Q. If I put money in an offshore (international) trust, how do I get it back when I need it?
A. When you form your offshore trust, include yourself as one of the beneficiaries. Then, when you need cash, tell the trustee.
It’s the trustee’s legal duty to apply the trust fund for the beneficiaries. With a Model Offshore Trust, you are the Trust’s initial Protector, and the Trustee looks to you for information and advice about how to fulfill its duties. The Trustee will want to know the purpose of the distribution you are requesting, and it should be on alert for any indication that you are being coerced by a creditor or other attacker.
Ordinarily the trustee of an offshore trust will send distributions to a beneficiary by bank wire. But the Trustee of a Model Offshore Trust is also authorized to pay your credit card, legal or other bills. The Trustee’s duty is to apply the Trust Fund for the welfare of the Beneficiaries — by sending cash or by any other means that would be helpful.
Q. If I set up an offshore trust and name myself as protector, so that I have the power to replace the trustee, what keeps a judge in the U.S. from ordering me to name an American bank — which would do whatever the judge orders — as the new trustee?
A. Tailoring the powers of the protector is the most delicate aspect of designing a robust offshore trust. The protector must have enough power to assure that the trustee never loses sight of the purposes and intentions of the grantor of the trust. But the protector should not have any power that a government agency or any other third party could exploit to disarm the trust.
To prevent the protector’s powers from being used to disarm the trust, the governing trust instrument should allow the protector to act only out of his own free will and volition. Read more at Forced Repatriation.
Q. How does tax planning work with an offshore trust?
A. An offshore trust brings you some valuable tax planning advantages – and no disadvantages.
During your lifetime, the trust you establish will be income-tax neutral; all of its income and deductions flow to your tax return. When the trust earns a dollar of interest, for income tax purposes you earn a dollar of interest. When your offshore trust earns a dollar of capital gain, you earn a dollar of capital gain. Thus during your lifetime, the trust itself has no influence on the taxation of income and capital gains.
The trust may, nonetheless, help to reduce your tax bill because the trust will have access to tax-advantaged investments and planning strategies that are unlikely to be available to you without going offshore. Although the trust itself is income tax neutral, the investments it holds may be highly tax-efficient.
After your lifetime, your offshore trust completely disconnects from the U.S. tax system. For your heirs, it will be a tax-planning tool of incomparable power.
Q. Can you recommend a reliable guide to using offshore trusts?
A. Much of what you are looking for is right here, at Offshore Resource 1. Your Own International Trust is a simple, introductory guide to the workings and benefits of an offshore trust.
For a more in-depth treatment, we recommend Terry Coxon’s International Trust Guidebook.
Q. Is there any inheritance tax on an offshore trust?
A. Strictly speaking, there is no U.S. tax on what an heir receives – no inheritance tax. There is a tax on estates, which is a tax on the total body of wealth that someone leaves. An offshore trust is the ideal vehicle for eliminating a family’s exposure to estate tax, as explained at Offshore Estate Planning.
Q. What are the benefits and advantages of an offshore trust?
A. You’ll find the advantages and benefits of a lawful offshore trust explained throughout this site. In summary they are:
- Protection from predatory lawsuits
- Protection from arbitrary seizures
- Protection against possible future currency controls orinterference with gold ownership
- Exposure to income-tax planning opportunities not readily available in the U.S.
- A permanent solution for avoiding estate tax
- The eventual separation of family wealth from the U.S. tax system.
- Financial privacy, especially for your heirs
- Better access to financial services and investment markets outside the U.S.
Q. Is an offshore trust the same thing as an asset protection trust?
A. In practice, yes. Families use an offshore trust because asset protection is one of their goals. And anyone who goes looking for asset protection is likely to find that the best way to achieve it is with an international asset protection trust.
Q. What do the advantages of an offshore trust cost? And how do I keep expenses under control.
A. The cost of an international trust depends on how well you do your homework.
If you simply go to a specialist law firm and say “make it happen,” you can spend $30,000, $50,000 or more on set-up costs. And doing so may lead you to an offshore trust company whose fess start at $10,000 per year or more.
