In the asset protection arena, there's no instrument quite as safe and secure as an offshore trust. But despite its efficacy, many high-net-worth individuals ranging from entrepreneurs to doctors and more inherently mistrust instruments or trust vehicles with the "offshore" label.
There are many reasons for this, but none of them are valid. Truth be told, offshore trusts are some of the best vehicles for you to store your assets and guarantee their safety against creditors, lawsuit opponents, ex-spouses, and others.
Today, let’s break down how offshore trusts work and the key benefits you’ll see if you set one up with Dominion’s help.
What is an Offshore Trust?
An offshore trust is just a trust that you set up in some jurisdiction other than your home jurisdiction. Say that you’re a US entrepreneur and citizen. An “offshore” trust is a trust in any other country than the US, ranging from France to Cyprus to China to Mauritius to anywhere you have in mind.
An offshore trust must be developed according to the rules and regulations of its home jurisdiction. So, for example, say you set up an offshore trust in Seychelles. You’ll have to set up the trust with the assistance of licensed attorneys in Seychelles, make sure the trust abides by their rules and statutes, etc.
Is an Offshore Trust Legal?
Absolutely. The term "offshore" has a bit of a negative connotation these days, mostly due to pop culture and news reports about mega-rich business owners sequestering wealth away in offshore accounts. But offshore itself doesn't mean that a trust is illegal, criminal, or even "gray market."
It literally just means that the trust is set up in some country other than your own. That’s it. If you set up your offshore trust properly with the right individuals and the right procedures, it is just as legal as a trust you set up in your home jurisdiction.
Countries have different international laws in case precedents determining how courts and offshore trusts interact. That’s specifically because offshore trusts can be legal, highly effective instruments or vehicles for a variety of different needs.
It's true that many high-net-worth individuals save their wealth and offshore accounts and trusts. But that's not illegal. It's not tax evasion. It's not anything bad, so don’t feel bad about taking advantage of this strategy. It’s merely using your money to protect your wealth as effectively as possible.
How Do Offshore Trusts Work?
Offshore trusts work exactly the same way as “standard” or domestic trusts. They have the same key components, including:
- A grantor or settlor. This is the individual who creates the trust, puts assets into the trust, and appoints the other major individuals in the trust
- The trustee. The trustee manages and administers the trust, plus handles any distributions to beneficiaries in the future. The trustee is usually a licensed attorney or law firm (someone you don’t have a personal connection with)
- The beneficiaries. The beneficiaries include anyone who receives distributions or other assets from the trust
Of course, there may be some differences between offshore trusts and domestic US trusts you are used to in terms of how they operate, the fees they require, and so on. But those are just details.
When you set up an offshore trust with the experts at Dominion, our legal and financial advisors will ensure you know how your offshore trust operates and what you need to do to keep it running smoothly.
While structurally similar to domestic trusts, offshore trusts are a type of irrevocable trust located outside the jurisdiction of the United States. Popular locations for offshore trusts include:
- Belize
- The Cook Island
- Nevis
- Luxembourg (due to their favorable tax and privacy regulations)
This offshore status provides an added layer of protection and privacy, as they are not subject to US laws or court judgments, making it difficult for creditors to access assets held within the trust.
Additionally, offshore trusts have fewer reporting requirements. They help enhance privacy by making it challenging for third parties to ascertain the trust’s assets and ownership.
The Benefits of Offshore Trusts
Offshore trusts are highly valuable investment vehicles for high-net-worth individuals thanks to their key benefits and advantages. Here's a breakdown of what you might see when you set up an offshore asset protection trust with Dominion's help.
Asset Protection from Creditors and Lawsuits
First and most important, offshore trusts provide top-notch asset protection against creditors and lawsuits.
That’s because, by definition, offshore trusts are not subject to the same jurisdictional oversight as US trusts. Say that you are sued by an ex-business partner, disgruntled customer, or anyone else.
If the lawsuit is successful, a court can’t order you to access the assets within an offshore trust, nor can they tell the trustee of that offshore trust to foot the bill for your damages.
That offshore trust doesn’t have to listen to US courts whatsoever! If your trust is drafted properly, and if it is set up in the ideal jurisdiction with the right legal precedents, a court won’t have any power over your trust in the assets within.
The same goes for creditors. A creditor can come to you with a bill or notice of debt, but they may not be able to access the assets in an offshore trust if it is created properly.
With Dominion’s lawyers and financial experts drafting the ideal language for your trust, you can rest assured that a creditor won’t be able to get their hands on your cash, real estate, or other assets.
At the same time, offshore trusts still allow you to receive distributions or otherwise benefit from the assets stored within. But by placing ownership of those assets under a trust instead of under your name, you effectively isolate those trusts and prevent anyone from exploiting them without your permission.
This is why offshore asset protection trusts are the ideal defensive vehicles for high-net-worth individuals like entrepreneurs.
Additional Defense Against Divorce Settlements
In addition, offshore trusts can provide excellent defenses against divorce settlements.
