Quote: (11-17-2015 02:02 PM)jj90 Wrote:
Quote: (11-17-2015 07:05 AM)H1N1 Wrote:
I'm afraid I'm struggling to find a specific enough question to give you a meaningful answer.
From 1-4, assuming the trust was not in Brazil (doesn't have trust legislation and is not a common law country) and was in the BVI or something like that instead, there is no prima facie problem - providing there is no competing claim on the value.
The point with a trust is that its existence may not be known to any outside parties. For a court to rule it a sham, or to attempt to force disclosure, they have to know about it. So to give you a meaningful answer I'd have to come back to you with a bunch of questions - why is the court investigating, what is the original source of the capital, who is staking a claim to it, where specifically is it domiciled (for example, BVI as a crown dependancy is more likely to roll over than Panama, who has no ties to the UK), how much about the existence of the capital and its subsequent disposal is known to the court, etc etc?
I know it seems like I am being very obtuse, but your questions are at too great-a-level of abstraction for me to give you a meaningful response.
Apologies on not doing homework on Brazil. To further clarify this exercise let's say:
1)Court is investigating due to bankruptcy filing.
2)Source is Life savings(cash).
3)Ex-wife and creditors(say credit card co.) staking a claim.
4)Let's use Belize this time for the jurisdiction.
5)No one knows except for a transaction record showing money wired to a foreign bank account. The wire was done well ahead of time say 2 years before the BK filing.
Thanks for your expertise, I think many will get much out of this discussion.
Please don't apologise, if there is uncertainty it must in part be because I have failed to give you the necessary information to ask the right questions in the first place. As I've already made a number of posts in this thread, a large part of the blame for any confusion must rest with me. I'm still not going to answer your questions directly, because they can't be answered in a vacuum. However, I will hopefully provide you with enough information to understand trust and foundation law, how it applies to asset protection, what might motivate you to create one in the first place, and what jurisdictions and methods you may consequently take advantage of to give effect to your intended purpose. I think in the process of doing so, you will get answers to your questions, and may have other questions you'd like to ask as a result.
I would like to apply a couple of caveats before I start:
1. I am not a practicing trust lawyer. I believe I have a strong grasp of the subject, but this is not the counsel of a professional.
2. It is an incredibly complicated area of law, that many lawyers fail to get to grips with. I had a hard time condensing what I knew at the time of my dissertation into only 10,000 words on a narrow topic. I am providing a broad overview, some of which may be overly simplified to allow for ease of understanding. If everyone hasn't abandoned the thread by the time I'm finished, hopefully certain oversimplifications or issues that are unclear can be addressed in subsequent comments.
And so...
Use of Trusts and Foundations for asset protection.
What is a trust?
The trust is the bastard child of a peculiarity of English Law, called equity. Equity was the remit of the Court of Chancery. This court was responsible for the development of most commercial law, fiduciary law, trusts, and one or two others, as well as important legal remedies such as the injunction, which the Courts of the Common Law were unwilling to provide.
The two courts merged over time (1875 to be precise), as equity had been a significant influence on decisions that were increasingly being taken in the Courts of the Common Law - all of the laws mentioned above in the Court of Chancery now being matters of strict legal rights. Trust law has always been an anomaly, in that it is based entirely in equity, meaning that even where someone is the legal owner of some value, if there is an equitable claim to that value, the court will overrule the legal right in favour of the equitable one.
In the case of the trust, equity imposes a stringent personal obligations on the legal owner of property to hold it for the benefit of another, such that he can no longer treat the property as his own. So, for example, if I settle some value 'on trust' for my children in equal shares on attainment of their 18th birthdays, and name you as trustee, I assign you legal title to the value (ie you may become the registered legal owner of my house), however, you are prohibited by equity (which is a mechanism of the court exclusively) from disposing with the property in any way other than what is allowed for under the trust provisions. Should you do so, you will be PERSONALLY liable to restore the value of the trust, and could even be sued on top of that for a loss of earnings if one was suffered as a result. Essentially, the law of equity imposes strict liability on a trustee, despite him being the legal owner. In the eyes of equity, my children are the rightful owners, and the courts will ensure that proper title is passed to them. Of course, the beneficiaries must know they have an equitable interest in the property, and only the beneficiary can bring an action against the trustee.
What is a foundation?
