“But like Machiavelli tells us, you must use the assets and resources at your disposal. Use them all, and use them to maximum effect.” – Austin Scott Collins, Dicing Time for Gladness
The second you begin accumulating any real wealth, you enter yourself into what is essentially a high-stakes game of roulette. Every time you roll the dice on a new entrepreneurial venture or investment, you increase the odds of losing a sizeable chunk of your assets.
Whether those losses come via tax disputes, contractual breaches, and workplace litigation or a massive divorce settlement is immaterial. The fact is that, at some point, your hard-earned money is going to come under threat. While you might be able to avoid liability in a few of these circumstances, at some point you will come up against a legal challenger that has enough time and resources to extract a favourable judgement from the court.
Anybody that’s spent a few hours at the tables knows the golden rule of gambling is that the house always wins. In fact, casinos are set up to ensure that gamblers keep playing until they have managed to lose all of their profits and then some. There’s only one way to beat this system. When the odds are against you, you need to make sure that the bulk of your chips are already far away from the table.
This is the basic premise that underlies every asset protection strategy, and one that internationalization expert Joel Nagel talked about in depth during our exhaustive podcast discussion.
So, how does a complete novice start thinking about securing their assets? Let’s start simple and work our way up.
I do want to preface these insights by clarifying that I am not a lawyer or certified wealth manager. All of my knowledge has been gained from years of practical experience along with the several thousand books on business I have read and the countless conversations with lawyers and CPAs – oh, and of course, with more than a few failures along the way for good measure…
A comprehensive insurance policy should be a no-brainer for anyone that wants to limit their liability. When it comes to determining the amount and type of coverage you need, there are a couple of things to consider:
- What is the value of your assets (property, vehicles, precious metals, paintings)? Are you best served by individual policies for these items or umbrella policies that provide blanket coverage for all assets under a certain class?
- Do have adequate disability insurance to cover any losses of earnings incurred due to serious accidents or illnesses? If you’re an entrepreneur, then you definitely need to think about how your family will be provided for in these situations.
- Similarly, what sort of life insurance do you have? Will it cover your business’ basic working capital requirements and ensure the comfort of your dependents?
- While most businesses in the developed world are required to purchase insurance policies which cover malpractice issues and other workplace liabilities, these products generally don’t cover punitive damages and will also carry a whole host of stipulations that may exclude you from coverage altogether. Make sure that you’ve confirmed the coverage limit and terms of your insurance policies so you aren’t left holding the bill after an unexpected claim crops up.
Even if you take all of these precautions, insurance still won’t protect you against economic hardships and a variety of other legal threats. That’s why you need to supplement your insurance with strong offshore asset protection structures.
What to Move Offshore?
To start with, your primary residence should always be titled under your name. While there may be some ancillary benefits to be gained from incorporating the property into an offshore LLC, these advantages will negate any tax benefits you might have gained from holding onto the real estate.
For example, in the United States, you’re eligible for a $250,000 exemption on your first home. You can also look up whether your state of residence entitles you to a homestead exemption, which essentially means that your home can’t be handed over to creditors or the IRS in case of a ruling against you.
While I would generally advise you to incorporate rental, business, and investment properties in order to limit your liability in case someone gets injured on these premises, there really isn’t much of a point in holding these assets offshore as they will be subject to intense scrutiny.
In terms of the kinds of assets that you will want to move offshore, consider the following:
- Stock Portfolios (convert, move the cash offshore, and repurchase)
- Gold and other precious metals.
- Retirement Accounts
- A Self-Directed IRA
- Loan capital earned from asset financing.
Offshore Bank Accounts are Your First Step
It’s easy to become complacent about where you keep your money. After all, as long as you can withdraw cash and collect income, why would you worry about moving your money to some unknown offshore location?
Well, the fact is that banks across Europe and the United States are hopelessly overleveraged, and if the world economy experiences another financial meltdown as it did in 2009, then there’s no guarantee that you’ll ever be able to access your funds again.
That may sound far-fetched, but it’s already happened in Cyprus during the last Eurozone Crisis. If it comes down to protecting the average entrepreneur or an erstwhile institution, you know who your government will choose.
By comparison, offshore banks located in stable and highly-regulated nations like Belize actually have higher liquidity requirements and transparent policies in place to protect the rights of foreign account holders.
Offshore banks also offer a range of value-added services that can help you diversify your income and hedge against a wide variety of economic risk factors.
- Upon setting up your account, you’ll usually be assigned to a dedicated representative that can give you access to a range of investment portfolios and funds that would be otherwise unavailable to you.
- Most offshore banks will also offer foreign currency accounts where you can hold money in several different currencies.
- Many offshore banks will offer tailored lending facilities that are far more suitable to the needs of entrepreneurs.
- Depending on the jurisdiction, your offshore bank account will generally be subject to strict confidentiality rules that prevent exposure to casual observers. While hiding your foreign account from agencies such as the IRS is pretty much impossible, these additional layers of protection will act as a barrier against many creditors and claimants.
In my next blog post, I’m going to dive deeper into more complex asset protection structures and give you the lowdown on how to keep more sizable fortunes out of the hands of tax agencies and attorneys. Until then, you can always check out my new infographic report 15 Global Strategies to Protect Your Wealth for an in-depth breakdown on how to plan and execute these strategies.
ABOUT THE AUTHOR:
Mikkel Thorup is the host of The Expat Money Show podcast and the author of the #1 Best-Selling book Expat Secrets. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran.
His goal now is to help expats just like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again.