Offshore Asset Protection – International Trusts and Offshore LLCs

Why Americans Should Consider Moving Their Cryptocurrency Offshore

The IRS Targets Crypto Investors – Why Americans Should Consider Moving Their Cryptocurrency Offshore

In a recent legal development, a federal court has ordered the cryptocurrency exchange, Kraken, to turn over account and transaction information to the Internal Revenue Service (IRS). This move by the IRS is intended to uncover whether any of Kraken’s users underreported their taxes, highlighting an increasingly intrusive regulatory environment for cryptocurrency holders in the United States​1​.

The IRS petitioned the court in the Northern District of California to issue this order, following Kraken’s settlement of charges related to a violation of securities law. The tax agency alleged that it issued a summons to Kraken in 2021, which the exchange failed to comply with, sparking the IRS’s interest in investigating the tax liabilities of users who transacted in crypto from 2016 to 2020​1​.

Under the court’s order, Kraken is required to provide the IRS with comprehensive data about users who transacted more than $20,000 in a calendar year. This data includes the user’s name, birthdate, taxpayer identification number, address, phone number, email address, and more. Additionally, Kraken must provide blockchain addresses and transaction hashes that are part of the transaction data, and it may also produce raw data for the IRS​1​.

While this order might appear to be a necessary step in ensuring tax compliance, it has raised concerns about the extent of privacy cryptocurrency users can expect. Despite the court’s denial of several IRS requests, such as receiving employment information and source of wealth from Kraken, this decision underscores the broad power the government can exert over cryptocurrency exchanges and their customers in the name of tax enforcement​1​.

In light of these developments, American cryptocurrency holders should consider moving their assets into cold storage or onto an international exchange. Cold storage, a method of holding cryptocurrency offline, would allow holders to maintain their privacy and control over their crypto assets. International exchanges, particularly those in jurisdictions with more favorable cryptocurrency regulations, offer an alternative to U.S.-based exchanges like Kraken. While these options come with their own considerations, such as the need for robust security measures in the case of cold storage or the implications of international tax law, they represent potential paths for those seeking to maintain greater privacy and control over their cryptocurrency investments.

In conclusion, while tax compliance is unquestionably important, the recent court order involving Kraken serves as a reminder of the potential privacy trade-offs involved in using domestic cryptocurrency exchanges. By considering alternatives like cold storage or international exchanges, American cryptocurrency holders can take steps to protect their privacy and control over their assets in an increasingly regulated U.S. crypto landscape.

Use of an offshore corporation in 2018

Use of an offshore corporation in 2018

This article deals with the proper use of an offshore corporation in 2018. President Trump’s tax had a major impact on the use of offshore corporations. If you’re operating a business through an offshore corporation in 2018, you need to understand these changes.

First, let me define what I mean by an offshore corporation. This is an entity formed in a zero tax country such as Belize, Cook Islands, Nevis, etc. It’s an international business corporation that is incorporated in a country that won’t tax your profits and usually in a country different from the one where you live.

Even if you’re living in Belize, you probably would not form your corporation in Belize. You would want an “offshore” entity to protect your assets from local issues and creditors. So, you would incorporate in Nevis.

This is all to say that an offshore corporation is:

  1. In a zero tax country,
  2. That provides maximum privacy and asset protection, and
  3. In a country other than where you live.

There are two uses of an offshore corporation in 2018. You can use the structure to protect your personal after-tax assets/savings or you can operate an international business. The use of the corporation for asset protection has not change and has been the same for decades. The big changes under President Trump apply to those operating a business offshore.

When you form an offshore corporation for asset protection, you transfer your portable and liquid assets to the corporation. You then set up brokerage and crypto accounts in the name of the corporation and trade those accounts.

One of the most common uses of an offshore corporation is to hold foreign real estate. You pay the expenses of the property and receive rent into that corporation. Finally, you pay local taxes from the entity and are left with your net rental profits and capital gains.

Whether you’re trading stocks and crypto, or investing in real estate, all of the profits of your passive activities are going to be taxed in the United States as earned. It doesn’t matter where you live… in the states or abroad… so long as you hold a US passport you must pay Uncle Sam on your passive income earned in an offshore corporation in 2018.

If you’re holding passive income in an offshore corporation in 2018, you probably need to file IRS form 5471 and report your foreign bank account. Some will convert their offshore corporation to a disregarded entity (using Form 8832) and file Form 8858 rather than 5471.

Considering there’s no tax benefit to holding passive investments offshore, the above is straightforward. You get asset protection and your tax rate remains the same with an offshore corporation in 2018.

Operating a business offshore in 2018 is much more complicated. Here are my assumptions for this section:

  1. You, the owner operator of the business, are living and working abroad.
  2. You qualify for the Foreign Earned Income Exclusion.
  3. Your profits are ordinary business income and not passive income or capital gains.
  4. You’re operating your business through an offshore corporation formed in a zero tax jurisdiction.

If you don’t meet all of these criteria, the profits of your international business will be taxed in the United States. The tax benefits of offshore corporations apply to those living and working abroad.

Note: I am not considering partnerships where US person’s own 50% or less of the business. That means, I’m assuming your offshore corporation is a CFC (a topic for another day).

With all of that said, the big change under President Trump is that offshore corporations owned by US persons no longer get to retain earnings offshore. You’re not allowed to hold earnings and profits in an offshore corporation tax deferred.

This means that the primary tax benefit to operating a business offshore is the Foreign Earned Income Exclusion. You get to take out up to $104,100 per year in salary tax free. If both a husband and wife are working in the business, you can take out a combined $208,200 free of Federal Income Tax.

The other often overlooked tax benefit of operating a business offshore is that you don’t pay self employment tax or payroll / social taxes on the income. If you were operating this business in the United States, you would pay about 15% in self employment or other taxes on your salary. When you’re living abroad, qualify for the FEIE, and operate through a foreign corporation, you can eliminate these taxes.

If you net more than $208,200, this excess over the FEIE is now taxable in the United States as earned. If your offshore corporation has $500,000 in profits, you and your spouse would take out $200,000 tax free using the FEIE and pay US tax on $300,000.

I hope you’ve found this article on the use of an offshore corporation in 2018 to be helpful. For more information, or to set up such an entity, please email us at or call us at (619) 483-1708.

Privacy Flag Offshore

Top two max privacy options to plant your flag offshore

The last few months have seen a striking increase in demand for offshore residencies and investments. Americans are looking to diversify out of the dollar, move their assets abroad, and to plant as many foreign flags as possible before the year end. Here are the top two max privacy options for 2018.

Because of the political climate in our country, Americans are renouncing US citizenship at record rates. In the third quarter of this year, 1,376 Americans renounced their US citizenship, putting the annual tally on pace to beat 2016’s record. That’s a 26 percent increase from 2016’s total of 5,411 – which was itself a 26 percent jump from 2015.

Those who are planning on burning their blue passports, want to diversify and create a safety net abroad, or wish to build an escape route and landing spot should things go badly, need to plant as many flags offshore as possible. The hottest offshore plans this quarter are:

  1. A second residency in a low or no tax country that leads to citizenship and a second passport, and
  2. Belize is suddenly the most active real estate market for those seeking personal freedom. This is a very new development and can be summed up in one word – Bitcoin!

Here’s where to get a second passport or second residency and why Belize has become the hottest offshore real estate market out there.

Second Residency Programs

There are two ways to acquire a second passport: you can buy it or you can earn it over time. You can buy a passport from a country like St. Lucia for $125,000 (single applicant) to $300,000 (family). St. Lucia is the lowest cost quality passport for purchase.

If you want a top tier passport, or don’t have an extra $250,000 lying about, you can earn a second passport through residency. Get a residency visa, maintain that visa for 5 or 6 years, and you can apply for citizenship.

The best top tier residency program Portugal. This country’s golden visa program get’s you EU residency, which means you can live and work anywhere in the Union during your residency. You can apply for citizenship and a passport after 6 years of residency.

You can get residency in Portugal by depositing money in a local bank or with the purchase of real estate. The most popular option is to deposit € 1,000,000 into a bank in Portugal (you don’t need to spend or invest it, just hold it in the bank). You can also buy any property for at least € 500,000 and get residency. If you buy a property that’s 30+ years old or located in an “urban renovation” area you need only spend € 350,000.

The best low cost residency program is Panama. If you’re from a “friendly nation,” you can get residency in Panama with an investment of just $20,000. You can then apply for citizenship and a second passport after 5 years of residency.

The investment must be made into one of Panama’s approved reforestation programs and covers the entire family. That is, only one investment is required for a husband, wife, and dependent children 18 years and under. Legal and government fees apply per person.

If you’re not from a friendly nation, the best residency program with a path to citizenship is Nicaragua. Anyone can apply, no matter your country of citizenship and the investment is only $35,000. Legal and government fees are higher than Panama, about $10,000 per person.

The big difference between Panama and Nicaragua is that you must spend 180 days a year in Nicaragua to keep up your residency. Panama does not have a physical presence requirement.

Real Estate in Belize

The Belize real estate market has been on fire for the last 2 months. Belize developers are now allowing buyers to pay 100% of the purchase price and all fees in cryptocurrency. For those looking to get their coins out of the US and away from the IRS, real estate in Belize provides an excellent opportunity to trade Bitcoin and diversify out of cryptocurrency.

Most of the buyers in Belize have been early adopters of Bitcoin. Those with significant gains and a desire to diversify out of cryptocurrency. Belize provides the best, and often the only, way for these investors to exchange coins for property.

The reason Belize and crypto have gone so well together is that Bitcoin’s original business model of privacy and security is what Belize has been about from day 1. Belize is one of the last tax havens standing where personal privacy is a natural right.

As Bitcoin grew, government’s perverted the original intent, but early adopters can still find a libertarian and (nearly) tax free existence in Belize. This country doesn’t tax capital gains and won’t ask you to report your holdings or your transactions.


For the above reasons, the top two max privacy options to plant your flag offshore is a second residency in a low or no tax country and buying real estate in Belize with your appreciated cryptocurrency. Both have seen major increases in demand this quarter and I expect them to do even better in 2018.

If you would like more information on second residencies, second passports, or real estate in Belize, please contact me at or call us at (619) 483-1708. We’ll be happy to assist you to diversify offshore. 

offshore trust

Offshore Trust vs Offshore LLC

You’re ready to move some of your assets offshore. But, which structure is best? Should you set up an offshore trust or an offshore LLC? In this article I’ll compare the offshore trust vs the offshore LLC.

I’m focused on offshore trust vs offshore LLC. Both of these structures are meant to protect your after tax passive investments. If you’re going to operate a business offshore, then you will need an offshore corporation.

An offshore corporation can be held by a foreign trust. However, the trust may not operate a business directly. A corporation should hold the business and a trust can hold that corporation.

Also, an offshore IRA LLC is very different from a standard international LLC. An IRA LLC is a specially designed structure to hold your retirement account and only your retirement account. You can’t mix retirement money with personal savings and offshore IRA LLCs are single purpose vehicles.

Finally, there’s a hybrid structure called a foundation. These are available in Panama and Liechtenstein, with the vast majority being set up in Panama. A foundation is a mix between an offshore corporation and an asset protection trust. For a comparison of trusts and foundations, see: Offshore Trust or Panama Foundation?

So, this article will look at standard offshore LLCs compared to offshore asset protection trusts. These are the two most common asset protection structures for passive income and protecting after tax savings.

