International Strategies: Offshore LLCs and Trusts
Have you heard that going offshore might save on U.S. federal income tax? It’s WRONG! Any advisor who tells you that you can move assets offshore and avoid taxes is an advisor you want to stay far away from.
Offshore planning is also very much on the pricey side. While you might be able to implement an entire asset protection plan domestically for $2,500-$10,000, a similar offshore asset protection plan could cost in excess of $25,000.
So why would anyone consider going offshore?
The simple answer is that offshore planning may be the best way to protect your assets. If you have a lot of assets, that is, millions of dollars worth of assets, going offshore may well be worth the extra expense, trouble, and risk.
Why? Good offshore planning takes your assets out of your control and puts them in a place that the U.S. government cannot reach. The U.S. only has jurisdiction over people or property located within the U.S. borders. When you move your assets to an entity that is offshore, you remove your property from U.S. control.
Offshore investments are also much better protected from creditors. Creditors have to bring a separate lawsuit in the jurisdiction where the assets are located. To bring such a civil lawsuit after getting a judgment from a long U.S. civil lawsuit will cause a creditor much grief and expense.
There are several options for offshore investments. Here, we’ll focus on LLCs and Trusts.
Probably the simplest and best offshore planning tool is a Nevis LLC. It will protect your assets much like certain U.S. LLCs would, where the only remedy a court can give a creditor is a charging order.
But when your LLC is in Nevis, a foreign jurisdiction, the creditor has to file suit in Nevis. Asset protection plus litigation deterrence make the use of a Nevis LLC a powerful option.
Offshore trusts are similar in some respects to traditional trusts in the U.S. They have all the same flexibility of design as domestic trusts when it comes to adding provisions.
But of course, they also offer powerful additional advantages:
U.S. Courts have no jurisdiction in a foreign country and, therefore, have no control over the assets in a foreign offshore trust.
U.S. Courts typically do not use Contempt of Court (where the court would send you to jail until you brought back your assets from the offshore trust) when assets are properly transferred to offshore trusts. However, there have been exceptions.
In addition, most of the offshore asset protection havens have drafted their local laws to be as friendly as possible to U.S. citizens looking to shield assets from lawsuits. The laws make it extremely difficult for a creditor to gain access to the money in an offshore trust.
The advantages above are offset by some serious potential problems, however. It may be hard to find a foreign trustee you can trust and who will remain solvent. What typically happens if there is a lawsuit where a creditor tries to get at assets in the offshore trust is that the client (i.e., you, the physician) who is a co-trustee loses his/her powers and the foreign trustee (who is not subject to the jurisdiction of U.S. Courts) takes over total control of the assets in the trust.
Once you lose control, however, you can never be sure whether or not the foreign trustee is going to “do the right thing”, the right thing being to protect the assets in the trust, not embezzle the money. Just as it is difficult for creditors to go offshore to try to get your assets in an offshore trust, it will be just as difficult for you to sue your foreign trustee if that trustee embezzles your money.
It’s easy to see how offshore trusts may have great potential benefits, but the risks and expenses are great as well. If you are even considering this option, you should definitely seek the professional advice of an expert lawyer who has plenty of experience with offshore trusts to be sure you set yours up correctly so you will be able to reap the benefits while minimizing the risk.