Doing business with an international offshore trust or group of trusts can be simple or complicated, depending on you and your estate planner. There are legal and tax considerations, but it can be very profitable and practical to manage if you have the proper legal expertise guiding you. Because private asset protection planning is complex, it helps to understand exactly who can benefit from an offshore trust:
Offshore Trusts are for:
Protecting assets from political or economic uncertainty, litigation or family conflict.
International assets, investments, and foreign real estate.
Individuals who want to maximize the benefits of their accumulated assets for heirs.
Individuals who want to diversify and spread their risks.
Consolidating existing international assets under one tax efficient and legally strong entity.
Companies or individuals seeking asset management and centralized reporting.
Families that want to minimize or even eliminate inheritance and estate taxes.
Dual citizens and multi-country families.
Much is written about the offshore trust. Created in a jurisdiction that is debtor friendly, it is often offered as the perfect solution for the client who wants to protect his assets from both current and future creditors.
Offshore Asset Protection Planning is usually offered by financial institutions, lawyers, banks, stock companies, and "experts", who allegedly specialize in this area. Most often, they are really attempting to manage or park your assets with them and their investments may be risky, intangible, complicated, overly expensive, or outright frauds. For example, the topic of offshore trusts often involves tax abuse and criminal activity. Tax shelters are often frauds that have not been tested, reviewed, or investigated. It takes years for the truth to surface, and promoters have fantastic results in the first few years.
An offshore asset protection trust is typically an irrevocable trust established in a jurisdiction outside of the United States which has adopted laws that are particularly beneficial to debtors and, conversely, very burdensome to creditors seeking to reach the assets of the trust.
Offshore Trusts Can Offer:
Self-settled spendthrift trusts are permitted. Accordingly, the client can create a trust with himself as the beneficiary and his creditors cannot access the assets.
The jurisdiction has no comity with the United States. As a result, U.S. judgments cannot be enforced in the jurisdiction and if a creditor wants to pursue trust assets a lawsuit must be commenced in the offshore location.
The income of the trust is not subject to tax in the foreign jurisdiction. But in the usual structure the income is fully taxable for U.S. purposes. The U.S. grantor (client) must disclose to the IRS the existence of the trust. The income of the trust is then reported on the grantor's 1040. However, the structure is tax neutral; there are no additional taxes incurred by virtue of implementing this structure so the client is in the same position taxwise had he not established the offshore trust.
It is extremely expensive for a creditor to attack the trust. The creditor must hire a law firm in the applicable offshore jurisdiction and rarely are contingency fee arrangements permitted.
There are generally short statutes of limitation on the time period for challenging transfers to the trust as fraudulent transfers - in some cases as short as 6 months.
Management of assets can remain with the client's U.S. money manager.
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For years the offshore asset protection trust has been the preferred method of obtaining the greatest level of protection for the client. However, such trusts are only viable if there is a substantial amount of assets that can be committed to the protection plan. The cost of setting up the trust combined with the continuing trustee fees make it a viable alternative only if there are enough assets to justify the cost.
Be aware that Corporations, LLCs, and Trusts set up outside of your state will not necessarily protect assets within your own state. And other state LLCs and Corporations usually incur fees and taxes in both your own state, as well as the state of origin.
In recent years, as the domestic asset protection industry has gained traction, more and more asset protection planners are establishing domestic Private Asset Protection Trusts. Some eleven states are now trying to gain investors and have now adopted laws geared to compete with the offshore asset protection community.
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Create separate trusts for separate assets or individual investments.