You are probably reading the title thinking I have lost my mind. Your thoughts are probably something like this; “He promotes offshore asset protection as a necessity in these tumultuous times. How can he rationally recommend asset protection structures in the US?”
While it is true, I do think offshore companies, offshore banking, offshore trusts and other options have an enormous amount of value for effective asset protection planning, there are several very good reasons to implement US domestic structures in your asset protection planning process.
Real Estate Investors. One of my most common categories of clients are real estate investors. More specifically, US real estate investors. In my experience, most real estate investors begin their asset portfolio one property at a time. They buy their first rental house, then another, then another.
Some begin in multifamily or commercial real estate investments, but regardless most start small and strategically add properties as budget and funding sources allow. During this process more real estate investors are narrowly focused on growing their business and less concerned with asset protection.
Unfortunately for real estate investors, asset protection should be one of their primary concerns because as your asset portfolio grows, so does the size of the bulls-eye on your back. Even more importantly than the size of the target is the ease with which future potential creditors can seize or lien your assets in the event of a judgment.
For me to recommend offshore structures for owning US domestic real estate assets would be ignorant and irresponsible. I am sure many people use offshore companies like LLC’s and IBC’s to own their US real estate, but it is just not the best way to go about proper structuring.
As this article is not meant to be a tax planning guide, suffice to say there are some negative tax consequences using offshore companies to hold title to US real estate.
There are a variety of ways to properly structure your real estate holdings for effective asset protection planning. Each investor’s situation is different so there is no ‘blanket’ approach, but the following is a list of tools we use for real estate asset protection planning:
- Wyoming or Nevada LLC’s
- Land trusts
- Friendly liens or equity stripping arrangements
- Asset protection trusts
For an investor with a portfolio of single family homes, utilizing land trusts for holding property title with one LLC as trustee and another LLC as beneficiary is an excellent option. This provides a cost effective asset protection structure that is easily scalable as you add properties to your asset portfolio.
Another option would be to use a Nevada Series LLC. With a properly structured operating agreement, you can have one LLC with each property held in a different series allowing you to segregate you risk.
For those of you that have more significant holdings like high value commercial property or several residential properties, it is an excellent idea to have a completely separate LLC as your property management company so that you can segregate the operational side of your business from your asset holdings.
I won’t go into too much depth here, but equity stripping is an excellent option for real estate investors to protect the asset value in your property and lower your profile risk. A property with little or no equity is not very attractive to a creditor since there is effectively no equity to attach.
Of course for those interested in making their asset protection plan bulletproof (or as close to that as possible), wrapping your LLC’s inside an asset protection trust may be the ultimate tool for your specific needs.
US Equity Traders and Investors. You may consider this to be counter-intuitive in the sense that moving liquid assets offshore is your one of the most effective ways to protect your wealth. With this, I still agree.
Regardless of what you think about the direction of the US from a political and economic perspective, some of the most efficient and effective trading markets and platforms are still US based. Sure, you can have your Interactive Brokers trading account in the name of your Seychelles Offshore IBC, but remember the assets themselves are still in the US.
For many traders and investors the best option is to do your trading through a properly structured Wyoming or Nevada LLC. These two states by far have the best asset protection laws giving you the utmost privacy and legal protections available from a US based entity.
I would still recommend keeping a portion of your liquid assets offshore, but for active traders based in the US or primarily trading the US markets, a Wyoming or Nevada LLC may make the most sense for your business.
US Based Internet Entrepreneurs. As before, I am a firm believer in utilizing offshore companies like a Seychelles Offshore IBC for online business, but if you are living and working in the US with a domestic customer base, this type of planning for your operating business is generally pointless.
For many internet entrepreneurs, a properly structured Delaware LLC provides you with the best asset protection, privacy and simplicity for operating your business.
Delaware has no sales tax and thus if your LLC is registered in Delaware you can get a sales tax exemption form from the state which will satisfy your vendors who require a identification number in order to be sales tax exempt. This minimizes your paperwork and reporting requirements allowing you to focus on the productive activities of your business.
Additionally, Delaware has notoriously excellent asset protection laws that have for decades protected the rights of LLC members from overly litigious claimants seeking to gain their wealth through legal action.
Non-US Nationals. The news outlets report daily on the current administration’s attack on offshore banking, offshore investments, and worldwide income. From reading these reports you would think privacy is dead in the US and taxation is overbearing making US entities less attractive than their offshore company counterparts.
For Americans, you would be 100% correct. But for non-US nationals, the US remains the largest and best offshore privacy and tax haven in the world.
This may come as shock to many of you reading this, but ironically there are a completely different set of privacy guidelines for non-US nationals than for American citizens and residents. For example, it is easy for a Russian to open a Delaware LLC in complete privacy and use that LLC to open a US bank account.
From this Delaware LLC, the Russian investor can open a trading account at any of the larger brokerages and trade just like you and I. The big difference is that the Russian has the ability to avoid all US taxation if done properly (**disclaimer – I am not a tax planner, nor do I play one on TV. See your professional tax planner for details**).
Also from this Delaware LLC, a French internet entrepreneur can operate his global operation tax free as long as he has no US customer base (**see above disclaimer**).
The point is for non-US nationals, utilizing a US based LLC may be your best, and often overlooked, option for safe and private offshore company and offshore banking operations.