While foreign jurisdictions can seem distant and unfamiliar, the benefits of offshore trusts are numerous and worth taking note of.
Having an offshore trust can provide considerably strong layers of asset protection making it virtually impossible for creditors or predatory litigators to take advantage and come after your assets.
Plus, as you shall see, these structures also open the doors to other offshore advantages, including some potentially massive tax savings.
Offshore Trust TL;DR
If you are looking for the strongest possible level of asset protection, an offshore trust is the only way to go.
In doing so, however, you need to shop around to find the best jurisdiction and also be aware of the tax implications to make sure you don’t get caught out unnecessarily.
Done correctly, establishing an offshore trust can be the first step in opening yourself up to the world of possibilities that offshoring can provide, including second citizenship and a dramatically reduced tax burden.
We can help put this all together for you in a simple, custom-made package as part of a Nomad Capitalist Action Plan.
Offshore Trust Overview
Forming an offshore trust has a number of key advantages over a domestic equivalent, particularly when it comes to privacy and more robust asset protection.
This is particularly beneficial since many of the offshore jurisdictions which are popular for trust formation are also noted tax havens. These include not just low tax but also no tax jurisdictions.
Establishing a foothold in these countries, therefore, can be hugely desirable for those looking for long-term tax reduction through residency or potentially even through citizenship.
In the short to medium term, however, it should be noted that offshore trusts come with specific reporting requirements, something which is of particular importance for US citizens.
Uses For Offshore Trusts
Generally speaking, the most common uses of trusts, particularly domestic trusts, are for estate planning or to create specific structures for the administration of organisations such as charities.
However, there are many reasons why you might wish to form a trust overseas. The main reason being it is a more effective way to protect your assets.
As we shall see, by establishing a trust in a top asset protection trust jurisdiction, you gain the benefit of enhanced privacy and greater levels of protection than you would receive in your home country.
And then, of course, there is another compelling reason for forming a trust, or indeed any type of structure, be it a company, foundation, or otherwise, and that reason is for tax purposes.
To get the full benefit, of course, you really would need to choose a place with little or no income taxation or similar taxes on inheritances and capital gains and to be a tax resident of that country.
This is another area where the benefits are enormous, but the potential pitfalls if you don’t know what you’re doing can be equally ruinous, so we will also discuss this.
We’ll tell you how you can take full advantage of offshore jurisdictions by changing your tax residence, the tax implications of having an offshore trust, the pitfalls involved, especially for US citizens, and the ways you can avoid them while still being fully compliant with international tax laws.
Offshore Trust Structure
An offshore trust structure is a legal entity that’s very much the same as that of a domestic trust.
Ultimately, it consists of three parties: the settlor (or grantor), the beneficiaries and the trustee.
By creating a trust, you become the settlor, that is, the person who establishes the trust and places the assets into it.
The first step is creating the trust documents, which outline how the trust will operate, who all the parties are, including the beneficiaries and how the assets will be paid out to them.
The two main types of trust you can have are revocable and irrevocable. A revocable trust is a trust which you can alter later on, whereas an irrevocable trust is essentially locked to changes once formed.
Each type has its own advantages and disadvantages, but the key point is that, once you transfer assets into the trust, those transferred assets become the trust’s property.
And once that happens, these assets transferred into the trust are then managed by the trustee, the person or persons managing the trust on your behalf.
To set up an offshore fund, you need to hire a foreign trustee, this could be a lawyer or attorney or a dedicated trust company that specialises in trust management. Obviously, you will also need to pay the requisite fees for the establishment and administration of the trust.
After the trust is formed, the trust assets are then transferred from the trust by the trustee to the beneficiary (or beneficiaries), the ultimate recipient(s) of the assets.
Since some jurisdictions allow for the settlor and beneficiary to be the same individual, creating a trust in this way can be an efficient way of transferring assets.
Assets can be paid out in full to the beneficiaries, or the assets can be held by the trust to generate income, and that income can then be paid out in regular disbursements to the beneficiaries instead.
Again, how you wish for this to be handled is something you can put in detail into your trust document.
Offshore Asset Protection Trusts
If you are looking to protect your assets, then an offshore asset protection trust is the way to go.
There are many reasons for this, firstly, offshore asset protection trusts tend to be more respectful of your privacy. Secondly, by the simple virtue of being remote, your assets are further out of reach, making it that little bit more difficult for would-be litigators or creditors to get their hands on them.
The other key advantage of using offshore asset protection trusts, rather than domestic asset protection trusts, is because offshore asset protection trusts provide far more effective asset protection.
So if your goal is to shield assets from the risks of predatory litigation, an offshore trust jurisdiction like the Cook Islands, the British Virgin Islands or Saint Kitts and Nevis can provide a far, far greater degree of privacy and multiple layers of asset protection to deter would-be vultures trying to gain access to your hard-earned wealth.