Two similarities both structures share are 1) the need to follow US transfer rules, and 2) the need to follow US tax rules.

US owners of offshore trusts and offshore LLCs must file foreign tax returns with the IRS. In most cases, the earnings and profits in these passive holding structures will be taxable as earned.

The tax return for an offshore LLC is much less detailed than for an offshore trust. Therefore, an offshore LLC tax return should cost you less in prep fees each year. Most LLC returns cost $850 while trusts are usually $2,500 or more.

For this reason, those looking to reduce carrying costs and annual fees will prefer an offshore LLC to an offshore trust. Also for this reason, we usually recommend a trust for those with at least $1 million in assets to protect.

Both structures need to follow US transfer rules. A fraudulent conveyance is a transfer made to keep money away from a current or reasonably anticipated civil creditor. In most cases, any transfer made to prevent the IRS or other US government agency from taking money away from you will also be a fraudulent conveyance.

This means that you can’t transfer money out of the United States and into an offshore trust or offshore LLC with the intention of protecting it from a current or reasonably anticipated civil creditor. A creditor is “reasonably anticipated” if the harm has occurred but they haven’t yet filed a case against you.

For example, if you hit someone with your car today, and send all of your money out of the US and into an offshore trust tomorrow, that’s probably a fraudulent conveyance that will be reversed by a US court.  If you send your money offshore today and injure someone with your car tomorrow, that’s probably not a fraudulent conveyance.

The most important difference between an offshore LLC and an offshore trust is flexibility. An offshore LLC is meant to hold your foreign assets and investments and will transfer to your heirs through your US will. That’s all it does… hold assets and nothing more.

On the other hand, an offshore trust can be configured to your specific needs. An offshore trust provides maximum asset protection and estate planning. An offshore trust can give you access to large international banks that won’t accept lesser structures.

When combined with an offshore life insurance policy, an offshore trust can eliminate US tax on your passive gains. A US compliant life policy inside an offshore trust basically creates a massive tax free structure.

If you hold the policy inside an offshore trust until you pass away, then the assets will transfer to your heir tax free. If you cancel the policy during your lifetime, you’ve got tax deferral, much like a traditional IRA. If you hold the policy until your death, you get tax free, much like a ROTH.

But this flexibility means that it takes a lot more work on your lawyers part to build an offshore trust than it does to set up an offshore LLC. For this reason, a trust is usually 3 or 4 times more expensive than an offshore LLC.

I hope this article on offshore trust vs offshore LLC has been helpful. For more information, or to set up a confidential consultation, please contact us at or call (619) 483-1708. We’ll be happy to review your situation and help you to build a compliant and efficient asset protection structure.

IRS Targets Bitcoin

The US Government is Targeting Bitcoin

The US government has launched an all out war on Bitcoin and battles are raging on several fronts. The purpose of this war is to either kill Bitcoin so that the dollar remains dominant or, failing that, to control Bitcoin such that the government maximized taxable income and eliminates your ability to transact in private.

It’s early days yet in the war on Bitcoin. But, the writing’s on the wall. The only way for you to salvage some level of privacy is to move your Bitcoin offshore. Set up an offshore company and hold your crypto account in the name of the company.

Here are the 4 primary lines of attack the US government has on Bitcoin today. You can rest assured that new agencies will jump into the fray once they find a way to take what’s yours.

  1. IRS taxing bitcoin as a capital asset and not a monetary instrument.
  2. The SEC treating bitcoin as cash so they can regulate ICOs.
  3. Applying civil asset forfeiture rules to Bitcoin.
  4. Requiring you to report your Bitcoin every time you enter or exit the United States.

Let’s start with the IRS. The Service recently declared that Bitcoin and cryptocurrency are assets, not cash and not currency. This means that, when you exchange Bitcoin for FIAT currency, you must pay tax on the gain.

If you held the Bitcoin for less than a year, you pay short term capital gains tax at your standard rate. This is probably around 35%. If you held the Bitcoin for more than a year, you pay the long term capital gains rate on your profit, which is probably 23.5% (20% if Trump repeals Obamacare taxes). These are the Federal rates and your State will also tax the gain.

Had the IRS classified Bitcoin as a currency, they wouldn’t be able to tax you when you convert Bitcoin to dollars. By calling Bitcoin an asset, the IRS can tax the conversion (or more properly, the sale of the asset).

  • Only currency investments are taxable, such as FX traders, and not basic conversions. That is to say, if you buy foreign currency as an investment, then the gains are taxable.

Then there’s the Securities and Exchange Commission (SEC). If the regulator had determined Bitcoin to be an asset, rather than a cash or cash equivalent, they might not have had jurisdiction to control ICOs. For the reasons why this might have been the case, see: Crowd Sale vs ICO – What’s Legal?

Suffice it to say, if Bitcoin were an asset, all ICOs might have been considered crowd sales and thus outside the purview of the SEC. Of course, this is unacceptable… all investments must be watched over and controlled by our government – so, Bitcoin is cash to the SEC.

To those of us who write on these topics, both of these lines of attack were obvious. Each US agency will define Bitcoin in whatever way allows them to exert control and levy fines to generate more income. That’s the nature of the beast… to a hammer, everything looks like a nail.

Here’s the regulation of Bitcoin that no one saw coming:

Introduced last month, the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017, will force you to report your Bitcoin each time you leave or enter the United States. That’s right, you will be required to fill out a form telling the government how much Bitcoin and cryptocurrency you have each and every time you cross our border.

When I first saw comments on this legislation, I didn’t believe it. I’ve been writing about government overreach since 2000 and still thought this must be an error. It took me days, and a lot of research, to accept that this level of insanity was possible.

When you cross a US border with $10,000 or more in cash or cash equivalents (diamonds, coins, checks, letters of credit, etc), you must report to the government by filling out a form. Of course, filing this form will likely subject you to scrutiny at the airport and unwanted attention from the IRS later.

In most cases, the government has been reasonable in applying this rule. For example, if you’re traveling with collectable coins, you only report if the face value of those coins is over $10,000. So, reporting was generally for those transporting cash and very rarely intruded into the lives of everyday Americans.

The new rules targeting Bitcoin basically allege that cryptocurrency is always with you. Unlike an offshore bank account, where cash is held outside of the US and must be reported once a year, Bitcoin is literally travels with you inside of your laptop. Regulators believe that Bitcoin is stored in your laptop, phone, hard drive, or USB storage device, and is thus crossing the border with you.

This claim that Bitcoin is always with you is key to the government’s attempt to force reporting. If Bitcoin, which is cash or cash equivalent and not an asset in this case, travels with you, the government can force you to report. If it’s cash sitting on the blockchain, and all you have on your laptop are the codes to access that “cash,” no reporting can be required.

That is to say, you don’t need to report how much you have in your bank accounts simply because you’re username and password to access those accounts is stored on the laptop. You can only be required to report what you are physically carrying with you carrying when you cross the border.

And the same law that requires you to report your Bitcoin allows the government to take it from you. Bitcoin will become subject to the asset forfeiture laws. The government can seize your Bitcoin if 1) you fail to report it, or 2) you report it and they believe you obtained it illegally.

Note that I said, they “believe.” The government can take your Bitcoin and then force you to prove how you earned it. The burden of proof falls on you in a civil asset forfeiture case (YouTube video by John Oliver)… and you must be willing to spend big money on lawyers to have any chance of success.

What can you do to protect your Bitcoin?

These are all the ways the US government is targeting Bitcoin. And the only thing you can do to protect your coins is to move them out of the United States and out of the government’s reach. Remember that the US government can seize any cryptocurrency “stored” in a US exchange by issuing a levy or seizure order.

The US government can’t easily seize assets held outside it’s borders. For example, the IRS can levy any bank or brokerage in the US, and any institution that has a branch in the US. So, if you have cash in a bank in Panama, and that bank has a branch in the US, you’re at risk.

The solution is to form an offshore corporation or trust to hold your wallet. Then use only Bitcoin firms located out of the United States… those without ANY ties to the US and can’t be intimidated by Uncle Sam.

The same goes for buying Bitcoin in your retirement account. First, form an offshore IRA LLC. Then move your account into an international bank that doesn’t have a branch in the United States. Then setup an offshore wallet and buy your coins.

I should point out that buying Bitcoin in your IRA is one way to beat the IRS at their own game. Because crypto is an asset, you pay capital gains tax on each and every transaction. However, if you buy Bitcoin in your IRA, you defer or eliminate capital gains tax. Because cryptocurrency is an asset, you can buy and sell it inside an IRA.  For more, see How to move your IRA offshore in 2017.

The fact that Bitcoin is an asset also means you can take advantage of the tax benefits available in the US territory of Puerto Rico. Basically, if you move to Puerto Rico, spend 183 days a year on the island, and qualify for Act 22, all crypto gains on coins acquired after you become a resident will be tax free. See: Move to Puerto Rico and Pay Zero Capital Gains Tax.

I hope you’ve found this article on how the government is targeting Bitcoin to be helpful. For more information on taking your IRA offshore, setting up an asset protection structure, or moving to Puerto Rico, please contact us at or call (619) 483-1708. We’ll be happy to assist you to protect your coins and keep more of those crypto profits.

International Real Estate

Where to buy international real estate

This article on where to buy international real estate isn’t going to be a list of countries with the highest returns. And it’s not a pitch trying to sell you the development that pays us the highest commission. Instead, this post on how to buy international real estate is how to narrow down your potential markets and maximize returns.

Finding the right country and right property in an up and coming neighborhood is a very personal endeavor. By following these recommendations on where to buy international real estate, you might increase your return on investment by 20% to 30%. That is, by beginning the search in with a solid strategy, your ROI on international real estate investments may increase significantly.

Here’s how to increase your ROI on international real estate investments by selecting the right country:

Remember that US citizens are taxed on our worldwide capital gains. No matter where you invest, the US government will want it’s cut of your profits. Even if you live abroad, you still pay US tax on your capital gains. Assuming Trump does away with the Obamacare tax, your long term Federal capital gains rate will be 20%.

That is to say, you will pay at least 20% in capital gains tax when you sell your international real estate investment property. It doesn’t matter that this investment is outside of the US, you still pay long term cap gains tax.

What about foreign taxes paid, you ask? You get a dollar for dollar tax credit on your US return for any capital gains tax paid in the country where the property is located. So, if you pay 15% in capital gains tax to Brazil, this leaves only 5% for Uncle Sam.

Another way to say this is, so long as the country where you buy international real estate has a capital gains rate equal to or lower than the United States, you will not pay more than 20% in tax on the sale. Your country of investment gets first crack, and the IRS takes what’s left, up to 20%.

Therefore, the best way to increase your ROI, all things being equal, is to buy international real estate in a country with a capital gains rate of 20% or less. If you buy in Austria, with a rate of 27%, the property must appreciate 7% more than one in Brazil to end up with the same amount of money in your pocket after the sale.

The list of countries with capital gains rates of 20% or less is quite significant. See: Capital Gains Tax by Country. But that’s just the beginning of this strategy. Here’s how to pay zero capital gains tax on your international real estate investments, thereby increasing your ROI by 20% or more.

There are two ways to pay zero capital gains tax to the US on your international real estate investments:

  1. Buy foreign real estate in your IRA or defined benefit plan, or
  2. Buy international real estate inside a US complaint offshore life insurance policy.

