Protecting U.S. Real Estate with Offshore Trusts

Offshore trusts are widely recognized as one of the most protective tools for safeguarding wealth from legal and financial threats. When structured correctly in well-established jurisdictions such as the Cook Islands, they can place financial assets beyond the direct reach of U.S. courts and creditors. Time and time again, they have proven their enduring value for protecting assets such as cash reserves, personal estates, intellectual property, digital assets, securities, private investment portfolios, and other liquid holdings that can be efficiently administered outside the United States.

However, not all assets behave the same way under the law. U.S. real estate, in particular, presents a unique challenge. Unlike cash, securities, or digital assets, property cannot be relocated offshore. Its physical location anchors it to the jurisdiction in which it sits, meaning U.S. courts will always retain authority over the land itself.

This distinction is critical. While offshore trusts are highly effective for protecting mobile financial assets, real estate requires a more nuanced and strategic approach.

Why Offshore Trusts Alone Don’t Shield U.S. Property

A common misconception is that transferring title of U.S. real estate into an offshore entity removes it from U.S. jurisdiction. In practice, this is not the case. Courts exercise authority based on location, not ownership. If the property is in the United States, it remains subject to U.S. law regardless of whether it is owned personally, by an LLC, or by a foreign trust.

As a result, simply placing real estate into an offshore trust offers limited protection on its own. To meaningfully reduce exposure, the strategy must focus not on ownership, but on the equity itself.

Equity Stripping With an Offshore Trust

One of the most effective techniques for protecting U.S. real estate in an offshore structure is known as equity stripping. Rather than attempting to move the property offshore, this strategy reduces the property’s attractiveness to creditors by encumbering it with a legitimate, senior lien.

Here’s the core idea:
Instead of leaving substantial equity exposed in U.S. real estate, the owner borrows against the property through an offshore lending arrangement. The loan proceeds, now converted into cash, are then placed inside an offshore trust, where they can be protected outside the U.S. jurisdiction.

From a creditor’s perspective, a property heavily burdened by a foreign mortgage is far less appealing. The offshore lender holds priority interest, meaning any judgment creditor would have to contend with a superior claim before accessing value.

How an Offshore Equity Stripping Structure Is Implemented

While each structure must be tailored to the client, a process that Southpac is familiar with, equity stripping generally follows a defined procedure:

1. Establish the Offshore Trust

The foundation of the structure is an offshore trust formed in a creditor-resistant jurisdiction like the Cook Islands. These jurisdictions are known for strong trust laws and high burdens of proof for foreign judgments. Southpac Trust Cook Islands was the first trustee company established in the Cook Islands in 1982, paving the way for modern trust legislation around the world with key legislative features being replicated in other asset protection jurisdictions like Nevis.

2. Secure the Offshore Loan

The lender evaluates the property and overall structure, often offering loans with high loan-to-value ratios, sometimes up to 90–95% of the property’s appraised value. This allows a significant portion of the property’s equity to be converted into cash.

These loans typically involve an annual facility fee based on the outstanding balance, with terms structured over a multi-year period. Larger loan amounts may allow for customized pricing.

3. Deposit and Invest the Loan Proceeds

Once funded, loan proceeds are deposited into accounts held by the offshore trust. The income generated by investing in conservative instruments such as certificates of deposit or government-backed securities offers a means of offsetting the annual financing costs and is a common strategy.

4. Record the Mortgage Domestically

The property owner (or a domestic LLC) grants a mortgage to the offshore lender. This mortgage is recorded locally, just like any conventional loan, creating a publicly visible lien that establishes the lender’s senior position.

At this point, the property still exists in the U.S., but its exposed equity has been transformed into offshore capital protected by the trust.

Any asset protection strategy must be carefully designed to avoid fraudulent transfer claims. In the United States, transactions can be reversed if a court determines they were executed solely to evade creditors without fair consideration.

Equity stripping mitigates this risk because it involves an exchange of reasonably equivalent value. The borrower receives real cash in return for granting a mortgage, just as they would in a traditional commercial loan. Because the transaction mirrors standard lending practices, it is far more defensible than a simple transfer of property ownership.

Timing and intent still matter, which is why these structures should be implemented well before any legal threat arises.

Key Takeaways

Offshore trusts are highly effective for protecting financial assets but do not, by themselves, remove U.S. real estate from U.S. jurisdiction.
Equity stripping focuses on protecting value, not ownership, by converting exposed property equity into offshore capital.
When structured properly, an equity stripping arrangement will be regarded in the same way as a standard commercial mortgage.
For individuals with significant real estate holdings, this approach can form a critical layer of a broader asset protection strategy.