International Trusts & Asset Protection

A trust is a legal structure originating in Anglo-American law, in which a person (the settlor) transfers assets to a trustee, who administers them for the benefit of designated beneficiaries. German law has no direct equivalent — the closest comparison is a fiduciary arrangement ("Treuhand"), though it is legally structured differently.

Why trusts are used for asset protection

The core idea: by transferring assets into a trust, the settlor becomes legally separated from those assets. They now formally belong to the trust rather than to the settlor personally. In certain jurisdictions, this can mean the settlor's creditors no longer have access to trust assets — provided the transfer was not made with fraudulent intent against existing creditors.

Key trust types

• Revocable Trust: The settlor can revoke or amend it at any time — offers little asset protection, since the assets remain legally attributed to the settlor.
• Irrevocable Trust: Cannot be revoked; the settlor permanently relinquishes control — offers stronger asset protection but less flexibility.
• Asset Protection Trust: A trust form specifically designed for creditor protection, commonly established in jurisdictions such as Nevis, the Cook Islands, or certain US states (e.g. Nevada, South Dakota).

Important limitations

Asset protection through a trust is not retroactive: if a trust is established after a specific claim or legal dispute is already looming, it can be challenged as a fraudulent conveyance in many jurisdictions. Asset protection planning must therefore be forward-looking, not reactive.

For German taxpayers in particular: transferring assets to a foreign trust does not change the underlying German tax liability on income economically attributed to the settlor or beneficiaries — improper structuring can carry both tax and criminal law risks.

Conclusion

Trusts are an established tool in international wealth planning, but they are not a blanket shield against creditors or tax obligations. A sound structure requires alignment between the chosen jurisdiction, personal tax circumstances, and the actual asset protection goals.