Protect your hard-earned assets with an offshore trust
Protecting your assets and ensuring that they are maximized for the future benefit of intended beneficiaries is a key aim of estate planning.
One of the best vehicles for achieving this is trust formation.
But which type of trust suits you best?
The answer will depend on personal circumstances but, for many high net-worth individuals, an offshore trust is a good option.
We’ll help you:
- Understand who might consider an offshore trust
- Understand what you should look for in an offshore trust location
- Set up your trust according to your main estate planning goals
- Minimize the tax you pay
What is an offshore trust?
Most trusts, like living trusts, retirement account trusts, gun trusts and other asset protection trusts, are based domestically within the U.S.
An offshore trust is based in an overseas jurisdiction.
While offshore entities received some negative publicity after the Panama Papers were released in 2016, there are perfectly legitimate reasons to consider offshore trusts as a useful estate planning tool. If you have paid taxes all your life, it makes sense to protect what is left and shield yourself from paying unnecessary taxes.
Most supposed “tax haven” jurisdictions have entered into “exchange of tax information” agreements with the U.S. government, so if you try to avoid taxes unfairly, you are likely to be caught. With an offshore trust, you are able to keep taxes to a legal minimum while maintaining control over your assets. And, contrary to popular belief, they are generally affordable for most people with assets to protect.
It is important, of course, to select a stable jurisdiction.
Many individuals choose the Isle of Man, the Cayman Islands or the Cook Islands because of:
- Favorable eligibility requirements
- Relative political stability
- Attractive tax laws
- General absence of corruption in government and/or judicial activities
The amount of protection that an offshore trust provides from creditors depends upon where the trust is established. The laws of that jurisdiction apply and these vary from country to country.
Main benefits of offshore trusts
There are several major benefits of offshore trusts, namely:
- Asset protection advantages from the foreign law governing the trust, when compared with the U.S. laws
- Creditor protection: in most cases, litigation may be very expensive for the creditor and will not be worth the investment (e.g. for commercial and civil tort claims, matrimonial claims, forced inheritance claims, etc.)
- Favorable tax conditions
With the litigation climate in the U.S., many professionals in certain business sectors (such as healthcare), often face frivolous and expensive lawsuits.
These cannot usually affect assets held in an offshore trust.
What are the downsides of an offshore trust?
Never attempt to open an offshore trust (or any other trust) without the appropriate legal advice. It is asking for trouble.
Individuals who make mistakes with their fund setups expose themselves to the potential of:
- Falling foul of U.S. tax laws, if the assets held by the trust (or the actual trustee) are located in the U.S.
- Violation of anti-fraud laws in the U.S.
- Failing to meet stringent reporting laws
The U.S. government keeps a keen eye on the use of offshore trusts to ensure they are not used for tax evasion purposes and to curb “abusive trust arrangements.”
Since the advent of the Small Business Job Protection Act of 1996, they have come under particularly close scrutiny.
Penalties for getting it wrong can be severe.
It will certainly pay to get experienced legal advice on offshore trusts before pushing ahead. Together, we will sit down and consider what you want to achieve and why. Then we will assess how best to proceed, taking all the relevant risks into account.
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