Fisher Law Corporation’s Frequently Asked Questions

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Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.

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How do loan modifications work? »

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What is an off-shore trust? »

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What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

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Q. What is an off-shore trust?

A. Off shore trusts, while resourceful in many instances, are not a panacea for everyone’s problems. Although off shore trusts offer certain advantages over domestic trusts, especially in the area of asset protection, the attendant higher costs sometimes outweighs the benefits.

The benefits of an off shore trust include the fact that the assets are protected from attacks from creditors, even under circumstances under domestic law where the transfer would be considered fraudulent. Furthermore, in a domestic trust, the trustor (the person setting up the trust) cannot generally retain control over the trust if he or she wants to be protected against creditors. In an off shore trust, however, the trustor can retain interest and control over the trust without opening himself or herself to a creditor’s attack.

One disadvantage of an off shore trust is the expense associated with setting it up and maintaining it. Usually, a trustor will need to retain both an attorney from the U.S. as well as an attorney in the jurisdiction of the trust, which can run well into the thousands of dollars. Furthermore, most foreign trustees require an annual fee which can be hefty.

Also, an off shore trust must be outside the reach of creditors. That is, the asset itself which the trustor seeks to protect must not be attachable within the U.S. For example, land placed in a foreign trust but physically situated in the U.S. may not be protected.

If these drawbacks don't discourage you, there are certain benefits to employing an off shore trust for estate planning and asset protection purposes. For example, there are friendly foreign jurisdictions that will not recognize a U.S. judgment.

The main reason trustors employ an off shore trust is for asset protection against creditors. An off shore trust will not generally create any beneficial tax consequences. Generally, a U.S. citizen who establishes an off shore trust must pay U.S. income taxes on the trust income. Similarly, the value of the off shore trust is generally included in the trustor’s estate for purposes of estate taxation.

Some of the more friendly jurisdictions for off shore trusts include the Bahamas, the Cayman Islands, the Turks and Caicos, the Isle of Mann off the shores of Scotland, the Cook Islands of New Zealand, the Antilles, and others.

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