What is an Offshore Trust and Why Do You Need One?

One of the most powerful tools for securing wealth, an offshore trust is more than just a financial structure – it’s a shield against legal battles, overreaching governments and mounting taxes. 

In short, an offshore trust is one of the most useful weapons in your arsenal when it comes to personal freedom.

It’s not only valuable for protecting your wealth; it’s vital if you’re planning to create a fortress for your family’s financial future. 

But what exactly is an offshore trust, aside from being one of the most misunderstood – often deliberately so – concepts in financial planning?

To answer that question, the Nomad Capitalist team has come up with a comprehensive guide on what offshore trusts are, how to set one up and the various benefits they provide, as well as examine some of the most popular jurisdictions for establishing offshore trusts.

Along the way, you’ll find out how to start building a complete solution involving a range of effective asset protection strategies for all your offshore needs.

Why You Need an Offshore Trust

Offshore trusts have become indispensable structures for high-net-worth individuals, entrepreneurs and investors. Some jurisdictions offer highly fortified offshore asset protection trusts backed by an ironclad legal system to offer maximum protection.

Domestic asset protection trusts offer far less flexibility.

As the name suggests, offshore trusts have the primary advantage of being based in an offshore jurisdiction.

Asset protection trusts allow you to shield your trust assets from external threats such as government seizures or predatory litigation, something you cannot do as effectively with a domestic trust.

Offshore Trusts – Overview

If you’re a high-net-worth individual seeking to protect and grow your wealth, there’s little or no way around it – sooner or later, you will consider setting up an offshore trust.

When we say sooner, we mean it since the sooner you take advantage, the more money you’ll save in the long term. So why, exactly, should you set up an offshore trust?

Through the use of offshore asset protection trusts, you can ensure that your wealth is safe from outside interference, helping to keep it safe for you and for future generations.

Of course, when most people think of trusts, they think of trust funds, structures set up to transfer wealth to family members, usually children or other dependents. However, you can also use an offshore trust for this purpose.

The fact is, you can use an offshore trust for a variety of reasons. You could even set up a commercial entity that can fulfil very much the same fiduciary functions as a regular offshore trust.

The key thing to keep in mind, however, is that setting up a trust after the fact, when you’re already in trouble, isn’t ideal. You need to be proactive to ensure your assets are protected in the first place. 

Start preparing now so you don’t lose out, contact us today to learn more.

What is an Offshore Trust?

An offshore trust is a highly flexible structure that can be used for a wide variety of purposes. It’s often used by wealthy individuals for the purposes of asset protection.

A trust is a type of entity that fulfils a fiduciary relationship between the settlor and the beneficiary, allowing assets to be transferred from one party to another.

These kinds of structures exist across the world and have their origins in common law.

By establishing a trust in a foreign jurisdiction, however, you have the opportunity to take advantage of a country’s local trust laws that can provide additional layers of asset protection as well as a more favourable tax regime.

Benefits of an Offshore Trust

The main benefits of an offshore trust are:

Enhanced Asset Protection: Many offshore trust jurisdictions offer far more robust asset protection, ensuring that your assets are shielded from creditors or predatory litigation.

Enhanced Privacy: Your assets are not only protected – with an offshore trust, you also gain the benefit of enhanced privacy, shielding your assets from unwanted scrutiny.

Asset Transfers: Using an offshore trust is also a more efficient way of facilitating the transfer of assets to beneficiaries. This can include family members, allowing the transfer of assets without incurring any inheritance tax.

Legal Tax Reduction: Why pay taxes you don’t need to? An offshore trust allows you to reduce your tax liability by establishing a structure in a jurisdiction with more favourable tax laws. This helps you save on a variety of taxes, including income tax and capital gains tax.

Access to Offshore Investments/Banking: When establishing a foreign trust you will need to set up a bank account, which means you also get the benefits of an offshore bank as part of the process. 

This, in tandem, gives you greater freedom, allowing you to further broaden your portfolio with new global investments. For example, since you can use an offshore trust to hold assets, you can use the structure for the purposes of real estate investment.

Offshore Trust Structure

An offshore trust structure is essentially the same as any other form of trust.

There’s a settlor who creates the trust and bequeaths the trust’s assets. And there’s the beneficiary or beneficiaries, the ultimate recipient or recipients of the assets that are placed in the trust by the settlor.

Acting as an intermediary is the trustee, who manages the trust on behalf of the settlor and acts in a fiduciary capacity for the beneficiary or beneficiaries.

When setting up the trust, you can determine how beneficiaries receive distributions and the type of trust income they receive, e.g. whether the money is divested as ordinary income or perhaps as a lump sum.

The trustee can be an individual, though generally, an offshore law firm is employed when managing an offshore trust.

Rather than spending time researching the best jurisdiction for your offshore trust and talking to various lawyers all giving you conflicting information, the whole process is made far simpler as a Nomad Capitalist client.

Instead of advising on a specific jurisdiction like local lawyers do (they always say theirs is best), we’ll listen carefully first and work with you to find the best jurisdiction that suits your precise needs.

We’ll help you draft your offshore trust agreement and take you through all the steps needed to establish your offshore trust. 

And, with the assistance of our trusted partners on the ground, including lawyers, bankers and other professionals, we’ll ensure you enjoy the maximum level of asset protection and legal tax reduction.

Offshore Asset Protection Trusts

By establishing a trust in a foreign jurisdiction, you can enjoy the benefits of enhanced privacy and additional layers of asset protection.

This has the double effect of removing trust assets from unwanted scrutiny while also working to protect assets from dangers such as predatory litigation.

For example, if you’re based in the United States and are worried about losing key assets to litigation, setting up a trust in the US would make little sense. 