Why Offshore Trusts Are The Best Option For Asset Protection
If the main reason you’re setting up a trust is to protect assets from the risk of litigation or creditors, then the most important consideration when choosing an offshore asset protection trust jurisdiction is whether or not that country recognises foreign judgments.
The reason for this is simple because whatever judgements are made in your home country don’t apply there.
Let’s take the nightmare scenario where you lose a major lawsuit on a flimsy pretext. Because of the judge’s decision or an over-emotional jury, justice was not served, and now you have to cough up half of everything you own.
If that happened on your home soil, there’s pretty much nothing you could do other than curse at your lawyer. But essentially, you would be powerless, the law is the law, the judgement has been made, and you need to abide by it.
Justice does not come into the equation, the other party saw an opportunity, took it and won, you lost, and now you have to pay. Half of everything you worked so hard to earn to someone who has done nothing except hire a sleazy lawyer.
But with an offshore trust in a jurisdiction that doesn’t accept foreign rulings what happens?
Your trust assets are shielded in an offshore trust, which is out of reach of your home country’s legal system.
So now imagine you set up an offshore trust in advance, now same scenario, your sleazy plaintiff nemesis has won the case back home, but guess what? That doesn’t matter. The legal system in the offshore jurisdiction isn’t interested in that judgment in the slightest.
So if your nemesis wants access to your trust assets, they will have to file another case and this time, they will be the ones having to fight a difficult uphill legal battle on foreign soil where the chances of winning their case against you are very low indeed.
Let’s be honest, there’s not going to be a lot of attorneys lining up to take their case either, so it might not even go to court. But, and here’s the icing on the cake, if they really are determined to go after you on foreign soil, let’s say you have a trust in Saint Kitts and Nevis and they somehow manage to find a lawyer desperate enough to take their case, they’re chances of winning are slim to none anyway and when they invariably lose – which by all accounts they will – they not only have to pay their lawyer, they have to pay for your legal fees also.
Put all those factors together and you can see why using an offshore trust for asset protection is such an effective strategy. It’s basically the legal equivalent of a brightly-coloured jungle creature bristling with large venomous spines. Litigators see them and immediately back away opting for easier, softer prey instead.
Benefits Of An Offshore Trust
So the benefits of an offshore trust, obviously we have just mentioned. Those are privacy and the fact that, from an asset protection point of view, an offshore trust from the right jurisdiction can prove virtually unassailable to predatory litigation.
A foreign trust can also be used to hold assets in a foreign country, for example, you may wish to use it to hold real estate rather than owning it personally or through a company structure.
Setting up a trust in this way can also serve as a perfect means of establishing a beachhead in a tax-friendly jurisdiction. It’s a good first step if you want to open a bank account offshore, but the benefits go much further.
Since many of the most popular places for offshore trusts are in places commonly referred to as tax havens, in that they are either low-tax or no tax jurisdictions, they offer considerable tax benefits to residents.
Countries like The Bahamas or Saint Kitts and Nevis, for example, both have citizenship by investment programs, so not only can you become a resident and pay less taxes, but you also have the chance to get a second passport.
With citizenship by investment, the route we also recommend to clients is the real estate investment option, that way you can get a return on your investment by renting out the property in addition to the tax savings you’ll get and the new investment and travel opportunities presented by having a new passport.
If you are a US citizen, looking to cut ties with the IRS once and for all, you can be free of them forever in a matter of months and have a new passport and a new identity, while still being free to apply for dual citizenship elsewhere, perhaps in Europe where you can get an even stronger passport.
If you are an HNWI entrepreneur or investor, then it’s fair to say the money you have spent to do so is a fraction of what you would spend in taxes anyway, plus you got some additional real estate assets. And those real estate assets, as with your other assets and foreign investments, can then be safely held in your offshore trust.
As you can see, it’s all about joining the dots and tying all the different advantages together. This is what we do here at Nomad Capitalist but we don’t do it on an assembly line.
Instead, we do it on a client-by-client basis, talking to them, getting to know them, their business, their investments, their tax situation, their family situation – every little detail to help create the best solution, then we formulate what we call an Action Plan.
Setting Up An Offshore Trust
Setting up an offshore trust is not all that different to setting up a trust in your home country.
You will need to contact an attorney who specialises in trust law or, to make life easier, just approach a well-established trust company.
The attorney or company will then help you prepare the relevant documents and draft your offshore trust agreement.
One word of caution when looking for an offshore trustee; in most cases, they will try to sell you on one jurisdiction only, theirs. So if you talk to a trustee company or lawyer in the Cook Islands, for example, don’t be surprised if they sell it as the be-all and end-all solution to all your problems and keep selling their jurisdiction to the exclusion of all else.
