PRE-PLANNING OPTIONS FOR OFFSHORE

Initially, International Trusts were all about protecting assets from lawsuits. Today, they have evolved as a popular vehicle for individuals looking to diversify or invest offshore, create a reasonable level of privacy, and avoid political or social uncertainty.

For some it’s still about planning ahead to live part or full time offshore. For others, it’s a back-up plan or a flight to safety.

And for individuals looking to go the full distance, there’s an added benefit as a useful tax planning tool. In theory, this means you could remove your assets and income from all taxing bodies, worldwide. In practice, several advance pre-planning steps are necessary to reach this ultimate objective.

Whatever your international objectives might be, taking steps now is the first essential step. Read on to learn more.

First a little History on International Trusts.

Trusts have been around in one form or another for at least 2,000 years. The early Roman soldiers who owned property and marched off to war trusted their assets in the care of someone else in case they failed to return from battle. If they returned, they would retake control and possession of their property. And if they didn’t return, the property and possessions were distributed as earlier directed.

In the interim, these early trusts provided instructions on how to maintain and preserve the assets. The Romans soldiers of two millenniums ago established the first and earliest trust arrangements to be historically recorded.

Trust use and trust laws later became refined by the British. But even before the Brits, trusts were becoming more popular during the Christian Crusades as knights and warriors went off to war in the Middle East.

Several hundred years ago, Brits were settling trusts for purposes of managing risks and wealth preservation. As the British Empire expanded and conquered the world during the 1800s, the concepts of trust law traveled with them as the new colonies incorporated the British legal system. These newly conquered British lands, and the newly founded United States of America, adopted the trust system as it was then known.

What is International Pre-Planning?

International pre-planning is about thinking through steps in advance to accomplish a specific objective before taking action.

A popular goal might be to relocate to a dream destination, full or part time. For many it means opening doors to global investment opportunities not found at home. For most, a major component is still about asset protection and wealth preservation, whether from risks of litigation, or political or social concerns at home. An objective for some is to legally minimize income tax obligations from different sources.

At the end of the day, pre-planning means understanding what you want to accomplish, and what action is necessary to reach your goals.

Trusts as they Exist Today

In principal, trust law concepts today allow an individual to place their assets segregated from the claims of creditors and others, so long as the assets are not collateralized or subject to the claims of others.

“Self-settled” trusts – a trust created by someone intending to benefit from the trust assets – became a common method of protecting one’s assets long ago, well before the thirteen original colonies were founded in the U.S.       

In the U.S., as these things sometimes go, American law diverged from the original founding principles of well-settled British trust law that had spread around the globe. In particular, the U.S. courts took a different point of view in using self-settled trusts for protecting assets and refused to allow those with assets to be set aside from future creditors' claims, even though the assets were free from claims when the trust was first established. Trust law around the rest of the world continued far more favorably for protecting assets consistent with original trust law principals.  

In essence, the U.S. legal system diverged from long standing trust law legal precedent of over two thousand years.

In other words, unlike the U.S., the remainder of the world influenced by British trust laws, trusts have mostly evolved consistent with the original Roman and British trust law concepts of days gone by…. and the basic trust law principles of self-settled trusts still survive elsewhere.

The good news is that there are plenty of jurisdictions around the world founded upon long-settled British trust law allowing you to segregate assets from the claims of others by using a self-settled trust. You just need to know where to look, how to use it, and understand the trust principles of these jurisdictions to make them work to your benefit.

Are U.S. domestic asset protection trusts a good alternative to International Trusts?

The short answer is no.

We covered this topic in more detail in our last newsletter. And in numerous other past newsletters we’ve compared International Trusts to the U.S. variety now found in sixteen U.S. states. You can read more why here…. but the bottom line is that the asset protection trusts in the U.S. still fall far short of the International Trust. 

How to Minimize Taxes when Going Offshore?

If you are considering moving to another jurisdiction, then you are engaging in pre-migration planning.

A International Trust is a very useful and important tool in accomplishing many different types of planning objectives. I explore the many uses of International Trusts for asset protection in How to Legally Protect Your Assets, 2nd edition. And in Offshore Living & Investing, 2nd edition, we dive deeper into many other offshore uses and considerations when going offshore. 

For pre-migration planning purposes, an essential requirement is to create and pre-settle a trust in a different venue with solid trust law protective provisions. Not only can you benefit from asset protection and wealth preservation properly integrated with estate planning, you also have an opportunity to keep income producing assets outside the reach of a newly adopted homeland.

However, it is essential the trust is created before making a move to another country.

Benefiting from an International Trust for pre-migration planning purposes is simply using well-settled legal trust concepts for a specific purpose. As a practical matter, if the trust assets are ‘after tax’ assets (meaning you have already paid income tax on them) you shouldn’t pay income taxes on those assets again simply because you move to a new address. 

It doesn’t make logical sense that you would, but it often occurs if pre-planning is not correctly in place before relocating to a new jurisdiction.

One more thing …

Taking things one step further, generally speaking, if you maintain a pre-settled International Trust with assets offshore, and then follow the rules of the local taxing jurisdiction where you elect to live offshore, income tax obligations can be avoided in your newly adopted country. Naturally, there are many tax and legal issues to consider, and planning should only be created and administered by a well-qualified professional.

Using an International Trust for pre-migration planning varies greatly from country to country, and person to person.

But the basic concept is that you pre-settle your International Trust in a foreign jurisdiction with assets prior to taking up your new residency, which is in a different jurisdiction from where the trust is established. Thereafter, keep the assets and income outside of your adopted homeland to avoid income taxation.

A foreign non-resident citizen can invest huge amounts of money in the U.S. system – tax free. And a U.S. person can do the same, if done correctly.

There are numerous classes of assets that enjoy a tax free status because the U.S. government desires that they invest their money into the U.S. for a variety of reasons. Foreigners migrating to the U.S. with a pre-settled offshore trust can continue to enjoy various benefits that a U.S. citizen or U.S. tax resident cannot avail to themselves, so long as a trust is timely structured before they become a U.S. tax resident.

You too can enjoy the same benefits as foreigners when considering offshore. But remember, U.S. citizens and tax residents are still taxed on worldwide income. However, even that yoke can be removed if you pre-plan for the necessary steps.

Any surprise why the U.S. government likes to slander ‘offshore’ jurisdictions that provide its citizens with a better deal?  

Taking this one step further ….

Going Global with No Tax Residence?

You could also be a legal resident or citizen of one or more countries and avoid being taxed anywhere in the world. This could be accomplished with pre-planning and foresight, and a thoughtful travel schedule. For U.S. citizens, this would mean first giving up U.S. citizenship.

U.S. citizens do not share the same freedoms as its neighbors around the world, and is the only civilized country in the world with draconian, overburdening tax laws with taxation on worldwide income, regardless of domicile, legal residency, or where the income is earned.

Two important questions to first consider when moving self or assets to a new country:

1) What are the legal residency requirements, and 2) what should you consider regarding tax issues related to the new jurisdiction?

Once you have outlined these needs, you can safely begin planning around those issues with your own International Trust structure.  

To learn more, take a sneak peak at the table of contents of How to Legal Protect Your Assets, 2nd edition. And see the table of contents for Offshore Living & Investing, 2nd edition. Both books are available in quaility soft cover, pdf, or Kindle, at reduced prices from our web site at DavidTanzer.com. Still looking for a holiday gift? - hint, hint.

Visit our web site for many more planning tips and complimentary Past Articles.

And if you'd like to discuss your planning objectives in a confidential initial review, contact me here.

Until next time…..

David