Asset Protection Archives - Page 2 of 2 - Premier Offshore Company Services

The Mini Offshore Captive Insurance Company

06/23/2014/in Articles, Asset Protection/by Christian Reeves

The Mini Offshore Captive Insurance Company (sometimes referred to as a pure offshore captive) is a powerful and unique way to cut both your business and estate taxes while moving your assets out of the reach of future business and personal creditors. If you are operating a business with $500,000 to $1.2m per year in profits you want to eliminate from your U.S. tax return, and move in to an offshore asset protection structure, you should consider a Mini Offshore Captive Insurance Company.

Note: This article describes the Mini Offshore Captive Insurance Company. It is intended for those who wish to deduct up to $1.2m per year. The full sized Offshore Captive Insurance Company is a very different and more complex animal.

Let’s start from the beginning. The Mini Offshore Captive Insurance Company was created by Congress in 1986 and can be found in IRC S 831. This section of the U.S. tax code and the related safe harbor provisions, allow you to form an Offshore Captive Insurance Company to underwrite all types of business property or casualty risk. Your U.S. company may then pay up to $1.2m to this Offshore Captive Insurance Company, taking a 100% deduction in the year paid. This should result in a tax savings of about $420,000 per year. However, you must pay U.S. taxes on all passive income these premium payments/retained earnings generate.

I note that this savings is only available to those who form a licensed Captive Insurance Company. While you can self-insure using a sinking fund, you may not deduct transfers to a fund. Only payments to an insurance company are excluded from income when paid.

In order to be classified as a Mini Offshore Captive Insurance Company, you must agree to be taxed as a U.S. C Corp, make an irrevocable election with the IRS, and file U.S. returns on the calendar year in most cases. While this election is irrevocable, it is automatically terminated if you pay more than $1.2m in a year to the Captive Insurance Company. Thus, if you want to play in the big leagues for a year, you can do so and then file a new election to return to the minors.

Because a captive is taxed as a C corporation, distributions as dividends from a Mini Offshore Captive Insurance Company are considered “qualified” dividends and taxed at the long term capital gains rate.

Also, because of the Mini Offshore Captive Insurance Company’s unique standing in the U.S. tax code, you can move significant wealth out of your U.S. estate and away from the U.S. estate tax (which applies to U.S. assets in excess of $5m) as well as gift and generation skipping taxes. Assuming the offshore captive operated for 10 years, you could move as much as $12m offshore. To take advantage of these tax benefits, offshore trusts should be the owners of the offshore captives and your children and heirs should be the beneficiaries of these trusts. One trust per heir is suggested. And these returned earnings enjoy the highest level of offshore asset protection available. Because the premium payments are considered ordinary and necessary business expenses, there should be no risk of a claw-back from a U.S. court on issues of fraudulent conveyance. In fact, if the offshore captive was formed before a problem arises, I expect these transfers will be allowed to continue during and after litigation. You should consult an attorney prior to forming and offshore captive if this applies to you.

One additional benefit of the Mini Offshore Captive Insurance Company is that it provides a tax efficient way to compensate key employees. To use the captive in this way, you might operate a (second) offshore captive for their benefit or issue preferred shared from your primary offshore captive. These key employees would redeem these shares upon retirement and pay tax at long term capital gains rates, which should be lower than the tax on any other form of deferred compensation.

Above, I suggested you can form a second Mini Offshore Captive Insurance Company. In fact, you can from as many mini captives as you like, so long as they have different shareholders. This is a good way to accommodate shareholders with differing retirement and investment goals, multiply the tax benefits, and ensure you make the most of the estate planning options… especially when the partners are not related.

Watch out for the attribution and constructive ownership rules under IRC S 1563 that might combine offshore captives, thereby exceeding the $1.2m limit and crashing the system. Advanced planning is required if you wish to deploy multiple Mini Offshore Captive Insurance Companies.

If you do not have at least $500,000 to move offshore (I suggest this arbitrary amount as being cost effective), but have a group of entrepreneurs that want to plant that first flag offshore and begin building towards a full captive, you might consider a series LLC Mini Offshore Captive Insurance Company. In this case, a master LLC is formed in a state that allows for this and each partner forms his or her own LLC as part of the series… basically a subsidiary of the master LLC. The master LLC will obtain a mini captive license and each series LLC will pay in premiums as they see fit, up to a combined total of $1.2m. These series LLC will insulate the partners from each other’s assets and liabilities, allow them to pool resources to cover costs, and to insure much lower amounts of risk. Such an arrangement might be best suited to a group of professionals who wish to deduct around $250,000 per year each. By forming an offshore trust for each LLC member, investors will also receive the estate planning benefits.

Offshore Captive Insurance Company Must Provide Insurance

Because a Mini Offshore Captive Insurance Company must actually provide some type of insurance, and premium payments must be reasonable, at fair market value, and ordinary and necessary expenses of your U.S. business, forming an offshore captive is a rather complex and costly undertaking. These costs are the main reason I suggest a minimum annual principal payment of $500,000, or a series LLC to get your group to $1.2m.

In order to be classified as an insurance company by the U.S. tax code, you need 1) and insurance license from an offshore jurisdiction like Cayman, Bahamas, BVI or Vanuatu, and 2) to shift risks from the operating company or its affiliates to the licensed insurance company. In order to meet this requirement, you must show that the Mini Offshore Captive Insurance Company you formed is insuring specific risks of your business in exchange for a reasonable premium.