You can take your IRA offshore by transferring the account into an offshore IRA LLC. Once your retirement savings is out of the United States, you can use it to invest in international real estate or just about any other asset you wish. For more on how to by foreign real estate in an IRA, see: Here’s how to take your IRA offshore in 6 steps.

Foreign real estate purchased inside of a traditional IRA will be tax deferred and international real estate inside of a ROTH IRA will be tax free. Because you don’t pay US capital gains tax on the sale, you want to invest in countries with low or zero capital gains rates.

That is to say, when buying international real estate with your offshore IRA LLC, focus on countries with low capital gains rates because your US rate is zero.

If you buy real estate in Brazil through an IRA, you pay 15% to Brazil and zero to the IRS. If you purchase real estate in Barbados or Belize, you pay zero capital gains tax to these countries and zero to the IRS. This is because Barbados and Belize, along with several other countries, don’t tax capital gains.

Therefore, when making the investment through an IRA, a property in Brazil must generate a 15% higher return than one from Belize or Barbados to net out to the same after tax profit.

Note: Be careful when buying international real estate in countries that don’t have capital gains taxes. These nations sometimes have high stamp duties, transfer taxes or property taxes. These taxes aren’t deductible using the US Foreign Tax Credit against your US capital gains tax. If the choice is a 10% transfer tax or 10% capital gains rate, you prefer the capital gains tax because it’s deductible dollar for dollar on your US return. With a transfer tax, you pay 10% to the local government and 20% to the IRS.

The other method for eliminating US capital gains taxes on international real estate purchases is to buy through an offshore life insurance policy. Setup a US compliant policy, usually with an investment of at least $2.5 million, and you have the equivalent of a large IRA without the investment caps or distribution requirements.  

If you hold foreign real estate inside a life policy until you pass, that property transfers to your heirs with a step-up in basis. They pay zero tax if sold immediately, or only pay tax on appreciation that accrues after your death. In essence, an international life policy held until your death operates as a ROTH IRA.

If you terminate the policy while you’re alive, you had tax deferral while the policy was in place. An offshore life insurance policy in this case functiones like a traditional IRA.

I’ll close with this: President Trump is talking about reducing the US capital gains rate to 10%. If you believe this is likely, then you want to purchase foreign real estate in countries that have tax rates of 10% or less. If the US cuts its rate to 10%, and you buy in Brazil, you’re overpaying by 5%.

I hope this information on where to buy international real estate has been helpful. For more information on taking your IRA offshore, setting up a US compliant life insurance policy, or to be connected to an international real estate agent, please contact me at or call us at (619) 483-1708. 

Joel Nagel on Second Passports

A Conversation with Joel Nagel on Second Passports

Today I bring you an interview with Joel Nagel, one of the original founders of the second passport industry and is still the go-to guy on European and high value passports. Joel Nagel is a U.S. attorney who has specialized in second passports and international business since 1990. He’s also someone I’ve known and respected for over 12 years now. When I have a question on second passports, I call Joel Nagel.

As you can imagine from this fancy title, Joel Nagel has unique access and experience in Austrian second passport programs as well as those of his neighbors (such as Malta). Austria is the gold standard in second passports and Malta is one of the best available within the Schengen region.

For this reason, I met with Joel to get his thoughts on the second citizenship industry.

Conversation with Joel Nagel

Christian Reeves: Welcome Joel, thanks for being with us today. Second passports & economic citizenship has become big business. What do you think about the industry you helped create so many years back?

Joel Nagel: Thank you for having me Christian and good to see you again. You may be surprised to hear this, but I think the second passport industry has grown to fast and that some programs are out of control.

For example, the tiny nation of St. Kitts, with about 51,000 residents, has sold many thousands of second citizenships to anyone and everyone who could pay the fee.

The St. Kitts second passport program brought in $74 million in 2013 alone and accounted for about one third of the island’s total revenue. IMF forecasts suggest that the country has sold about $37 million passports per year from 2015-2017.

Numbers like this diminish the value of the St. Kitts second passport in particular and the second passport industry as a whole. In our industry, attention and front page news is a bad thing.

If you are considering a second citizenship, I suggest you look to a more discerning country. One whose passport will hold its value over time.


Christian Reeves: Which country do you recommend as the best second passport if money’s no object?

Joel Nagel: While a second passport from Austria gives you the best travel document (most visa free countries), I think that the Malta passport offer is the best available.

I like the fact that you can invest in real estate, bonds, etc. rather than into a business. Of course, if you want to start a business with employees, then that’s great. If you want to get a solid EU passport without having the headaches of operating a business, go with Malta.

For your information, a second passport from Malta requires three investments:

  • First, you need to donate €650,000 to the government. Dependents are additional.
  • Second, you must buy a home for at least €350,000 or enter a rental contract for at least €16,000 per year. You must maintain the home or keep the rental for a minimum of 5 years. Once that 5 year holding period has passed, you can sell the home tax free.
  • Third, you invest at least €150,000 in government bonds and hold those bonds for 5 years.

Do all of those things and you will get citizenship in the European Union.


Christian Reeves: Which second passport do you think is the best value right now?

Joel Nagel: That’s a difficult question because it depends on where you want to live. For example, if you want to be in the European Union, and can’t afford Malta, then go with Bulgaria.

A second passport from Bulgaria can be had with an investment of $1.2 million in government bonds. You get your investment back after 5 years with no “donation” required.

In the Caribbean, I suggest you avoid the volume sellers and look for something more discreet. For this reason, I like the St. Lucia second passport program. This island is new to the game and are very careful in their approval process.

Another reason I like St. Lucia is that you have the option of paying a fee (about $250,000) or making an investment of $500,000 to $550,000 in government bonds. If you go the investment route, you will get your capital back in 5 years.

For your information, the same group that wrote the Bulgarian statute wrote the law in St. Lucia. The major difference is that you must wait a year to get a second passport in Bulgaria, but you get one immediately in St. Lucia. And, of course, St. Lucia is half the investment of Bulgaria.


Christian Reeves: What about getting a second passport from the US? How difficult is it for someone from abroad to join team America?

Joel Nagel: Getting a second passport from the US is far easier than one might think. In fact, you can get US citizenship for about half the cost of Austria. So long as you have the cash, Uncle Sam is happy to have you.

For example, the US EB-5 investor visa gets you an immediate green card and US citizenship within 5 years. To qualify, you must operate a business in the US with at least 10 employees. The investment required varies from $500,000 to $1 million, much lower than the EUR 3 to 10 million required in Austria.

The catch with the US is that all green card holders and citizens are taxed on their worldwide income. Most other second passport countries won’t tax your income unless you are living and operating a business in their territory.

If, as you say, one wants to join team America, get ready to pay the US on every dollar you make anywhere in world. Even if you move out of the US, so long as you hold a US passport, you will pay US tax. The only exception is in the US territory of Puerto Rico, but I’ll leave that for another day.



I hope you have enjoyed this transcript of a conversation with Joel Nagel. For more information on how to get a second passport from Malta, Bulgaria, or St. Lucia, or on the US EB-5 program, please contact us at  I will answer your questions and get you connected with Joel.

For more on this topic, see my post Top 10 Second Passports

asset protection for defined benefit plan

Maximum Asset Protection for a Defined Benefit Plan

Defined benefit plans are excellent tools to put a lot of pre-tax money away quickly. Because of they don’t have the same contribution limits as IRAs, they allow the business owner to build up savings and reduce taxes efficiently.

Because defined benefit plans build cash quickly, they’re big time targets of lawyers and civil creditors. In this article I’ll show you how to provide maximum asset protection for a defined benefit plan.

The best asset protection for a defined benefit plan is to move it offshore and inside a “trust like” structure. Get it out of the reach of creditors and judges by moving it out of the US and behind the walls of an advanced asset protection structure.

The first step in moving a defined benefit plan is to figure out if it’s eligible to go offshore. In most cases, a plan from a previous employer with a cash value can be protected. If it’s a defined benefit plan from your current employer, and the plan documents allow for a conversion or to be invested abroad, then it too can be placed inside an international asset protection structure.

Sometimes DB plans are in subsidiary companies, or can otherwise be separated from the main business. If this sub can be closed down, the plan might then vest and be eligible to go offshore.

The way you get a defined benefit plan offshore is to convert it into an IRA (either a ROTH or traditional). Then you place that into an offshore IRA LLC. I’ll explain how to do this below. First, you need to find out if your plan can be converted into an IRA.

The bottom line is that you’ll need to ask your plan administrator if your DB plan can be converted into an IRA. They might not know how to take it offshore, but, if they can advise you how to convert it into an IRA, that’s all you need from them.

Assuming you get a positive answer, you need to ask your administrator to convert the defined benefit plan into an IRA.

  • If your administrator says it’s impossible to convert to an IRA, and he’s making money managing your investments, you might seek out a second opinion. I’ve seen many cases where DB plan administrators put their financial well being ahead of their clients.

Once the cash is an IRA, you can move that account or accounts from your current custodian to one that allows for foreign structures and investments. Not all IRA custodians allow for offshore LLCs and international investments. This is a very specialized area.

Now you can finally get the defined benefit plan offshore. We setup an offshore IRA LLC, open an international bank account, and the custodian transfers the money into this structure. As the manager of the LLC, you will have checkbook control of the account. You’ll make all transfers and be responsible for all investment decisions.

All of the above gets you basic offshore asset protection of your defined benefit plan. If you want maximum protection, we can customize your LLC with features you would normally find in an offshore asset protection trust.

You can’t put an IRA or defined benefit plan into a trust, but we can create an LLC that acts like a trust.

The way we do this is by forming the IRA LLC in the Cook Islands, the top offshore asset protection trust jurisdiction. We then build an LLC operating agreement molded after a Cook Islands asset protection trust.

For example, an offshore trust uses an independent trustee, a protector, and has clauses that make it impossible for the trustee to make payments to creditors. Even if one gets a judgement against you in the United States, there’s no way for them to collect on it in the Cook Islands.

To copy these protection elements, we install an independent LLC manager in the Cook Islands LLC. We also set up a protector who takes over should you (the beneficial owner, similar to a settlor) comes under duress.

To support these professional advisors, the LLC operating agreement includes terms that prohibit the manager from transferring money to the custodian or owner if they’re under duress. The agreement basically creates the defense of impossibility in the Cook Islands to protect the assets of the LLC.

I should point out here that setting up this maximum asset protection structure for a defined benefit plan means that you must also follow the same rules that apply to international trusts. For example, rules around fraudulent conveyance.

In its most basic form, a fraudulent conveyance is when you send money out of the United States to keep it away from a current or reasonably anticipated creditor. If you injure someone today and fund an offshore trust or IRA LLC tomorrow, you’ve probably fraudulently conveyed money into the structure.

Thus, your defined benefit plan must be moved offshore well before you have any legal problems. In a perfect world, it is moved offshore 1 or 2 years before a dispute arises. That is, 1 or 2 years before the harm occurs, not before the plaintiff files a claim against you.

I hope you’ve found this article on how to max protect your defined benefit plan by moving it offshore to be helpful. For more information, please send me an email at or call us at (619) 483-1708. 

protect IRA

Enhanced Protection for Your IRA

Many people think that IRAs are protected from civil creditors and the IRS… many people are wrong. Here’s how to get enhanced protection for your IRA and take control of your investments.

IRA assets are protected to varying degrees by each of the states and under the federal bankruptcy law. In order to secure 100% protection from all creditors and the IRS, you need an enhanced protection plan for your IRA. Remove your retirement account from the United States and get it away from US judges and creditors.

