Domestic Asset Protection Trust or Foreign Trust? Which is Right for You?

Domestic asset protection trusts offer more flexibility and control than foreign trusts, but their ability to protect against court judgments in other states or federal bankruptcy courts has yet to be tested.

In Ohio, asset protection attorneys may recommend either foreign or domestic trusts for asset protection, depending on the client’s level of vulnerability to lawsuits and creditors, the value of the assets to be protected, and the client’s preferences.

Traditionally, offshore trusts have been the way to go for protecting the assets of the very wealthy because of the high level of security against court judgments. But, because of recent changes in trust laws in some states and a trend among U.S. courts toward jailing U.S. debtors who won’t or can’t turn over foreign trust assets, domestic asset protection trusts have been coming into favor more and more.

Foreign vs. Domestic Asset Protection Trusts: A Brief Comparison

Foreign asset protection trusts — The primary advantage of foreign trusts is that the countries in which these trusts are establish don’t recognize U.S. court judgments and, therefore, won’t turn over the assets of a trust when ordered to by a U.S. court. The only recourse for a creditor is to file a court case in the country holding the trust. This is expensive and usually unlikely to yield a favorable result for the creditor, which deters most from even trying.

The downside of offshore trusts is that the grantor (the person creating the trust) gives up a substantial amount of control over the assets. They surrender so much control, in fact, that some U.S. citizens have served jail time for civil contempt when a court ordered them to turn over assets in a foreign trust and were unable to do so. Many people are also uncomfortable putting control of their assets in a country they are unfamiliar with and may be less stable economically and politically than the U.S.

In Ohio, asset protection attorneys at Gudorf Law Group believe domestic trusts can provide nearly equivalent protection with much less cost and more control over the assets for the grantor/trustee.

Domestic asset protection trust — Asset protection trusts in the United States offer many of the same protections as offshore trusts, are much more affordable and provide the grantor/trustee with greater control over the assets (though one must remember that all asset protection trusts necessarily limit control of the assets in order to provide protection).

However, domestic asset protection trusts cannot disregard judgments and orders from U.S. courts. While the trusts are secure against claims that originate in the same state as the trust, there is question as to whether they will be secure against claims originating in other states or in federal courts, like bankruptcy.

Full Faith and Credit laws require states to enforce judgments and orders from courts in other states, and federal laws take precedence over state laws whenever there is a conflict between the two. However, domestic asset protection trusts are such a new phenomenon in the U.S. that there haven’t been any court cases to set a precedent for how these conflicts will actually be handled. Many Ohio asset protection attorneys, as well as attorneys throughout the United States, believe domestic trusts will provide a great deal of protection for assets, even against federal bankruptcy cases.

In the end, in determining whether domestic or foreign trusts are appropriate, the individual must decide what their goals are and which risks they are more comfortable with.

Gudorf Law Group, LLC, can assist in determining whether domestic asset protection trusts or foreign trusts are right for your situation and help you develop an effective asset protection plan. Call our Ohio asset protection attorney’s office at 1-877-483-6730 to schedule a free consultation

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