These requirements make the formation of an Offshore Captive Insurance Company a long process. Feasibility studies, capitalization, financial projections, risk analysis and premium value analysis, and the retention of a qualified insurance manager are all required before you can apply for a license.

The amount of capital required (capitalization) of the captive insurance company is based on the type and level of risks being insured and varies by jurisdiction. Capitalization may provide you with an opportunity to move after tax retained earnings or personal savings offshore for asset protection purposes. Alternatively, you might qualify for an irrevocable letter of credit to satisfy this requirement.

As a Mini Offshore Captive Insurance Company must provide insurance (insurance is in the name by gosh, but many ignore this aspect), a complete risk analysis is required. You must determine which risks you will cover “in-house,” which you will leave with your current provider, and the fair market value of these premiums.

The key to the risk analysis for a mini captive, compared to a full captive, is that you should insure only risks that have a low probability of occurring. For example, you might insure against product liability, war, major currency devaluation, labor strikes, workers comp, product recall, pollution liability, group pension plan liabilities, a nuclear explosion, and property theft from the office (usually minor claims only).

If you decide to insure risks with a higher probability, you may be able to purchase reinsurance at a lower rate than is available onshore.

Note that an insurable risk is one that might occur, not one that will occur. If an event will occur, even if the amount/cost of the event can’t be determined, it’s not an insurable risk. Payments in to an offshore captive for an event that will occur are considered deposits in to a sinking fund and are not deductible. (IRS rev. Rule 2007-47)

The last requirement I’ll cover here for Mini Offshore Captive Insurance Company is that more than 50% of its total revenue must come from premium payments (IRC S 816(a)). If interest, dividends or other passive income from investing premiums and initial capital exceeds income from premiums, you may lose your insurance company status and be considered a passive foreign investment company.

Remember that the owner of a Mini Offshore Captive Insurance Company gets to deduct 100% of his/her premium payments but must pay U.S. tax on all passive income. Treatment of premiums and passive income is much more complex for an offshore insurance company that doesn’t make the “mini” election and those with more than $1.2m in premiums.

The 50% of revenue requirement is not a problem during the first few years of operation. You might even expect to run for 10 years without hitting this PFIC limit. In later years, assuming your investment returns are significant, you may need to shut down the captive and form another, invest capital in more conservative products, or distribute out sufficient funds as qualified dividends.

Uses of a Mini Offshore Captive Insurance Company

So long as you make the proper election, adhere to the principles of risk shifting and insurable events, avoid excessive loan backs and anything that might look like self dealing, do not provide life insurance, and keep up with your IRS obligations, a Mini Offshore Captive Insurance Company is a very powerful international tool. It provides significant tax savings, unparalleled asset protection, and offshore estate planning not available elsewhere.

Now that you have a solid understanding of what a Mini Offshore Captive Insurance Company can do, let’s talk about who should consider forming one. An offshore captive is best suited for those with:

A profitable business that can deduct up to $1.2m from its U.S. taxes.
A business with multiple entities, or that can divide itself in to multiple operating subsidiaries – (if you have only a single entity, don’t worry, we can set these U.S. affiliates up for you).
A business with at least $500,000 per year in sustainable operating profits.
A business owner who wants personal and business asset protection and/or estate planning.
A group of independent professionals who want to go in together on a Mini Offshore Captive Insurance Company using a series LLC.

A few examples of potential clients are medical doctors, lawyers, investment advisors, hedge fund operators, family offices, and anyone with a mature business and a few million in profits each year.

For example, let’s say you are an investment advisor with $3m in profits P.A., 4 children, and a significant personal net worth. Your objectives for a Mini Offshore Captive Insurance Company might be to maximize wealth accumulation, reduce current income taxes, protect assets from personal and business creditors, and devise a tax efficient system to transfer wealth to your heirs.

You might decide to from a Mini Offshore Captive Insurance Company in Cayman. You might then form four offshore trusts in Belize, one for each of your children, to own the captive. In this way, the shares (and thus the assets) of the captive are lifted out of your U.S. estate and you can avoid both estate and generation skipping taxes.

During the formation state, the manager of the captive will need to perform a feasibility study and find a number of “real” or “insurable” risks to be covered by the offshore captive. In the case of the financial advisor, the study might identify ten risks and therefore wire ten separate policies. Each policy must apply the usual and customary insurance industry underwriting principles and must be reasonable in light of the risks being transferred to the offshore captive.

As a result, premiums paid by your investment advisory business are fully deductible in the year paid and the captive is not taxed on premium income. Only the investment income on money in the captive is taxable as earned (no tax deferral available). Also, distributions to the four trusts qualify as dividends and are taxed at 20% (was 15% in 2012).

I also note that the premiums paid to the offshore captive, as well as distributions to the four offshore trusts, are not subject to the claims of your personal creditors or the creditors of your investment management business. Because these payments are deemed ordinary and necessary business expenses, the offshore asset protection is iron clad.

I hope you have found this article helpful. The planning, formation, and management of a Mini Offshore Captive Insurance Company is a complex matter. I’ve done my best to summarize the basics. For additional information please send me an email to info@premeiroffshore.com or give us a call anytime.

Should I use an Offshore Corporation or Offshore LLC?

03/31/2014/0 Comments/in Articles, Asset Protection, Offshore Company/by Christian Reeves

Which is better, an offshore corporation or offshore LLC? Does an offshore corporation provide more protection than an offshore LLC? What are the benefits of an offshore LLC compared to the benefits of an offshore corporation?