First, let’s look at what protection your IRA has. I’ll focus on California here, knowing that many states have similar rules.

In California, 401(k)s and profit-sharing plans are protected from civil creditors but not the IRS. IRAs are not as protected as 401(k)s because they are not covered by federal statutes. Therefore, a civil creditor’s ability to get your retirement account in California will depend on what type of account you have and how much you have in it.

401(k) accounts have better protection is because federal law prohibits civil creditors from going after pension plans that were set up under the Employee Retirement Income Security Act (ERISA). Examples of ERISA-qualified pension plans and benefit plans:

  • 401(K) accounts
  • pension and profit-sharing plans
  • group health and life insurance plans
  • dental and vision plans, and
  • HRAs, HSAs, and accidental death or disability plans

Plans not covered by ERISA include IRAs, Roth IRAs, SEPs, and SIMPLE IRAs. These are covered by state law only, which offers far less protection than federal law.

California protects only that portion of your IRA which a judge believes you need to survive. This is the amount necessary for the support of you and your dependents at the time you retire. Yes, standard of living you’ll be allowed in your old age is at the discretion of the judge.

In deciding how much to “allow” you to keep from your IRA, the judge will consider the following questions:

  • Do you need the retirement funds now, and if so, how much?
  • Will you be able to replenish your retirement account if it’s awarded to a creditor?

Bottom line is, if you have a job and are under age 65, the court is likely to take all of your retirement savings. If you’re retired and in poor health, they’ll leave you enough to support yourself… not necessarily enough to maintain your current standard of living, but enough to keep you alive (think welfare recipient lifestyle without all of the Obama benefits).

Keep in mind that none of these plans are protected from IRS levy!

The most efficient way to enhance the protection of your IRA is to move it offshore. Get your retirement account away from US judges while maintaining the tax benefits. Take it offshore and out of the reach of future civil creditors and IRS levy.

It’s important to note that your IRA will retain its tax deferred (traditional) or tax free (ROTH) status. So long as you follow the rules, you can invest your IRA as you see fit, which includes  offshore. The fact that this enhances your protection is a side benefit of investing abroad, not the sole motivating factor.

Here’s how to take your IRA offshore…

We first move your account from your current custodian to one that allows for international investments. Most custodians, such as Vanguard, Fidelity, and Chase don’t allow foreign investments. They want you to buy their bonds and those products on which they earn the highest commission. When you go offshore, your custodian gets no commission and has no control over your investments.

Note that changing custodians is done by transferring your account. It doesn’t involve a roll over and has no limitations.

Next, we form an offshore LLC in a max security jurisdiction like Cook Islands, Belize, Nevis, etc. This LLC is owned by your retirement account and you’re named as the manager of this company.

Then the LLC opens an offshore bank account and your custodian invests your account into the LLC by transferring cash to this foreign bank account. You’re the signer on the account and the one in control over all transfers and investments originating from it. That is to say, you have checkbook control over your IRA once it’s in an offshore LLC.

Tip: The IRS can levy your foreign account if your bank has a branch in the United States. For this reason, I recommend international banks that don’t have branches in the US.

Once your IRA is offshore, it’s your responsibility to manage the money for the benefit of your account, just as a professional advisor would (or should) do. This means you can’t borrow against it, use it for your personal expenses, buy home and live in it, etc.

You’ll find that the rules around offshore LLCs are simple. So long as you transact at arm’s length and act in the best interest of your IRA, you’ll stay out of trouble.

I hope you’ve found this article on how to enhance the protection of your IRA by moving it offshore to be helpful. For more information, and assistance in taking your retirement account offshore, please contact me at or call us at (619) 483-1708 for confidential consultation.

offshore LLC

US Filing Requirements for Offshore LLCs

Did you form an offshore LLC last year? Are you using an offshore LLC to hold foreign investments or to protect an international bank account? Here are your US filing requirements for that offshore LLC.

As the owner of an offshore LLC, you’ll need to file an entity election form, an annual tax return, a foreign bank account report, and possibly a statement of foreign assets. Here are the primary US filing requirements for offshore LLCs.

IRS Election to be Classified as a Disregarded Entity

Most offshore LLCs used as investment holding companies should be classified as disregarded entities for US tax purposes. This means that income and profits flow through to your personal tax return (Form 1040) as they are earned.

An offshore LLC owned by one person is a disregarded entity. An offshore LLC owned by a husband and wife, who live in a community property state, is also a disregarded entity. An offshore LLC owned by two people who are not married is a partnership.

Note that only offshore business profits can be held in an offshore corporation as retained earnings. Thus, only business profits can be deferred using a foreign structure.

Because there is no US tax benefit for passive investors in using an offshore corporation, they usually select an LLC with disregarded entity status. This is because the IRS form required from a disregarded entity is much easier (and cheaper) to complete than the one for an offshore corporation.

You must file a form with the US IRS to classify your offshore LLC as a disregarded entity, partnership or corporation. That is to say, you need to select this classification by telling the IRS your preference.

To select your classification, you should complete IRS Form 8832 within 75 days of forming your offshore LLC. I suggest you send in this form as soon as you receive your company documents from the registrar.

As you go through this form, you’ll see that there is a default classification for various entities. If you’re at all unsure, send in the form. It’s better to get the guaranteed result by filling in one extra form than wonder or make a mistake.

Also note that there are some structures that can’t elect to be treated as a partnership or as a disregarded entity. See page 7 of the instructions to Form 8832 for a list of those entities. In most cases, a corporation can’t elect to be treated as a disregarded entity.

Annual Tax Return for an Offshore LLC

Once your international LLC is categorized as a disregarded entity, you must file IRS Form 8858 each year. This form reports income, expenses and transactions involving the LLC, all of which should flow-through to your personal return.

Form 8858 is a simplified tax return that just asks for the basics on your foreign transactions. It’s attached to your personal return (Form 1040), so no need to send in a separate packet. This also means it’s due whenever your personal return is due (April 15 or October 15).

If you didn’t make the election to be considered a disregarded entity, then you might need to file a Foreign Partnership Return (IRS Form 8865) for a Foreign Corporate Tax Return (IRS Form 5471). Both of these take a lot more work to complete than Form 8858.

It’s very important that you file Form 8858 every year. The penalties for missing it are outrageous.

The penalty for failing to file IRS Form 8858 is $10,000 per year. If the IRS sends you a notice reminding you to file, the penalty becomes $10,000 + another $10,000 for every 90 days you refuse to file after being notified. The cumulative penalty can be $50,000 per year per entity. See page 2 of the instructions to Form 8858 for more details.

Foreign Bank Account Report for an Offshore LLC

If your offshore LLC opens a bank account, and you’re the signer or beneficial owner of that account, you must file a Foreign Bank Account Report (or FBAR) on FINCEN Form 114.

An FBAR is required for your offshore LLC if you held more than $10,000 in cash or securities in an offshore account. Even if you had that balance for only one day, you must file a foreign bank account report.

Also, this is the cumulative total of all your accounts… all the accounts you are either the signer or beneficial owner of. If you have $5,000 in a personal account and $6,000 in your offshore LLC, then you have $11,000 offshore and need to report.

Like Form 8858, the penalties for making a mistake on the FBAR are quite high. If you think you might need to file, then file. Submitting an extra form to cover your backside is always better than taking a risk of $10,000 to $50,000 a year.

Statement of Foreign Assets

If you have significant assets offshore, you likely need to complete Form 8938, Statement of Foreign Assets for your offshore LLC. Here are the filing requirements for Form 8938.

  • If you’re married filing joint, living in the United States, and have more than $100,000 in foreign assets at the end of the year, or more than $150,000 on any day of the year, you must file Form 8938.
  • If you’re married filing separately, living in the United States, and have more than $50,000 in foreign assets at the end of the year, or more than $75,000 on any day of the year, you must file Form 8938.
  • If you’re single, living in the United States, and have more than $50,000 in foreign assets at the end of the year, or more than $75,000 on any day of the year, you must file Form 8938.
  • If you’re married filing joint, not living in the United States, and have more than $400,000 in foreign assets at the end of the year, or more than $600,000 on any day of the year, you must file Form 8938.
  • If you’re married filing separately, not living in the United States, and have more than $200,000 in foreign assets at the end of the year, or more than $300,000 on any day of the year, you must file Form 8938.
  • If you’re single, not living in the United States, and have more than $200,000 in foreign assets at the end of the year, or more than $300,000 on any day of the year, you must file Form 8938.

These are the most basic filing requirements. You should review the instructions carefully to figure what constitutes a “reportable” asset and whether you need to file this form.  

If you’re unsure, or right on the line, I suggest you send in the form because the penalties for failing to file can reach $50,000 per year (do you see a theme developing?). Better to be safe than sorry when it comes to offshore reporting.

I should also point out that there are a few investments that don’t need to be reported on the FBAR or the Statement of Foreign Assets. Primarily, gold and real estate held in your name outside of the US do not need to be reported.

However, if you hold those assets inside of an offshore LLC, the LLC must be reported. The only time gold and real estate are exempted are when they’re held in your name without a an offshore structure such as an LLC, corporation, trust or foundation.

And, when I say they don’t need to be reported, I mean that your ownership of them does not need to be reported. When you sell, the gain is taxable and is to be reported on your personal tax return. Also, if the foreign real estate is a rental, you must report income and expenses to the United States just as you do domestic property.

I hope you’ve found this article on the offshore filing requirements for offshore LLCs to be helpful. For more information, or to be connected to an international tax expert who can prepare your returns, please contact us at or call us at (619) 483-1708. 

Private Placement Life Insurance

Benefits of Private Placement Life Insurance

For top tier investors, hedge funds and foreign investments offer broad diversification and attractive returns. Because these returns are often taxed at ordinary rates, affluent investors turn to private placement life insurance for tax efficiency.

The reason to invest using a private placement life insurance is to reduce or eliminate income and estate taxes. All gains inside a properly structured PPLI are tax deferred until taken out as a distribution by the investor. If you leave those investments in the policy, and set up an irrevocable life insurance trust, it’s possible to transfer these assets to your heirs with a step-up in basis and tax free (no estate tax).

This is important because hedge funds and offshore investments can be extremely tax-inefficient. Most hedge fund earnings are taxed as ordinary income or short-term capital gains. Federal rates can be as high ast 43.4% and, when you add in state taxes, the combined rate can be near 50%.

The same goes for many types of offshore investments and foreign mutual funds (which may be inside a hedge fund or you may hold directly). Any foreign investment where 75% of the returns are passive, or 50% of the capital is held in passive investments, is a Passive Foreign Investment Company (PFIC). PFICs are taxed at ordinary rates and gains are taxed in the year accrued, not in the year sold.

Likewise, dividends from an offshore investments are often non-qualified dividends for U.S. tax purposes. Non-qualified dividends are taxed at ordinary income rates.

Anyone investing in foreign products or companies generating ordinary income, or PFIC income, should do so through an insurance policy. Gains inside of a Private Placement Life Insurance policy are tax free if held for the life of the insured or tax deferred if taken out as a distribution by the insured.

In most cases, you can use low interest loans against the policy to access the cash during the life of the insured without incurring U.S. tax. Also, you can typically withdraw your original investment in the contract tax free.

But, the real value of a Private Placement Life Insurance policy is in allowing the investments to grow and compound tax free.

