Question: Ryan asks: What is the best jurisdiction to set up an offshore trust?
Glad you asked Ryan. The best asset protection structure for most U.S. citizens is an offshore trust. When structured properly, an offshore trust provides maximum protection and planning opportunities. When done haphazardly, an offshore trust is fraught with risks and problems.
Here’s how to properly plan an offshore trust for U.S. citizens.
An Offshore Trust is a Trust Structured in a Zero Tax Jurisdiction
There are many “offshore” jurisdictions, but only a few that offer maximum asset protection. So, a well-placed offshore trust is one that is set up in a zero-tax country that also provides solid asset protection planning laws.
The best offshore trust jurisdictions are:
- Cook Islands,
- Cayman Islands, and
- British Virgin Islands
Deciding which of these offshore trust jurisdictions is best for you will depend on your investment objectives, the size of your trust, your level of risk of litigation, the banks you wish to open accounts at, and what assets you will place into the trust.
For example, if you hold an EU business inside the trust, you might focus on Luxembourg and Jersey. If you decide to invest in hedge funds, Cayman Islands might be the best choice. If you have a high risk of litigation, you might open up in Belize or the Cook Islands.
An Offshore Trust Can Include a “Flight Clause”
If Belize offers the best asset protection, and Cayman the best investments for your situation, we can form a trust in Cayman. We put a flight clause in your Cayman trust that allows you to move to Belize if you come under attack.
What’s important to note is that there is no “one-size-fits-all-jurisdiction” when it comes to offshore trusts. Each country is specialized in different aspects of trust law. Also, the country you select will impact which banks you can access.
For example, the Cook Islands and Belize have done the most to cater to U.S. clients. That means they have the best protection for U.S. persons and that their laws are designed to coordinate with U.S. laws.
The Same Goes for U.S. Tax Matters
Belize, Cayman and Cook Islands all have drafted their trust statutes to work with the U.S. Internal Revenue Code. This makes tax compliance and reporting easier – not to mention the fact that each of these countries has local experts familiar with U.S. tax considerations where others do not.
But, as I said above, there are times when Luxembourg or Jersey will make sense as a trust jurisdiction. We might use a Luxembourg foundation as the primary holding entity or as a subsidiary or related structure to a trust based in another jurisdiction.
As a result, you shouldn’t approach asset protection as if you’re buying a product off the shelf. Even selecting the best jurisdiction or jurisdictions for your structure is a long and detailed process. Great care should be given to constructing the fortress that will protect your family’s wealth.
The Pillars that Support the Structure
There are several pillars that support this structure including U.S. tax compliance, estate planning, transfer and gift tax considerations, statute of frauds and fraudulent conveyance issues, and on and on.
For all of these reasons, you need a qualified U.S. attorney to quarterback your offshore trust and international asset protection plan. Only a U.S. expert is capable of coordinating all of these offshore issues with U.S. laws and U.S. considerations.
Always remember that your risks are in your home country. Once your structure is set up, the only way it will be breached is through a failure in planning or compliance in the United States. This is where your risks lie and where you should focus your protection budget.
I hope you’ve found this article on the best offshore trust jurisdictions to be helpful. For more information, please contact me at www.nagellaw.com. We’ll be happy to work with you to build the best and most efficient asset protection structure possible.