Offshore Trust, a Complete Guide
What is an offshore trust? What are the advantages and disadvantages? Our organization has likely set up more offshore trusts than any company in world. So, let’s delve into the world of offshore asset protection trusts and how they may help you.
What is your first impression of an offshore trust? At first blush, you may have the impression that offshore trusts are illegal or for bad guys to hide their money from the authorities. In fact, many of the movies and shows we see on TV portray super wealthy individuals squirreling away money into offshore accounts to evade taxes or launder ill-gotten gain.
It may be fodder for late-night television, but it might surprise you that it is far from the truth. Offshore trusts are perfectly legal. They also offer valid ways to protect your money from lawsuits.
As you will see, there are strict provisions in place to keep good guys in and the bad guys out. You will see what an offshore trust really is. You also see why they are one of the most powerful tools to secure your wealth. Plus, we will answer many of the common questions.
When you are done reading this article you will have good grip on how offshore asset protection trusts work. You’ll also have an idea as to whether or not one might be a good solution for you.
What Is an Offshore Trust?
An offshore trust is very much like a US-based trust. But it is most commonly worded to protect your assets and to comply with the laws of a foreign jurisdiction. The company and/or law firm that serves as the trustees likely have personnel that do not have US citizenship. The US courts do not have jurisdiction over foreign lands. Therefore, US court orders to the offshore trustee companies fall on deaf ears. Your opponent may ask the trustee to turn over the funds that are in your trust. However, unlike US-based trusts, your opponent cannot force them to do so. Moreover, your trustee company is duty-bound to act in your best interest, not that of your opponent.
As you could imagine, being able to trust the trustee company / law firm is essential. The trustees we utilize involve people who we have known for nearly three decades. Our own company management uses the same trustee company for his own funds. So, when it comes to setting up an offshore asset protection trust to secure your funds, hiring an organization with experience pays big dividends.
The bottom line is that an offshore trust is just a trust that was created overseas. A trust is merely a contract. We call the document on which the contract is written the trust deed. The trust deed contains directions as to how the trustee should manage and distribute trust assets.
Understanding Offshore Trusts
Here are the common terms associated with offshore asset protection trusts. First, the Settlor. The one who has the trust established is the Settlor. Synonyms for Settlor are Grantor, Trustor and Creator. When you call us to set up an offshore trust, that will most likely be you.
The beneficiary or beneficiaries benefit from the trust. That is, the beneficiaries can typically ask the trustee to make distributions from the trust. Some trusts are established to make distributions upon demand, subject to legal threats and trustee discretion, of course. Some make regular distributions to beneficiaries, such as monthly or quarterly, upon the settlor’s passing.
The trustee manages the trust. However, the trustee cannot manage the trust freely. The trustee must follow the terms of the trust. Plus, there are laws protecting settlors and beneficiaries. The trustee must abide by its fiduciary duties. That is, the trustee company must act in the best interest of the settlor and beneficiaries.
How Offshore Trusts Are Different
Unlike the trusts we establish offshore, most trusts in the world with asset protection provisions require the settlor(s) and beneficiary(ies) to be different people. That is, in most jurisdictions someone cannot set up a trust for his or her own benefit and retain the asset protection benefits.
That is one big way in which offshore trusts in the proper jurisdictions are different. We are not saying that offshore trusts are the only trusts that have that benefit. They aren’t. But it is one of the significant benefits. That is, you can call us and have us set up a trust with yourself as the settlor and put your assets into it. Plus, you can name yourself as the primary beneficiary. Most importantly, you can keep the asset protection benefits when you do.
Who Needs an Offshore Asset Protection Trust?
Those with significant assets and significant legal risk are those who need offshore trusts. In fact, offshore trusts are some of the only tools one can use when a lawsuit is imminent or someone has already filed it. So, people with substantial wealth ($250,000 to an unlimited sum), plus high legal risk are those who may need them. If that is you, an offshore trust may be a very useful for you to safeguard your assets from legal threats. Next, we will tell you why.
Benefits of Setting One Up
Some people may have specific reasons for setting up non-US-based trusts. Below are some benefits you might want to consider:
- Powerful asset protection. An offshore trust is of the best ways to protect your assets from creditors. Your local courts do not have authority over foreign lands. Therefore, the trustee company can ignore foreign court orders to turn over your money. Conversely, we have seen US-based domestic trusts penetrated over and over again by results-oriented judges.
- Tax simplicity. From a tax perspective, they are very easy to manage. The tax responsibility simply flows through to the settlor and/or beneficiary. There is typically no tax at the trust level. So, you pay taxes as if you earned the profits in your own name. You want to make sure to seek the advice from a CPA and attorney before taking any action from anything mentioned in this article, by the way.
- Investment freedom. An offshore trust is treated like a non-US entity. Thus, you may open yourself up to new types of financial opportunities and investments not available to US people. Plus, it provides an avenue for saving money abroad when things get tough at home.
- Unprecedented safety. Our trustee company / law firm management consist of attorneys with whom we have had relationships for almost three decades. Our own CEO utilizes our Cook Islands trustee company to secure his own wealth. The US, on the other hand, has 80% of the world’s lawyers and 96% of the worlds lawsuits. The risk of asset seizure in the US is higher than just about any country in the world.
How Are They Taxed?
The offshore trust, itself, does not pay taxes. If the trust does not pay taxes, who does? For US people, it is the settlor. When the settlor dies, the beneficiaries pay taxes when they receive distributions.