Another way to look at the PPLI is as giant IRA without distribution requirements or contribution limits. Investments in an IRA grow tax free (ROTH) or tax deferred (traditional). Add a UBIT blocker corporation to an offshore IRA LLC and you effectively convert investments that would have otherwise generated ordinary income into tax free capital gains.

Like an offshore IRA, a Private Placement Life Insurance policy increases your returns without increasing risk. This “structured alpha” is based on reducing tax costs, not increasing returns.  

Note that this article is focused on foreign investments and those returning ordinary income. A PPLI might not be right for U.S. investments taxed as long term capital gains rates. This is because distributions from the policy to the insured are taxed at ordinary rates.

Thus, it would be possible for a Private Placement Life Insurance policy to convert long term capital gains into ordinary gains. Conversely, if held (deferred) for many years and passed to your heirs tax free with a step-up in basis, a PPLI might be efficient for long term capital gains… it will depend on your situation.

A PPLI provides advanced investors a tax efficient management system not available in any other product. It offers the flexibility to invest in hedge funds, offshore companies, active businesses, foreign mutual funds, and offshore passive foreign investment companies without the tax penalties that keep average people from making these investments and realizing these higher returns.

Likewise, a Private Placement Life Insurance policy eliminates “phantom income” from partnerships or PFICs. Because the gains are tax free, there are no issues of taxable income on a K-1 when no actual distribution is made.

I’ll close by noting that PPLI’s offer excellent asset protection benefits. When held inside of an offshore trust, it’s impossible for a future civil creditor to breach your life policy or access your profits.

Add to this the fact that the trustee can retain the right to limit distributions to heirs if they’re being sued, and you will see significant multigenerational tax and asset protection benefits by combining an offshore trust with a PPLI.

These products are only available to accredited investors and qualified purchasers. You must have a net worth of $1 million (excluding your primary residence) or income of $200,000 (single) to $300,000 (joint) in each of the preceding two years to be an accredited investor. You will also need to have at least $5 million in net investments to be a qualified purchaser.

I hope you’ve found this article on Private Placement Life Insurance to be helpful. For more information, please contact me at or call us at (619) 483-1708. We can assist you to set up offshore and introduce you to a qualified PPLI agent.

We can also assist you to transfer an existing life insurance policy into a PPLI using a tax-free exchange (called a 1035 exchange).

Offshore Trust or Panama Foundation

Offshore Trust or Panama Foundation?

The top two international asset protection structures are the offshore trust and the Panama foundation. These tools are very different from one another and I don’t think of them as competing solutions. Even so, I’m asked all the time, offshore trust or Panama foundation? In this article I’ll try to explain the differences.

A properly structured offshore trust formed in and managed from a tax free and max protect jurisdiction such as Belize or Cook Islands, provides the strongest asset protection. A foreign trust is more secure than a Panama foundation and offers a wider range of estate and tax planning options.

But these benefits come with limitations. In order to maximize the asset protection benefits, you must be willing to give up control of the assets. An offshore trust is best when a foreign trustee and a foreign investment advisor are making the decisions.

Likewise, the settlor (you) and any U.S. persons connected to the trust should not have the ability to replace the trustee nor the right to terminate the trust. If these rights rest in a U.S. person, a U.S. court can compel the trust be dissolved and the assets brought back to this country.

In most cases, both the offshore trust and the Panama foundation will be tax neutral. They’ll not increase nor decrease your U.S. taxes and all income and gains generated in the structure will be taxable to the settlor as earned.

A trust has additional advanced tax planning options not available to the foundation. For example, you can build a dynasty trust or multi generational trust that can eliminate gift, estate, and capital gains tax. In addition, a trust can hold a U.S. compliant offshore insurance policy which will operate as a massive tax free account, with no capital gains and estate tax due when the assets are distributed to your heirs.

For these reasons, an offshore trust is best for someone who wants to put a nest egg offshore for his or her heirs. A foreign trust will provide the highest level of protection and give you access to banks and investment options around the world typically closed to Americans. And it will accomplish this by bringing in foreign advisors and other professionals to make the trades, distancing itself from its American owner.

An offshore trust is not the structure for someone who wants to manage their own investments, is an active trader, or wants to protect an active business. A trust is meant to be static and stable over many years. It’s the castle behind whose walls you store your wealth… a castle that will stand the test of time and will prove impenetrable for decades and generations to come.  

If you prefer to balance flexibility with asset protection, then consider a Panama Foundation. While the offshore trust is about maximum protection, the foundation is about control and maximum privacy. If you need an estate planning and asset protection structure to hold an active business, look to a Panama foundation.

The Panama foundation is a hybrid foreign trust and holding company. It’s meant to hold both active businesses and investments (real estate, brokerage accounts, etc.). And it comes with many of the same asset protection benefits of a traditional offshore trust.

One reason I’m so high on the foundation is that it’s used by foreigners (Americans, Canadians, etc.), expats, and locals (Panamanians). Every wealthy family in Panama holds their local assets inside of a foundation. Also, the shares of most most banks, investment firms, and large businesses in the country are held inside of foundations.

Because Panama is a major financial center, and because the foundation is used by both locals and foreigners, it’s unlikely the laws will ever change. The Panamanian government will not reduce the protection or privacy of it’s foundations because to do so would go against their ruling class and entrepreneurs.

The bottom line is that both offshore trusts and foundations are sold asset protection and estate planning tools. Each has its strengths and weaknesses and each will give you access to a wide range of offshore banks and investment opportunities.  

So, should you go with an offshore trust or Panama foundation? That depends on your situation. If the above hasn’t answered this question yet, then consider the costs of each and compare that to amount of assets you need to protect.

The costs to form an offshore trust can range from $10,000 to $30,000 compared to $3,500 to $9,500 for a Panama foundation. Also, the costs to maintain an offshore trust will be much higher than a foundation because of the use of foreign trustees and advisors. Most foundations are managed by the founder / owner.

For this reason I recommend a trust when a client has $2 million or more in assets they wish to protect. More importantly, they have this amount in cash and want to hold it offshore to be managed by a Swiss, Cook Islands, or Belize investment advisor.

A Panama foundation can be formed for a variety of reasons. Most clients either hold $100,000 in assets or an active business. Because of it’s lower cost, the foundation is an excellent estate planning tool for anyone with foreign investments.

I hope you’ve found this article on the offshore trust vs Panama foundation to be helpful. For more information, and a confidential consultation, please contact me at or call us at (619) 483-1708. We will be happy to review your situation and devise a custom solution that fits your needs.

Best Lawsuit Protection

Best Lawsuit Protection

The best lawsuit protection is an offshore trust… period. No structure or plan, no matter how complex, can compete with the good old offshore trust for lawsuit protection. It’s the only way to move your assets out of the United States, out of our court system, out of the reach of creditors and U.S. judges, and behind an impenetrable barrier.

To come to the conclusion that the best lawsuit protection is an offshore trust, I start from the position that all U.S. structures are flawed. Domestic asset protection is governed by U.S. law and U.S. judges. So long as your assets are in this country, they’re subject to the whims of an American court.

The way to escape our creditor friendly country is to change the jurisdiction and venue of the fight. To move your assets to a country that values your rights of ownership and self determination. To a country whose laws were specifically designed to protect you and your family from civil creditors and to get the case heard by a judge who will uphold those laws.

The two most important components of building the best lawsuit protection trust offshore are timing and control.

Timing is everything when funding an offshore trust. You must setup your asset protection structure before you have a problem. Once the cause of action has arisen, you will be unable to transfer assets out of the United States.

For example, if you hit someone with your car today, and fund a trust tomorrow, your offshore trust won’t protect you. A U.S. judge will likely claim the transfer is a fraudulent conveyance and hold you in contempt until you bring the cash back under his or her control.

  • The cause of action arises when the harm occurs, not when a case is filed.

The second component of the best asset protection is that you should give up control over your assets once they’re in the trust. Professional investment advisors and a trustee should be hired to manage the trust per your written directives. These experts should be outside of the United States and, like your assets, out of the reach of the U.S. courts. No one with the authority to dissolve or modify the trust should be in the United States.

Not everyone who sets up an offshore trust gives up control. It’s possible to retain control through a variety of mechanisms. What I’m saying here is that, if you want maximum protection, and truly the best lawsuit protection, you must turn over the management of the trust to a third party.

What I’m describing is the Cadillac of asset protection structures – an offshore trust formed in the perfect jurisdiction managed by licensed and experienced professionals. This is not an off the shelf product for the masses. It’s not a cheap solution. It’s the best in lawsuit protection, not some offshore shelf company sold on the corner to anyone with a few grand to protect.

Not everyone can afford an offshore trust, nor does every situation call for a top of the line solution. For example, I would not recommend an offshore trust to anyone looking to protect less than $2 million.

If an international trust isn’t appropriate, then the best lawsuit protection is the offshore structure you can afford to build, maintain, and keep in compliance.

If the Cadillac is a foreign trust, then the Ford is a Panama Foundation. This will cost a fraction of a trust, allows you to maintain control of your investments, and is a solid deterrent. This structure will get you into some good banks, doesn’t require a foreign trustee or investment advisor, and has a strong world image (Panama Papers notwithstanding).

Another lower cost option is to move your retirement account offshore. Rather than a trust, you might form a single member LLC, owned by your IRA, and place that with an international bank… one with no branches or exposure to the United States.

The most important advice I can give you about the best lawsuit protection, and going offshore in general, is this: If you can’t afford to do it right, don’t do it at all.

Any American living, working, investing, or doing business offshore is a target. The IRS is waging war on those who move their cash out of the reach of their government, and the penalties for failing to comply are severe.

For example, failing to properly report an offshore trust can result in minimum penalties of $40,000 per year ($10,000 for each missed form, 3520, 3520-A, FBAR and 8938). Worse, the penalties for 3520 and 3520-A can be 10% of the trusts assets. If the trust has $5 million, your penalty could be $500,000 per year!

For these reasons, you must hire a U.S. expert to quarterback your offshore plan. If you’re a U.S. citizen, you need someone who understands the laws of your home country and how those interact with your country of formation.

Remember that 100% of your risk of liability is in the United States. Your offshore trust or other structure is a tool to protect your assets from U.S. creditors. Thus, only someone experienced in both jurisdictions is qualified to help you achieve your goals.

If you’re unable or unwilling to pay the fees charged by U.S. professionals, stick to domestic asset protection. If you’re going to go offshore, you need to do it right or not at all.

I hope this article on the best lawsuit protection has been helpful. For more information, please contact me at or call us at (619) 483-1708. 

Offshore Asset Protection for Affiliate Marketers

Affiliate marketers face unique asset protection, privacy, and tax planning challenges. This article will review your options and point out some of the pitfalls to watch out for. We’re specialists in offshore asset protection for affiliate marketers and can help you to grow your online business in an efficient and compliant manner.

At the end of the day,, and our lifestyle site, are internet based businesses. I write SEO optimized posts like this one to drive traffic and bring in leads. We’re a remote business with our publishing group based in San Diego and fulfillment in Belize and Panama City.

As the editor and chief marketing guy, I spend my days on the road, tapping away on my laptop. Our in-house attorneys are chained to their desks, but I made sure the marketing team was portable.

We’ve been providing offshore asset protection to affiliate marketers via the web since 2003 and understand the unique needs of your business model. We’re the only firm that provides offshore structures and U.S. tax compliance… at least, the only one in the middle of the market. Our price points are a bit lower than Deloitte, PwC, and E & Y.

