Protect your assets, reduce your taxes, increase your investment freedom, and more with an offshore trust.
You’ve always thought that an offshore trust is something shady or even illegal.
Or maybe you think it’s only used by the ultra-wealthy to hide money and pass tax-free cash to their ‘trust fund babies’.
Those notions simply are not true.
Offshore trusts are a completely legal way to protect your assets and everyone can set one up (granted, they are rather costly).
If you hold assets in your own name – or even in a corporation – you could be doing yourself a huge disservice.
In the increasingly bankrupt western world, you’ve got a target on your back.
This target could cost you everything you have.
Lawsuits are an everyday reality in the West and governments have not shied away from asset seizures in recent years.
Setting up a foreign trust is a bullet-proof asset protection strategy as it adds a layer between your assets and anyone trying to seize your wealth.
By using an offshore trust rather than one in your own country, you can enjoy additional protections simply not available at home.
REASONS TO SET UP AN OFFSHORE TRUST
Placing your assets under the protection of a foreign Trustee will add an extra layer of protection between your wealth and those who would seek to take it for themselves.
Although an offshore trust will not eliminate your taxes or reporting requirements, it can reduce your overall tax burden and create favorable conditions for estate planning.
Because an offshore trust is not considered a US person, you can use it to make investments and set up offshore bank accounts unavailable to you as a US citizen or resident.
What is an Offshore Trust
First things first, let’s iron out the definition of an offshore trust.
While it might sound somewhat complicated, a trust is simply a three-way agreement that allows one party (Settlor) to transfer their property to a second party (Trustee) to benefit a third party (Beneficiaries).
What’s different about an offshore trust? It is just like a regular trust, except abroad.
The agreement that is set out is known as the ‘Deed of Trust’ and provides clear instructions for how the assets will be used and distributed to the beneficiaries.
In most cases, the individual who creates the trust can also include themselves as a beneficiary.
Who’s Who in Offshore Trusts
Before we go on to discuss what types of trusts there are and which one could benefit your holistic offshore strategy the most, it’s important to define exactly what each of the three parties do.
A Settlor (aka Trustor, Grantor or Donor) is the person who creates the offshore trust. This is the individual who owns assets that they wish to protect through an offshore trust.
In order to do that, the Settlor must establish:
- Certainty of intention – outline his/her desire to start a trust.
- Certainty of subject matter – outline the property that is to be entered into the trust.
- Certainty of objects – outline who will be the beneficiary or beneficiaries.
A Trustee is the second party and is usually a legal entity (like a bank or other financial institution).
This entity is the one holding and managing the property in the offshore trust for the Settlor.
It is the responsibility of the Trustee to:
- Follow the terms expressed in the ‘Deed of Trust’ – a very narrow number of duties are normally given.
- Defend the trust against debtors – a key element of any asset protection trust.
- Invest the trust appropriately.
- Act impartially amongst the beneficiaries.
- Be accountable to all beneficiaries, keep them informed and act in their best interest.
- Not delegate duties or profit themselves from transactions.
The Beneficiaries are individuals (and sometimes organizations) who are to benefit from the offshore trust.
Once the property from a trust is in the possession of adult beneficiaries, they can do whatever they want with it, including:
- Sell any property
- Assign it to someone else
- Release it
- Use it in a mortgage agreement
How Does an Offshore Trust Work
Once the Settlor creates the ‘Deed of Trust’ with the help of a trust attorney, the attorney then files the deed and a Trustee is appointed to manage the assets which are subsequently placed in the trust.
Now, here’s the important part: when the Settlor places their assets in the trust, the Trustee receives the title to the Settlor’s assets.
In other words, the Settlor has transferred ownership of the assets to the Trustee. The Trustee now owns the assets.
This is the key to effective asset protection through a trust. No one can take from you what you do not own.
As the Settlor, you have given away your assets, “trusting” that the Trustee will manage them according to the legal agreement that you created in the beginning.
The Trustee has only acquired ownership due to the ‘Deed of Trust’ so, while they legally own the assets, they can only use those assets as dictated by the agreement.
And if planned correctly, the Trustee can only act in the interest of the Settlor (you) and his or her beneficiaries.
Then, when someone comes after your assets, not only will they no longer be ‘your’ assets but you will have also given those assets to a Trustee that resides outside of your home country’s judicial system
Your Trustee will not be subject to your home country’s laws. Instead, they will be governed by a different set of laws that will – if you’ve selected the right jurisdiction – favor the protection of your assets.
The court, which usually wields a big stick at home, does not have the authority to compel your Trustee to turn over any assets within your trust.
WHAT’S THE BEST TYPE OF OFFSHORE TRUST?
Now that you’ve got the basics down, let’s determine the perfect offshore trust to protect your assets.
