Asset protection is the legal protection of assets from creditors. This covers a wide range of legal techniques that are used to insulate assets from being pursued by creditors resulting from various situations like bankruptcy, taxation, and alimony payments. Asset protection is commonly connected with offshore banking and offshore trust accounts but is in no way limited to it.
Asset protection works in the same way trusts work. Assets are placed in trust and protected by a trustee to the benefit of the beneficiary. The trust is governed both by local law and the terms of the document.
Some trusts can still be challenged under the common law doctrine sham. If creditors can challenge any trust, it must be proven that the settlor, the person who created it, is at risk financially or has gone bankrupt or divorcing soon after its creation.
This works by foreign-based trust companies setting up their companies so that they have no business or assets in countries with rigid common law doctrines of sham and countries with weak bank secrecy.
The way this works, foreign-based trust companies set up their companies in such a way that their companies will have no business or any assets in any countries with rigid common law doctrine of sham or with countries having weak bank secrecy laws.