Imagine that you and your spouse get divorced after several years of marriage. If you’ve already stashed your assets in an offshore trust, you don’t need to worry about your spouse walking away with half of your estate and a ton of the cash you worked hard for.
Again, because the offshore trust isn’t subject to US laws or jurisdictions, it’s not automatically beholden to divorce court orders. Even if your spouse believes they are entitled to half of your assets, they may not be able to get access to them if those assets are properly protected in the right trust instrument.
Offshore trusts are much better defensive vehicles compared to alternative tools, like prenuptial agreements/prenups. When you work with Dominion, you can learn more about how our offshore trusts can safeguard your estate even in the event of an unfortunate divorce.
Tax Benefits
Since offshore trusts are beholden to different government rules and tax frameworks, you may also see tax benefits by investing your assets in an offshore trust vehicle.
Imagine a scenario where you invest a few million dollars in an offshore trust. Taxes on estates and gifts then go up in the US.
Provided your trust is set up properly, the assets within the trust won’t be beholden to the same tax changes, and you may even be able to transfer the assets to yourself or other beneficiaries without having to pay major bills to the IRS.
Tax benefits are perhaps the number one reason why high-net-worth individuals, ranging from famous actors to business executives to wealthy heirs, use offshore trusts. In addition to providing asset protection, offshore trusts are highly effective and useful estate planning tools.
Of course, just what you’ll see in terms of tax benefits depends heavily on the jurisdiction in which your trust is set up, how that jurisdiction interacts with US laws and tax codes, and a variety of other factors.
Fortunately, when you work with Dominion, you don’t have to answer these questions yourself or worry about all these minor details. Our officers will do it for you, then explain how everything works.
Monetary Stability
Offshore trusts may offer monetary stability for your wealth and estate. Although the worldwide economy is more interconnected than ever, it is possible for certain markets, like the US market, to have local financial upheaval that is more extreme or drastic compared to elsewhere.
Essentially, by putting all of your financial eggs in more than one basket, you defend your overall estate from being too broken by any single economic event.
If a worldwide depression sets in sometime in the future, of course, everyone will feel it. But an offshore trust (or, rather, several offshore trusts) could insulate you from more isolated events, giving your wealth the stability it needs to grow and become ever larger as the years go on.
Wealth Growth and Preservation
Speaking of your wealth growing, the right offshore trust could be a great vehicle for wealth preservation and growth.
As an example, when Dominion sets up offshore asset protection trusts for our clients, we often invest those assets in certain markets to ensure that the overall value of the trust keeps pace with inflation.
If you want to grow your wealth over time, we can invest more aggressively and strategically to use your money to build up even more.
Plus, if you set up an offshore trust, that offshore trust allows you to open up offshore bank accounts, take advantage of offshore investments, and so on. It provides more investment freedom than you would have otherwise.
This is a stellar way to put your money to work for you (and it should already do that!). And it’s another reason why an offshore trust is an overall better instrument compared to a domestic US trust.
Is an Offshore Trust Always the Ideal Choice?
That depends on your goals and what you want to do with your assets. An offshore trust is always the ideal choice in terms of protection, plain and simple. But in some cases, a domestic trust might be better for estate planning purposes.
Domestic trusts are more accessible and changeable, both of which can be valuable attributes for things as mundane and traditional as estate planning. Say you want to outline your inheritance rules for future beneficiaries and descendants.
A basic domestic trust will get the job done and give you enough flexibility that you can adjust things in the years to come if needed (e.g., you decide that one of your grandchildren doesn’t need money from the trust).
Domestic trusts can also be highly effective tools for getting around things like gift taxes and estate taxes. They're much simpler to set up, so if you just want to use a trust to give money to someone in your family or avoid your property going through the probate process after you die, a domestic trust is good enough.
An offshore trust may be able to do the same thing, but it also might not be strictly necessary.
In summary, an offshore trust isn’t always the ideal choice. What the ideal choice is depends on your goals, the size of your state, the legal threats you may encounter, and other factors. That’s why it’s important to work with knowledgeable, highly experienced experts like Dominion.
With over a century of experience shared between our members, Dominion’s advisors and consultants can break down all of your options and tell you which trust you should set up and where.
For instance, if you are concerned about creditors or lawsuits compromising your wealth, they’ll recommend an offshore asset protection trust.
But if you just need help with estate planning and already have asset protection squared away, they may recommend a different trust instrument.
The good news is that Dominion’s advisors can help you create all of these trusts or connect you to the right people for your needs. You don’t need to visit a dozen different law firms to manage your assets and set your family up for financial success.
Contact Dominion Today
In the end, the right offshore trust can provide you with peace of mind, secure your estate, and ensure that your wealth builds up more money for you over decades to come.
Dominion can help you set up the right offshore asset protection trust in a matter of weeks, plus help you develop and enact a comprehensive asset protection strategy for whatever your goals may happen to be.
Want to learn more? There’s no need to wait; contact one of our representatives today to get started.