US citizens, residents, and green card holders are taxed on worldwide income. The IRS treats profits made in the US and abroad the same. There may be a few more forms to file, but you still need to pay your taxes. If are not a US citizen and you live in a country that does not tax worldwide income you may possibly enjoy some tax savings.
When the settlor dies, the IRS has what they call a ‘throwback’ rule. The ‘throwback’ rule says that if a beneficiary lets income pile up in the trust, the tax applies to when the trust earned the income, plus interest; not merely when the beneficiary received it. So, when the settlor dies, holding lots of principle in the trust is fine. Just know that there are taxes on undistributed income that piles up in the trust.
The point is this. With an offshore trust you still pay your taxes. So, the big benefit is powerful asset protection from lawsuits and judgments. Be sure to check with a CPA before taking action on any tax-related matters.
Are Offshore Trusts Safe?
So, why do people ask if offshore trusts are safe? Unfamiliarity. So, that is why it is important to contact an experienced professional organization to help you. We have set up more offshore trusts than likely anyone in the world. So, we help guide people step-by-step on setting up time-tested offshore asset protection trusts. We have had relationships with our trustee/law firms internationally for decades.
Moreover, we recommend establishing your offshore trust in a stable, reputable country. We look for political stability. We also look for countries that respect the rule of law. We like countries with stable tax policies, easy currency exchange rules, and economic stability. The most common offshore trust jurisdictions include the Cook Islands, Nevis (in the Caribbean) and Belize.
Finally, when we set up an offshore trust, we place an offshore limited liability company inside. So, the trust holds a 100% membership interest (ownership) in the LLC. You are the initial LLC manager. You are also the initial signatory on the bank account.
Suppose the “bad thing” happens. If you do nothing, the judge could order you to turn over all the funds in the LLC. So, you have our trustee/law firm step in as LLC manager to protect you. Now, to get to trust funds, the courts would have to go through our offshore law firm. Your courts don’t have sway over foreign trust companies / law firms. Thus, your money sits in your trust safe and secure. You can see your funds online. You can do stock trades. But your opponents cannot confiscate your money.
Most Trusted Countries
The Corruption Perceptions Index ranks the 180 countries “by their perceived levels of public sector corruption, as determined by expert assessments and opinion surveys.” New Zealand has been ranked number one or tied for number one or two for 10 out of the past 10 years. Cook Islands is where we establish most of our offshore trusts. What is the Cook Islands a part of? New Zealand.
In contrast, are US trusts safe? If a trust is established in the US, it is subject to US court orders. The US has 80% of the world’s lawyers and 96% of the world’s lawsuits. We have seen the courts penetrate and plunder US trusts repeatedly. How safe is that? Not very.
Should I Set Up an Offshore Trust?
The decision to set up an offshore trust depends on how much you need to protect. We set the typical minimum amount of assets at $250,000. We have also set up offshore trusts for people in the billionaire category and everything in between.
For us to make a responsible assessment, we want to make sure the client has sufficient assets to protect. We do have other asset protection options for those with lower net worths. However, nothing is as strong as liquid assets in a properly structured offshore trust.
Why would you want to set up an offshore asset protection trust? To begin with, moving assets beyond the reach of US attorneys gives you a much stronger protective shield. In the US, ever-expanding theories of legal liability increasingly favor the plaintiff and the judgement creditor. In certain offshore jurisdictions, laws favor the judgment debtor (the one who lost the lawsuit). It’s your choice. It’s your money. So, why not put your money in a place that favors you rather than the guy taking it away from you? Fair enough?
You can still log in and see your money online. You can still have a bank account with a debit card to access your money. You can still receive wire transfers or send them to others. You can still invest your money in the stock market. You can still do stock trades online. So, you can still access your money. But your opponent cannot.
How to Set Up an Offshore Trust?
Setting up an offshore trust is much like setting up a domestic one. You fill out an application and provide due diligence or know-your-client documentation. This is a good thing. The offshore asset protection trust industry wants to keep the bad guys out and the good guys in. You, too, want those associated with your money to be honest, law-abiding organizations, right? Of course, you do.
So, you can call us or fill out a free consultation form on our website and discuss your options. If you’re serious and not just curios, we have attorneys and consultations on staff who can give you a free assessment.
So, here are the typical steps to setting up an offshore trust.
- We send you a trust application. We need to know your proper legal name and those who you want to inherit your assets upon your passing.
- You provide the needed due diligence. This typically includes a notarized photocopy of a passport or driver’s license. You will provide an original utility bill or bank statement as evidence of your residential address. You will also provide a bank reference letter. These documents are used as proof of your identity. You first scan and email or fax us these items.
- We use the information you provide to draft your trust.
- We email your trust so you can sign it.
- You then mail us the originally signed trust along with the original due diligence documents.
- Our trust company / law firm signs your trust, and you receive a signed copy along with certification of registration, if applicable.
Set Up Your Trust
An offshore trust can be the strongest asset protection tool in your arsenal. Are you ready to set up an offshore asset protection trust? Are you serious about doing so and want more information? If so, give us a call or fill out a free consultation form on our website.
There are places in the world that are likely much safer for your money. That is, much safer than leaving it out in the open in the US for and aggressive legal system to rip out from under you. Regardless, it is best to have the power of knowledge at your fingertips. But knowledge, alone, is not good enough. You need to actually take decisive action on that knowledge to put yourself in a position of financial security.
Give us a call to speak with one of our attorneys or consultants.