A major problem that people face is how to protect their assets from creditors who may seek to seize them. While an obvious answer would be to transfer assets, this can be defeated if the transfer is fraudulent in any way. In addition, this would mean that one will lose the ability to make decisions about their assets. One way to protect assets from creditors is to establish a Bridge Trust. This allows someone to keep control of their assets for as long as possible and only move them out of their control when it becomes absolutely necessary.
Of course, one could create an irrevocable trust, naming children or a spouse as the beneficiary. However, this would also mean that some degree of control over the assets is surrendered. In addition, the grantor cannot be the beneficiary of an irrevocable trust. A Bridge Trust is designed to prolong the period where the grantor can keep their assets. The grantor will only surrender control of these assets under certain circumstances. So long as the grantor remains the trustee, they have the ability to pass the assets along to someone else, including their children.
To understand how this type of trust works, it is essential to know the various characteristics that a Bridge Trust has. The Bridge Trust is established and will operate as a domestic trust. In order to be a domestic trust, the trust must be owned by a U.S. citizen and subject to the jurisdiction of a U.S. court. Domestic trusts have advantages when it comes to tax treatment of the trust.
The document establishing the trust will lay out certain conditions that will constitute a crisis. This could include any number of things, including a lawsuit or some sort of liability that could threaten the trust’s assets. When that crisis occurs, the trust automatically ceases to be a domestic trust and is transferred to a trustee in the Cook Islands. In that event, the trust automatically converts to becoming a foreign trust. While some favorable tax benefits for domestic trusts are lost, the assets of the trust will become protected from whatever crisis threatens it. The protection comes from the fact that the assets are moved to a country that is not subject to the jurisdiction of U.S. courts. In other words, if the grantor loses a lawsuit, the assets cannot be touched by whoever is attempting to enforce the judgement. In this way, the assets become judgement-proof.
Even when the assets are held in the offshore trust, the grantor still remains the beneficial owner for the life of the trust. Not only does the grantor remain the beneficial owner, but they can also request that the foreign successor trustee make distributions from trust assets by expressing their wishes. In other words, just because the funds are in the Cook Islands does not mean that they are completely off limits to all beneficiaries.
The Cook Islands is known as one of the most favorable asset protection jurisdictions in the world. Once the country assumes jurisdiction over the trust, it becomes very difficult for anyone to touch the assets. The country has a reputation for ignoring U.S. court orders. The Cook Islands has many qualified trustees since it is often the site of trusts. While the U.S. has paid greater attention to foreign trusts, it has largely left the Cook Islands alone. By 2013, there were over 2,500 foreign trusts in the country. Many other foreign countries are following the example of the Cook Islands in order to get their piece of this lucrative business.
Over the years, there have been several attempts by U.S. courts or government agencies to reach funds held in trust in the Cook Islands. None of these attempts have been successful. For example, the Federal Trade Commission failed to enforce a $37.5 million judgment against a U.S. citizen when the assets were held in the Pacific country.
It is important to note that even after the trust is transferred offshore, the grantor does not lose access to these assets. The new trustee can still administer the trust for the benefit of the original trustee. For example, while they cannot use the money to buy property for the original trustee, they can use the funds to rent property on their behalf.
One of the advantageous features of a Bridge Trust is that they can be temporary in nature. Assuming that the threat that has triggered the transfer of the funds in a lawsuit, once the lawsuit is over, the trust assets can be moved from the Cook Islands back onshore. This means that, depending on the threat to the assets, the location of the trust can change back and forth.
The concept of a Bridge Trust is tailored to individuals who may face some sort of lawsuit. For example, a physician would have assets that could be threatened by a possible malpractice suit. If the physician establishes a Bridge Trust, they can maintain control over their assets until they are threatened in a lawsuit.
An estate planning attorney can answer any questions about Bridge Trusts and will let you know whether establishing one is legal in your state. They can also tell you some more of the pros and cons of establishing this trust and what you would need to do to proceed.