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In the first of a three-part series, Joel Nagel, our international tax attorney explains the benefits of offshore entities. This first report focuses on trusts.  Holding an asset in trust simply means that a person who has legal ownership of an asset is not necessarily the person who is currently enjoying or will in the future enjoy the benefits of the property. This duality of ownership may sound complex, but in reality it is straightforward.  How it works The first and most important person is the settler (or grantor). This is the person who intends to gift his property into trust so that he no longer owns it. The second party is the trustee, who holds the property and has the legal title to it but no beneficial interest. The third party is the individual or group of people who are known as beneficiaries, for whom the trustee holds the property and to whom the property will pass at some stage in the future.  You can put all sorts of assets in trusts, including bonds, cash, shares, real estate, private companies, intangible assets, intellectual property, and even racehorses and yachts. A trust can last for a fixed term of months or years or can even last for several generations, depending upon the needs of you and your family. Worthy of trusts Why create a trust? The top three reasons: tax benefits, asset protection, and professional asset management for minors or others not ready to manage the assets by themselves.  On tax matters, a trust can generally serve to shift income from higher-bracket taxpayers to lower bracket ones within a family. As an asset-protection vehicle, a trust can be used to divest you of legal title-making the assets unreachable by a creditor.  Finally, as a professional asset management tool, a trust can be used to ensure that a young child does not squander his inheritance; it does this requiring third-party consent before he can spend the money. This may also allow a widow to place her assets in the hands of a trusted professional money manager who is Under Belizian law, trust assets are protected and beyond the reach of any creditors.

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Better equipped to make financial decisions. 
Your trustee must be either a close family friend; an advisor, such as your lawyer; or a professional trust company of high reputation. Many large banks provide reliable trustee services. 

In addition to naming a trustee, it is you may also name in the trust deed a person called a protector. The protector is an individual known personally to the settler, and indeed the settler can himself be the first protector. Where a protector is used, the trustees have to obtain his approval before any of the trust fund's can be distributed. Often, the protector has the power to remove trustees if he believes they have not acted properly. 

Foreign attractions
A trust's location can make a world of difference. Foreign trusts, for example, offer a number of advantages over domestic trusts. First, they have an extra layer of privacy by the sheer fact that they are located in the United States. More importantly, however, foreign trust laws are generally designed to attract foreign investors and so are particularly favorable for the settler and the beneficiaries. 

Professionally managed trusts can be established in a wide range of jurisdictions, but the most useful ones for international clients tend to be those in suitable tax havens, like Belize, Bermuda, the Bahamas, the Channel Islands, Liechtenstein, the Cayman Islands, and the British Virgin Islands. In these places, the assets owned by the trust do not have to be located within the trust's legal jurisdiction. For example, you can have a Belize trust holding assets that are located in the Cayman Islands. 

The benefits of Belize
Belize has achieved notoriety because it has taken the strongest legislative measures to protect the interests of a trust beneficiary over those of the settler's judgement creditor. 

For example, in most of the U.S. states, if litigation arises within one year (often longer) of a trust structure being set up, the courts will "look back" to the trust-creation date and disallow the trust, so that the creditors are able to reach the assets. 

By contrast, under Belizian law, once a trust is established, even if litigation begins within one week, the trust assets are protected and beyond the reach of any creditors. 

Furthermore, a trustee cannot comply with a settler's demands if those demands are made under duress. 

Under Belizian law. a settler's demand is deemed to be made under duress if it is made pursuant to a court order. A settler thus can comply with a court order, to reveal assets and know that, in fact, no disclosure will be made. 

What you'll pay
All reputable companies publish standard fee scales, which are often on an ad valorem basis and which differ depending on the jurisdiction. Investment-management services normally entail an additional charge. 

Many trust companies will also consider fee quotations on an individual basis. There are often good reasons to individually negotiate fees when, for example, the trust in question holds substantial realty, shares in private companies, or cash balances. In essence, the trust company wishes to be paid for the responsibility that it undertakes when it becomes a trustee and also for the administrative work that will need to be performed. 

Selecting a trust company
By far the most important decision when creating a trust is who should be the trustee. It is vital that you have confidence and empathy with the trustee and genuinely believe that he will always put forth his best endeavor to benefit your family and preserve and enhance your wealth. 

A professional trust company, when acting as trustee, will ensure that all trust documentation is confidential. 

The company should enjoy a superior credit rating, have significant assets under management, and develop a professional relationship with the settler. 

by Joel Nagel, J.D., LL.M.,  and Marcell Felipe, J.D.

Joel M. Nagel, J.D., LL-M., is the managing partner of Nagel Goldstein, an international law firm headquartered in Pittsburgh. Marcell Felipe, J.D., is an associate attorney with the firm's international- business section. They can be contacted at (412) 2632707 or by E-mail at NagGol@aol.com.

