In discussing anything offshore regarding U.S. citizens, whether involving offshore trusts, offshore investments, offshore banking or incorporating offshore, some facts should be taken into consideration:

All U.S. citizens are taxed on their worldwide income. This includes income from interest, dividends and any gains made whether onshore or offshore.

The U.S. government does allow both money and assets to be freely moved offshore. However, it requires full disclosure in relation to the amount of money or assets moved, and when they are moved.

The U.S. government has task forces that are committed to prevent money laundering and income tax evasion.

The U.S. government has made it clear that U.S. citizens comply with reporting and taxation demands.

There are those who think that the above information effectively renders the offshore world inaccessible for U.S. citizens. They’re wrong. Using offshore trusts and bank accounts is an excellent way for U.S. citizens to legally and securely protect their assets and themselves from litigation.

Offshore trusts offer people a fair degree of personal confidentiality, privacy and asset protection from creditors and other plaintiffs and, if properly structured, offshore bank accounts offer degrees of financial protection from future claims as well.

There are a number of companies and individuals out there who claim to have the ability to offer U.S. citizens offshore solutions for tax reduction or negation purposes. This is false! As previously stated, all U.S. citizens are taxed on worldwide income. Therefore, it is unlikely that such services being advertised apply to a U.S. citizen and, at worst, such an opportunity will require the citizen to break the law.

So the question is: how can offshore asset protection trusts benefit U.S. citizens?

Any form of asset protection trust, whether onshore or off, can be used in protecting assets from personal or professional litigation or creditor attack.

Whether established in an offshore jurisdiction or not, the majority of assets protected by the given trust for a U.S. citizen can remain in the U.S. These assets remain under the indirect control of the Settlor (the person establishing the trust) as well.

Such a trust is usually ‘irrevocable’ for a set term, and during that period the settlor will not be a direct beneficiary of the trust.

Depending on the circumstances, quite a few U.S. asset protection specialists favor structuring offshore or foreign trusts so that they are taxed as domestic grantor trusts.

If the trust is properly created, any creditor will be unable to reach or claim the assets held within the trust.

If the offshore asset protection trust has been structured as an irrevocable trust for a specified term, at terms’ end, provided there is no current or ongoing threat, the assets can be returned to the settlor’s control and direct ‘ownership’.

When employing offshore solutions there are circumstances in which U.S. citizens can benefit from properly structured ones. However, U.S. citizens must be aware that it is their legal duty to comply with U.S. taxation and reporting requirements. It must be remembered that the main purpose of effective offshore asset protection planning is denying the economic incentive to sue, not to evade taxes.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.