8 Reasons for Choosing Foreign or Offshore Trusts
TAX COMPLIANCE MAKE FOR A STRONGER OFFSHORE TRUST - FEDERAL IDENTIFICATION NUMBER
A domestic trust may or may not apply for a federal identification number. Revocable trusts need not apply, but an irrevocable trust generally applies for Federal identification. A federal identification application is filed on federal Form W-4. If it's a foreign trust, the grantor must check the box on Form 1040 schedule B, line 7a for the existence of a foreign bank account, and Form 1040 schedule B line 8 reporting the creation of a foreign trust on Form 3520.
WHY CONSIDER A FOREIGN OR OFFSHORE TRUST
OFCs (Offshore Financial Centres) can be used for legitimate reasons taking advantage of:
1. Lower explicit taxation and consequentially increased after-tax profit.
2. Simpler prudential regulatory frameworks that reduce implicit taxation.
3. Minimum formalities for incorporation.
4. The existence of adequate legal frameworks that safeguard the integrity of principal-agent relations.
5. The proximity to major economies, or to countries attracting capital inflows.
6. The reputation of specific OFCs, and the specialist services provided.
7. Freedom from exchange controls, and
8. A means for safeguarding assets from the impact of litigation etc.
They can also be used for dubious purposes, such as tax evasion and money-laundering, by taking advantage of a higher potential for less transparent operating environments, including a higher level of anonymity, to escape the notice of the law enforcement agencies in the "home" country of the beneficial owner of the funds.
The practical consideration of going offshore is that court judgments are not enforceable in offshore jurisdictions. The fraudulent conveyance rules do not apply for example in the Cook Islands and are not enforceable. A U.S.-based creditor holding a judgement in his favor from a U.S. court would be required to commence a new action in the offshore jurisdiction would be required to post a bond and has to hire a local attorney admitted to practice before the courts of the offshore jurisdiction. If this lawyer takes one of these cases, it may very well be his last case. Offshore lawyers get paid upfront, because they don't take contingency cases.
WHEN DOMESTIC ASSET PROTECTION IS NOT ENOUGH
When onshore (i.e. domestic) asset protection is not enough, the only alternative is to go offshore. The U.S. lawsuit explosion is forcing people to think outside the box. Even where Alaska and Delaware have enacted special provisions to allow these states to compete for the offshore trust business, the requirements are too burdensome. In other words, some of the assets must be domiciled in Alaska and the trustee must be in Alaska.
These states that have enacted special provisions say their provisions are competitive with offshore jurisdictions but they are sadly mistaken. If the asset is within the jurisdiction of a U.S. Judge, the assets are at risk to the full extend of the U.S. Court system. It is true it may be a little more difficult to enforce but it is certainly within the U.S. borders and therefore cannot compete with a non-executable judgment offshore.
Related Tags: foreign trusts, offshore trusts, lower explicit taxation, after-tax profit, tax compliance, safeguar
Author bio - Rocco Beatrice, CPA, MST, MBA
Award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
-----
Asset Protection Irrevocable Trust-Estate Planning
Differences of Domestic and Foreign Trusts
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034
Recent articles in this category:
- Facts About Home Equity Line Of Credit Everyone Should Know
Home Equity Lines of Credit (HELOC) provide homeowners with a ready source funds for major planned a - Single Member LLC- Charging Order, Creditor Claims, Pass-through
Recently I've run across some significant issues with the single member LLC's with courts handing do - Fraudulent Conveyance, Civil Conspiracy, Uniform Fraudulent Transfer Act
Under the Uniform Fraudulent Transfer Act you would be committing a crime, see Section 19.40.041: ". - Charitable Remainder Trust - Having Your Cake & Eating It Too
Using this method of charitable giving, you can actually give your assets away and keep them. It's l - Protect, Provide & Profit - A Family Limited Partnership
A Family Limited Partnership is becoming one of the most popular methods to pass the equity in a lar - Living Will
A living will is a legal document that you create to prepare your medical care and finances in the e - Spendthrift Trusts - Checks And Balances For Dysfunctional Beneficiaries
Spendthrift trusts are rapidly becoming a key estate planning tool for families with one member who' - Offshore Annuity, Deferred Variable Annuity
An Offshore Annuity works very similar to a deferred variable annuity. The owner pays into the annui - Estate - She Came Out Of Nowhere
If you'd hit her in the passenger door, you probably would have killed her," the officer told me as - Estate - When Friends And Family WANT Your Money
Few situations have a greater potential for problems as when dealing with money and relatives. If yo
Most viewed articles in this category:
- Why a Durable Power of Attorney is "Durable" and Why It's Great for Estate Planning
English common law understood that agents were sometimes needed in business and commerce. The presi - Selecting Trustees and Executors - Some Considerations and Ideas
Selecting an executor or trustee is often the last consideration when preparing an estate plan. Whe - Special Needs Children Need a Special Needs Trust
How to Provide for the Special Needs Child.Life for the parent of a Special Needs child often involv - Getting the Right Inheritance - Estate Planning Through a Family Limited Partnership
A Family Limited Partnership (FLP) is a powerful tool that you can use in estate planning. An FLP ca - Children, Guardianships and Wills: Estate Planning for Young Families
Consider this scenario: Both you and your spouse are young with two small children. You don't make - What is Values-Based Wealth Planning
Between the years 1980 and 2030 it is estimated that the largest transfer of wealth from one generat - Setting Up a Special Needs Trust for a Disabled Relative
Many of us have a family member or close relative with a disability. We'd like to leave a portion of - Why Everyone Needs At Least a Living Trust
There is one thing we all share in common: our days on this planet will come to an end - probably by - Asset Protection - Why Do You Need It
By the time people reach their forties, many have a growing family and responsibilities. Many alread - Medicaid and the Living Trust
You've probably gotten a postcard or seen an ad for a seminar on "Living Trusts" and all the benefit