Myths about offshore trusts are widespread and misleading. An offshore trust is a strategic asset protection tool that can offer various benefits, depending on your objectives. These structures are set up in foreign jurisdictions outside the United States that have creditor-adverse laws which make it much more difficult for plaintiffs to pursue litigation. However, offshore trusts are frequently misunderstood. There are many misconceptions surrounding how they are used and the advantages they carry. Here are some of the most common myths about offshore trusts — and the facts that debunk them:
Offshore trusts are not only for the ultra-wealthy. Regardless of your net worth, they can help to protect your hard-earned assets from creditors and potential lawsuits. Some might also use trusts in foreign jurisdictions as part of a comprehensive estate plan. These types of trusts can be used to shield a wide variety of assets, including business interests, artwork, real estate, vehicles, jewelry, intellectual property, securities, and nearly anything of value.
While offshore trusts offer tax neutral benefits, they are not meant to be used for tax evasion purposes. In fact, U.S. taxpayers must still adhere to the IRS’s reporting requirements and the rules set forth in the Foreign Account Tax Compliance Act. Failure to disclose overseas transfers on the necessary reporting forms can be a federal criminal offense.
Depending upon how the trust is set up, you can still retain control over your assets. While ownership title is assigned to a trustee, you might still be able to be a trust beneficiary and receive distributions. In addition, you might consider setting up an offshore LLC for maximum control — this can allow you to be the manager of the LLC with access to the assets of the offshore irrevocable trust.
Due to what you’ve seen on television or in the movies, you might be wondering whether it is illegal to have an offshore trust account. Importantly, the purpose of an offshore trust is to protect your assets, not conceal them. A considerable amount of legislation has been passed aimed at combating money laundering and other illegal financial activities. Even Swiss bank accounts that come with a very high level of privacy cannot be used to hide assets, evade taxes, or avoid reporting requirements.
An offshore trust is one of the most secure asset protection options available. When you establish the trust, you can specify exactly how you wish the assets to be used. From there we will be able to recommend professional trustees who have been operating for decades and have millions of dollars under their management. These types of trusts generally pose no more risk than setting up a domestic trust — rather, they offer the benefits of a domestic trust plus additional protection.
If your trust is set up properly under the guidance of an experienced attorney, you will not be any more likely to face IRS scrutiny. As long as you remain compliant by filing the required forms, having an offshore trust will not increase your risk of an audit. Critically, failure to report all assets, including investment, retirement, and business income in an offshore account could trigger an audit.
It is best to establish an offshore asset protection trust before you’ve been served with a lawsuit or have reason to believe you might be facing litigation, because transferring assets inside the U.S. after a legal action has been commenced against you can result in your facing a fraudulent conveyance claim. Notably, the best offshore trust jurisdictions — such as the Cook Islands — have very short statutes of limitation on fraudulent transfers that make it extremely difficult for a creditor to bring a suit after a certain amount of time. In some cases, some assets can be moved or transferred even when litigation is pending. It is important to consult with an experienced asset protection attorney to evaluate your risks.
In many ways, creating an offshore trust is not very different from establishing a domestic trust. At the same time, it can be challenging to select the right jurisdiction and trustee. An offshore trust will also be more expensive and have more complex IRS filings. A knowledgeable offshore trust attorney can help you navigate the process of establishing this type of trust and remaining compliant with the applicable laws.
By establishing an offshore trust, you can help ensure your assets are adequately protected and your wealth is preserved for future generations. With so many myths about offshore trusts floating around, it is vital to have the counsel and guidance of a diligent attorney. Our attorneys have extensive experience handling a wide variety of matters concerning offshore trusts and assisting clients with shielding their assets and property. Call us to schedule a consultation.