At the other end of the spectrum is the Passport Trust program. It starts with the Passport Trust Kit, which costs just $295. The Kit includes all the information you need and all the actual, ready-to-use documents. Even with allowance for spending a few hours with a legal specialist to get an independent review of the documents, total set-up costs can be as low as $3,500.
The Passport Trust program also keeps maintenance costs under control. The Kit introduces you to the number-one trust company in the premier jurisdiction for international asset protection trusts. They already have systems in place to administer Passport Trusts, so the basic annual charge is only $3,000.
Regardless of how you go about setting up your offshore trust, you also will have reporting costs. If you are a careless shopper, that could add another $5,000 to the annual bill. Or you could pay much less by using one of the professionals that the Kit will refer you to.
Q. How does the Cayman Islands rank as a location for an offshore trust.
A. The Cayman Islands is the world’s premier jurisdiction for offshore banking. Virtually every major bank in the world has an office there, plus hundreds of lesser but still substantial banking institutions. Because of its prominence in offshore banking, the Cayman Islands is thought of somewhat carelessly as a being well suited for everything you might want to do offshore, including establishing a trust.
It isn’t. The trust that you might settle in the Cayman Islands wouldn’t be pointless. But it would have vulnerabilities that you can avoid by going where the laws provide greater protection for trusts. In particular, in certain circumstances a future creditor (such as someone who won a big lawsuit against you) could trigger a bankruptcy proceeding that would lead to your transfers to a Cayman Islands trust being set aside, i.e., your Cayman Islands trust would come unglued.
Q. Does being a U.S. citizen make an offshore trust more important or less?
A. Using a lawful offshore trust to protect family wealth is especially important for U.S. citizens because… Read more at Offshore Trusts and U.S. Citizens.
Q. Why should an offshore trust be discretionary?
A. A fixed trust gives each beneficiary an absolute right to a percentage or other determinable share of the income and assets of the trust. A discretionary trust, on the other hand, gives the Trustee the authority and responsibility to apply the assets of the trust for the welfare of the beneficiaries (whether by sending cash or otherwise). In carrying out that responsibility, the trustee receives information and advice from the protector (who may be the same person as the grantor).
The discretionary character of an offshore trust can put up an absolute barrier to all creditors of the beneficiaries because no beneficiary owns an interest in the trust that he can compelled to assign to a creditor or to anyone else. And the discretionary character creates an insoluble puzzle for tax collectors: since no beneficiary has a percentage interest in the trust , there is no way to assign any tax liability to a beneficiary until he actually receives a distribution or other benefit.
Q. How does an offshore trust work? Please explain.
A. An offshore (or international) trust works by moving the assets you want to protect into a much safer legal environment. Read more at How Offshore Trusts Work.
Q. Can an offshore trust increase my privacy?
A. Yes, an offshore, or international, trust can be a big boost to your financial privacy. It can do even more for the privacy of your heirs.
In all of the countries that you might reasonably consider as a location for your offshore trust, privacy is taken seriously, both as a matter of law and as a matter of sound business practice. That makes it very difficult for business competitors or anyone sizing you up for a lawsuit to learn the details of your trust or even that it exists.
During your lifetime, however, there will be a big hole in the privacy of your offshore trust. That big hole comes from IRS and other reporting requirements. They are mandatory, and you would invite serious problems by neglecting them. You can read about them at Foreign Transaction Reporting Rules.
After your lifetime, however, neither your beneficiaries nor anyone else will have any reporting obligations for your offshore trust. It can be lawfully silent and lawfully invisible – a benefit you can easily provide for your heirs but which you cannot have for yourself.
Q. How can I find an offshore trust attorney?
A. A short list of lawyers with solid experience in offshore trust topics is included at Legal and Accounting Help. For some suggestions about conducting your own search, see Finding Offshore Trust Attorneys.
Q. How can I find an offshore trust company?
A. The Internet makes it easy to find offshore trust companies and trust services. But finding the right one isn’t so simple. See Locating Offshore Trust Companies and Services for some guidelines.
Q. What are the primary methods of asset protection planning?
A. You can read about gifts, domestic trusts, domestic LLCs, foreign annuities, offshore trusts and offshore LLCs at Asset Protection Planning.
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