Offshore Trusts – Secrets of Asset Protection

How can you keep your assets secure and tax-free?

Keeping your assets safe from creditors and the government has become progressively more difficult since 9/11. Under the pretext of countering terrorism, governments and their tax authorities have aggressively targeted offshore havens and made an effort to link offshore banks with money-laundering and serious criminal activity. The OECD published an offshore blacklist of countries that they consider ‘un-cooperative’ in the collection of taxes and is planning to issue a new report sometime in 2009. Many jurisdictions no longer offer the same protection they once did, and some have gone as far as to say that it is no longer possible to benefit from offshore structures.

While you should certainly exercise caution, there are still methods of practicing legal tax avoidance while keeping maximum privacy. Offshore does not necessarily have to mean a ‘tax-haven’, and some of the best structures are to be found are in traditionally high-tax countries. One of the best ways of maintaining your privacy while still having control over your money is by placing it in an offshore trust.

Here we take a look at why and how offshore trusts are used.

Why put your money in an offshore trust?

1. Asset Protection. If you truly want make sure that no one can get to your nest-egg it’s always good to distance yourself from your assets. Offshore trusts do exactly that by removing the burden of legal ownership, while keeping you in a position of control.

2. Privacy. Trusts are good alternatives to wills because the terms of a trust are private. Not everyone wants their financial status to be public knowledge. Privacy also goes hand in hand with asset protection and keeping your taxes to a minimum.

3. Estate Planning. Offshore trusts are often used for estate planning to make sure assets go to the people who you intend to be the beneficiaries. In your home country forced heirship rules may apply, which ensure that assets go to a certain person no matter what you say. Most offshore trusts specifically exclude forced heirship rules, and can be set up to include other very specific instructions. For example, you could stipulate that if your wife remarries, her share of assets will be transferred to your children instead.

4. Tax Planning and Avoidance. Since trusts have their own special tax laws, they are often used as holding companies for legal tax avoidance. Most offshore trusts will not charge any inheritance tax, or capital gains tax on income sourced outside the country.

Which offshore trust and jurisdiction is best for me?

It can be hard to choose from between the multitude of products, jurisdictions and services on offer. Trusts are most definitely not a one-size fits all policy. The choice of trust will be determined by the size and type of investment, your own country of residence, and what your priorities are (privacy, asset protection, tax-avoidance). If you are looking for a trust with a low-profile that will not be tainted with offshore connotations, the best on offer today is the New Zealand Foreign Trust.

This trust is very popular because it will provoke few questions – New Zealand is a full member of the OECD, FATF and World Trade Organization. Its regulatory environment has been consistently ranked either No 1 or No 2 by the World Bank, and it is absolutely not a tax haven. Nonetheless anyone who is not a New Zealand or Australian resident can get a tax free trust with minimal disclosure. Only the trustee (who can be a nominee or a trustee company) has to be named on any public register, and the trust itself can be denominated with a numbered code. All income sourced offshore is totally tax free, and there are no capital gains, inheritance taxes or forced heirship rules.

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