  • Our offshore protection structures are positioned in the middle of the market. Less than big name CPA firms and higher than offshore incorporation mills that provide no guidance or support.

This post will focus on asset protection for affiliate marketers. As I said above, we also provide tax planning for offshore businesses, as well as for those in the U.S. territory of Puerto Rico. For more on Puerto Rico, see: Puerto Rico is the Top Offshore Jurisdiction for Americans.

To summarize Puerto Rico, if you move your business to the island, and hire 5 employees, you’ll cut your U.S. tax rate to 4%. To compare that tax deal to moving offshore, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion.

The remainder of this article will focus on offshore asset protection. Offshore asset protection for affiliate marketers is generally tax neutral – it should not increase nor decrease your U.S. taxes. It’s meant to keep your transactions private and your cash safe from future civil creditors.

You can combine offshore asset protection with an office or division offshore that helps to manage your worldwide tax obligations. But, your asset protection plan is independent of your international tax plan. Thus, you might start with an offshore asset protection plan for your affiliate marketing business and grow it into a business tax savings plan.

Issues in Asset Protection for Affiliate Marketers

When planning an offshore asset protection structure, affiliate marketers face a number of interesting challenges. For example, the need for privacy and the ability to diversify with  subsidiaries are more urgent than with other business models.

Affiliate marketers value their privacy. For this reason, we created the Panama max privacy structure. We use a Belize LLC as the founder of a Panama foundation and a Panama corporation under the foundation to run the business. We can add corporations from other jurisdictions, as active business subsidiaries of the foundation, where necessary.

For more on our max privacy structure, see: The Bearer Share Company Hack

The Panama foundation provides estate planning and asset protection for your business units… and acts as a holding company to bring them together under one umbrella.

Panama offers great asset protection and banking facilities. The problem is that they have a public registry of ownership. That means the founder of a foundation, along with the shareholders and directors of corporations, are public record. We work around this with a Belize LLC because Belize doesn’t maintain a registry and Panama allows the founder to be a person or a foreign company.

That’s all a fancy way of saying that the Belize LLC maximizes privacy by acting as the founder of your Panama Foundation. When someone searches the Panama registry, all they find is the name of your Belize company.

I believe you’ll find that the Panama foundation is the best choice when planning an asset protection structure for your affiliate marketing business. It’s primary competitor, the offshore trust, is a great tool, but not recommended for managing an active business.

An offshore asset protection trust is the solution for someone who wants to build a nest egg offshore out of the reach of future civil creditors. You can add money managers as trustees and maximize protection with a “protector” in case you (the settlor) come under duress.

That is to say, an international trust is perfect for someone who wants to put cash away for the future. A trust is not the structure to hold an active business where you want to maintain control and maximize privacy.

Many of our clients move a portion of their after tax net profits out of the Panama structure and into an offshore trust. You can combine both for the best of both worlds while diversifying your holdings.

Offshore Merchant Accounts

Specializing in offshore asset protection for affiliate marketers means working with many banks and acquirers around the world. We’re experienced in merchant account issues as described here: How to Get an Offshore Merchant Account.

For example, many of our clients run multiple MIDs and require subsidiaries from a variety of jurisdictions to hold those accounts.  This allows them to maximize privacy, diversify risk, and build systems that spread chargebacks among their portfolio.

To support this requirement from affiliate marketers, we’ve built a network of agents around the world. We can incorporate subsidiaries in a different countries quickly and at a reasonable cost.

We also understand that subsidiaries must be formed in countries which are acceptable to your processor. For this reason, we have U.K., Hong  Kong, E.U., Caribbean, and Panama solutions. We also advise on U.S. accounts for companies in Puerto Rico.

  • A comapny incorporated in the U.S. territory of Puerto Rico can open bank accounts at just about any U.S. bank.

Another option for a business with no office or employees in the United States, is to form a subsidiary in the U.S. That subsidiary will hold only bank and merchant accounts and pass profits to the parent company.

This solution is recommended for entities with no U.S. source income. You will likely need a U.S. person to open the account… it’s become difficult for foreign persons to open U.S. accounts… and nearly impossible for non-U.S. persons without U.S. credit scores to get a low cost merchant account.

Why Hire a U.S. Provider?

Internet marketers know how to outsource. How to leverage low cost labor around the world to get things done. Why should you pay U.S. prices for your international tax or offshore asset protection plan?

Simple: only a U.S. expert can build an offshore asset protection structure that’s U.S. compliant.

When you outsource  your offshore structure, you will get answers to your questions and solutions based solely on the laws of that country. For example, contact an offshore trust promoter in Cook Islands and they’ll answer inquires based on Cook Island law.

But, when you’re a U.S. citizen, your compliance risk and liability from lawsuits is in the United States. Thus, the focus should be on how the laws of your asset protection jurisdiction interact with those of your home country.

Since this is a post on asset protection for affiliate marketers, here’s a tech example…

You, the IT professional, can outsource website design because you’re an expert in website design. You know exactly what you want to accomplish and how to get there. You write the text and manage the process from start to finish.

What if you weren’t an expert in design or SEO issues? Should you hire someone to quarterback the project or should you outsource? Knowing what you know now, would you have gone it alone or hired someone to guide you in those early days?

You’d hire a quarterback because you don’t know what you don’t know. As an an expert, you understand how complex a major design or redesign can be. You know that a layperson will likely screw it up terribly, putting the entire project at risk.

This knowledge has come over years in the industry. Through trial and error, you know where the pitfalls are. You know how to drive traffic and optimize your sites. You know what works and what doesn’t.

I have a friend who’s new to the online world. He was tasked to redesign a 10 year old website with 15,000 pages and a solid Google reputation. The owners of the site didn’t want to spend any money, so he was on his own and outsourced design.

While updating the site, he thought it would be a good idea to restructure the URLs. To create a few different categories and make the permalinks more descriptive.  Yeh, he decided to change the URL structure and break the thousands of inbound links for an authoritative site… the links that gave the domain much of its “reputation.”

As an internet professional, you know what a bad idea it is to change the URL structure of an authoritative website with years of history. But my friend had no idea what he didn’t know. Had he hired a quarterback, the expert would have stopped him from falling in this obvious trap.

It’s the same when planning an offshore asset protection structure. You need someone to manage the process and keep you in compliance. Outsource and the promoter will tell you what you want to hear (sure, we can restructure your URLs). Hire an expert and they will tell you “no,” when you need to hear it!

For example, when you want to use a nominee singor on your offshore bank account, you need to hear no. When you, a U.S. resident with no employees offshore, want to setup a company to hold foreign profits and only pay U.S. tax when you bring the money into the U.S., you need to hear hell no!

As with internet marketing, there are many risks in going it alone. Unlike online risks, the penalties for getting out of compliance or using an offshore structure incorrectly can cost you hundreds of thousands of dollars in penalties or even land you in jail. The U.S. government has become extremely hostile to non-compliant offshore structures and you must have an expert in your corner to keep you from becoming a target.

The world of offshore is ever changing, complex, and fraught with risks you can’t see. We can guide you the maze and quarterback your offshore structure, all with a focus on your internet based business.

I hope you’ve found this article on asset protection for affiliate marketers to be helpful. For more information, please contact me at or call (619) 483-1708 for a confidential consultation.

offshore asset protection trust

Don’t Believe the Media Hype Around Offshore Asset Protection Trusts

Ever since the Panama Papers, bashing the offshore asset protection industry has been chic. Every publisher on the planet has put out articles on how the rich abuse the system, hide their assets in offshore asset protection trusts, and don’t pay their fair share of taxes. The problem is that very few writers truly understand the industry and the complex web of worldwide tax laws in play. They tend to focus on the laws of jurisdictions such as the Cook Islands and ignore how those laws interact with those of the client’s home country.

This results in one sided and naive articles by good writers who can’t get beyond the hype surrounding their subject matter. They see only the tip of the iceberg and miss the mountain lurking below the surface.

These articles create great risk for U.S. citizens who read them as “how to” guides rather than the tales of injustice and inequity they’re meant to be. They do harm to U.S. citizens who contact an offshore provider to “do as they read” and get crushed by the system.

I know this to be true because I get calls everyday from people who want to incorporate offshore. They want tax savings like Apple and Google or asset protection as described in The New York Times. They don’t want to do anything illegal, they just want to use these amazing trusts and corporations they read about.

In most cases, I tell them tax savings is impossible because their business is too small (unless they move out of the United States and qualify for the Foreign Earned Income Exclusion) and that it’s too late to protect their assets. That the horses have bolted, so there’s no need to lock the barn door.   

Had they called an offshore provider rather than a U.S. firm, the answer they would have received would’ve been very different. They would’ve likely been told that their business won’t be taxed in Panama or that no one has ever breached a Cook Island offshore asset protection trust. Both of these may be true, but they ignore the realities of how an offshore structure will interact with U.S. law.

My purpose here is to separate fact from fiction and explain some of the limitations of an offshore asset protection trust. My comments are in response to an October 15, 2016 post in Business Insider on offshore asset protection trusts. The title of the article is A sociologist trained to become a tax-avoidance expert — here’s what she learned about how the ultra wealthy keep their money by Brooke Harrington.

Let me start by saying that I’m not saying Ms. Harrington’s article is factually incorrect. Her post is well researched and expertly written from an offshore perspective. In fact, much of it would make great marketing collateral for a Cook Islands Trust provider (an idea she probably finds repugnant).

However, because her article fails to take into account how the laws of the Cook Island interact with those of the United States, it gives the impression that a U.S. person can move their assets offshore with impunity. The fact that this will create confusion in a small subset of her readers is an unintended consequence of a lay person writing on offshore asset protection and publishing to a global audience.

For example, an American going through a divorce might read her article, call up a Cook Islands agent, be told what they want to hear, and move their assets out of the reach of their spouse. This will create a world of pain in the United States, no matter how the trust is viewed under Cook Islands law.

The author is not giving legal advice nor advocating for offshore asset protection trusts. I assume her purpose is quite the opposite – to expose inequity and argue against the availability of these structures. Nor is she writing only for Americans, though one of her three examples is a U.S. case.

However, by publishing on major platforms like Business Insider and The Atlantic, her words will reach those who can act upon them. People who will believe the hype to their detriment.

Here’s a little background: Brooke Harrington is an associate professor of economic sociology at the Copenhagen Business School. The article referenced here is soon to be a book published by Harvard University Press about elite occupational groups within finance and their impact on international law and stratification.  

She’s spent 8 years researching the international wealth-management profession and was so committed that she trained to become a wealth manager. She wrote, “I spent weeks in hotel conference rooms in Switzerland and Liechtenstein learning about trust and corporate law, financial investment, and accounting. Ultimately, this earned me the “Trust and Estate Planner” qualification (TEP): an internationally recognized credential in wealth management, much like the CPA for accountants.”

  • A CPA requires a 4 year college degree, though most in the United States go 6 to earn a master’s degree. A CPA also requires passing a difficult exam and 500 hours of documented work experience (usually for free in service of a CPA firm).

Even with all of that training, none of which was in the United States, she misses the elephant in the room: the fact that the laws of the settlor’s or defendant’s home country will often control the tax and asset protection benefits of their offshore structure.

If someone with this many hours of training can’t see the forest for the trees, what chance do less committed lay writers have? This is why so many get it wrong.