There is no one-size-fits-all solution here because a person using an offshore trust for estate planning, for example, will need to structure their trust differently than a person using it for asset protection.
The kind of offshore trust you use depends on both your overall financial situation and your tax plans.
And while there are many types of offshore trusts, you’ll likely want to set up a private trust, which is created for the benefit of individual beneficiaries, versus that of a corporation, charity, or the public.
There are also different classes of private trusts, including:
- Revocable – A trust which may be altered or terminated by the Settlor either at any time, or after a certain date. Generally, you do not want this type of offshore trust.
- Irrevocable – A trust that cannot be changed or terminated at any time by the Settlor. An irrevocable trust is key to asset protection.
- Discretionary – A trust used most often for asset protection, it’s highly flexible and provides trustees with a ‘Letter of Wishes’ to provide guidance to the Trustee on how to manage the trust.
- Interest in possession – A trust that allows the beneficiaries to be entitled to receive income and capital from the offshore trust, if outlined in the Deed of Trust
- Accumulation and maintenance – A trust arranged for beneficiaries who are minors and that lays out provisions for college tuition, maintenance funds, and income once a specified age is reached.
Which of these private trusts you choose is entirely up to you. They each have their benefits and drawbacks.
However, it would be wise to consult an expert before you make any major financial decisions that will affect yourself and your assets.
And don’t forget that there is another way that you can protect your assets by creating a tax shelter via a universal life insurance policy.
The key to getting the maximum protection with this offshore strategy is to buy the life insurance policy with your offshore trust.
Sound complicated? That’s because it is, but it’s worth it in the end.
Why Set Up an Offshore Trust
If you’re on this page because you’re interested in discovering how to ‘hide your money from lawsuits’, let’s get one thing clear:
We, here at Nomad Capitalist, never recommend that our clients do anything illegal or ‘hide’ their money. We want nothing to do with shady practices. All our strategies are 100% legal.
An offshore trust is not somewhere to hide your money. Placing your assets in an offshore trust does not eliminate your reporting requirements.
Whether you created, received distributions from, transferred assets to, or are considered the owner of an offshore trust, you must report it to the IRS.
So, no, an offshore trust isn’t somewhere to hide your assets. It is a tool you can use to protect them. There is a difference.
And while we’re on the subject, an offshore trust is also not a bank account.
You won’t be able to walk up to an ATM and withdraw funds from your offshore trust on a whim.
The underlying principle of an offshore trust is to protect you – even from yourself!
Without this extra layer of protection, an offshore trust is no more than a glorified (and a much more expensive) offshore bank account.
But here are the seven things an offshore trust can offer you:
1. Continual Access to Your Money
If you name yourself as a beneficiary, you can receive regular distributions from your offshore trust.
So, even though your money is covered by an extra layer of protection, you’ll still be able to access it via the distributions you set up under the ‘Deed of Trust’.
2. Asset Protection
Asset protection is one of the top reasons to set up an offshore trust.
Creditors and courts won’t be able to get their hands on your assets unless they were to fight a really long, international, and pricey legal battle… and won.
The chances of that ever happening are slim to none.
Assets like stocks and real estate that were once in your or your business’s name will be protected by an offshore trust.
An offshore trust will protect your assets from government seizure as well.
I had a personal experience with this many years ago when the California Franchise Tax Board mistakenly concluded that I owed them a tax fee for a year in which I had not conducted business in California or even lived in the state.
Thanks to this error, some low-level government employee decided to bypass both federal law and bank policies to illegally confiscate money from my account to pay the fee.
A fee I did not actually owe.
I’m not here to peddle doom and gloom, but this experience reminded me that government officials are not beyond locking you out of your bank or brokerage account, or even your business.
They don’t even have to go through the court system. If they suspect something is wrong, they just act.
If you have not diversified internationally – whether that’s through an offshore bank, offshore trust, or even an offshore company – you could be left without cash and other vital resources.
Legal offshore tools like foreign trusts will safeguard your assets from government seizure, lawsuits, and much more.
3. Increased Investment Freedom
Because your offshore trust is not considered a US citizen, it is not subject to the many restrictions placed on US investors abroad.
For instance, crypto investors will be able to participate in ICOs that often shut out anyone with a US address.
You can read more about different investment strategies using an offshore trust in our ultimate guide.
4. Banking Regulations
Because of the heavy reporting requirements placed on offshore banks that accept US clients, many banks refuse to work with US citizens.
But since an offshore trust is not a US citizen, you can use it to increase your banking options.
The bank will not need to report to the US government about a bank account set up by a foreign trust.
However, you will still need to report the bank account and any other activity performed by your trust to the US government.
Remember, this is NOT about hiding money. It is about increasing your options.