It may well turn out to be the solution you’re after, it’s one of the better offshore trust jurisdictions, after all, but it’s still better to have options so you can weigh them up and ensure you’re following the right course of action.
At the end of the day, it’s all about finding the best solution for your needs and not the best solution for a lawyer who only sells trusts in the Cook Islands.
As a Nomad Capitalist client, you won’t have this problem because we do all the legwork for you. We’ll help you to compare all the best jurisdictions based on your criteria and set you up with an offshore trustee from one of our global professional partners.
Offshore Trust Jurisdictions
The first thing to look at if you’re searching for a foreign jurisdiction to set up a trust is that jurisdiction’s reputation and track record.
Is this a popular offshore jurisdiction? Is it one that is known for its offshore trust formation? Does the recognise foreign judgements – i.e. can litigators in your home country gain access to your trust assets, or will they have to go to much greater lengths to do so, including fighting more legal battles?
Be sure to also look into other key factors, everything from taxes to banking regulations, so you can be sure whether or not the jurisdiction is suitable.
As a Nomad Capitalist client, you can enjoy the benefit of our extensive knowledge and experience to answer all of these questions and find the best jurisdiction for your exact needs.
Popular Offshore Jurisdictions:
The Cook Islands: We’re putting the Cook Islands first since it’s arguably the most popular offshore trust jurisdiction. It’s a self-governing chain of Pacific islands which are essentially, for all intents and purposes, under the direct protection of New Zealand.
One of the main reasons people are talking about the Cook Islands these days is because it’s crypto-friendly – you can actually hold crypto in a Cook Islands trust.
The British Virgin Islands: The first of several Caribbean countries on our list, the British Virgin Islands (or BVI for short) is a popular low-tax and Common law jurisdiction offering high levels of privacy with both minimal reporting and physical presence requirements.
The Cayman Islands: if you ask the average man on the street to think of an offshore tax haven, this is almost always their go-to jurisdiction. And certainly, it’s correct to say that the Cayman Islands have plenty of tax benefits; no corporate or income tax, no capital gains, and that’s just for starters.
In addition, this Common law jurisdiction offers a great range of flexibility when it comes to trust formation.
Saint Kitts And Nevis: this twin nation consists of two Caribbean islands, Saint Kitts in the north and Nevis in the south. It’s Nevis that’s the true powerhouse of offshore trust formation, known for its robust layers of protection for your assets.
Once again, this is a Common law jurisdiction which does not recognise foreign judgements. Anyone looking to gain access to your assets must fight an expensive legal battle in Nevis and prove beyond a reasonable doubt that they have a legitimate claim to your assets or face having to pay your legal fees afterwards.
In addition to being one of the more popular offshore trust jurisdictions, Saint Kitts and Nevis also offers a popular citizenship by investment scheme.
The Bahamas: A group of islands in the Caribbean known for favourable taxes and private trusts. Once again, it has a legal system based on English Common law and offers competitive citizenship by investment scheme. For these reasons, Bahamas is another name we strongly suggest adding to your list if you are looking for an offshore trust jurisdiction.
Asset Protection Strategy
By now you should be aware of the many reasons why offshore asset protection trusts are superior to domestic asset protection trusts.
They offer greater privacy and asset protection, so assets held can be kept free from interference from your home country.
Forming an offshore trust can also be the first step in the process if you wish to open an offshore bank account.
Like offshore banks, offshore trusts help to minimise risk through geographic diversification, something we always advise our clients to do. Not only do you have more eggs in more baskets, but opening a foreign trust also allows you to establish a business presence offshore, opening up new investment opportunities.
This in turn can lead to the opportunity to become a resident, or perhaps even a citizen, of a country with a far more attractive tax system, one without capital gains or income tax, or at the very least, won’t tax you on your worldwide income.
That’s why, when choosing a place to establish an offshore trust you need to think holistically. The first thing is to understand the specifics as to why you are setting up the trust, is it for estate planning, is it for asset protection, is it for both?
The first thing to realise is that an offshore trust is not going to solve all your problems. Instead, you should view the formation of an offshore trust, or indeed a network of offshore trusts, are additional moving parts in your overall wealth strategy.
In the end, an offshore trust is just one type of foreign entity you can establish, perhaps another business entity, such as an LLC, might suit better, for example, if you wish to hold intangible assets such as patents or other forms of IP.
In your chosen jurisdiction you want to make sure you can build a good working relationship with a financial institution you can trust to manage your transactions smoothly. Everything you do should be working towards the twin goals of mitigating risk while maximizing your wealth.
Finally, you need to be aware that establishing an offshore trust will also come with its own reporting requirements, particularly if you are a US citizen, so it’s important to know what the tax implications are before the fact, or else you could have some nasty surprises later on.
