A fully funded foreign or off-shore protection trust provides very significant asset protection particularly for assets such as cash investments, stocks and other intangibles. However, an off- shore protection trust is more expensive to form and to manage or operate. Additional income tax filings are also required. The Hybrid Bridge Trust provides a unique alternative.
The Hybrid Bridge Trust begins as a Nevada or Domestic Asset Protection Trust however, the trust is accepted for administration by an off-shore trustee at the onset. A Hybrid Bridge Trust is formed as a Nevada Asset Protection Trust for routine administration. In the event of a crisis, the Nevada Trust resigns and the trust operates as an off-shore trust providing greater protection. Compliance with the additional costs and complexity of an off-shore, international trust is only required when there is an actual crisis or actual need.
For purposes of determining the liability of the Trust or Trust assets, the Hybrid Bridge Trust shall be governed by the laws of the Cook Islands or other foreign jurisdiction selected. This is important for two (2) reasons. First, the jurisdiction in the Cook Islands would generally require litigation be conducted in the Cook Islands. This places a significant cost impediment to prosecuting such a claim. Second, the burden of proof for civil claims in the United States is the "preponderance of the evidence" or more likely than not. The burden of proof for a civil claim in the Cook Islands is "beyond a reasonable doubt" which is comparable to a criminal trial in the United States. This higher standard makes the likelihood of the success of a lawsuit or claim in the Cook Islands less likely to succeed.
Liquid assets are easier to protect in this manner. An Asset Protection Plan is very much like a submarine. Many steel compartments and doors. In the event of a crisis, doors are closed, compartments sealed and the entire ship is not lost. An Asset Protection Plan typically uses such modular approach with multiple firewalls for greater overall protection. An example of a modular approach is in the diagram above.
Safe Assets are held by an Asset Management LLC formed under Nevada law which provides stronger charging order protection than California Law. There is no guarantee the California courts will utilize Nevada law regarding the enhanced charging order protection. There is a possibility that a court could determine that California public policy requires the case of California law. However, no such ruling has been issued to date despite the fact that this issue has been around for many years. The Asset Management LLC will be required to qualify to do business in California. Real property is more risky because a United States court may seek to obtain In Rem jurisdiction over the property itself. The real property is further protected by the formation of one or more limited liability companies ("RP LLCs"). The RP LLC protects the property itself from claims and can be effective to firewall or contain a problem or claim affecting one property from risks associated with the other properties. The RP LLC's enhance the protection of the safer assets within the Asset Management LLC. The use of the Asset Management, LLC, the RP LLC and the Hybrid Bridge Trust provides significantly stronger asset protection than holding the property in any individual's name.
If you have additional questions about the Hybrid Bridge Trust or would like to speak with John about how this may better protect your assets. Call the Goralka Law Firm at (916) 440-8036.