These are the questions I get every day, and the answer is not as simple as you might think. There are a number of important differences between an offshore corporation and an offshore LLC that you should take in to consideration when setting up your offshore structure.

First, there is no difference in the level of protection offered by an offshore corporation or an offshore LLC. They are equal in the eyes of the law. Offshore jurisdictions have always afforded them the same high levels of deference, and U.S. courts have generally maintained that a corporation is equivalent to an LLC for asset protection purposes.

When thinking about how to best use an offshore corporation or offshore LLC, your first instinct should be to put an active business in a corporation and passive investments in an LLC. Here is why:

Benefits of an Offshore Corporation

When you operate an active business in an offshore corporation, you maximize the value of the Foreign Earned Income Exclusion and can retain earnings in excess of the FEIE. This allows you to eliminate or defer U.S. tax on your offshore earnings. You accomplish this by:

1. Drawing a salary from the offshore corporation of up to the FEIE, about $98,000 for 2014, and reporting that salary on your personal return, Form 1040 and Form 2555. If a husband and wife operate the business, they can each draw out the FEIE amount in salary, and thus earn up to about $196,000 free of Federal income tax.

– The FEIE is actually $99,200 for tax year 2014 and 2015 has not yet been released. I usually round down to $98,000 to make the math easier to follow.

2. If your corporate profits exceed the FEIE amount, then you leave (retain) those funds in the corporation. If you take them out in salary, they will be taxable in the U.S. By leaving them in the corporation, you defer U.S. tax until they are distributed as dividends…or possibly as salary in future years.

3. Using an offshore corporation allows you to eliminate Self Employment or social taxes (FICA, Medicare, etc.), which are about 15% on your net profits and not covered by the FEIE.

These tax breaks come at a compliance cost: you must file a detailed offshore corporation return on IRS Form 5471 each year. Because this form includes a profit and loss statement, balance sheet, and many sub forms, the cost to pay someone to prepare it for you should be at least $1,250 per year.

Benefits of an Offshore LLC

The primary benefit of an offshore LLC over an offshore corporation is the lower cost of compliance. An offshore LLC owned by one person, or a husband and wife, will usually files IRS Form 8858, which is much easier to prepare and Form 5471.

Because of this lower (and simpler) filing obligation, offshore LLCs are the best option for passive investments. Whether you are living in the U.S. or abroad, there is no tax break for passive investments in a corporation (these breaks apply only to active businesses income). Passive income is taxed as earned, reduced only by the Foreign Tax Credit, so you might as well make it as easy as possible to report.

The Foreign Tax Credit allows you to deduct any money paid in taxes to other countries on your foreign investments. It generally means you will not be double taxed on offshore transactions.

The tax rules around foreign real estate and other passive investments can be complex. For a detailed article, please see my U.S. Tax Breaks for Offshore Real Estate.

An offshore LLC can’t retain earnings, so it is usually not the best entity for an offshore business. However, if the business will never earn more than the FEIE, then an offshore LLC might do just as well as an offshore corporation.

If you were to operate a business through an offshore LLC, you would report your total net profits on Form 2555, and if those profits exceeded the FEIE amount the excess would be taxable.

To put it another way, if your net profits are $200,000 and you are operating through an offshore LLC while qualifying for the FEIE, then you would get $98,000 in salary tax free and pay U.S. tax on the remaining $102,000. If those same profits were earned in an offshore corporation, you would draw out a salary of $98,000 and leave the balance in the corporation, deferring U.S. tax indefinitely.

If your business earns $50,000, then the full amount would be covered by the FEIE and no tax would be due. Likewise, if a husband and wife both operated the business which earned $200,000, each could draw out $98,000 tax free, leaving only $4,000 for the IRS to take a cut from. So, if your business will always earn less than $98,000 or $200,000, you might as well use an offshore LLC.

I estimate that the cost to have a professional prepare Form 8858 to be $690.00, and that, if you usually prepare your own personal return, then you can prepare 8858 yourself. In other words, if you are experienced in advanced personal return forms like Schedules C, D, or E, or you are used to dealing with complex K-1s, then you will have no problem with Form 8858.

So, when deciding between an offshore corporation or an an offshore LLC, if the structure will hold passive investments or a small business, then you might save a few dollars and simplify your life with an offshore LLC. If you will operate an active business that might someday earn more than $98,000 in profits, you should form an offshore corporation.

Offshore Asset Protection Scams and How to Avoid Them

08/15/2013/0 Comments/in Articles, Asset Protection/by Christian Reeves

If you are looking for the cheapest offshore asset protection, you are in the wrong place. If you are looking for an offshore asset protection and international structures founded in case history and reality, with guidance and US tax compliance, we can help.

The purpose of this article is to explain why you need quality representation when you go offshore and exposes the common schemes of online incorporators. The bottom line is that, if you can’t afford a quality offshore trust, don’t use a lesser structure which you can’t control. Instead, go with a simple offshore corporation to plant your flag offshore. If you don’t wish to pay for an offshore corporation from a reputable source, then you might not belong offshore.

Read the risks and costs of doing it wrong and then decide if the world of international banking and offshore asset protection are for you.

