What Is the Minimum Net Worth for an Offshore Trust to be Worth It?

People often wonder if an offshore trust is worth the cost.

Offshore trusts (like those formed in the Cook Islands) are one of the most effective asset protection strategies available. However, they are very expensive. And they can be cumbersome to manage.

While there is no legal minimum to set up an offshore trust, as a practical matter, it only makes financial sense above a certain minimum net worth. In our experience, an offshore trust is only worth it when protecting $500,000 or more. For lesser amounts, there are often appropriate domestic asset protection alternatives, such as LLCs, homestead protections, and exempt financial accounts.

What Is an Offshore Trust?

An offshore trust is a trust established under the laws of a foreign country to protect assets from creditors. By transferring ownership of assets to an offshore trustee, the assets move outside U.S. jurisdiction, making it extremely difficult for creditors to reach them.

The most common offshore trust jurisdiction is the Cook Islands. The Cook Islands does not recognize U.S. judgments or court orders. Creidtors must relitigate their case in the Cook Islands. This is rarely done.

Offshore trusts are designed for asset protection, not tax planning. They are most effective for shielding liquid assets, investments, and business interests. They are not as effective for U.S. real estate, but they can still provide some assistance.

Get clear, actionable advice on how to protect your assets.

Alper Law has helped clients with asset protection planning for for over 30 years. We develop creative, customized strategies to protect our clients from judgments and creditors.

Attorneys Jon Alper and Gideon Alper are nationally recognized as leading experts in offshore trust formation. We provide all services remotely.

Costs of Setting Up and Maintaining an Offshore Trust

Setting up an offshore trust involves setup fees and ongoing annual fees.

A typical Cook Islands trust costs $15,000 upfront in legal fees and about $3,700 in trustee fees.

Annual trustee fees are $3,300 per year, plus small amounts to maintain any offshore financial accounts. You should not be required to pay annual legal fees.

Because of these costs, an offshore trust is overkill for most people. For example, if you have $100,000 in non-exempt savings, spending $20,000 to set up a trust (plus about $4,000 each year) likely outweighs the benefit it provides you. The cost eats up a large percentage of the assets you’re trying to protect.

On the other hand, if you are trying to protect $1,000,000 in cash and investments, the annual fees are not large compared to the total amount.

Is There a Minimum Net Worth for It to Be Worthwhile?

There is no official minimum net worth required to establish an offshore trust. Technically, anyone could create one if they’re willing to pay.

We typically only recommend setting up an offshore trust when the value of the assets being protected is $500,000 or more. Below that, annual fees and hassles likely outweigh the protection benefits. The appropriate measurement is of the assets being transferred to the trust, not the total net worth of the trustmaker.

On the other hand, you do not need to have millions of dollars to benefit from an offshore trust, particularly if you are at a higher risk of civil liability.

Ultimately, the “worth it” threshold depends on your situation. If you have significant non-exempt assets (six or seven figures) and a high risk of lawsuits (due to profession or other factors), an offshore trust may be worth the cost.

But if your net worth is modest or your assets are largely protected through other means (like homestead or retirement accounts), an offshore trust is probably not worth it. Cheaper tools can often provide adequate protection.

Offshore Trusts vs. More Affordable Alternatives

If your net worth isn’t high enough to justify an offshore trust, you’re not without options. Depending on where you live, there may be domestic asset protection strategies that you can use at far lower cost.

Here are a few alternatives to consider:

Multi-Member LLCs

Setting up a multi-member LLC can protect personal assets from creditors.

In Florida, for example, a multi-member LLC enjoys “charging order” protection. That means if you’re sued personally, a creditor cannot seize the LLC’s assets or take over the company. The creditor is limited to a lien on distributions (a charging order). This deterrent often leads creditors to settle, since they can’t force a payout.

Forming an LLC is relatively inexpensive, and maintenance is simple.

Single-member LLCs do not offer the same protection in many states, which is why having a second member (even owning a small percentage) is key.

Homestead Exemption

If most of your wealth is in your primary residence, you may already be adequately protected under state law.

For example, Florida’s homestead exemption shields 100% of your primary home’s value from creditors. Investing in your home or keeping money in a homestead property can be a first line of defense for asset protection.

Other states have varying homestead laws, but many offer substantial protection for primary residences.

Tenancy by the Entirety

Married couples can title bank or brokerage accounts as tenants by the entirety in some states, such as Florida.

Tenancy by the entirety accounts are exempt from the creditors of one spouse. In practice, if only one spouse has a judgment against them, a tenancy by the entirety account cannot be successfully garnished by that creditor.

Additionally, certain types of accounts, such as 401(k)s and IRA accounts in most states, are protected by statute.

Domestic Asset Protection Trusts

A few U.S. states allow domestic self-settled asset protection trusts. These can be less costly than offshore trusts and keep assets in the U.S., but their effectiveness is not as time-tested – especially if you reside in a non-DAPT state.

Courts have been inconsistent in honoring these trusts for out-of-state debtors. Still, for moderate net worth individuals, a domestic trust in a favorable state might be a compromise solution. At a minimum, they may deter a non-aggressive creditor.

About the Author

Gideon Alper is a nationally recognized expert in asset protection planning. He has been quoted by major media publications as a leading authority in Florida asset protection and offshore trust formation. Gideon graduated with honors from Emory University Law School and has been practicing law for over 15 years.

Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.