Putting all these pieces together in the correct way is what we do at Nomad Capitalist. And it’s that interconnectivity that matters.
If you’re looking for companies that offer offshore trusts, a quick Google search will literally unearth millions of results for you. All these companies will happily sell you an offshore trust and take your money, job done.
But will they also advise you on the critical tax considerations beforehand? Will they spend the time and effort it takes to truly understand your exact needs and those of your business? Will they painstakingly join all the dots to fashion a customised solution that will provide you with the maximum protection while also opening you up to the possibilities of new investment horizons you weren’t even aware of?
No, of course not, they’ll sell you an offshore trust in whatever country their office is, charge you upfront, and then continue to charge you maintenance fees. That’s why we’re upfront about the fact we’re not here to sell you an offshore trust, we’re here to sell you a personalised, all-encompassing asset protection and wealth-generation solution known as an Action Plan.
Putting All The Pieces Together
If you’re looking to set up an offshore, you need to be aware of all the ancillary issues to ensure you make the right choice.
Choosing the right asset protection strategy, the right type of trust structure and, indeed, the right trust jurisdiction is just one part of the equation, there are also tax planning considerations.
If not handled correctly, you could end up causing yourself more trouble, not less, but with the right expert advice, an offshore trust can also help to reduce your overall tax burden.
Going offshore can be puzzling, but at Nomad Capitalist we provide you with the advice you need to make sure all the pieces fit.
Our goal is to help you secure your assets, build your wealth, and legally reduce your taxes, all while enhancing your travel and investment freedom.
International Trust FAQ
An asset protection attorney is, as the name suggests, an attorney who specialises in asset protection and trust law. Although many domestic law firms will have attorneys who are trust law specialists, very few will have experts in offshore trusts.
On the other hand, the majority of offshore attorneys tend to focus only on their local jurisdiction and cannot advise on other offshore locations. But as a Nomad Capitalist client, you can be assured of a more impartial opinion and take advantage of our multi-jurisdictional experience and professional network when deciding where to set up your trust.
Yes, offshore trusts are fully legal and are a legitimate structure you can employ to protect your assets, but you do need to be aware of the tax implications of having one.
As is the case with having an offshore company or even having an offshore bank account, you need to know how having an offshore trust affects you in your home country or country of tax residence if different. So, if you are based in the US, for example, you will need to report it to the Internal Revenue Service.
If you are looking to set up an offshore trust one of the easiest ways is to speak with a foreign trust company. A trust company is a specialist fiduciary company that sets up and manages offshore trusts for clients, they will also provide you with an offshore trustee to manage the trust on your behalf.
Some of the best offshore jurisdictions include The Cook Islands, The British Virgin Islands, The Cayman Islands, Saint Kitts & Nevis, The Bahamas and Belize.
These are also all countries with highly favourable tax laws, some of which have special exemptions on income tax.
A grantor trust is a type of trust where the grantor (also known as the settlor) remains the owner of the assets for tax purposes. In other words, if you create a grantor trust and put assets into the trust, you will still be considered to be the owner of those assets from a tax point of view.
An irrevocable offshore trust is a type of trust which is irrevocable in nature. In other words, unlike a revocable trust, which can be amended once formed, once you have established an irrevocable trust the terms of that trust become binding, including the beneficiaries and the method in which the trustee distributes the trust assets remains locked in place.
It is a common misconception that if you establish offshore trusts, you won’t be taxed.
While it’s true that forming an offshore trust can help to reduce your tax burden, it’s important to know the specifics up front, before embarking on something that won’t have the benefit you had intended and instead might have unforeseen tax consequences.
Where and how you are taxed ultimately comes down to where you are considered to be tax resident. If you are tax resident in the same jurisdiction as where your trust is based, then this is unlikely to be much of a problem, the issue is more with your home country or the place of your tax residence.
As with offshore bank accounts, offshore trusts should rightly be reported on your personal tax return, this is particularly problematic for US citizens due to the country’s citizenship-based taxation.
Though you may not have anything to hide, it’s still nonetheless unpleasant to have the IRS going through all your financial accounts in excruciating detail and feeling like your life is being lived under the microscope.
So, if you have foreign assets and offshore accounts, you will need to report them, the alternative, of course, is to renounce your citizenship, which extricates you from the US tax system and the IRS completely.
This might sound like an extreme move at first until you realise exactly how much tax you could potentially save each year.
The best part is many of these offshore trust jurisdictions also offer citizenship by investment, so for a high net-worth individual, it’s totally possible, in just a few months, to obtain a new citizenship for less than you’re paying in taxes annually and come out the other end with a new passport and new investments, on which you’re paying no income tax or capital gains… sounds too good to be true?
It’s totally possible, and we make it happen every day – contact us today to discover how.