Offshore Asset Protection Scams

The internet is filled with scammers who promise to protect your assets for a few hundred dollars…a one size fits all document or company that will save your life. These online incorporators claim to have mastered the mysteries of US litigation and to have created some illusionary construct that no creditor can pierce. Well, I am here to tell you that no such construct exists and that most of the asset protection “gurus” are nothing but shysters.

These scams go by many names, such as “Self Managed Anonymous Offshore Trust” (just google this phrase for a list of purveyors) and Pure Trusts a/k/a Constitutional Trusts and Common Law Trust Organizations. For additional information, see Quatloos.

Then, there are the firms that charge low rates for an off-the-shelf, zero customized, offshore company formation with no support or tax compliance. These guys make up for their lack of quality and a low upfront price in volume (I may lose money on every sale, but I make up for it in volume). They will sell you four or five companies and a Panama Foundation when a Belize or Cook Island Trust was all that is required.

They convince you that all of these components add value, and, when they are done, the total fee is the about the same as a quality offshore asset protection trust, but with none of the supporting documentation, compliance, or guidance that a professional would include. They sell you a mini-monster that you have no idea how to take care of and won’t know what to do with when it grows out of control.

Why do online incorporators market like this? Because such a convoluted structure is more profitable to them in the long run. Because they can charge you a fortune in annual fees…they are betting on the residual income you will provide and selling you something you don’t need, and probably should not use, at break-even to lock you in.

Feed the Beast

Let’s go back to the mini-monster. Your new pet is comprised of a Panama foundation, one Nevis LLC, one Panama corporation, and four Belize IBCs, and you have paid $10,000 to take this bad boy home to cover your assets like a guard dog.

Well, this mini-monster must be fed. Each year, your incorporator will send you a bill for about $1,200 per entity, for a total carrying cost of $8,400 per year. And, you can be sure there will be other costs…maybe you need a notary, a certificate of good standing, or you want to open a bank or brokerage account…this will cost you big time. Remember, they locked you in with a low price and are now going to get whatever they can.

Offshore Tax Issues

Now that this mini-monster is home, you will find that he is hungry. For example, every entity must file its own tax return with the US Internal Revenue Service, a fact that your offshore incorporator probably failed to mention when you signed up.

The Panama Foundation may need to file IRS forms 3520 and 3520-A, at a cost of about $1,700 per year. Also, each of the corporations must file IRS Form 5471, for which a qualified CPA will probably charge $1,100. This means your minimum US tax compliance bill to take care of this monster is $8,300 per year.

Finally, you will need to file a report with the US treasury of each bank account you have outside of the US is your cumulative balance during the year is more than $10,000. So, if you have four bank accounts outside of the US, each with $3,000, you have a total of $12,000 offshore and must file the FBAR.

So, you setup your structure and had no idea of these tax rules? Now the monster is angry!

The minimum fine for failure to file the FBAR is $25,000 per year per account, and up to $100,000 per year per account. And, don’t get me started on the possible criminal penalties…

The fine for failing to file Form 5471 for each corporation is $10,000 to $20,000, plus a reduction in the Foreign Tax Credit, if applicable. So, your annual penalty for failing to file for your various mini-monster’s corporate returns is $50,000 to $70,000 plus the foreign tax credit issue.

Failure to file the foundation or trust returns can result in penalties of $10,000 per year or 35% of the assets transferred offshore. This is a simplification and these penalties are more complex than I want to go in to here. Suffice it to say, not keeping a Panama Foundation in compliance can become very expensive very fast.

For additional information on your US filing obligations, see my article: US Tax Filing Obligations of ExPats.

Buy from a US Provider who Provides Tax Guidance

When dealing with an offshore incorporator, you must be cautious and take his answers to questions about your US obligations with a grain of salt. Many offshore incorporators phrase their claims and promises in such a way as to confuse you. Here is an example:

You call a firm in Nevis and inquire about forming an offshore IBC. You ask, “does this company need to pay tax?”

The sales guy will say something like, “as a Nevis IBC, there is no tax due and no tax return need be filed. Your corporation can earn money and never pay any tax to Nevis. It can also send money to you in the US, which you can report as income when received.”

This all happens to be true, and it is how so many US persons get in to trouble. You may have left that conversation with the impression that the Nevis IBC can retain earnings offshore and that you will only pay tax in the US when you repatriate that money.

What the sales guy really said is that Nevis will not tax your income and that you can wire from Nevis to the US. He made no comments about whether the US will tax your offshore company. And, from the perspective of Nevis, his statements are accurate.

But you, as a US citizen or resident, need to be concerned about the United States. It is great that Nevis will not tax your income, but that is a very small part of the offshore puzzle. The primary issue is how the big bad IRS will view your structure. If you do not live and work abroad, your corporation can’t retain earnings and all income is taxable in the US as earned.

For a detailed discussion on retaining earnings offshore, see my article on the topic.

For this reason, you must purchase your offshore asset protection plan or international corporation from a firm that provides US tax compliance and is capable of answering your US questions. Only US licensed experts can properly advise you on how to structure your business and keep you out of trouble.

Offshore Asset Protection is not Secrecy

Hiding assets is not a useful asset protection strategy. If you have a judgment against you and you fail to disclose said assets, you might be found in contempt of court and end up in jail. Hiding assets is not a valid tax reduction strategy. If you hide assets and fail to report income from those assets, you might be found guilty of tax evasion. Do things right and do things smart.

The quickest way to spot an offshore asset protection scam is look for those that focus on secrecy or privacy. While it may be helpful that your assets are hard to find in the beginning of a case, you must assume that a motivated creditor will find them.

