms of costs, establishing a Nevis LLC is easier and less expensive than an offshore trust. While a Cook Islands Trust requires a professional trustee located within the Cook Islands, the Nevis LLC only needs a registered agent in Nevis. This means the ongoing maintenance costs are lower. Only in case of an impending lawsuit would an independent third-party manager for the LLC be required.
The Cook Islands Trust and the Nevis LLC are some of the most commonly used legal structures in the world of offshore asset protection. Experienced offshore asset protection attorneys understand that these legal solutions are the best in their class.
The main reason for their popularity is the high degree of protection afforded. Both jurisdictions are recognized as established asset protection centers where setting up offshore entities is fast and secure. Anyone looking to the highest degree of legal protection will naturally gravitate to one of these two alternatives.
Considering whether a Cook Islands Trust or Nevis LLC is best for your situation might sound like a complex decision. There are major factors that help favor one option over the other:
Generally, a Nevis LLC will be best suited for those looking for solid offshore asset protection who are also mindful of the legal fees and ongoing costs. Those looking to protect smaller sums of money should likely opt for the Nevis LLC due to the lower costs and no minimum funding requirements.
A Nevis LLC might be a better match for younger professionals who are earlier in their careers or entrepreneurs who have recently started a business. A Nevis LLC might also be the better choice for those whose risk tolerance is a bit higher and are comfortable following the required legal formalities required to maintain the LLC operational over the years.
A Nevis LLC can also serve as an important first step in an overall offshore asset protection plan as it can always be transferred or retooled to work together with other entities that can be established later.
The Cook Island Trust will be the clear choice for those looking for the ultimate form of asset protection and those looking to protect larger amounts of wealth. Those who are more risk-averse should also probably consider the Cook Island Trust due to the higher degree of protection afforded and very positive caselaw.
Since the Cook Islands Trust requires a professional trustee for the trust to remain effective, the Cook Island Trust is also better for those who are looking for ongoing guidance and to outsource the required supervision and legal formalities to a trusted offshore professional.
Simply stated, the Cook Island Trust is the premier solution for anyone looking for the highest degree of protection available.
Absolutely. Trusts and LLCs or other limited liability entities can work together beautifully as part of a comprehensive asset protection plan. Not only is the overall security of the asset protection plan increased by using multiple structures, but it often results in additional flexibility and control over the assets as well.
The most common arrangement is to have an asset protection trust serve as the legal owner or “member” of the LLC. The LLC will in turn be used to hold title of the assets. That means the assets will be held behind two layers of asset protection structures. A Cook Islands Trust can also be the owner of multiple LLCs, which allow for straightforward asset segregation inside the trust.
While a Cook Island Trust provides unmatched asset protection and privacy, its benefits can be greatly enhanced with the use of an offshore LLC. Using both a Cook Island Trust and a Nevis LLC provides a number of significant advantages.
With this dual setup a client is able to get the best of both worlds, the flexibility and control of the Nevis LLC with the robust asset protection of the Cook Island Trust. While the Trustee is responsible for managing the assets held in trust, when the only “assets” are shares in one or more LLCs, the grantor can remain the manager of any LLCs.
The grantor is thus able to maintain a higher degree of control while the trustee is still nominally holding title to the assets. In case a legal threat ever arises, the trustee can temporarily remove the grantor and act as manager of the LLC to minimize liability. Done properly, this combination of offers unmatched potential in terms of asset protection, flexibility, and control.
The Cook Island Trust and the Nevis LLC are only two amongst numerous other offshore asset protection entities that can be used on their own or as parts of a broader asset protection strategy. While they both provide formidable protection against legal threats, an experienced asset protection attorney can help you better understand how they work and whether one is right for your situation.
If you would like to learn more about how you could secure your assets and keep your hard-earned wealth out of reach from potential creditors or lawsuits, contact us today for a free, no-obligation consultation. Blake Harris Law can help you establish an offshore asset protection plan that protects your wealth.