The law on private foundations came into existence in Liechtenstein in 1926 (making it extremely new as far as the case law goes). It is based on the concept of 'separate legal entity' (a civil code doctrine - ie jurisdictions that do not have 'equity', and therefore don't have trusts), which dates back to the 13th century (and a monk named Sinibaldo de Fieschi - who later became Pope Innocent IV). The purpose was to ensure religious institutions could be treated as legal persons in their own right. This legal fiction allowed monks to accept and hold property from donors in the name of their monastery - without offending their sacred vows.
The modern private foundation, very simply, is a separate legal entity, holding assets donated by a founder, suing and being sued in its own name, with a management board, and created for specific purposes (the primary purpose cannot be commercial!).
How do the two contrast?
The trust, being a concept of equity, exists entirely on the entent cordial of settlor, trustee and beneficiary until such time as there is a dispute, at which point you might say the trust crystallises, and a court will look at the intentions and any documents, and try to give effect to the settlor's wishes AT THE TIME HE CREATED THE TRUST. This means trusts can be created through verbal agreement, jotted down on a scrap of paper in the pub, or created by more formal means (gross over simplification of actual situation in UK).
A big part of the appeal of the trust is the lack of formalities typically associated with it. Foundations, being a type of corporate entity, must be registered with the host nation, and comply with a number of formality requirements.
Another key attraction of the trust is that the trust allows for proprietary interests to be enforced under it. This is critical, as the settlor's intention may have been to bestow upon the beneficiary a specific benefit (a particular house, diamond, etc), and these rights can be enforced against the trustee. The court, at the time of an action, will 'trace' through bank accounts and follow the value of the trust through a chain of transactions to try to ensure the beneficiaries receive the property in the form the settlor intended (oversimplification). By contrast, with a foundation, the beneficiary is essentially in the position of an unsecured creditor - ie they cannot enforce specific property rights against the foundation. If value, say a house in Brazil, is placed in the foundation to be passed on to your children, and the foundation council sell the house, a court will not force the foundation to go back out and re-buy the property, as they might with a trust (for which the trustee may have to pay any excess out of his own pocket).
The final key attraction is the enforcement of fiduciary duties. The trustee of a trust must always act in the beneficiaries' best interests (eye watering oversimplification), and will be liable for any failure to do so. Whilst a beneficiary of a foundation could bring a claim against the council for negligence, anything short of that is likely to leave them out of pocket, as foundation jurisdictions do not recognise the concept of fiduciary duty (for the most part).
This is a very brief overview of the two instruments, so oversimplified that I'm wincing. But if I can come to your questions very broadly, my answers might now make a bit more sense.
A key point of the above is that there exist many different instruments (there are all kinds of different trust arrangements, and jurisdictions which enforce different things differently) that you can use to protect your assets. The important thing, when you create such an instrument, is to understand why you are doing it, and what circumstances you hope to avoid.
For example, if you placed your life savings in trust, before you married your wife, and she is not named as a beneficiary of the trust on the trust instrument, it will be a lot harder for her to come after it than it would be if she were the beneficiary of the trust. But again, there is not enough information in the questions to really go into much more detail than this. If you are fraudulently filing for bankruptcy, and your wife can prove the existence of a trust with decent savings, the court may requisition the trust instrument. If it turns out you are the sole beneficiary of the trust, entitled to the capital value, then the court could conceivably order you to collapse the trust and take possession of the value. That is why I mentioned earlier that secrecy, or discretion at the very least, will always be your best protection. In this case the actual jurisdiction is unlikely to make much difference. Panama, although a very new jurisdiction for this stuff, is probably the most likely place to tell a UK court to fuck off. Belize, by contrast, has the army jungle training school where the various elite units go to train, has a good relationship with the UK, and is unlikely to do anything to upset them.
If as you suggest you have done a single lump sum transaction to a foreign bank account of your entire life savings, the court is likely to ask that bank for the details of who the account belongs to. If it belongs to H1N1's 'Ghengis the Russian Step' foundation, they are likely to put two and two together.
All of the above is not as clear as I'd like it to be, and there are all kinds of things that one could do, that are material considerations, but which aren't really worth mentioning unless they are to be given their context, which would affect the accuracy of the very simplified account I have given. I hope it is useful, if things are unclear, I will try to elaborate on specific points, if you are interested.
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