A professional asset protection structure assumes the creditor has a roadmap to all of your dealings and, even in this extreme case, can’t break down your barriers and get to your assets. Your plan has moved your wealth out of the reach of the creditor and the US courts, placed them behind a few quality barriers, and provides the best protection available anywhere in the world.

Quality Offshore Asset Protection Plans

When done right, asset protection, which may be more properly termed risk management, places an appropriate number of barriers between you and your creditors making it difficult or impossible to reach your assets. How difficult it is to reach those assets will depend on the complexity and, most importantly, the quality of the plan. Always remember, it is about quality and preparation, not quantity. Quantity will get you nowhere with a judge!

For this reason, I will recommend a simple, easy to maintain offshore corporation to someone looking to protect $100,000 or less. The same is true for someone who just wants to plant that first flag offshore or to move their retirement account offshore. Keep it simple!

This single layer is cost effective to feed and keep in compliance, and moves the assets out of the reach of US creditors while placing one barrier between them and your money. While it is not perfect, it may be all that your situation requires.

And here is the key to this article: don’t be oversold! If one structure will suffice, don’t buy two…even if the price is right. Buy one and get one free is not a good idea when it comes to asset protection. It is a lot like TV ads selling cheap junk and promising a second unit at no additional cost – you will get a good deal but shipping and handling (carrying costs) will bury you.

If you have a much larger nest egg you wish to protect, a high risk of litigation, and/or wish to provide for estate planning and asset protection, than an offshore trust formed in Belize or Cook Islands is the place to start. The offshore trust is the foundation of any advanced asset protection plan and can be built up or expanded in a number of ways. For more information on offshore trusts, please see my International Trusts page.

No matter what structure you create to protect your assets, just remember that it must be maintained, that you need to be properly advised as to your US tax obligations, and that going offshore is a complex world fraught with challenges for the uninitiated. International asset protection is not for everyone!

Can the Government Seize my IRA?

07/22/2013/0 Comments/in Articles, My Thoughts, Offshore IRA/by Christian Reeves

One of the most common questions I get is, “can the government seize my IRA?”

With all of the uncertainty in the USA, and the growing hostility towards our government and its practices, many Americans are concerned about their retirement accounts. For most, their retirement account is their only liquid asset, the majority of their savings, and probably their largest holding, after their home. Just about every day I am asked, “Can the US seize my IRA account and, if so, what can I do to protect it?”

I hate to be an alarmist, so I usually try to calm the fears of these concerned citizens by saying the government can seize your IRA, but they probably won’t. This is the best I can offer because there are many examples of the US government seizing bank accounts, real estate and other properties, and yes – retirement accounts. The government can and does seize these accounts all the time and court action or oversight is not required. In fact, I would bet that the US government seizes several IRA accounts every day.

Let me explain how the government can seize your IRA: Most think their retirement accounts are protected…and some are, from civil creditors under your State’s applicable law. How much is protected depends on your State and the type of claim brought against you.

Level 1: There are Federal ERISA laws that protect some accounts, but not all.

Examples of ERISA-qualified pension and benefit plans include:

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 benefits.

If your retirement account is not covered by ERISA, and you live in California, then a judgment creditor may be able to get to it.*

Level 2: Some of the most popular retirement accounts are not covered by ERISA.

Types of non-ERISA accounts that may be vulnerable include:

IRAs, Roth IRAs and SIMPLE IRAs
SEP and Keogh Plans
403(b) plans for employees of a public school or university
plans that do not benefit employees, or “employer-only” plans, and
government or church plans

* Each State has its own laws. The example above is from California and may not apply to you.

The above applies only to civil creditors. None of these accounts are protected from the Federal government going after unpaid taxes or a spouse or child seeking back support with a domestic relation order in hand (called a “QDRO”).

While a spouse or child must go to court and get a judgment, the IRS needs no such approval. Any IRS agent assigned to collect from you can issue a letter to your bank and IRA custodian to seize 100% of your assets up to the amount they claim you owe. No court or other oversight is required and no formal process is required. The agent need only hit a few keys on his computer and your money is gone.

The same is true for those charged with a crime. The government can step in and seize all of your assets and hold them until the case has run its course. This includes real estate, cash, bank and retirement accounts, and automobiles. If you win your case, you will get these back…of course, you have no money to pay a decent attorney, but who cares?

The Feds can also seize your property if it is used by someone else in the commission of a crime. In 2012, Pot Shops were big business in California. Various counties and the State passed laws that allowed for medical marijuana use and sale with a prescription. Well, these dispensaries were usually rented from building owners by the operators. The Federal Government, not big fans of California’s tomfoolery, sent letters to the owners of these properties saying the Feds would seize their buildings, regardless of State or local law, if they continued to rent to these modern hippies. Building owners complied and the industry was largely shut down.

If you have read this far, you may be wondering why I am rambling on about tax cheats, criminals and potheads. It is because these are current examples of the Feds taking from its citizenry without judicial oversight or new laws being passed. How difficult would it be for the government to demand all retirement accounts be placed under Federal control, or at least force them to be held in a central depository? I guarantee it is easier than finding a legitimate way to solve America’s spending problem.

There are historic examples, and international instances, of government takings. It was not so long ago that the tiny island of Cyprus, on the insistence of the EU, took a significant portion of the money held in its banks to pay down its debts. Of course, we assume this will never happen in America…just as we assume our government was not spying on us and operates with only good intentions.