Here are a few of the sections of the article that might mislead a U.S. citizen:

Quote: “Looking at a costly divorce? No problem—just hire a wealth manager to put your assets in an offshore trust. Then the assets are no longer in your name, and can’t be attached in a judgment. Even if a foreign court sought to break your trust, if you have a clever enough wealth manager, you can be made effectively judgment-proof. Consider the case of the Russian billionaire Dmitry Rybolovlev, who has just settled what has been termed “the most expensive divorce in history.”

Although a Swiss court initially awarded half of Rybolovlev’s roughly $9 billion fortune to his ex-wife, Elena, an appeals court later ruled that most of those assets are untouchable in the divorce settlement because they are held in trust or are otherwise inscrutable to the law. (The amount of the agreed-upon settlement has not been disclosed.)

Answer: Americans, don’t get it twisted. You’re NOT Russian oligarchs free to do as you like. Putin doesn’t have your back (unless your name is Trump or Snowden).

You’re a U.S. citizen and subject to our laws first and foremost, no matter what your offshore estate planner tells you.  If you set up an offshore trust to cut out your current spouse, you’re more likely to end up behind bars than on a beach in the Cook Islands. Here’s why:

Anytime you convey an asset in order to delay a creditor, you’re engaging in fraudulent conveyance. If you’re aware that your assets are at risk and should be used to satisfy a legal obligation and you move that asset out of reach, you have NOT committed a crime. Exceptions would be if there is actual fraud or crimes related to hiding assets from a bankruptcy court.

However, moving community or joint property out of the United States without your spouse’s consent, or to prevent a court from administering a division of assets, can be a crime. You may be charged with theft, embezzlement, etc.

Rather than going through all the trouble of charging and convicting you of a crime, a judge can simply hold you in contempt until you return the assets.

In most divorce cases, the judge issues a “standing order” instructing each party not to do certain things, such as take each other’s money. If you violate that order by sending community / joint property offshore, you can be held in contempt of court, fined, and jailed.

And don’t think that the “impossibility defense” will save you from a contempt charge. While impossibility is a defense to civil claims, self-created impossibility is not a defense to fraudulent conveyance. Nor will a judge accept this defense in a divorce case. After a few weeks or months of cooling off in the local jail, you’ll probably see your way clear to instructing your offshore trustee to bring the cash back to the U.S.

Note that there are legitimate uses of offshore asset protection trusts in divorce cases. For example, to hold separate property that you came into the marriage with and both parties agree will remain separate. If you’re already married, you might use a transmutation agreement to separate your assets and then fund an offshore trust.

Quote: No litigant on earth has been able to break a Cook Islands trust, including the U.S. government, which has repeatedly been unable to collect on multi-million-dollar judgments against fraudsters convicted in federal court. These include infomercial king Kevin Trudeau, the author of a series of books on things “they” don’t want you to know, as well as an Oklahoma property developer who defaulted on his loans from Fannie Mae.

Since 2007, the two have owed Uncle Sam $37.5 million and $8 million respectively, and they have employed some clever wealth-management strategies to avoid paying those judgments. With their fortunes secure in Cook Islands trusts—on paper, at least—there is no way for the U.S. government to force payment unless it wants to send a legal team on the 15-hour journey to Rarotonga (capital of the Cook Islands), where the case would be argued under local laws.

Needless to say, those laws are not very favorable to foreigners seeking to access the assets contained in local trusts.”

Answer: The concept that “no litigant on earth has been able to break a Cook Islands trust,” is very dangerous. Going into battle with the U.S. government with that mindset will be disastrous. It may be true that your assets are safe in the Cook Islands, but your most important asset will likely be sitting in jail.

When I (a U.S. practitioner) write about the strength of an offshore asset protection trust, I say that the Cook Island Trust gives you maximum protection against future civil creditors. It’s not intended to protect you from the IRS, SEC, or other government creditors. Nor is it meant to protect against current or reasonably anticipated creditors.

Using the trust to protect assets from current or reasonably anticipated civil creditors creates the fraudulent transfer issue mentioned above. The quickest way to break an offshore trust is to hold the settlor in contempt until the money is returned to the U.S. The court doesn’t need to break the trust when it can break the defendant.

So long as you create and fund the offshore trust well before the cause of action or debt arises, you will avoid the fraudulent conveyance issues. That is to say, a fraudulent transfer is one that is made after the harm has occurred. If you’re proactive, you can avoid the issue and your trust will hold up against civil creditors.

Going to battle with the United States government is a different matter. Just about any case can be escalated to a criminal charge, which makes transferring assets offshore or using an offshore trust very high risk. Also, a judge is more likely to hit you with contempt of court for refusing to pay the U.S. government than the average civil creditor.

As noted in the article, Kevin Trudeau has about $37 million offshore and untouched by the U.S. government. The same goes for Mark Rich with $100 million in a Cook Island Trust and Allen Stanford with a “sizable” offshore asset protection trust on the island. Mr. Trudeau is serving 10 years, Mr. Stanford 110 years, and Mr. Rich was pardoned by Bill Clinton. All of them chose the Cook Islands to protect their assets.

Let’s focus on Ms. Harrington’s example of Kevin Trudeau. Mr. Trudeau was sentenced for criminal contempt for violation of multiple court orders and failure to pay a $37 million fine. The 10 years he got is extremely unusual for a contempt of court charge. Had he closed the trust and paid the bill he might have done a year or two, but certainly not 10.

Keep in mind that one of the primary reasons Mr. Trudeau is doing time is his Cook Island trust. He chose to do the time rather than pay the fine. I would never hold him out as the poster boy for the benefits of a Cook Islands asset protection trust!

You might be thinking that you’d trade $37 million for 10 years in a low security prison. Well, it’s unlikely Mr. Trudeau will ever see his money.

For example, all the revenues from his books and business are being taken by the court. As of October 2015, the trustee had collected $8 million in royalties from the sale of Mr. Trudeau’s books while he was incarcerated. It was used to give a partial refund to more than 820,000 people who bought his book, The Weight Loss Cure “They” Don’t Want You to Know About.

Assuming good behavior, he will do about 85% of the time, or 8.5 years. When he gets out, he’s looking at years of probation. He will not be allowed to travel internationally during this time and any money he makes will be paid to the U.S trustee overseeing his finances.  

Let’s say he’s off paper in 2023. Now the U.S. government has a few more tricks up their sleeve. They may refuse him a passport or file additional contempt charges for refusing to pay his debt. Prosecutors can also make his life hell while on probation, causing him to violate and be returned to jail.

  • A U.S. passport is a privilege and not a right. In 2016, the IRS and other government agencies have used passport revocations and refusals to renew as a weapon against tax debtors. If Mr. Trudeau can’t travel abroad, he won’t be able to spend his cash.
  • For an article on the topic, see: Warning: The IRS Can Now Revoke Your Passport

So, it’s true that a Cook Islands Trust will protect your assets from the U.S. government. These trusts have never been broken and the United States seems unwilling to litigate on the Island. However, many Americans have been broken by U.S. judges over the years.

Unless you’ve made a sizable donation to the Clinton Foundation (Mark Rich), or are willing to do 10 years for your principals, I don’t recommend going to battle with the U.S. government with an offshore asset protection trust. While the trust will remain intact, the government will make an example of you as they did and will continue to do with Mr. Trudeau.

When the options are pay up or go to jail, most pay. For this reason, offshore asset protection trusts are the best protection available against future civil creditors. Don’t let the hype confuse you into thinking they’re a magic bullet protecting you from the IRS, FTC, SEC, or any other three letter agency.

I’ll leave you with this: You must hire an attorney in your country to form your offshore trust. The key to a successful asset protection structure is combining the laws of your home country with those of a more favorable and defendant friendly offshore jurisdiction. Only a U.S. attorney can advise a U.S. citizen on how to work within the system and maximize the value of an offshore trust.

I hope you’ve found this article on the hype vs. the reality of offshore asset protection trusts to be helpful. Please contact me at or (619) 483-1708 for a confidential consultation on this and other international asset protection and trust topics.

fraudulent transfers

The Law of Fraudulent Transfer in Offshore Trusts

The law of fraudulent transfer can trace it’s roots back to 1571 England  and the Statute of Elizabeth. This rule allowed courts to “undo” transfers of assets which were considered to be “fraudulent transfers.” Since its enactment, it has served as the basis for the fraudulent transfer laws in much of the civilized world.

The problem with the Statute of Elizabeth, and fraudulent transfer laws in general, is that they often do not include  a limitation period. Courts have interpreted fraudulent transfer laws very broadly and for the benefit of creditors, not for the protection of defendants.

Many courts have found a fraudulent transfer whenever a creditor is deprived of assets to pay his judgement that would have otherwise been available. Keep in mind that the mindset of UK and US courts is to make injured parties whole and not to protect the property or earnings of defendants.

Note: It’s important to distinguish between a fraudulent transfer and fraud. All too many writers confuse these two terms and fall into the trap of thinking that making a fraudulent transfer is the same as committing fraud. The law defines “fraud” as knowingly misrepresenting a material fact to induce someone to act or fail to act to his detriment – a crime. Completely different is a fraudulent transfer, which is defined as making a transfer of an asset with the intent to hinder, delay, or defeat the claim of a current or reasonably anticipated creditor – not a crime.

When we select a jurisdiction to form an offshore asset protection trust, we look for one that has a statute covering fraudulent transfers. Specifically, we look for countries with fraudulent transfer statutes with the shortest limitation period. If the country’s statute also includes specific standards of proof in order to establish that a particular transfer was fraudulent, all the better.

The most extensive and defendant friendly of the fraudulent transfer statutes is the offshore asset protection trust codes found in Section 13B of the Cook Islands law. The International Trusts Act of 1984 (as amended), is the original and still the strongest of the offshore trust laws.

The Cook Islands offshore trust statute requires each and every creditor to prove “beyond a reasonable doubt,” that the assets were transferred to the trust for the sole purpose of preventing that specific creditor from collecting. Thus, each creditor must prove the transfer was a fraudulent transfer as to him, and each such case must be brought in the Cook Islands.

Let’s break that down:

First, each creditor must hire an attorney in the Cook Islands and challenge the trust. They can’t combine their claims or hire the same attorney. Because the Island doesn’t allow for contingency cases, each and every creditor will need to spend big to even have their claim heard.

Second, beyond a reasonable doubt, is a high burden of proof. It require that no other logical explanation can be derived from the facts except that the transfer was fraudulent, thereby overcoming the presumption that the transfer was legitimate until proven otherwise. In the United States, this is our standard of proof for criminal convictions, no civil claims.

Third, if the defendant’s non-trust assets at the time the trust was created exceeded the amount in dispute, the plaintiff may not proceed against the trust. That is to say, Cook Islands will only allow the case to be heard if the defendant was insolvent at the time the trust was funded.

Fourth, §13(B)(4) of the Cook Islands trust law states that a transfer to the trust can never be fraudulent if the cause of action (harm to the plaintiff) occurred after the trust was funded. If you create a Cook Islands trust today and injure someone with your car tomorrow, they’ll never have a claim in the Cook Islands against your assets.

Fifth, if the plaintiff gets over all of these hurdles, the limitations period for fraudulent transfers in Cook Islands is two years. After the statute runs, transfers to the trust cannot be attacked on fraudulent transfer grounds. Because of the time it takes to litigate a case in the United States, and because the plaintiff must file in Cook Islands within two years of the trust being funded, it’s rare for a creditor to gain standing in the Cook Islands court.

