DESCRIPTION Estate planning allows for the maximization of wealth preservation and management before and after death. An extra measure of wealth protection can be obtained through Asset Protection (AP) planning. AP planning utilizes a domestic planning tool, the traditional Family Limited Partnership, in conjunction with an Offshore Trust to protect assets.

THE FAMILY LIMITED PARTNERSHIP - FLP
Reasons to use an FLP include:

Consolidation of investment assets.

Asset protection.

Control retained by the General Partner.

For basic domestic asset protection, FLPs are often used to create a business structure that is an obstacle for creditors. If a creditor obtains a judgment against you and most of your assets are held in the FLP, the creditor is limited under state law to obtaining a charging order against the FLP. With a charging order,only actual distributions flow to the creditor. However,all income tax liabilities . ow to the creditor without regard to the actual cash . ow or property distribution, creating phantom income. The FLP structure,phantom income, and the limited recourse available to the creditor generally create a better circumstance for a more reasonable settlement.

For the convenience of consolidating investment assets and enhancing asset protection, the FLP is a good domestic planning tool to use separately or in conjunction with an Offshore Trust.

THE OFFSHORE TRUST
Reasons to use an Offshore Trust include:

Refusal or reluctance of an offshore jurisdiction to recognize U.S. judgments as automatically enforceable.

Recognition of self-settled spendthrift trusts as valid.

Less stringent fraudulent conveyance law than in the U.S.

The Offshore Trust is structured as a “self-settled spendthrift ” trust, wherein the settlor (the person who forms the Offshore Trust) is a potential beneficiary.In most U.S. states, a self-settled spendthrift trust would be subject to claims by creditors of the settlor.

In offshore jurisdictions that are used for an Offshore Trust, a person may lawfully establish a self-settled spendthrift trust that protects the Trust assets from their creditors.

It should be noted that,while the Offshore Trust provides substantial asset protection from future creditors,known creditors can claim a fraudulent conveyance if the FLP or the Offshore Trust planning is done in an attempt to thwart a creditor. If a creditor or a potential liability is not ripe, and is unknown, the FLP and the Offshore Trust planning are generally not subject to the fraudulent conveyance statutes and cases.

THE FLP AND OFFSHORE TRUST COMBINATION The utilization of the domestic FLP and the Offshore Trust provides a very strong combination of asset protection tools.These steps are followed to structure the AP Plan.

1.The FLP is formed and capitalized with investment assets. More than one FLP may be appropriate in order to segregate assets based upon liability exposure. Upon capitalization, you own a 2%general partnership interest (the control mechanism)and a 98% limited partnership interest.

2.The 97%limited partnership interest is contributed to the Offshore Trust.Although the Offshore Trust legally owns the 97% limited partnership interest, the FLP would continue to be controlled by General Partner. In addition,any important votes by the limited partnership class would require either (i) unanimity or (ii) a vote by 100% of the general partners and 1% of the limited partners.

3.While there is no genuine threat of a domestic creditor, the FLP and the Offshore Trust would continue to operate together.If, however,an emergency circumstance arose, the FLP could be dissolved. This would pass 3% of the assets to you and 97% of the assets to the Offshore Trust. Thus, any creditors would then have to pursue the Offshore Trust in a foreign jurisdiction for the bulk of the FLP assets.

4.The Offshore Trust could continue for the benefit of the beneficiaries (including the client and their family) after dissolution of the FLP.

5.Two key concepts associated with an Offshore Trust relate to having both a U.S. and foreign trustee and a U.S. trust protector. While matters are calm, the U.S. trustee would direct most of the Trust activity.If a U.S.creditor matter became urgent, the U.S.trustee would resign, eliminating the ability of a creditor to serve the Offshore Trust with litigation in the U.S.

The trust protector is an individual appointed with authority to remove and name new trustees, both U.S.and foreign. The trust protector can be a U.S. person, such as an attorney. However, similar to a U.S.trustee,a U.S.trust protector would probably name a foreign successor trust protector if there were serious domestic creditor issues.

U.S.TAX TREATMENT Although the Offshore Trust is established as a foreign trust,if it is properly set up,it is taxed to the settlor (or transferor) as a grantor trust.A grantor trust is taxed to the settlor for U.S.income and estate tax purposes,this means that income tax gains or losses will . ow back to the settlor through the Offshore Trust and the FLP.In addition,upon the death of the settlor,the value of the Offshore Trust is included in the taxable estate.In contrast,if set up as non-grantor foreign trust,the U.S. tax consequences,such as immediate capital gains on appreciated property contributed to the Offshore Trust, can be severe.

Use of the FLP and the Offshore Trust combination provides no inherent income, capital gain, or estate tax savings.

While the FLP and Offshore Trust combination can provide asset protection, it must be emphasized that concealment from the U.S.tax authorities is not allowable.

SITUS FOR THE OFFSHORE TRUST There is no perfect jurisdiction for the Offshore Trust.

Examples of reputable jurisdictions utilized by TFS ™ for Offshore Trusts include the Bahamas,Bermuda,and the Cayman Islands. All of these jurisdictions provide suitable law for an Offshore Trust and are English-speaking countries.These countries also offer professional banks, lawyers and accountants,and relatively easy access to the U.S.