In the good ole’ USA, we can look back to 1933 when the Federal Government seized all gold and gold certificates by Presidential Order 2039. There was no need to pass a new law or special process to protect the citizenry. It was deemed to be in the best interest of the masses, so it was done.

This taking was sold to the public as being for their own good. The Feds claimed that “hoarding” of gold was stalling economic growth and making the depression worse. Why not hording of retirement assets by the “rich?”

As it turned out, it was just a money grab – prior to the taking, the price of gold was fixed at $20.67 per ounce. After the gold had been rounded up, the Fed raised the price to $35 an ounce, resulting in an immediate loss for everyone who had been forced to surrender their gold. The profit funded the Exchange Stabilization Fund established by the Gold Reserve Act in 1934.

So, I ask you this: When you look at the current state of the US, the economic situation of the average voter, and the unprecedented attack on the “rich,” do you think there would be a major revolt if the Government seized all retirement accounts over, say, $50,000 or $100,000?

You do have one option to protect your nest egg. You can move it in to an offshore IRA LLC with an account at an international bank outside of the reach of any type of US creditor. Such a structure is compliant with all current US rules and you will maintain the tax free (ROTH) or tax deferred (traditional IRA, etc.) nature of your retirement account.

The only caveat is that you need to be careful where in incorporate and where you bank. The US IRS can seize assets in Canada, France and the UK without notice and without legal proceedings. They can also levy any bank account at any institution with a branch in the United States.

For example, if you buy real estate in France, the IRS can seize it to satisfy back taxes. If you take your IRA to Panama, but make the mistake of depositing it in to HSBC, the IRS can levy that account by issuing a notice to HSBC New York. These are not hypothetical…I have personally handled cases of this type around the world and know these things to be true.

For detailed information on moving your IRA or other retirement account offshore, please see: Moving Your Retirement Account Offshore with a Self Directed IRA LLC. If you are concerned about protecting your retirement, I suggest you take action now. It is imperative that you have your affairs settled prior to the end of the year and the implementation of the Foreign Account Tax Compliance Act. For information on this law, see the Deloitte website.

So, can the government seize your IRA? The answer is yes. Now, what will you do to protect it?

International Trust

10/30/2012/by admin

International Trust and Asset Protection Trust Structures

An offshore asset protection trust or international trust one of the strongest asset protection vehicles available when done right. The international trust allows you to legally transfer your assets out of the reach of future creditors and place them behind a protective barrier that no one can pierce.

The basis of the asset protection trust is simple enough: assets are conveyed out of your name and into the international trust. You designate the trustee, settlors and beneficiaries and you control the assets in the international trust for the benefit of those beneficiaries.

Only a few jurisdictions have laws that were written to support this level of international protection. They are the Cook Islands, the Isle of Man, Nevis and Belize. All four countries have international trust laws that provide maximum asset protection and are politically and economically stable.

Legal experts agree that the Cook Islands has the most tested case law history, and thus is my country of choice. A very close second is Belize, where privacy is maximized and costs are lower than the Cook Islands. Both of these countries are leaders in the creation and management of the asset protection trust

Advantages of an International Trust

The two major advantages of an international trust are 1) asset protection 2) while maintaining control over your assets. Investments are kept out of the reach of civil creditors because U.S. judges do not have jurisdiction over foreign citizens (your trustees or protectors), nor do they have jurisdiction over an international trust. Local judges cannot legally compel the foreign trustee or asset protection trust to release funds to someone who claims you owe them money (ie. a civil creditor). The Cook Islands, Belize, and Nevis do not recognize judgments that originate in a foreign country. Any of these options can be combined with an offshore LLC for maximum flexibility.

Note: This article refers to civil creditors only and does not contemplate government claims by the the IRS or SEC.

This means that a creditor would be forced to sue you in the country where you maintain your Trust in order to reach the assets. However, Nevis, Cook Islands, and Belize put up significant barriers to initiating or proving such a case and are “defendant friendly,” a state of mind that has not existed in the United States for MANY years.

For example, in Nevis, a creditor must post a $25,000 cash deposit to bring the suit against a Nevis Trust or Limited Liability Company. In the Cook Islands, the suit must prove beyond any reasonable doubt that assets were transferred into the trust in order to defraud the creditor in question (also called a fraudulent conveyance). If the assets were transferred to the trust prior to the debt being created, or before the problem arose, it will be nearly impossible to prove intent to defraud.

In another example, the Cook Islands statute of limitations holds that the time limit for your opponent to claim fraudulent transfer is one or two years after the underlying cause of action, depending on a number of factors. Therefore, when the lawsuit is completed in the U.S., the Cook Islands statute of limitations will usually have expired. Even if the creditor succeeded in the U.S., it is likely their claim will be barred in the Cook Islands.

See, there is a benefit to our inefficient U.S. legal system. It allowed the clock to run out of the plaintiff while your assets are safe behind an asset protection trust.

In a final example, a plaintiff in the Cook Islands must prove that your intent in creating the asset protection trust was to defraud that particular creditor – and they must prove this beyond the shadow of a doubt. This means that the issue in question is so obvious, or has been so thoroughly proven, that there can exist no doubt. “Beyond a shadow” might refer to the fact that doubt could be nowhere in the vicinity (completely expelled from the issue), or to the thoroughness of the argument (a shadow being even less substantial than a doubt itself). This is a very tough burden on the plaintiff indeed…one reserved for criminal trials in the United States.

