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.

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. 

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.