There’s been quite a bit of noise about the little country of Belize in the Pandora Papers. Yes, the Pandora Papers found 3 or 4 people using the offshore jurisdiction of Belize for illegal purposes, but what of the tens of thousands that set up in Belize for the right reasons? Here’s what you need to know about Belize in the Pandora Papers.
The article I am taking from is from the very far left investigative “journalists” at the Washington Post. The headline reads: ROGUE AMERICANS STASHED ASSETS OFFSHORE, ELUDING VICTIMS AND IMPEDING INVESTIGATORS… and this is all most will read. 99% of the population has no idea what’s legal and what’s not. You can read it here for yourself.
The review of Belize in the Pandora Papers apparently found an alleged murderer, a mob associate, and a child sex offender with offshore structures in Belize. How much, if any money was involved, we have no idea.
The alleged murder is Robert Durst, a famous case where he basically admitted to the murder on a hot mike while filming an HBO movie, The Jinx, Life and Times of Robert Durst. When the Pandora Papers were published about Belize, Mr. Durst had not been convicted. He has since been convicted of murder and sentenced to life in prison. At the time of this article, he’s contracted Covid, is on a ventilator, and his prospects look grim.
The review of Belize in the Pandora Papers also found one person using a Belize company to sell unapproved drugs over the internet and one that was charged with tax fraud (using a Belize Trust to hide money from the IRS). Obviously, selling drugs online from any country is a crime.
My favorite quote from the article is this: “Efforts to find and seize assets sheltered abroad are often hamstrung by uncooperative providers of offshore services, and by treaties on information sharing that can produce outdated or limited information, according to a dozen former prosecutors and investigators who spoke to The Post and the ICIJ.
Some foreign governments are simply reluctant to help, they said.”
Is this meant as an indictment for Belize in the Pandora Papers? There are many situations in life where privacy and asset protection are both legal and advisable. And, clearly, even in the eyes of a very biased writer, Belize is doing its job as advertised.
So, what’s legal and what’s not when it comes to offshore structures? What did Belize in the Pandora Papers get right and what did they get wrong?
Note that this article is written from the point of view of an American person who must pay US tax on their worldwide income. We’re just about the only country where this is the case, and thus the offshore world views us very differently than it does the rest of the world.
One thing the article gets wrong, sadly, is that it’s legal to use offshore structures to reduce your taxes. This is nearly always incorrect… especially after Trump’s tax plan eliminated our ability to hold business profits abroad tax-deferred, only paying US tax when the money comes into the United States.
In 2021, unless you’re a multinational company, there are really no more offshore tax shelters available. Those days are gone for average Americans, and very limited for large corporations. I speak to people every day hoping to find tax relief abroad, only to burst their bubble.
To be clear: hiding money offshore out of reach of the IRS is not “tax planning.” This is a crime and you’re just hoping you don’t get caught. Yes, there are some who try to cheat the system, but it’s getting more and more difficult, and the penalties for getting caught are severe.
Now some good news. It’s perfectly legal to protect your assets in Belize with an offshore trust or corporation. A trust allows you to determine how those assets are invested and distributed upon your death. A corporation, on the other hand, is meant to operate a business abroad and protect the assets of an active and operating business.
An offshore trust will hold your after-tax money. You’ll transfer your savings, after paying Uncle Sam, to the trust to protect it from future civil creditors. There are three important words in the proceeding sentence: 1) future, 2) civil, and 3) creditors.
A future creditor is one that you did not know of at the time you funded the trust. That is to say, you set up a trust well before having the problem. You did not have any reasonable expectation that the person coming after you would sue you.
The easiest way to express this is as follows: let’s say you cause a car accident today and injure someone. If you fund a trust tomorrow, then that trust is possibly invalid, at least with respect to the accident victim.
But, if you create and fund a trust today, and have an accident tomorrow, the trust will be respected and will protect your assets. You had no reason to expect the harm and legal case to arise when you wired money abroad.
Most cases are not as black and white as a car accident. So, we prefer that you create and fund a trust at least 12 months before any claim arises. This is the best-case scenario and allows you maximum protection.
Next, the Belize trust is designed to protect you from civil creditors only. It is not meant to protect your assets from or hide them from the IRS or SEC (for example). As the government can seize your most valuable asset (your freedom by putting you in jail), an offshore trust will not protect you when you’re under that type of duress. So, unless you’re willing to stand up to the government, and presumably leave the United States, pay your taxes and use the trust in Belize to protect your after-tax assets from civil creditors.
Finally, a trust in Belize will protect your assets from legal creditors. The only way someone can get to your assets in Belize is to bring a case in Belize. They must hire a local attorney, pay that lawyer (no contingency fees), and win in a Belize court. Without a court order from Belize, and, again, assuming it’s not the US government, the person coming after you will get nothing.
So, as the article on Belize in the Paradise Papers implied or proved, Belize is an excellent offshore jurisdiction to form an offshore company or trust. For more information on setting up an offshore structure in Belize, please contact me at email@example.com.