5. Tax Relief
Let’s be clear: an offshore trust provides tax relief, not elimination.
You and your beneficiaries will still need to pay taxes on any income or distributions received from your offshore trust.
The relief applies to any non-distributed income. As a non-US citizen or resident, the trust only pays a withholding tax on non-distributed income, rather than the full income tax rate.
Additionally, an offshore trust allows for better tax planning in general, especially when it comes to the estate tax.
6. Estate Planning
If it hasn’t become obvious already, besides asset protection, one of the strongest advantages of an offshore trust is that it is not considered a citizen or resident of your home country.
When it comes to estate planning, this means that the trust will disconnect from the US tax system at the time of your death.
This saves your estate from the estate tax and leaves more of your wealth for your posterity.
Any distributions made to beneficiaries will still be taxed, but the estate as a whole will be exempt from the 40% death tax currently imposed on large estates in the US.
7. Peace of Mind
Whatever your motivation may be, an offshore trust will give you all these benefits and more.
You will have the peace of mind that your assets are protected and that your wealth is properly structured to ensure that it is distributed exactly how you want.
The Best Countries for Offshore Trusts
Offshore trusts that are carefully planned by international tax experts and legally established are the best instrument to protect your assets.
But your trust must be opened in the right jurisdiction to bring the most value.
What are the best countries for setting up an offshore trust?
Is it really safe to place your assets in a trust in the Cook Islands?
These are genuine questions that you must have swirling around in your head right now.
The country where you choose to set up your trust will have one of the biggest impacts on the protective strength of your offshore trust.
So, while it’s difficult to answer the question ‘What is the best country for an offshore trust?’, it’s relatively easy to take a look at some of the most popular options.
The Cook Islands. The gold standard of asset protection trusts, the Cook Islands are tied in with New Zealand – which also offers good laws for protecting assets – but operate on their own. Far from being some ‘banana republic’, the Cook Island courts require a standard of ‘beyond a reasonable doubt’, in all cases. It’s also the only country that has repeatedly stood up to US courts in asset seizure cases.
St Kitts and Nevis. Requires that creditors pay $25,000 as a cash bond before filing a lawsuit. The losing party must pay for all of their own court costs.
Jersey. Located just off the coast of France, Jersey is considered the top offshore financial center in Europe in a recent Global Financial Centers Index.
The Cayman Islands. Boasts the highest value of foreign assets under management, this includes a large number of offshore trusts.
British Virgin Islands: Has the largest number of offshore companies and has been a trusted location for offshore financial institutions for decades.
Bermuda: The strongest presence they have in the global market is for offshore aircraft registration, but many also turn to them for offshore trusts.
Anguilla: A British overseas territory in the Caribbean, Anguilla is an up-and-coming place to register an offshore trust.
Mauritius: Heavily used by Asian, African and European countries for both inward and outward investment platforms, including offshore trusts.
Other popular locations for offshore trusts include Barbados, Antigua, Trinidad, Marshall Islands, Seychelles, Nevis, Cyprus, Isle of Mann and Marianas.
Two locations that are commonly used for offshore trusts, which aren’t actually offshore, are Switzerland and Liechtenstein.
These countries will more commonly be called locations for foreign trusts, but all of the underlying principles remain exactly the same.
Determining which location is best for your offshore trust comes down to your individual situation, how you plan on using the offshore trust, the residency of the beneficiaries, and a number of other mitigating factors.
It is best to seek the advice of a professional in all cases.
Buckle Up and Protect Your Assets – Today
It’s laudable that you are trying to protect your assets.
There is nothing worse than being caught off-guard or losing your hard-earned money due to a frivolous lawsuit.
That is why it is essential that you start working on a holistic offshore strategy today, not tomorrow.
And note that I said holistic offshore strategy, not just a trust.
Offshore trusts are often over-prescribed. In many cases, you can gain the same benefits provided by an offshore trust with other offshore tools.
And for a fraction of the price.
An offshore trust – just like any other tool you use – must fit into your overall plan.
But for certain individuals, an offshore trust will be essential to making that plan work.
However, if you only move to set up a trust after someone files a lawsuit, there is a good chance that a court might still get to your assets.
It’s much like anything else in life. Being aware is not the same as taking action.
You know that buckling your seat-belt could save your life in a car crash. It makes sense to use it. But it won’t be of any help if you don’t buckle that belt.
So, if you want to be fully equipped to withstand the storm that could be just beyond the horizon, you should move right now.
Set up an offshore trust, design your offshore strategy with help of Nomad Capitalist, and protect your assets today.
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Our team has created an extensive worldwide network of lawyers, banks, and other legal entities so we can help our clients take advantage of what works in the real world, not theory. Learn how we can help you set up an offshore trust today.