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The Bridge Trust®
The Bridge Trust is an Asset Protection Trust that addresses many of the complications that result from moving money offshore to protect it from creditors and potential lawsuits. The Bridge Trust combines many of the best features of different asset protection strategies into one flexible and versatile instrument. While a Bridge Trust may seem a little complicated at first, once you understand how the Bridge Trust works, you will realize what a versatile tool it is. In fact, the Bridge Trust provides you with asset protection without the burdensome IRS filing obligations required for foreign bank accounts. In addition, you keep full control of your assets until there is a legal threat.
To better understand how the Bridge Trust works, let’s first briefly cover the differences between offshore and domestic asset protection trusts.
What is an Offshore Trust?
An offshore trust is a trust established according to the laws of a foreign jurisdiction. The offshore trust is created by a grantor who places their property into a trust located and managed outside of the United States. When this happens, the grantor generally gives up a large amount of control over the assets. From that point forward, the foreign trustee is in control of the assets, managing them according to the terms established in the trust and their fiduciary duties towards the trust, grantors and beneficiaries. In order to be fully effective, the offshore trust must be irrevocable.
Offshore trusts are usually created in jurisdictions that aim to be as friendly as they can to these instruments. They make their laws favorable to trusts and, as a result, assets in a foreign trust are virtually untouchable. The only exception is if a U.S. court threatens to hold someone in contempt of courts unless they bring their assets back onshore.
Foreign trusts have received some negative press treatment recently and courts have made some efforts to try to pierce the trusts. Thus, there is some danger in trying to keep assets overseas permanently. This is where the Bridge Trust is a clever solution since it takes advantage of offshore protection, but only when it is absolutely needed.
What is a Domestic Asset Protection Trust?
A Domestic Asset Protection Trust (DAPT) on the other hand is a trust domiciled in the United States. A DAPT combines asset protection with the ability to keep the funds and trust management within the country. Unlike certain other asset protection trusts, the grantor can also be the beneficiary of the trust. For most trusts, once the trust is created, the person who creates the trust is no longer able to have access to the trust’s assets. In other words, since the trust is irrevocable, it functions like a lockbox that even the grantor cannot have access to once the trust is established. At the same time, like any other trust, the grantor gives the ability to control the assets to the trustee. Giving up the ability to control is a key to the asset protection.
It is important to know that not every state allows for a DAPT. Currently, there are 19 states whose laws allow for a DAPT. It is unclear how a DAPT will be viewed if there is litigation about it in a state that does not recognize a DAPT. Another uncertain area is whether someone who lives in a state that does not allow for DAPTs establishes one in a state where they are permitted. Recent court cases have created some areas for concern when it comes to DAPTs.
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What is The Bridge Trust®?
The Bridge Trust is a newer type of asset protection instrument that keep your assets in the U.S. initially, then take them offshore to counter a litigation threat, while bringing them back when the threat passes. The Bridge Trust is initially a domestic trust, but when necessary, assets “cross the bridge” and becomes a foreign trust. It is a hybrid instrument that combines the protection of a foreign trust with the simplicity of a domestic instrument when it comes to tax filings. When the trust is still domestic, there is continuity and you maintain almost complete control of your assets. Using a Bridge Trust, the grantor of the trust can also be the beneficiary. In fact, you can even be your own trustee. In other words, this is almost as if it is business as usual.
Domestic and offshore trusts each have their own separate advantages when it comes to cost, protection, flexibility and control. The Bridge Trust is a hybrid of the two. It is a domestic trust when times are calm and becomes a foreign trust when your assets are threatened. All the while, your assets can cross the bridge and back as necessary. In other words, when the threat is on the horizon, The Bridge Trust can change as necessary and it will be effective because it has been set up ahead of time.
How Does The Bridge Trust Work?
Ideally, the Bridge Trust should be set up during calm times, before any legal threat is on the horizon. When you establish a Bridge Trust, its provisions immediately take effect. Although the Bridge Trust is established overseas, the assets come back into the United States and the grantor will manage those assets as they normally would. In other words, even though the Bridge Trust is active and established, nothing changes unless it becomes necessary. This means that your assets are still domiciled in the United States and you are still in control of your assets.
