The Squire Organization

I often advise clients to establish an International Privacy Trust from the Bahamas as part of their asset protection and tax planning plans. I get a lot of questions about this, and I believe there is a lot of confusion about it.

The International Privacy Trust is usually used to own another entity in a more private and confidential manner. It is also useful in establishing a separate taxable entity and to provide advanced asset protection if certain steps are taken to insure that the trust is not treated as an alter ego of the client. This is a real advantage since the Bahamas treats these entities as non-taxable as long as they earn no active income in the Bahamas.

The Trust itself is established by The Squire Organization, LLC, (or some other entity) which serves as the initial Trustor, Trustee, Beneficiary and Protector of the Trust. Of the four positions, the Protector is the most important. The Protector has the power to remove and replace the Trustee, and, most importantly, change the Beneficiary. After the trust is established, the old Protector resigns and appoints a new Protector(s) . The Client has the option of naming himself or some other trusted individual as Protector, or name more than one Protector. He or she can also change the Beneficiary at that time or at a later date.

The new Protector is now effectively in control of the trust and the account, however the client is not listed anywhere in the Trust formation documents. The Client can maintain control over the Trust without becoming either a Trustor, a Trustee or a Beneficiary.

In order to maintain the advantageous tax benefits of the trust and the asset protection benefits, it is often beneficial to appoint more than one Protector, particularly in the United States, the United Kingdom, and other jurisdictions which can trace their laws back to English common law. This is because in these jurisdictions the "power of appointment" (that is the power to name a beneficiary), and the power to remove and appoint a trustee creates an alter ego situation, and the courts treat the trust like a grantor's trust. In "Code" jurisdictions this may not be a problem since the "power of appointment" is considered an option contract that is not effective until exercised. All the same caution would suggest considering the naming three Protectors even in "Code" jurisdictions.

In order to avoid this designation you have two options:

1. You need to have at least three Protectors with the client being one of the three. The other two cannot be immediate family, but can be trusted friends and associates. It is often wise to appoint a professional such as an attorney since attorneys often have a legal duty of loyalty to the client that is actually enforceable in court.

2. You appoint a single licensed attorney who has a legal obligation to obey you to the point that your instructions are legal and/or ethical (Attorneys in the USA have such a legal obligation to their clients). For instance, a US attorney is required to either obey his client's instructions or withdraw from representation. If your instructions go beyond the attorney's understanding of what is legal and/or ethical conduct, pursuant to various rules and regulations regarding attorney conduct and duties to the client, the attorney's only option is to inform you of this conflict in the hope of being able to resolve the conflict with you, and if that does not resolve the problem, resign as Protector. To further guarantee your ultimate control of the situation, the attorney prepares a contingent resignation letter resigning as Protector and appointing you as Successor Protector, such resignation and appointment being contingent upon you 'accepting' the resignation and appointment. In addition, the attorney issues a statement clearly describing his role as that of an attorney representing you the client.