By Bob Bauman JD, Legal Counsel, The Sovereign Society
It’s hardly news that America is one of the most sue-happy nations in the world. For many years it’s been commonplace to hear about people winning hefty settlements for frivolous lawsuits.
To grasp the severity of the problem, consider that over 50,000 lawsuits are filed each week in the US. More than $200 billion is paid each year in, damages, lawyers’ fees and costs related to tort lawsuits.
And these days, it’s easy for you to become a target.
Do you have a neighbor, friend or colleague with a petty grievance against you and your barking dog? You better take that complaint seriously. If you don’t, one day you just might find a process server at your door giving you notice of a lawsuit filed against you.
Frivolous litigation, expensive legal defense costs, outrageous jury awards and government privacy invasions have combined to create an urgent need to protect your family and business wealth and your privacy.
So today, I’m going to tell you all about asset protections trusts (APT) – a legal device that secures your wealth from lawsuits, creditors, an irate ex-spouse and even the government of your home country.
What Is a Trust…
and Who Really Needs One Anyway?
Stripped to bare bones, a trust is a three-way legal device. It’s a contract of sorts, that allows one person (the trustee) to take title and possession of cash or property and hold, use or manage those assets for one or more other persons (the beneficiaries).
The person who creates the trust (the grantor) decides what it will do and donates the property to fund it. You actually create the trust by writing and signing a trust declaration, usually as part of an overall estate plan.
Setting up a trust requires expert legal and tax advice and a careful review of existing arrangements that affect your estate.
One special kind of trust that I often recommend is the offshore asset protection trust (APT), and The Sovereign Society has long advocated its use.
The offshore APT is a powerful wealth preservation structure.
- It offers an ideal means to protect your assets and to assure your heirs and chosen beneficiaries get what you want them to have after you’re gone.
- It defends your wealth and can be the key to strategically sound and successful estate planning.
- It adds a significant layer of asset protection – distance. A domestic trust in your home country may serve your needs, but an offshore APT places your assets outside the jurisdiction of courts in your home country. And it avoids the public and lengthy post mortem probate process required when the deceased has only a last will and testament.
- It can hold title to, and invest in, real estate, cash, stocks, bonds, negotiable instruments and personal property. An APT is an excellent vehicle for investing in offshore funds, currencies and other investment possibilities generally denied by SEC rules to individual American investors.
- It can provide care for minor children or the elderly; or pays medical, educational or other expenses; provides financial support in an emergency, for retirement, education, during marriage or divorce or carries out premarital agreements.
Doing business with an offshore APT is little more difficult than dealing with your local bank, although the hours may differ in other parts of the world. These days, with instantaneous digital international bank transfers, telephones, faxes, e-mail and the Internet, foreign asset haven jurisdictions provide the kind of communication services you as a trust grantor needs to operate an APT.
With regard to affordability, the cost of creating a simple offshore trust in Panama, for example, can cost as little as a few thousand dollars, plus $1,000 annual maintenance fee.
A highly complex APT in a foreign nation can exceed $15,000, plus several thousand dollars in annual maintenance fees. Unless the total assets to be shielded justify such costs, an offshore APT may not be practical. The cost calculation should always precede a final decision on creating an APT. My suggestion is that if your total estate is valued at US$500,000 or more, you should consider creating an offshore APT
Where Should You Create Your Trust?
Many offshore financial centers specialize in the creation and administration of offshore asset protection trusts.
What the corporation-friendly State of Delaware is to U.S. companies, these jurisdictions are to asset protection trusts. Many are well developed, globally recognized financial centers. They boast modern, efficient banking, legal and other professional providers who understand servicing APTs and offshore finance in general.
Among established APT havens are Panama and Belize; the British overseas territories of the Cayman Islands, the British Virgin Islands, the Turks and Caicos Islands and Bermuda, and the Bahamas and Nevis (half of the Federation of St. Kitts and Nevis).
In Europe there are Liechtenstein and Gibraltar. Also noted for favorable trust laws are the U.K. Crown dependencies in the Channel Islands, Guernsey and Jersey and, in the Irish Sea, the Isle of Man. Way out in the south Pacific are the Cook Islands and New Zealand.
Before you choose a place for your trust, make certain of the latest developments in the jurisdiction you’re considering. You can keep abreast of the latest trust news in our Sovereign Society publications.
The Sovereign Society also can recommend attorneys and professional trust services in the U.S. and in tax and asset haven nations. Just ask us.
APTs and Taxes
Unlike almost all other nations, the United States taxes all worldwide income of its citizens and those with permanent US resident status, regardless of where they live in the world. (Many nations exempt their citizens from taxes if they live abroad).
Under U.S. tax law, foreign asset protection trusts are “income tax neutral,” as are domestic US trusts. That means the trust itself is not liable for taxes on its income. But all trust income is treated as the grantor’s personal income, reportable annually as gross income on IRS Form 1040 and taxed accordingly at personal income tax rates. The fact that a grantor’s trust is located offshore does not negate the U.S. grantor’s personal obligation to report trust income.
All this may sound complicated but it’s not really. The Sovereign Society can help members with advice on every aspect of offshore trusts. Just ask us.
Bob Bauman, JD
Legal Counsel, The Sovereign Society