If you have ever read The Firm, or seen the movie starring Tom Cruise, you have probably done a couple of things: 1. Tried a Red Stripe beer. 2. Imagined what it would be like to stash a bunch of cash in the Cayman Islands.
And you are not alone. Interest in off-shore accounts (and Red Stripe beer) exploded after John Grishman made money laundering in the Caribbean sound so exciting. Thanks in part to this attention, financial regulators now take a closer look at offshore trusts, but they are still a popular estate planning tool for high net worth individuals and families.
Below is a quick and dirty run down of some of the pros and cons of offshore trusts that the Palmer & Slay team discusses with our estate planning clients in the Brandon, Mississippi area who are interested in setting up shop on a sandy shore or in another overseas tax haven.
The Pros: Privacy, Asset Protection, and Investment Opportunities
Thanks to the Fed’s increased scrutiny of trusts established by Americans in international tax havens, and changing laws in states like Delaware and Alaska that make domestic trusts almost as appealing as international ones, there are really just three remaining benefits to establishing an offshore trust.
- The first benefit is the privacy it can offer. Many foreign nations have stronger privacy laws than the United States. These laws can shield the identity of assets held in trust in those countries, as well as the entities involved with a trust’s administration. The veil of mystery thrown over the trusts makes it very difficult for creditors to seek payment from them.
- The second benefit has to do with the fact that U.S. courts cannot compel other nations to comply with their rulings. If you are successfully sued and ordered to pay restitution, the assets held in your overseas trust are often unreachable unless the party that sued you is willing to file another lawsuit in the country where the trust is located and jump through a variety of legal hoops designed to discourage such suits.
- Finally, if you are interested in diversifying your investment portfolio, an offshore trust may be for you. Assets held in other countries can give you greater access to global financial markets, which are often less regulated than those in the United States.
The Cons: Regulatory Burdens and Administrative Costs
As noted above, the United States government has become quite suspicious of offshore trusts. The trustee/beneficiaries of these trusts are often targeted by the IRS for auditing, and if you don’t have all your i’s dotted and t’s crossed you could lose all the benefits your offshore trust provides and be subject to civil penalties or criminal prosecution.
But U.S. law is not the only law you must comply with. The nation where a trust is established will have some reporting requirements as well. Filling out these forms used to be a simple task, but many nations where offshore trusts are popular — like Nevis, St. Kitts, the Cook Islands, and the Bahamas — are increasing their oversight of trusts formed on their shores in order to curb the influence of organized crime.
Complying with this overlapping patchwork of laws can be a daunting task, so it is common for trustee/beneficiaries to hire professionals to administer the trusts on their behalf. These fees, on top of any registration fees the nation where the trust is located may charge, can add up.
Preserving Your Wealth. Protecting Your Loved Ones.
Depending on your financial situation, goals, and stage of life, an offshore trust may provide the benefits you need to meet your wealth preservation and estate planning goals.
So long as you are not in a situation like Mitch McDeere, Palmer & Slay’s experienced team of attorneys is ready to discuss your unique needs and work with you to figure out if an offshore trust can help you meet them. Please contact us today to schedule a meeting.