Offshore AP Structures
On this introductory page, we will not go into chapter-and-verse on offshore planning. As a general conclusion, we should start by emphasizing that properly structured offshore planning is quite rational and forms a critical part of most well-conceived asset protection plans for affluent clients.
Offshore asset protection is the “best” way to protect liquid wealth. The question is: Does using an offshore structure make sense for your particular situation?
Question — Why don’t more clients use offshore planning to protect their wealth from creditors?
Answer — To put it bluntly: ignorance. Law, accounting, MBA, insurance, finance, etc., curriculums DO NOT teach advisors about the basics of asset protection planning, let alone the particulars of offshore planning. Unfortunately, in this society, if you do not know about a topic, your default position is that it is no good. That is certainly the case with offshore planning.
Question — What are the three main offshore asset-protection tools?
Answer
- Offshore Asset Protection Trust (OAPT) — An OAPT is the bread and butter asset protection tool for quality advisors who help their clients protect their domestic and international liquid wealth. For more information on OAPTs, please contact our firm.
- Offshore Limited Liability Company (LLC) — Offshore LLCs work similarly to domestic LLCs when it comes to protecting your wealth; however, some foreign LLCs do not fall under the jurisdiction of the U.S. There is greater certainty in the application and enforcement of “charging orders” pursuant to the local laws. For more information on offshore LLCs, please contact our firm.
- Offshore Captive Insurance Company (CIC) — Offshore CICs serve as both an asset protection tool and a tax-minimization tool, both of which have wealth-preservation features.
Question — Does your money have to go offshore to be protected?
Answer — No. Properly arranged “offshore” planning can incorporate a domestic LLC, which is owned by an OAPT. Only if a lawsuit is filed against you is your money removed to an offshore jurisdiction.
Question—Can offshore planning help you avoid “taxes”?
Answer — As a general rule of thumb, the answer is NO. U.S. taxpayers are taxed on their worldwide income from whatever source it is derived. That being said, offshore trusts can own many of the same tax-favored vehicles that you can own in the U.S. (such as life insurance or annuities). Therefore, you can create a structure that offers the highest level of asset protection along with the lowest levels of taxation available under the U.S. tax code today.
Question — If the money in your OAPT is trusteed by someone out of the country, don’t you run the risk of having the trustee steal your money?
Answer — Not Really. Most trustees are large institutions which eliminate the fear that a foreign trustee will run off with your money (Wells Fargo, Fifth Third Bank, and Northern Trust, being domestic examples of trustees).
Final thoughts
There is nothing inherently complicated about “offshore” planning. It is simply choosing to plan with the laws of a select foreign jurisdiction which offers better asset protection provisions than the U.S. Because few people know the topic, it is shunned by some and feared by others. Offshore planning is not complicated, and most of the time your money NEVER leaves the U.S.
Do be careful when choosing an advisor to set up your offshore plan. While correct offshore planning is as safe as having your money at Bank of America, offshore planning done with the wrong advisors can put you in a terrible situation.
To determine if an offshore structure makes sense for your individual situation, please contact our office at info@thewpi.org.
