How does the Internal Revenue Service view Asset Protection Trusts?
Asset Protection Trusts and other types of international trusts are legal under U.S. law. The IRS, however, has seen much abuse in this area by those who have failed to comply with the reporting requirements. By complying with U.S. trust-formation-reporting requirements, you are required to pay the taxes on any earnings that trust has. In fact, you enhance its protection and validity in the face of litigation or scrutiny, in that you have fully complied with U.S. law and provided in advance an additional argument against a U.S. Courts assertion that it does not recognize the Asset Protection Trust. Since the Asset Protection Trust is considered a grantor trust under U.S. tax law, the IRS merely views it as a tax-neutral substitute for its grantor and nothing more, even though it provides full lawsuit protection.