The first and most important analysis before you create an offshore trust is to consider your exposure under the fraudulent transfer statute. And this analysis should be undertaken by an attorney in your home country, not in the Cook Islands.

This is because the fraudulent transfer law of your home country must be compared and coordinated with the law of your asset protection jurisdiction. Remember that your assets may be out of reach, but you are still under the authority of your country of citizenship.

Thus, if you’re a United States citizen, you must hire a US attorney to create your offshore trust. Likewise, if you’re a citizen of the United Kingdom, you should have a UK expert assist you.

I will end by noting that an offshore trust is typically funded with after tax money (personal savings). It’s also possible to move your United States IRA, 401K or other retirement account to the Cook Islands. We can form a Cook Islands LLC and secure many of the same benefits described above for your tax preferred retirement account.

For more on offshore IRA LLCs in the Cook Islands see my article, Protect Your IRA by Converting it into an Offshore Trust

I hope you have found this information on the law of fraudulent transfers in offshore trusts to be helpful. Please contact me at or call (619) 483-1708 for a confidential consultation.

Pre-Immigration Tax Planning

Pre-Immigration US Tax Planning for Future US Residents & Citizens

If you’re moving the the United States, get ready for our crazy tax system. Most importantly, if you will become a US resident, be prepared for US tax on your worldwide income. You need to do your pre-immigration US tax planning before you arrive to minimize these taxes.

Let me begin by defining what I mean by a US “resident.” Then I’ll review your pre-immigration tax planning options and what you need to do NOW before landing in the United States.

The United States taxes its citizens and it’s green card holders on their worldwide income. It doesn’t matter where you live or where your business is located. So long as you hold a blue passport or a green card, you will pay US tax any income you earn.

Likewise, the US taxes its residents on their worldwide income. A US resident is anyone who spends 183 days or more in the US in a calendar year. If you spend more than 183 days in one year, and then fewer days the next year, you might be a US resident for both years because a weighted average is used to determine residency.

  • I won’t bore you with the details of how to calculate the average. Suffice it to say, if you spend significant time in the United States, Uncle Sam wants his cut.

A US tax resident is ANYONE who spends 183 days a year in the country. Even if you are here on a tourist visa, or illegally, you are a tax resident and expected to pay US tax on your worldwide income. Your legal or immigration status is separate from your tax status.

US Pre-Immigration Tax Planning Techniques

If you plan to become a US resident, green card holder or citizen, you need pre-immigration tax planning before you move to the America. Some of these strategies require you to plan years in advance. So, if you are working towards residency in the United States, stop and think about taxes NOW.

Minimizing US Tax on the Sale of a Foreign Business

When you sell a foreign business after you become a US resident, you pay US tax on the gain from that sale. This means you’ll pay US tax on all of the appreciation and value that has accrued in your business over the years.

For example, let’s say you started a business in Hong Kong 10 years ago. You invested $100,000 and now the business is worth $1 million. You move to the US and sell this Hong Kong company the following month. The IRS expects you to pay US capital gains tax on $900,000.

Obviously, the simple way to avoid this tax is to sell your business before you move to the United States. I suggest you sell the business and then wait a month or two before traveling to the United States to make sure there are no issues.

But, what if you’re not ready to sell today? What if you want to move to the United States for a year or two and then sell? Serious planning and US filings are required to minimize your US tax obligations.

You can basically sell the business to yourself by making certain elections in the United States for your Hong Kong business. By converting the business from a corporation to a partnership or disregarded entity, you are selling it to yourself for US tax purposes. Do this before moving to the US, and you will have no US taxes due on the phantom sale.

Then, when you sell the company again in one or two years, you will only pay US tax on the appreciation in value from the day you sold it to yourself. This is called Stepping Up Basis. Here’s an example:

You plan to move to the United States on January 15, 2017. So, you file forms with the US IRS to treat your Hong Kong company as a partnership on December 15, 2016.  This triggers a sale of the assets to you, but no tax is due in the US because you are not a US resident for tax purposes. The value of the business on December 15, 2016 is $900,000.

Then, on December 15, 2018, you sell the business for $1 million dollars to a third party. Because of the pre-immigration tax planning you did along the way, you will only pay US tax on the $100,000 of appreciation that accrued from December 15, 2016 to December 15, 2018.

Another business income tax planning tool is to recognize as much income as possible before you move to the United States. You pay yourself as much in salary and bonuses as possible to deplete the value of the Hong Kong company before you move to the United States.

Note that salary from a foreign corporation will be taxed at about 35% Federal plus your State (maybe 12%). So, taking as much in salary before moving to the US can save you big time. Even if it requires borrowing money from banks or other sources, accelerating your income can be beneficial.

Offshore Trusts in Pre-Immigration Tax Planning

When you move to the United States, you need to worry about business tax, personal income tax (salary and capital gains) and death taxes. High net-worth residents pay a tax on the value of their worldwide assets when they pass away.

  • United States death tax applies to residents, green card holders and citizens with assets of more than $5.45 in 2016 and the tax rate is 35% to 40%.

You can minimize or eliminate the US estate tax by giving away your assets before you move to the United States. Most transfers after you become a resident will be subject to US gift tax, which is 40% plus your state.

This form of pre-immigration tax planning can also reduce your US personal and business income taxes. If you give your assets to family who will not be residents of the United States, America can’t tax those assets when sold or as business income is generated.

Most clients want to maintain control over their assets while they are alive. They don’t want to pay US income or estate taxes, but they do want to manage the assets or business for the benefit of their heirs.

This is where offshore trusts come in to pre-immigration tax planning.

When you setup an offshore trust to manage your assets, they’re removed from your US estate and the death tax doesn’t apply. Also, gains or income from these assets can be removed from your US income tax if you plan ahead.

If you set up and fund an offshore trust at least 5 years before becoming a US resident, the income generated in that trust will not be taxable to you in the United States.

Thus, if you are thinking about becoming a US resident, or moving to the United States is a possibility (even a remote possibility), you would do well to create an offshore trust and engage in some pre-immigration tax planning now.

If you can’t meet the 5 year threshold, there are several benefits to creating an offshore trust before moving to the United States. For example, an irrevocable offshore trust can reduce transfer tax, estate / death tax, and protect your assets from creditors. Considering that the United States is the most litigious nation on earth, asset protection is an important part of pre-immigration planning.

I hope that you have found this information on pre-immigration tax planning to be helpful. For more information, and to consult with a US attorney experienced in these matters, please contact me at

asset protection puerto rico

Asset Protection for a Puerto Rico Act 20 Business

Once you have your Act 20 business in Puerto Rico up and running, you need to think about protecting its retained earnings or distributed profits. Asset protection for a Puerto Act 20 business  becomes urgent because of the amount of capital held in the company tax deferred.

There are two levels of asset protection for Puerto Rico Act 20 companies. The first is retained earnings within the Puerto Rico LLC or corporation and the second is asset protection of dividends taken out under Act 22.

When you operate an Act 20 business based in Puerto Rico from your home in the United States, you get tax deferral at 4%. That is to say, if the business owner is living in the US, you can hold  Puerto Rico sourced profits in the corporation tax deferred.

You will pay 4% tax on the net profits earned from work done in Puerto Rico. This cash must stay within the Puerto Rico corporate structure to continue to be tax deferred year after year. When you distribute those profits as a dividends to the US based owner, you will pay US tax on the qualified dividend at 20% to 23.5% + your state.

If you’re operating a business in Puerto Rico under Act 20, and living in Puerto Rico while qualifying for Act 22, then you can withdraw the corporate profits from the corporation each year. This is because residents of Puerto Rico pay zero tax on dividends from an Act 20 Puerto Rican business.

When it comes to protecting the assets of your company, remember that Puerto Rico is a US jurisdiction. Any US judgement will be enforceable in Puerto Rico just as it is in any other State. As a result, you must take steps to protect your cash without changing its status as tax deferred “offshore” profits.

The best asset protection for Puerto Rico Act 20 businesses is to move your cash out of Puerto Rico and into a safe and secure bank. We have relationships with a number of banks in Switzerland, Germany and Austria that will open accounts for your Act 20 company and allow you to hold retained earnings offshore and out of reach of civil creditors.

The next level of asset protection for a Puerto Rico Act 20 company is incorporating offshore subsidiaries. This is done to put a layer of insulation between the Puerto Rico company and the assets held offshore. We can form a corporation in Panama, Cook Islands, Cayman Islands, or any other solid asset protection jurisdiction to manage your corporate capital.

In order to maintain the tax benefits of tax deferral, these offshore companies must be wholly owned subsidiaries of the Puerto Rico Act 20 company. For example, we form a Panama Corporation owned by the Puerto Rico company. This gets us access to all of the banks and asset protection benefits of Panama and allows us to maintain our tax deferral status.

For this reason, we can’t use other more advanced techniques. It would not be possible for the owner of the Act 20 business to create a Cook Island Trust and fund the trust with retained earnings. Once those profits moved from the Puerto Rico company to the Cook Island Trust, they would become taxable in the United States as a distribution.

This limitation applies only to retained earnings. Residents of Puerto Rico operating under Act 22 may use any means necessary to protect their personal after tax assets from future civil creditors. Remember that, unlike a business based offshore, once you have paid your 4% corporate tax and withdrawn the dividends tax free, this is “after tax” money. You can invest and do with it whatever you like, just as you can with money taken from a US business after paying 40% in taxes.

If you’re new to the Puerto Rico tax holiday, and would like to compare it to traditional offshore tax plans, see Puerto Rico Tax Deal vs Foreign Earned Income Exclusion and Move Your Internet Business to Cayman Islands Tax Free

One of the best asset protection systems is to have capital paid directly to a Cook Island Trust. This will maximize the asset protection afforded your dividend distribution and keep it out of the reach of any civil creditor.

We can make arrangements for the dividends to pass directly to the Trust and bypassing any risk of a civil creditor reaching them. We can also setup a subsidiary of the Puerto Rico company in the Cook Islands to facilitate this transfer and the related cash management.

Another offshore asset protection strategy for Puerto Rico Act 20 business will allow you to carry forward the tax benefits of Puerto Rico once you move away from the island and no longer qualify for Act 22.

Let’s say you’ve been operating your Act 20 business for 5 years and have been living in Puerto Rico all of this time. You’ve taken out $10 million in tax free dividends, with the only tax paid being 4% to the government of Puerto Rico.

You’ve had enough of island life, your business has run its course, and are want to return to the United States. Once you make the move, all capital gains, dividends and passive income earned on that $10 million will become taxable by the IRS and your State.

One option is to invest this money into an offshore single pay premium life insurance policy. Money held in the policy will be protected from future civil creditors as well as the US taxing authorities.

This is because capital gains earned within the US compliant offshore life insurance policy are tax deferred. You only pay US tax on the gains if you close out the policy or otherwise remove the cash. Of course, you are free to borrow against the life policy with no tax cost.

If you hold the policy until your death, then the total value will transfer to your heirs tax free (or with a step-up in basis). If you put in $10 million, and it’s grown to $20 million, you’re heirs get $20 million tax free… and the only tax you ever paid on any of that cash is the 4% to Puerto Rico. Quite an amazing tax play.

I hope you’ve found this article on asset protection for a Puerto Rico Act 20 business helpful. Please contact me at or call (619) 483-1708 for more information on setting up your business in Puerto Rico or on protecting your retained earnings within that structure.