But, if you were to set it up in a foreign country with a foreign trustee, it becomes harder for anyone to succeed in making a legal claim on your assets. 

If your chosen jurisdiction is known for having tough local offshore asset protection trust rules, for example, the Cook Islands or St Kitts and Nevis, it becomes harder still.

Offshore Trust Company

An offshore trust company is a legal entity which manages funds and assets for the beneficiary.

By using a foreign trust company outside your home jurisdiction, an offshore trust company can manage your assets according to the laws of the offshore jurisdiction. This provides additional layers of security and confidentiality to your assets.

Offshore Trust Jurisdictions

There are plenty of countries where you can set up an offshore trust, including popular banking jurisdictions like Switzerland and Liechtenstein.

However, since trust law has its origins in England’s common law, it should come as no surprise that many of the most offshore trust jurisdictions are also common law jurisdictions.

Some of these are also no-tax jurisdictions or, at the very least, low-tax jurisdictions. So, by setting up in these offshore jurisdictions, you can also ensure that your worldwide income is not taxed.

Many are located in the Caribbean, including Antigua and Barbuda, Barbados, the British Virgin Islands, the Cayman Islands and St Kitts and Nevis. Though technically not in the Caribbean, Bermuda usually gets lumped in with these countries too.

In addition to being tax-friendly and providing robust offshore trust legislation, many of these countries also offer highly competitive citizenship-by-investment programs, making them ideal for anyone looking to obtain a second passport.

Of course, as a Nomad Capitalist client, we can help put everything together into a single package that includes second citizenship, asset protection and legal tax reduction.

For maximum security of your assets, you need a jurisdiction that does not accept foreign judgements, which means that anyone looking to seize assets contained within your offshore trust would, therefore, have to go through a local court.

This can be prohibitively expensive and, more often than not, futile since the jurisdiction will invariably rule in your favour.

Take St Kitts and Nevis, for example. This small Caribbean island nation was one of the first to establish citizenship by investment. Its program is well worth investigating, allowing you to get a passport for US$250,000 within as little as four months.

In addition, the country has no income tax or inheritance tax, and its trust law is known for being particularly unassailable to litigation. 

Not only are you able to ensure your assets are getting a high degree of protection, you’re also able to safeguard them for future generations.

And, if anyone tries to lay claim to your assets, they’re in for a tough ride, legally speaking.

Since St Kitts and Nevis does not accept foreign judgements, they would have to go through the courts there, pay a lot to do so, and pay even more if they lose. Legal liability is based on the fact that the burden of proof is on the plaintiff. 

So, if you have established a trust on the island of Nevis, for example, Nevis law generally sides with the trust beneficiary.

So, as you can see, this solution ticks a lot of boxes, or perhaps you might prefer to go further afield and set up an offshore trust in the Cook Islands.

One benefit of a Cook Islands offshore trust is the variety of assets you can hold, which includes crypto. 

As with St Kitts and Nevis, the Cook Islands offers enticing tax benefits and, since foreign judgements are not recognised, your assets can enjoy a far greater degree of security.

If you are looking to set up an offshore trust but not sure where to start, contact us today and we’ll help you find the best all-round solution for your needs.

How to Set Up an Offshore Trust

The process of setting up a foreign trust will largely depend on what jurisdiction you choose.

While every jurisdiction will conduct its own due diligence checks, the level of detail will vary.

The obvious starting point is to set up a foreign bank account in your chosen jurisdiction. For that, you will need to provide identification, financial accounts and information about your tax residence. 

The next step is to talk to a local lawyer who will help you draw up the terms of the trust and define who the beneficiary is. 

Once the trust is established, you can then transfer assets into the trust, with all the security and tax benefits it entails.

If you’re looking to set up an offshore trust, we can help. We’ve already done our homework on every worldwide offshore trust jurisdiction, so we know the strengths and weaknesses of each.  

We also have years of experience setting up structures for our high-net-worth clients and working with trusted partners on the ground. 

So, no matter where you go, you can rest assured you’ll be working with the most efficient lawyers and helpful bankers in the industry.

Can Americans Use Offshore Trusts?

Yes, Americans can use offshore trusts and offshore accounts, provided they are transparent about their usage. However, there is a key difference in how this applies to US persons.

While other nationalities are able to break free of their home country’s tax system by changing their tax residence, the US operates a citizenship-based taxation system.

This means that, even if you live abroad, you’re still liable to pay taxes to the Internal Revenue Service (IRS) and, therefore, would have to report your offshore activities on your personal tax return or risk a painful audit of your financial accounts.

As an American citizen looking to take full advantage of offshore jurisdictions like the Cayman Islands, the Cook Islands or St Kitts and Nevis, you would, therefore, need to renounce your US citizenship to get the full benefit.

This sounds daunting, but it also means you’re free of the IRS for good and its high levels of income tax.

Offshore Trust: FAQs

Establishing Your Trust

Unless you like to pay taxes that are higher than necessary, using an offshore trust structure can help you enjoy significant tax savings. 

It should also be pointed out that in many of these jurisdictions, not only are there lower taxes, but some have no taxes at all.

Offshore asset protection trusts, meanwhile, provide far more robust asset protection and privacy than their domestic counterparts.

Put all this together, and you get an added layer of financial security, allowing you to grow your wealth while safeguarding it for future generations.

As with everything in life, however, the devil is in the detail –  you could spend years talking to lawyers, some good, some bad, or you could save yourself all the hassle and talk to the one company that’s already done the hard work and truly understands the needs of today’s investors.

At Nomad Capitalist, we’ll help to create your all-encompassing Action Plan which includes second citizenships, legal tax reduction, offshore banking and ironclad asset protection strategies. 

These will help you to protect and grow your wealth and open the door to new travel and investment opportunities globally. To find out how, get in touch today.