IBCs-Belize's other perk
In Belize, a trust is not the only way to keep your assets from prying eyes and tax collectors. The International Business Companies (IBC) Act of 1990, based on the IBC legislation of the British Virgin Islands, provides the opportunity for foreign investors to incorporate in Belize. This IBC legislation is among the easiest to use in the world-a Belizian IBC can be formed in as little as one hour, and fees are as low as $700. 

A Belizean IBC requires only one shareholder and one director, each of whom can be either an individual or a corporation. An IBC may have shares in issue, either register or bearer. Meetings of shareholders and/or directors can take place in any country in the world, at any time, and the directors and shareholders can attend by proxy. Your IBC is not required to have staff members or to establish an office in Belize. Most important, the person forming a Belizian IBC can conceal his identity, acting neither as shareholder nor director. And IBCs are not subject to any foreign-exchange controls. 

As with a Belizian trust, an IBC, because it does not produce income in Belize, is exempt from all forms of income tax in the country, Furthermore, IBCs are exempt from capital-gains taxes, inheritance taxes, and stamp duties.
 
 

Offshore Banking

Protect your wealth in paradise
The Turks and Caicos Islands offer a great deal more than sunshine, an easygoing lifestyle, first-class diving, and friendly residents. In recent years, these Caribbean islands have firmly established their reputation in the world of tax-free nations. Today, according to international attorney Joel Nagel, they rank among the best, alongside the Caymans and Bahamas, in offshore benefits. 

As a resident of the Turks and Caicos Islands, you will not be taxed directly on your income, capital, inheritance, or wealth as an individual or as a company. You can obtain legal residence by applying for an annual permit, which costs $600 each year, if you can prove you have sufficient funds on which to live. Permanent residence can be attained with a qualifying investment in the Turks and Caicos, which, according to Nagel, can eventually lead to citizenship. The only taxes to which you'll be subjected are indirect taxes, customs duty, stamp duty on certain transactions, and departure tax. 

Going offshore
Offshore companies, easily formed and maintained, also enjoy the advantages of the islands' tax benefits. They not only provide limited liability to the principles but also ease of ownership transfer and confidentiality. 

When forming an offshore company, you must distinguish between ordinary and exempted companies. Ordinary companies are useful for people conducting business within the Turks and Caicos Islands; they can hold title to real estate or a business license. 

More popular are exempted companies, useful when the primary business is conducted outside the Turks and Caicos. They can be capitalized in U.S. dollars (the islands' official currency), deutschmarks, yen, or any other main world currency. There are no reporting requirements and no required annual shareholder meetings. Share ownership may also be in bearer form. 

In the case of holding companies (which exempted companies find especially useful), you can invest funds by transferring them into a company formed in the Turks and Caicos. The resulting income from investments made by the newly formed company is subject to little or no tax in the Turks and Caicos. 

"A company incorporated in the The Turks and Caicos rank among the best in offshore benefits."

- - - Attorney Joel M. Nagel

Turks and Caicos may be interposed between a parent company in a taxpaying country and its subsidiaries in the islands, so that dividends from the subsidiaries are only subject to the rates of tax applying in the Turks and Caicos. 

Offshore trading companies, used mostly to purchase products from a company in one country and sell them to purchasers in another, are also useful tax structures for individuals and corporations. The profit is free from taxation. 

In good company
Two other popular types of companies are the portfolio holding company and the limited life company. The portfolio holding company formed so that the income and capital gains made on the sale of securities are not taxed. 

The limited life company is designed so you enjoy (1)the benefits of a partnership under which profits and losses are attributable to the members of the company rather than to the company itself and (2) the advantages of a corporate entity. The 1993 passage of an amendment to the Companies Ordinance of 1981 permits LLCs to be incorporated without one or more of the corporate characteristics of perpetual life and with free transferability of ownership interest and centralized management The memorandum of association must limit the life of the company to 50 years, though it can be extended to 150 years by special resolution. 

Another specialized entity includes insurance companies, which were introduced through legislation in 1989 and currently number more than 1,000. 

Many U.S. companies look to the Turks and Caicos as a jurisdiction in which to establish captive insurance and reinsurance companies, thereby insuring themselves against loss in a tax-deferred manner. 

Over the years, an increasing number of companies have been established on the Turks and Caicos to assist investors in forming an offshore corporation. 

Property perks
No restrictions are placed on the purchase of property in the Turks and Caicos, and there are no real estate taxes. Taxes are levied on the conveyance or transfer upon sale; tax is 0 % on properties worth $25,000 or less, 6.5 % on properties worth from $25,000 to $75,000, and 9.75 % for properties worth more than $75,000. 

Following is a current list of properties for sale: 

The Seagate Hotel, which sits on 1. 17 acres next to a snorkeling reef, already has two two-bedroom units and one one-bedroom unit; 20 more bedrooms are possible. Call ReMax, tel (649)941-3394. 

Two acres on the beach zone for condos can be purchased through National Colony Realty for $1.45 million; this office also lists over 8 acres downtown for $1.25 million. by Siri Use Doub 

Contacts