In previous posts, I’ve written about establishing an Offshore Asset Protection Trust to protect your assets from lawsuits and creditors.
Setting up and maintaining an Offshore Asset Protection Trust is expensive. Depending on which jurisdiction you use, it will cost you between $USD 25,000.00 to $USD 50,000.00 to establish an Offshore Asset Protection Trust. And your annual maintenance costs will be between $USD 5, 000.00 and $USD 10,000.00.
Clients often ask me if they really need an Offshore Asset Protection Trust to protect their assets, and are there other less expensive methods? The answer to the first part of the question depends on how many obstacles you want to put between you and your potential creditors. An Offshore Asset Protection Trust is the “Cadillac ” version of asset protection, to use a motor vehicle comparison. But a “Volkswagen” can get you from point A to point B as well.
So let’s look at some of the less expensive ways of protecting your assets.
Spousal ownership
The easiest and cheapest way, assuming that they have no creditor problems themselves, is to put your assets in the name of your spouse or partner.
Segregated Funds
Another cost-efficient method is the use of Segregated Funds. Segregated Funds are an insurance contract that offers protection from creditors and offers estate planning benefits. With a segregated fund you can name a beneficiary which means that if you die, the proceeds of the Fund go directly to the named beneficiary and do not form part of the Estate, thereby bypassing probate taxes.
RRSPs
Registered Retirement Savings Plans are immune from creditors in the event of bankruptcy. Depending on which province you live in, assets that go directly to a named beneficiary are also protected from creditors.
Incorporating
It is a general principal of corporate law that individual shareholders are not personally liable for the liabilities of the corporation. There are a few exceptions to this such as, Director’s Liability to the CRA in the case of HST/ GST or Payroll deductions, and where the courts can “pierce the corporate veil” in cases of fraud. But generally speaking, carrying on business through a corporation can be an effective way of protecting your personal assets from creditors.
Offshore Incorporations
When I first started practising asset protection law back in the ‘90s, I advised most clients that establishing an Offshore International Business Corporation was the most cost effective way to protect their assets from lawsuits and creditors. You set up an Offshore Corporation, in say the British Virgin Islands, with nominee shareholders and directors. Next, you open an Offshore Bank Account in the name of the Corporation with you having signing authority, and get an ATM card for that account. Then you transfer your liquid assets to the Corporation’s bank account and Bingo you’re in business – your money is outside the clutches of creditors in Canada, but you have access to the funds. And by using nominee shareholders and directors, if anyone searches the public corporation records in the offshore jurisdiction, they won’t find your name anywhere, they will only find the name of the nominee(s).
Swiss Bank Accounts
While having your assets in a Swiss Bank Account won’t completely protect your assets from creditors, a Swiss Bank Account does provide a certain degree of secrecy and anonymity. That in itself can be adequate protection. For a creditor to get access to the money in that account, they would first have to know that you have a Swiss Bank Account , including the name it is under and the account number.
So the short answer to the question of whether you really need to set up an Offshore Asset Protection Trust to protect you assets is “Not necessarily”. Depending on the value of your assets and your particular circumstances, there are a variety of other methods that might be adequate. Every case depends on your own personal circumstances, so always consult an asset protection lawyer before doing anything.
It is important that any transfer of your assets is made BEFORE you have any creditors or BEFORE a lawsuit is commenced against you. Otherwise, a court could set the transfer aside on the basis that it was a “fraudulent conveyance”.