No one wants to be involved in a lawsuit. However, in order to preserve your wealth, actions need to be taken before “bad things” happen. Utilizing wealth preservation, the goal is to protect your assets before a cause of action (or “bad thing”), by moving them outside of the court’s jurisdiction. Once there is a cause of action, your assets can no longer be moved out of the US without violating the law. This article will discuss two of the most effective wealth preservation structures, the Cook Islands Trust and the Panama Foundation, and why the Cook Islands Trust is a better choice.
Cook Islands Trust
When a civil creditor comes after you, a Cook Islands Trust provides numerous benefits to protect your assets. Similar to a living trust, you, as a settlor, have 100% control of the assets of the trust until a “bad thing” happens. When you come under attack by a creditor, you turn the management responsibility to your offshore trustee. Your licensed, bonded, and insured trustee in the Cook Islands will step in and manage your trust, until you wrap up the “bad thing” in the court. During this period, the Trustee can also facilitate your overseas investments per your prior instructions.
Another benefit of the Cook Islands Trust is portability, you can move the trust and its assets out of Cook Islands at any time, which provides your wealth another layer of protection. For instance, if your creditor has won the case in the US and is attempting to enforce the judgment in Cook Islands. Assuming the statute of limitations has not run out, to avoid the trust and its assets being seized, you can move them to another country. If creditors want to bring a suit against the trust, they will have to initiate the process in New Zealand. Legal cases are heard in New Zealand courts who apply Cook Islands Law. The creditors may spend many thousands of dollars bringing an action only to find nothing is left. On the other hand, Cook Islands’ statute of limitations is only one year form the date the trust is funded or two years from the cause of action (the date the harm occurred). Once the statute of limitations runs out, New Zealand courts will refuse to hear any cases against your Cook Island trust.
Moreover, even if it’s within the statue of limitation, the asset-protection-friendly Cook Islands law can still protect your trust. The only feasible way a creditor can enforce a judgment against you in Cook Islands is to prove beyond a reasonable doubt that the sole reason you setup the offshore trust was to transfer assets away from that particular creditor. Thus, each creditor must prove the transfer was a fraudulent transfer as to him, which is a very high legal standard.
Finally, an offshore asset protection can also facilitate your international investments, international estate planning, and general protection (not related to one particular creditor).
Panama Foundation is a separate and distinct entity from its owners. In order to set up the Panama Foundation, you don’t need members or shareholders. However, the structure requires a Founder (you, the settlor), the Foundation council, and a beneficiary. The Foundation Council can be any three people or any one company, who manages the assets should you become unable or unwilling to manage the Foundation. You can also be the beneficiary.
As a legal entity like a corporation or LLC, the Foundation must have a local address and local agent for service of process. However, the Foundation may not operate an active business. The Foundation may form a Panama corporation, but may not own the business directly. If you are operating a business, you will pay tax to Panama. And any income generated from the Foundation, you, as the Founder, will have to pay tax to the US. The Foundation is often used to diversify your investment portfolio and to minimize the US estate tax.
Therefore, as for the purpose of wealth preservation or asset protection, the Cook Islands Trust affords flexibility, maximum control, professionalism, portability and the protective Cook Islands law.
Disclaimer: This article is not intended to provide legal advice. Please consult an attorney for legal advice for your particular situation.Contact Us Today »