This is a legitimate question and one I get frequently. Many people are scared away by the term “offshore asset protection” thinking it involves something inherently illegal. This is an unfortunate consequence of being bombarded by media.
There is nothing illegal or immoral about offshore asset protection. In reality, it is not even difficult or complex as many would have you believe. In many cases it is as simple as establishing an offshore entity to own assets you already own like stocks, bonds, gold or private company stock. In some cases it involves the use of trusts.
I have touched on the tax benefits and how that can be a significant benefit, so I won’t dive into that too deep here. But if your business meets certain requirements, it is possible to move it offshore and defer taxation…indefinitely. One of the biggest threats to your wealth is destruction through taxation and this tool can offer you the ultimate in offshore asset protection.
Aside from tax benefits, what are the other benefits? The ‘what’s in it for me?’ question. Another major threat to your wealth is litigation. Litigation poses a huge threat and takes up an enormous amount of resources in the modern age. In recent reports, litigation amounted to 2.3% of our GDP. Think about that for a minute. In 2009, the US GDP was approximately $14T, which means litigation cost US citizens and businesses about $322B. To put that in perspective, Norway’s 2007 GDP was 391B.
My point is, litigation is a very real threat to your wealth and a very large cost. As your wealth grows, so does the size of the bulls-eye on your back. This is why proper asset protection planning is critically important. And an offshore strategy is not just for the super wealthy and criminals. It can be for you as well.
Let me illustrate a simple example. Fred owns a small business in rural Kansas. Fred has owned it for many, many years and has accumulated about $2m that he has begun investing in the stock market. Fred also owns a home with land in Kansas. Fred has a nice life, a good income, and a fair amount of investments.
If Fred is in a car accident and the other driver is injured, the plaintiff attorney, Lucifer, will want to find out what Fred is worth in order to determine if he is to pursue Fred beyond his insurance limits or just drop it there. Lucifer finds out Fred owns a house, a business, and a $2m investment portfolio, all in Kansas. Easy pickings. Lucifer takes Fred to court, court issues judgment, and Fred is cleaned out.
Fred’s neighbor, Jacob, also owns a small business in Kansas. Jacob also has amassed a $2m investment portfolio and a nice house in Kansas. But Jacob has moved ownership of the shares of his business to his offshore entity. His offshore entity also owns his investment account, which is held in a bank in Luxembourg. Jacob’s house is owned by a NV LLC, and the NV LLC and the offshore entity are wrapped up into an Integrated Asset Protection Trust (IAPT).
While Fred and Jacob are in similar positions, assuming Jacob also has a similar traffic accident, they are in much different situations after the accident. First of all the plaintiff attorney, Lucifer, will likely find too many roadblocks in front of Jacob’s wealth to attempt to pursue. Where does Lucifer file a lawsuit? Kansas, where Jacob lives? NV, where his LLC that owns his home is registered? Belize, where his offshore entity is registered? Luxembourg, where his investment portfolio is held? or Cook Islands, where his trustee office is? As you can see this is quite a dilemma and the roadblocks are many for poor Lucifer. Meanwhile, Jacob is safe and sound at home, sleeping peacefully knowing his assets are well protected.
Don’t be Fred.
12 Responses
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Fred,
1, in jacob’s case, this particular scenario is tax neutral. US citizens are somewhat limited in what they can do to minimize taxation.
2, in jacob’s case, again, this is tax neutral. but for non-us citizens/residents, you would be taxed based on your residence and there are options for minimizing this based on where you live.
3, jacob could be the llc manager and this is likely the best option to reduce complexities with poa’s, etc. but paying rent is not a necessity.
Hallo from Sweden! I have found your domain on alltheweb. A+ content! Nancy D. Murphy x
Hallo from Sweden! I have found your domain on alltheweb. A+ content! Nancy D. Murphy x
Thank you for that nice and clear example.
1/ In Jacob’s case, the scheme seems to give him full protection. But is Jacob’s structure also efficient from a tax standpoint since Jacob lives in the US and is therefore taxed on his worlwide income?
2/ I understand you may have simplified the example above for clarity purposes, but based on what you said (stock trading account in Luxembourg, house owned by NV LLC, own business shares owned by a Belize entity, and everything actually owned by a Cook Islands trust), is the Luxembourg-based stock trading account efficient from a tax point of view? If in Luxembourg, I guess trading activity would be taxed. We may set up a Hong Kong company that would own the brokerage account (no capital gains tax in HK) and then use the recent treaty between HK and Luxembourg so dividends of the HK company can be remitted to Luxembourg tax-free. It of course implies that a Luxembourg entity would own the HK company.
3/ Last thing: in your example is Jacob manager of the NV LLC?
Does it mean Jacob pays a fictive rent to the LLC, as if he was renting the house to the NV LLC?
Thank you for your comments, Bobby. And in spite of my first name, I’d definitely try not to look like YOUR Fred…
I couldn’t understand some parts of this article, but I guess I only need to learn a bit more regarding this, because it certainly seems interesting and kind of though-proviking! By the way, how did you first get started with this?
I’m looking forward to getting more information about this topic, don’t worry about negative opinions.
Hallo from Sweden! I have found your domain on alltheweb. A+ content! Nancy D. Murphy x
I’m looking forward to getting more information about this topic, don’t worry about negative opinions.
Thank you for that nice and clear example.
1/ In Jacob’s case, the scheme seems to give him full protection. But is Jacob’s structure also efficient from a tax standpoint since Jacob lives in the US and is therefore taxed on his worlwide income?
2/ I understand you may have simplified the example above for clarity purposes, but based on what you said (stock trading account in Luxembourg, house owned by NV LLC, own business shares owned by a Belize entity, and everything actually owned by a Cook Islands trust), is the Luxembourg-based stock trading account efficient from a tax point of view? If in Luxembourg, I guess trading activity would be taxed. We may set up a Hong Kong company that would own the brokerage account (no capital gains tax in HK) and then use the recent treaty between HK and Luxembourg so dividends of the HK company can be remitted to Luxembourg tax-free. It of course implies that a Luxembourg entity would own the HK company.
3/ Last thing: in your example is Jacob manager of the NV LLC?
Does it mean Jacob pays a fictive rent to the LLC, as if he was renting the house to the NV LLC?
Thank you for your comments, Bobby. And in spite of my first name, I’d definitely try not to look like YOUR Fred…
Hallo from Sweden! I have found your domain on alltheweb. A+ content! Nancy D. Murphy x
I couldn’t understand some parts of this article, but I guess I only need to learn a bit more regarding this, because it certainly seems interesting and kind of though-proviking! By the way, how did you first get started with this?