Why Offshore Trusts Do Make Sense

Three 100 dollar bills are buried in sand on the beach near sea at sunset. Offshore trust concept.

An offshore trust is an essential planning tool that can help ensure your assets are protected and your wealth is preserved for your loved ones in the future. However, you might be wondering whether it is worthwhile to set up a trust in a foreign jurisdiction — and if it makes sense in your situation to do so. Regardless of your net worth and the amount of property you own, an offshore trust attorney can evaluate and purpose an offshore asset protection plan to help achieve your estate planning goals.

What is an Offshore Trust?

An offshore trust is a trust that is established in a different country for the purpose of protecting one’s assets. These types of trusts are set up outside of U.S. jurisdiction under the management of a trustee with no ties to the U.S. Although an offshore trust can be set up nearly anywhere, there are several foreign countries that are preferred because of their favorable regulations — including the Cook Islands, Nevis, the Isle of Man, and the U.S. Virgin Islands.

While many people might question the benefits of establishing a trust in another jurisdiction, there are several crucial reasons why offshore trusts do make sense, including the following:

1. An Offshore Trust Can Shield Your Assets from Creditors

Many people do not consider taking measures to protect their assets until it is too late — you might only think to safeguard your assets in the event of divorce, business dissolution, economic turmoil, or a civil lawsuit. However, if you have a substantial amount of wealth, are in a high-risk profession, or have significant tax obligations, an offshore trust can be used to shield your assets before they are exposed to potential liability.

When assets are placed in an offshore trust, creditors who have obtained judgments in a United States court cannot reach them. To get to the assets held in the trust, a creditor would have to commence litigation in the foreign jurisdiction. Since pursuing a lawsuit in another country is costly and inconvenient for creditors, it usually deters them from doing so. In addition, many offshore jurisdictions have much shorter statutes of limitation to commence legal action.

2. You Can Ensure Your Assets Remain Private and Confidential

When you place your assets and titles to property in an offshore trust, you can ensure they remain private and confidential during your lifetime and after your passing. Only certain individuals — such as the settlor, the trustee, and the trust holding company — can know what assets and property are held in the trust. No information is made available to the public concerning an offshore trust.

3. An Offshore Trust Can Be Used for Effective Tax Planning

It’s important to understand that offshore trusts are neither meant to conceal assets from the IRS, nor do they eliminate tax reporting requirements. Instead of being tax-free structures, they are tax-neutral structures. Nevertheless, offshore trusts are typically set up in favorable jurisdictions in which they are not subject to local, gift, and capital gains taxes, allowing the settlor and beneficiaries to pay the least amount of tax possible on the trust.

An offshore trust can also be an essential tool in estate planning. Estate tax planning that can be utilized in domestic trusts can also be used in offshore trusts, allowing you to pass wealth through multiple generations while minimizing taxation.

4. An Offshore Trust Can Allow You to Have International Investment Opportunities

Having an offshore trust can allow U.S. citizens to have foreign investment opportunities that would otherwise be limited. Since the trust is a separate entity from the settlor and does not have U.S. citizenship, it can be used to invest internationally. A good example of this is cryptocurrency, where U.S. citizens are restricted in the types of coins in which they may invest. Similarly, when you establish an offshore trust, you can set up a foreign bank account without the paperwork, compliance measures, and hassle a U.S. citizen would normally experience.

5. There Are Different Types of Offshore Trusts to Meet Your Needs

When you are setting up an offshore trust, you have the flexibility to choose the type of trust that best meets your objectives. For instance, if tax exemptions are the primary concern, an irrevocable offshore trust may suit your needs. If there are no fixed beneficiaries, a discretionary trust gives the trustee the authority to decide the distribution of profits.

Learn How Our Experienced Offshore Trust Attorney Can Help You

If you are thinking about setting up an offshore trust, it’s vital to have a knowledgeable offshore trust attorney by your side. At White & Bright, LLP, we provide skillful advice and reliable representation to clients in California who wish to set up offshore asset protection trusts in a wide variety of foreign jurisdictions. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.