The last decade has witnessed a drastic rise in the establishment of offshore accounts, and for good reason: An increasing number of frivolous lawsuits brought by the U.S. government are targeting individuals ranging from business owners and real estate developers to celebrities and sports figures. By opening a properly structured trust in an offshore location, such as Bermuda, the Cayman Islands, or the Bahamas, people concerned about the safety of their asserts can add an extra layer of protection to their estate planning.
AdvisorLaw is qualified to establish an offshore asset preservation and business tax strategy tailored to meet the needs of both businesses and individuals. We specialize in offshore company incorporation, domiciliation, offshore bank accounts, offshore trusts, offshore foundations, and offshore merchant accounts. Our services include:
- Asset preservation strategies
- Asset preservation packages
- Offshore banking
- Virtual offices
- Second citizenship
- Bank introductions
Advantages of Offshore Trusts
- Assets can be liquid (i.e., cash, stock, bonds, mutual funds) or nonliquid (such as a home or car)
- There are no limits on how trust assets can be distributed among beneficiaries
- Additional assets may be added to the trust by the settlor at any time
- The trust laws in these jurisdictions have been well established over the course of hundreds of years, ensuring exceptional security
Protections Offered by Offshore Trusts
- The legal process to overturn a properly established offshore trust is lengthy and complicated on the creditor’s part.
- Judgments rendered by a U.S. court are not automatically enforceable in the locations of many offshore trusts.
- The creditor must retain local counsel and conduct legal proceedings in the offshore jurisdiction to have the U.S. judgment recognized.
- There are no contingency fee attorneys in the Bahamas or Grand Cayman Islands, meaning that the creditor would be required to pay court expenses if the litigation were unsuccessful.
- In the event that the non-U.S. court recognizes a U.S. judgment, the creditor would still be required to prove in the non-U.S. court that the trust was fraudulently settled, a very difficult goal to accomplish if a trust is established properly.
Settlor Obligations in Offshore Trusts
- The settlor should not be facing any claims at the time of establishing a trust.
- Income and other taxes must be paid on assets placed in the trust, and taxes must still be reported and paid on all income earned from trust assets.
Asset protection consists of methods to protect assets from liabilities arising elsewhere. It should not be confused with limiting liability, which concerns the ability to stop or constrain liability to the asset or activity from which it arises. Assets that are shielded from creditors by law are few; common examples include certain home equity, retirement plans and interests in LLCs, and limited partnerships, yet even these are not always out of reach. Assets that are almost always out of reach are those to which one does not hold legal title. In many cases it is possible to vest legal title to personal assets in a trust, an agent, or a nominee while retaining all control of the assets. The goal of asset protection is similar to bankruptcy, and the two practices go hand-in-hand. When a debtor has few assets, the bankruptcy route is preferable. When the debtor has significant assets, asset protection may be the solution. There are different strategies that one can use to protect assets and affairs in advance from various risks and unforeseen circumstances. Asset protection planning is more than just protecting one’s assets from creditors—it covers protection of every type of asset, including businesses and professional practices.
Offshore asset protection seeks to protect your wealth through identifying the securest and toughest jurisdiction venue to shield creditors from levying on your wealth. This form of protection is often a better vehicle to utilize vis-à-vis domestic asset protection structures. While a domestic asset protection vehicle may make your assets more vulnerable to seizure by U.S. courts, offshore jurisdictions do not recognize and will not enforce a U.S. judgment. A U.S. creditor would be hard-pressed to domesticate a judgment in an offshore jurisdiction to collect on a judgment.
Offshore companies are businesses that have been filed or incorporated outside of one’s country of residence. They offer much greater financial privacy than domestic entities, such as corporations, limited liability companies, or international business companies (IBCs) and they provide privacy, asset protection, tax savings (depending on your jurisdiction), lawsuit protection, flexible business laws, and confidentiality.
There are many offshore jurisdictions that have favorable laws which the U.S., Canada, and the United Kingdom do not extend. These jurisdictions compete for international clientele by favoring privacy of ownership, privacy granted to officers and directors, and nonrecognition of foreign judgments.
Taxpayers with foreign accounts can make their accounts tax-compliant. Their assets can be protected against creditors. Once the IRS assesses penalties for past failures to report income, foreign accounts and other informational reporting requirements, future taxes can be minimized. The past may not look so good, but the future can be greatly improved and the health-damaging stress that keeps a taxpayer up at night can be eliminated.
Why Invest Offshore?
An offshore bank account is a fundamental part of international diversification. It’s especially important in times like these when currency controls and government regulations are getting stricter, supposedly “to battle money laundering and international terrorism.” Offshore banking gives you a way of having part of your wealth outside of your country so that you never risk having one government freeze or confiscate all of your assets.
An offshore bank is a bank located outside the country of residence of the depositor, typically in a low-tax jurisdiction (or tax haven) that provides financial and legal advantages. The term “offshore” originally comes from banks located offshore from England in the Channel Islands but is now used figuratively to refer to banks in many regions, particularly Bermuda, the Cayman Islands, Bahamas, and politically neutral European jurisdictions such as Switzerland and Luxembourg. Individuals or organizations may be interested in placing assets offshore for a variety of legitimate reasons including:
- The existence of a sophisticated infrastructure of financial institutions and professional service providers (e.g., lawyers, accountants, corporate services)
- Lighter government regulation, though still robust and effective, in the region in which the bank is domiciled, which may allow for a relatively favorable investment environment as compared to onshore
- Access to politically and economically stable jurisdictions, which may be an advantage for individuals who reside in politically unstable regions where the security of their assets is not guaranteed
- Tax neutrality that allows individuals to structure their assets without having to worry about local tax complications, which is particularly useful for individuals who are not obligated to pay tax on worldwide income
- Estate and/or asset protection planning
- Enjoying a broader global view than what is often found with onshore institutions
- Strong privacy and confidentiality laws to help protect the depositor’s privacy
A foreign bank account is an important diversification “flag” to plant abroad. It is important to consider jurisdictions with low taxes, a strong and stable financial sector, and no history of plundering the banks in bad times. A point worth mentioning is that offshore banking is not about hiding your money from the taxman—it is about diversifying your sovereign risk.
Places where you will find the best offshore banks include countries such as Switzerland, Hong Kong, Singapore, UAE, and Qatar. An offshore bank doesn’t necessarily have to be located in a so-called tax haven. Several of the countries mentioned above are spared of the tax haven stamp that many other low tax countries have.