Destruction of Perpetual Wealth – 40 More Days

by Bobby Casey, Managing Director

In 40 days, massive changes occur in regards to estate taxes. For 2012, you can give $5.12M gift tax free to your heirs. If you are married, you can give $10.24M. This threshold equates to the non-taxable portion of your estate when you die.

The estate tax is currently set at 35% of any assets over the $5.12M amount, $10.24 for a couple. Next year you can expect massive changes.

Unless something changes before December 31^st, the estate tax goes to 55% for assets over $1M, or $2M per couple. This will have a huge impact on your estate at time of death.

If your estate is currently at $5M, you can gift the entire amount of the estate to a trust tax free and your entire nest egg escapes the estate tax permanently.

If you wait until next year, your estate tax jumps to $2.2M ($5M – $1M X 55%). That is a massive increase and will cost your heirs a lot of time an hassle when attempting to settle your affairs.

Keep in mind that once you move your assets into an offshore trust, the trust assets can grow estate tax free. As trust grantor, you will still be liable for any taxes on the assets during your lifetime, but by moving your assets into an offshore trust you make your estate completely anonymous and outside the reach of the estate tax trap.

However, do not confuse a living trust with this type of trust. A living trust is an excellent tool for keeping your assets out of probate thus reducing the cost and nightmare your family may go through settling your estate, but it is a revocable trust and does not eliminate your estate tax burden.

In order to eliminate your estate tax burden, you must place your assets into an irrevocable trust, meaning neither you, the court nor the tax department has the legal authority to revoke the trust placing it into your taxable estate.

At Global Wealth Protection, we offer a few options for irrevocable trusts, but our preference is offshore asset protection trusts. This typically accomplishes you goals of asset protection and estate planning.

Many people seem uncomfortable with offshore asset protection trusts for some reason, but our belief is they are much safer than US domestic asset protection trusts since your trustee is in an offshore jurisdiction like Cook Islands or Belize making them unaffected by any US court ruling.

The other issue that many people seem uncomfortable with is the idea of giving up control of your assets to an offshore trustee. Being a consummate control freak myself, I can certainly empathize with this notion.

An often overlooked option here is an offshore foundation. A foundation is a well recognized entity founded in a offshore jurisdiction such as Seychelles or Belize that can be treated as either a trust or a corporation for US tax purposes.

There is no clear ruling on how they are treated, but case law sides with the ‘duck theory’ – if it looks like a duck, smells like a duck, and tastes like a duck, it’s a duck. In other words if your offshore foundation functions like a trust, it will treated like a trust; if it functions like a corporation, it will be treated like a corporation for tax purposes.

You can set up a Seychelles or Belize foundation for estate planning purposes to own your assets and it could be considered a trust for this purpose. The benefits of a foundation are many;

• No shareholders or members (no owners)
• Founder chooses management
• Founder decides purpose of offshore foundation
• Can be fixed or perpetual existence
• Elimination of estate tax
• Founder can be person or corporation
• Centralized management of worldwide assets
• No local taxes on foundation assets

A Seychelles or Belize offshore foundation is perfect for holding assets like;

• Private or publicly traded company shares
• Investment portfolios
• Real estate
• Intellectual property
• Bank accounts
• Insurance policies
• and nearly any other asset

Some practical uses of a Seychelles or Belize offshore foundation are;

• 100% anonymity – the founder’s wishes are not publicly registered
• Asset protection
• Recognized in all civil or common law jurisdictions
• Avoidance of forced heirship rules
• Ownership of family assets
• Charitable purposes
• Maintenance of control over family businesses
• Minimization or elimination of estate tax
• Perpetuity of family assets

A Seychelles or Belize offshore foundation is similar to a trust in many ways and can be considered a sort of hybrid between a corporation and a trust. A foundation has a founder (grantor), a manager (trustee) and management board (no trust equivalent) who elects the manager to make decisions on foundation assets. An offshore foundation also has beneficiaries like a trust.

Whereas a trust must have a registered trustee in the offshore jurisdiction, the foundation’s management board must elect its manager, which can be the same person as the founder which means you can retain control over the assets during your lifetime as well as potentially save on trustee fees each year.

This is an excellent option for someone looking to establish an offshore asset protection plan, but is uncomfortable with the idea of losing control and/or the additional annual expense of the offshore trustee fees.

As of today, you have 40 days to establish a trust or foundation to escape the estate tax trap. If you have assets over $1M or the ability to grow your existing assets over that threshold, you really need to get a trust or foundation in place unless you are comfortable with 25-50% of your wealth being consumed by the worst capital allocator in the history of the world – the government.

Contact us today to set up your offshore trust or foundation.