If a legal threat appears, and once other options are exhausted, your assets are moved to the foreign asset protection trust. Control will then pass to the foreign trustee who was already waiting in place from the time that your Bridge Trust was established. Then, your assets go from being domiciled in the United States to being located offshore. They will remain offshore so long as the threat to your assets continues. Once there is an “all-clear” and there is no longer any danger, they will come back to the United States and you can be in control once again.
Crossing the Bridge
The “Crossing the Bridge” feature is what makes a Bridge Trust a simple and effective solution that provides high levels of both control and protection. It is the “bridge” part of this which is illustrative. Imagine the trust as building a bridge from wherever your assets are to the Cook Islands. This bridge continues to exist even if there is no threat and your assets are still domestic. The fact that this bridge is already in place means that it will be able to be used to transfer the assets to a fully foreign trust.
It is the bridge that allows the assets to move back and forth between a domestic and foreign trust. If the bridge were not in place, you would not be able to set up a foreign trust after you were facing the threat of litigation. In other words, when you establish a Bridge Trust you are building the exit ramp before there is a need to exit. Without it, you would not be able to put a new asset protection plan in place. At the same time, it is the bridge that allows you to maintain control of your assets for as long as possible.
Benefits of The Bridge Trust
The beauty of The Bridge Trust is that you do not actually have to move your assets offshore in order to gain the protection of a foreign trust. Instead, you set up The Bridge Trust that will move your assets to the Cook Islands only if it is necessary to do so. In other words, your assets remain in the U.S., and the trust only activates when there is a need for it. This erases the problem that many asset protection plans are permanent and take control of your assets from you. In other words, when it comes to The Bridge Trust, what is done can be undone.
Another benefit of The Bridge Trust is that many of your IRS filing requirements that cost you time, effort, and money go away when the trust goes into effect. Because of the way that the trust is structured, you will not have to file the IRS Form 3520 or 3520A. You also do not need to file FinCen forms or make other FATCA disclosures. This makes administering The Bridge Trust much easier and less paperwork intensive than other types of foreign trusts.
How Much Does The Bridge Trust Cost?
When you establish a Bridge Trust, you will have two different types of costs. The first, is the initial cost to set up the trust. This will cover drafting and filing the documents and the fees for the legal services involved in establishing the Bridge Trust. You can expect the fees will be comparable to what you would need to pay in order to establish a Domestic Asset Protection Trust. These cost roughly $25,000 to establish, but the trust in turn can be used to protect millions of dollars of assets.
The second set of costs are annual costs to maintain your trust. These are considerably less than the initial cost to set up your trust. Expect that the annual costs should equal roughly ten percent of the initial costs to establish The Bridge Trust. There are no trustee fees on top of the annual costs.
Who Needs The Bridge Trust
If you are at risk of facing a possible lawsuit, you may find yourself needing a powerful asset protection trust. The time to act is not when you are already facing a lawsuit, but when you believe one might arise in the future. For example, what you do for a living may mean that your chances of facing a lawsuit are relatively high. At the same time, you will have assets that you have accumulated that you want to protect from a lawsuit. One of the prime examples of someone who may benefit from The Bridge Trust is a physician. Those who own, operate or work at a healthcare practice occasionally face malpractice lawsuits from patients. The Bridge Trust is a commonsense solution that will keep you in control of your assets and will only move them offshore if there is a threat.
How Much Capital Do I Need?
The Bridge Trust is a legal document drawn up by an attorney and is not an investment, therefore there are no minimum net worth requirements. Generally, you will want to have enough assets to justify the costs of establishing and maintaining the trust. Most people who establish Bridge Trusts have a net worth of between $500,000 and $5,000,000. However, there are no minimums or maximums to start this trust. Even people with a lower net worth have every incentive to protect their assets and can do so through a Bridge Trust.
How Do I Get The Bridge Trust for Myself?
An asset protection attorney who specializes in creating these trusts can work with you and advise on what best fits your goals, needs, and level of risk. By contacting Mile High Estate Planning, you can learn more about the Bridge Trust, other asset protections tools, and whether these are right for your situation.