Jurisdiction Diversity – Asset Protection Trust Planning

I believe both the Cook Island Trust and Belize Trust provide the strongest and most tested foundation for an offshore asset protection strategy. The preeminent structure combines the Cook Island Trust or Belize Trust with a Limited Liability Company from Nevis, which allows you to maximize the benefits of both Cook Islands or Belize and Nevis, and further diversifies your international trust structure.

In this structure, assets, such as offshore bank accounts, can be held by the Nevis LLC, and the LLC can be held by the Trust. A U.S. resident (you, the Settlor) can be the manager of the Nevis LLC, while the Trustee of the Trust is an international person. The LLC manager has all legal control over the LLC and signature authority over the bank accounts. Thus, a U.S. resident settlor has control of the assets, has full access to them, and yet owns none of them.

If you, your Nevis LLC, or your Belize Trust or Cook Island Trust, come under attack, you temporarily transfer management duties of the LLC to the licensed and bonded trustee. This trustee will administer your trust and bank accounts per your wishes, which you have provided to him or her well in advance of the problem arising.

When you diversify your structure, a creditor may need to maintain a legal case in both Nevis and Cook Islands or Belize, which will prove extremely difficult and costly, and you are making the most of the benefits of both defendant friendly jurisdictions.

Why not avoid the battle?

The benefits described above are meant to protect you against a very motivated creditor who is willing to go to the expense of pursuing your assets into multiple international jurisdictions. These barriers to attack also mean that a more reasonable creditor plaintiff is likely to assess the costs and probability of success against your international trust and either drop the matter or settle for pennies on the dollar.

In other words, these barriers to litigation created by the asset protection trust act as deterrents to lawsuits and creditor collection action, motivate the creditor to settle, and exhaust your opponent’s determination and resources – pursuing a well-constructed asset protection trust is expensive and disheartening for the creditor. Then, if that fails, the offshore trust or Foundation will provide an impenetrable barrier through which no civil creditor or frivolous lawsuit may pass.

What Asset Protection IS and IS NOT

Now that you have an idea of what an international trust can do for you, let’s talk about what offshore asset protection is and is not.

A properly constructed asset protection plan places a portion of your net worth behind multiple barriers…the more barriers, the greater the protection. It allows you to level the litigation playing field and move out of the creditor friendly United States and into a defendant friendly jurisdiction such as Belize or Cook Islands. An asset protection trust makes you a hard target, which may eliminate the case altogether or put you in a better bargaining position.

Asset protection does not:

1. help you escape your current or reasonably foreseeable creditors. You should not transfer assets out of the United States into an international trust to avoid a current creditor as this may be a fraudulent conveyance.

2. reduce or eliminate your U.S. tax obligations. You (the U.S. citizen and settlor of the trust) must report your international trust, your international bank accounts, and pay taxes on the gains in your asset protection trust, to the U.S. IRS. U.S. citizens are taxed on their worldwide income, including income earned inside an international trusts and Panama Foundations.

3. allow you to hide assets. Asset protection is not based on secrecy; it is focused on putting up barriers to collection. Even if your creditor had a detailed road map of your structure, they should not be able to reach the underlying assets.

4. work well with U.S. real estate. The an international trust is best suited for offshore bank and brokerage accounts and other assets outside of the United States. U.S. courts have jurisdiction over U.S. real estate, can simply ignore the asset protection trust and demand seizure the property. While it is possible to hold titles to domestic real estate in an offshore trust or offshore LLC, it’s not recommended because it provides limited asset protection and has significant tax consequences.

5. a total solution to estate planning. An international trust will facilitate transfer of international assets upon death, but should be used with a complete estate plan that is compliant with your home countries estate and tax codes.

Investments Held by an International Trust

Diversification into international investments, which are held in an international trust, can reduce portfolio volatility while maintaining returns. Effective diversification requires investing in non-correlated assets.

At any given time, various regions of the world are experiencing unique economic, political, and environmental events. Accordingly, markets in those countries will reflect local conditions and will not be highly correlated with the markets in your home country. In other words, just because times are tough in the U.S., and banks are paying minimal interest, does not mean there are no deals to be found in other countries. This important concept is essential to international estate planning and wealth management.

In addition to providing portfolio diversification, offshore investments held in an international trust provide a high degree of choice and flexibility. A large percentage of the over 80,000 funds traded worldwide are located offshore. Investing in these funds often requires an offshore entity. Operating offshore, and accepting only international structures, allows fund managers avoid US registration and regulation, operate more efficiently, and offering substantially higher returns to investors. Moreover, international funds may be denominated in any major currency providing a hedge or currency diversification.

Not only does international investing provide choice and flexibility, it provides an excellent level of privacy, thus reducing an investor’s potential exposure to frivolous litigation. Investment accounts in the U.S. can be seized by creditors. That is much more difficult offshore… and near impossible if they are behind the protective barrier of an international trust or Foundation.

Offshore investments are efficient not only because of the asset protection and privacy they offer, but also because fund managers can use risk hedging techniques which are not available in some domestic markets.

With this in mind, an international trust may be the only vehicle that a non-U.S. investment manager or brokerage will accept when dealing with a U.S. citizen. The advisor will want to be representing an entity, such as a trust, Foundation, or LLC, rather than directly working for a U.S. citizen or resident.

