FEAR of having to pay huge compensation bills is forcing an increasing number of Hong Kong residents to relocate their assets in offshore trusts. But trust experts warn those considering this strategy to carefully weigh the costs of setting up and maintaining the trust against the possibility that it might not be watertight. In a landmark decision, the High Court found there was no reason why anyone hurt in Hong Kong should be receiving substantially less than those awarded damages in Britain and increased payments to an injury victim by 50 per cent. The case is expected to be a benchmark for future claims and it could spark an increased number of actions. Some experts even expect an outburst of the type of litigation that has plagued United States courts and resulted in soaring insurance premiums. Mark Lea, a trust consultant with lawyers Crump & Co, said concern about unlimited liability was resulting in more people seeking shelter in offshore centres such as the Cook Islands and Gibraltar. The trusts are a legal device to put assets - ranging from cash to equities - beyond the reach of court awards. They are also being used as a stop-loss where a bank or financial institutions require an open-ended personal guarantee, or even as an alternative to pre-marital agreements. Trusts are a legal instrument under which the person setting up the trust - the settlor - transfers legal title to trustees who act in the interests of the beneficiaries according to the terms set out by the trust deed. Jeffrey Halpern, managing director of the Royal Bank of Canada Trust Co (Asia), said: 'When a trust is created the person who transfers can remain a beneficiary. That is, they can remain the person to whom the trust owes the fiduciary responsibility. In effect, they will receive the benefit of the trust by hiring the trustee to look after the property for them.' Asset-protection trusts are best suited to moveable assets, such as equities, bonds or cash. They can be transferred directly to the trustee or a holding company, the shares of which are held by the trustee. The settlor needs to be confident about the quality of their legal advice and the location of where the trust will be based. Mr Halpern said: 'There are laws in place in most common law jurisdictions - such as Britain, Australia, New Zealand and Hong Kong - that make it a criminal offence to deceive ones creditors. So it is essential to ensure that you get advice to ensure you are not breaking laws in the process of setting up a trust.' Mr Halpern also warned that the trusts were generally not suitable for immoveable assets, such as property. 'Cash, bonds and equities can be moved offshore. This enables you to transfer the legal jurisdiction from where you live to the offshore jurisdiction and sever the legal liability. But other assets, such as property, can continue to be subject to local law.' Also ensure that the offshore centre and trustee is in the same time zone. Mr Lea said: 'You want to be able to communicate with the trustee. If they are far away then it makes it all that more difficult.' The trusts cannot be used to evade liability from current or pending legal actions. Simon Hanley, director of Sovereign Trust International, said: 'The trusts only give protection where the settlor is not subject to a current claim or liability. 'They also need to be set up where the settlor is solvent and not in danger of becoming insolvent. 'The trusts should be viewed as an insurance type of product and cannot be successfully used by those who have already received notice of a claim against them.' 'I view offshore tax planning as a long term proposal. It is not for whizz-kids wanting to squirrel their assets away, but part of long-term planning for somebody's family,' he said. Generally, only those with at least $9 million to place offshore should consider trusts. Charges will depend upon its complexity but professional fees can start from about $18,000 with an equivalent amount being charged in annual management fees. Mr Halpern said his company felt uncomfortable about promoting them because of the danger they could be misused. He also recommends that clients carefully check the credentials of their trustees by seeking testimonials of existing clients or establishing whether there is an affiliation with a major financial institutions.