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Benefits Of Diversifying Offshore

Going Offshore Primer Part 2–Protecting What You’ve Got

Yesterday, in Part 1 of this Going Offshore series, you read about why opening a bank account offshore can be the simple but effective first step to diversifying your life offshore. Having some of your cash outside your home country is a hedge against crisis in your home country. It’s prudent even in a stable environment, as you never know when something might occur to challenge that stability.

Once you have your offshore bank account set up, you next should consider protecting more of your assets more formally. The questions then are how and where.

The answers depend on many factors including your longer term plans for living, investing, and estate planning. You could set up an offshore trust or foundation. Those are the two most typical asset protection entities that can also fit into an estate plan. Corporations and LLCs have their place, as well, again, depending on what kinds of assets you’re working with.

At a recent conference, someone asked, why bother with an offshore trust when a U.S. trust could also protect an American’s assets and wouldn’t come with the extra tax compliance issues of an offshore trust. In fact, a U.S. trust does come with its own tax forms, just as a foreign trust would for U.S. persons. It’s just different forms and, indeed, can amount to more reporting given the foreign assets typically found in a U.S. trust.

The more important point, however, is that a U.S. trust doesn’t provide an American with any asset protection. You as the beneficiary of the trust could be compelled to use trust assets to comply with a monetary judgment against you. A U.S. trust is typically used for estate planning purposes. It is possible to form an asset protection trust in the United States, in certain states, but the rules associated with maintain the asset protection are strict (and I wouldn’t be surprised if some clever attorney couldn’t find a way to break this kind of trust).

A good example of breaking the asset protection barrier is an IRA. This is supposed to be a protected asset. However, years ago, judges in the state of Florida began forcing people with IRA funds to use those funds to pay current judgments. It started with a judgment against future withdrawals from the IRA. Then another judge decided not to make the plaintiff wait and forced the IRA beneficiary to take an early withdrawal from his IRA, triggering penalties and tax consequences. So much for a protected asset.

Going offshore can offer layers of asset protection. First, a plaintiff would have to find an attorney back home willing to take on a lawsuit against you, knowing that it could be years before any judgment could be enforced…if one ever could be enforced. While most U.S. attorneys are willing to work on a contingency fee basis to file a frivolous lawsuit for anyone who walks into their offices, they are likely to require a big fat retainer from a client when they realize the assets that client is going after are offshore and therefore not easily gettable.

Second, enforcing a judgment in another jurisdiction is virtually impossible if you set up your trust or other entity in the right jurisdiction. The plaintiff’s attorney, having won his case against you in the United States, effectively would have to start the action all over again in the jurisdiction where you have your structure. For this fight, they will have to hire a local attorney, which is an additional cost.

Finally, with a proper trust structure set up by a qualified U.S. attorney in a favorable trust jurisdiction, you should be able to move the assets in question to another jurisdiction should they come under attack.

Of course, an offshore trust doesn’t make sense for everyone. You have to have enough assets to protect to warrant the expense of setting up and maintain the trust. A reasonable baseline figure for that is US$500,000.

What if you have fewer assets than that? You’re not left totally in the cold. You could still benefit from some asset protection using an offshore corporation or LLC. These could help you to get your assets offshore, which likely would, in many cases, keep that attorney I spoke of earlier from filing his client’s frivolous law suit against you.

Which entity makes sense for you? That’s a loaded question, as there are few one-size fits all offshore solutions. This is a big part of the reason why many people get stuck before they even get out of the gate or, worse, make false starts in their efforts to diversify offshore.

One reader I spoke with recently set up a corporation in Panama a few years ago because his friends said he should have an offshore corporation. He had already bought real estate in Panama, so Panama seemed the natural choice for where to base the corporation. Today, the guy still has the corporation, but he hasn’t done anything with it…and he doesn’t know what to do with it now. Having spoken with him, I’d say that he doesn’t need a Panama corporation or an offshore corporation at all. He probably needs a trust, a foundation, or maybe an LLC. The costs of creating and maintaining the corporation for years are now sunk, and the poor guy has nothing worthwhile to show for it.

Taking your life offshore isn’t hard, but you do need a plan before you begin creating random structures ad-hoc. Otherwise, you risk wasting time and money (maybe a lot of money) on unneeded entities.

This is a big part of the reason why I’ve put together what I’m calling my Wealth Retreat, taking place in Panama in June. For this unique event, I’ve invited my personal offshore advisors, from U.S. attorneys to country attorneys, bankers, tax specialists, and investment advisors, to meet with me and a small group of readers interested in conceiving and planning, with the focused and integrated help of all the experts on hand, a fully customized offshore asset protection and wealth plan. The group of us will spend four days together at a private resort on the Panamanian coast, where we’ll have some general discussions but, more important, we’ll also have lots of one-on-one time.

It’s a serious agenda, but it won’t all be work. I’ve incorporated some activities into the schedule, from deep-sea fishing to golf and bike riding around the 1,000-acre resort property. Going offshore isn’t only about assets and wealth. It’s also about fun.

Lief Simon

P.S. As I said, deciding whether you need to take some asset-protection measures or not depends on the level of assets you’ve got. It also depends on who you are and what you do. An Ob/Gyn who delivers dozens of babies a year, for example, certainly has a risk level that’s high enough to make this kind of effort make sense.

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