Asset Protection Trust Terminology

Contempt of Court:

A U.S. court can exercise jurisdiction and control over people and assets in the United States. When a defendant is in the country, but his or her assets are outside of the reach of the court, the judge may attempt to force the defendant to return those assets to their authority.

If a defendant refuses to return the assets, a judge may hold him or her in contempt of court. This means that the court will impose sanctions for failing to comply with the judge’s order. A defendant might be held in jail, fined, or both, until the assets are returned.

If the transfer of assets to the international trust is deemed to be fraudulent, it is likely a U.S. judge will order those assets returned.The only way an asset protection trust can be breached by a U.S. judge, and contempt of court ordered, is in the case of a fraudulent transfer or conveyance.

Legal Cites: Morris v. Morris, Case No. 502005CA006191XXXMB (Circuit Court, 15th Judicial District, Palm Beach County, Florida, 2006), Bowen v. Bowen, 471 So. 2d 1274, 1277 (Fla. 1985), Federal Trade Commissioner v. Affordable Media, LLC (Anderson), 179 F3d 1228 (9th Cir. 1999), and In re Lawrence, 238 B.R. 498 (Bankr. S.D. Fla. 1998).

Fraudulent Conveyance:

A transfer to an asset protection trust will generally be respected if it is done well before a debt is incurred or a creditor files a claim against the settlor (trust founder). If a transfer is made to the international trust after a debt is incurred, or after a creditor’s claim can reasonably anticipated, it may be considered fraudulent.

For example, if you create and fund an international trust on January 15, and on January 20 you injure someone with your car, the transfer of assets to the trust should be respected. This means that it is unlikely the injured party will be able to breach your asset protection trust.

If the dates are reversed, you injure someone on January 15, and fund an asset protection trust on January 20; the transfer is going to be considered fraudulent. A judge will order you to return the assets to pay the claim and, if you refuse, may hold you in contempt of court.

This is a simple example for illustrative purposes. Each State has their own rules, and there are Federal statutes at work. The bottom line is this: Form and fund your asset protection trust as early as possible, well in advance of any claim arising or legal proceedings.

Jones Clause:

This is a clause placed in the international trust to protect you against Fraudulent Conveyances. It tells the trustee to pay any claim that comes in from a certain creditor.

For example, just about any transfer, regardless of timing, that prevents the IRS (see: United States of America v. Raymond and Arline Grant, Case No. 00-08986-Civ-Jordan (S.D. FL 2005)) or State taxing authority from collecting, is going to be considered fraudulent. Thus, I always include a section instructing the trustee to pay the IRS or State Franchise Tax Board. This protects both the drafter (me) and the settlor (you).

In the car accident example above, you could create and fund an international trust after the accident, so long as you added a Jones Clause instructing the trustee to pay the injured party.

Letter of Wishes:

A Letter of Wishes is an informal and confidential letter from the settlor to the trustee telling him how to administer the international trust. Because a Letter of Wishes is not part of the trust, it is confidential, is revocable (most offshore trusts are irrevocable), and can be easily amended.

Transfer Clause:

An international trust can be formed in a number of jurisdictions. For example, a client may prefer Cayman Islands because of the large number of banks and investment advisors available. However, when that trust is attacked by a creditor, Cayman may no longer look so good.

If the trust has a transfer clause, it may choose to move to a more advantageous jurisdiction when it comes under attack, such as Belize or the Cook Islands. In other words, if a creditor seems to be making headway in Cayman, the trust may move to Belize, and the battle will begin anew.

The transfer may be automatic or conditioned on a certain event (such as a claim being filed in Cayman), or the trustee may be given the power to move the trust.

Reminder of the Benefits of an Asset Protection Trust

I would like to close by reminding you of the benefits of an asset protection trust formed in Nevis, Belize or the Cook Islands.

It is possible for you to protect your assets and maintain control over bank accounts and investments.

There are firm time limits for actions against trust assets.

Intent to defraud must be proven to a criminal standard in allegations of fraud.

Cook Islands and Belize courts will not recognize or give effect to certain judgments of foreign courts in relation to International Trusts

There is no bankruptcy law in the Cook Islands or Belize, and therefore no claw back provisions. A creditor must rely on common law fraud to void a disposition to a trust.

Barriers to claims for fraudulent transfer being brought in a Cook Islands or Belize Is court include strict time limits, requirement of proof of fraud beyond a reasonable doubt (criminal standard), and no bankruptcy law.

Procedural law prevents ‘fishing expeditions’ by creditors, restricting the use of interrogatories (discovery, etc).

Impediments to litigation in Nevis: To file a case in Nevis, the plaintiff must put up a $25,000 cash deposit and hire a local attorney.

Assets may be moved between the international trust (Belize or Cook Islands) and the LLC (Nevis).

A Cook Islands or Belize offshore asset protection trust with a Nevis LLC provides the highest level of security for personal assets. Those who most benefit from these international trust structures are persons in high-risk occupations (such as physicians and lawyers), those looking to diversify their investment portfolios, business vendors (particularly those close to retirement), and almost anyone who has saved a significant nest egg and considering moving themselves and/or their assets outside of the United States.

The bottom line is that a properly drafted and maintained international trust formed in Belize or the Cook Islands will tilt the legal scales in your favor by providing the ultimate in asset protection.

Please contact us for a confidential consultation at (619) 550-2743 or email info@premieroffshore.com.