Monday, April 12, 2010

Foreign Asset Protection Trusts

Beware of Greeks bearing gifts. Troy might still be with us if they had turned down that damned horse. Some good, but perhaps a little greedy, people might have avoided an IRS "Perp Walk" if they had followed comparable advice when it came to tax and so called "asset protection" scams to hide assets oversees. Not that most of those scams came cheap. Some "put your money in a Cook Islands trust or Republic of Tonga ("where???!") account" scam cost tens of thousands of dollars. The guarantees of safety and maybe even pre-paid legal representation at any audit offered by such promoters disappeared with them. I will list some of the scams and scammers in a future post but for now here's what to look out for:

Forget promises that foreign accounts, corporations, Limited partnerships or trusts, or most anything else are free of US taxes. THEY ARE NOT. As USA residents all global income is taxable. There are a few jobs, like for the United Nations overseas, where no US income taxes are due, but even if you work for the UN the interest on your bank account in say, Saudi Arabia, IS fully taxable. Even some very sophisticated people got caught in this convenient mistake. "I didn't know I had to pay on that, I was working for the UN!" Whoops--Perp Walk.

Hiding assets overseas? Forget Secrecy laws. They may work in old spy movies but not today. Caribbean nations such as the Cayman Islands, Nevis and the Bahamas were the first to give up bank secrecy in the war against drug money laundering. The rest of the world, including secretive Switzerland, joined international conventions and treaties of full reciprocal disclosure as the Tax men caught up with the drug warriors. Last hold-out Austria is folding its secrecy tent. Don't count on your trusted banker-broker to protect your either; Swiss banker UBS located in Stamford, Connecticut turned over 4,450 client names to the IRS. Connecticut Attorney General Blumenthal is curious if any of them ducked Connecticut taxes too.

Promises that hiding assets in a "Safe" place overseas don't cut it. Even if that scam somebody is selling can place enough false names or fraudulent entities between yourself and your overseas money to make bank disclosure problematic, ALWAYS remember the first rule of asset protection, PROTECT YOUR ASS. You will be questioned under oath about any foreign assets by your creditor, the tax man, your tort victim's attorney, etc. Unless your name is William Jefferson Clinton, lying under oath is a felony that will bring serious criminal trouble.

Forget schemes that involve putting your money here or abroad with anyone who tells you that the IRS has no constitutional right to tax you. There are several theories used. They are wrong! You will lose more than just money, your reputation and maybe even your freedom.

Lastly, do you want to risk your wealth in some corrupt, backwater, half-baked country that is a dictatorship, was a dictatorship and/or may be a dictatorship tomorrow afternoon? Do you want to trust a bank with no depository insurance, a broker with no oversight, some guy on the phone with a strange accent, or perhaps, Alan Stanford, with your wealth? Still unsure? Will you be happy to have to fight in their courts, in their country and under their laws with their lawyers if anything ever does go wrong? Probably not- SO STAY HOME ALREADY!

Now that we are over the Caveat Emptor part of the post, GOOD NEWS, foreign asset protection entities generally are not illegal if you follow all the rules, pay all the Taxes and don't act to defraud and can be a marvelous asset protection vehicle for certain high net worth folks.

Let me give you an example. You are concerned about an out of control Washington, the debt, the deficits and a looming default with a potential collapse of the US economy and the US Dollar. You are rich why should you just wait and see your assets blow up with the country?

First of All, "you are such a pessimist." Having said that, I can't say you are wrong. What can you do? You could leave the country, give up US citizenship and hope the place you go to is better than what you expect for the good old US of A. But here is one thing that I could do:

First, take not more than 1/3 of your wealth, any more and it will look like a fraudulent conveyance, depletion of assets, etc and may (likely) trigger a 30% exit/withholding tax. Place it in a Switzerland account denominated in Swiss Francs. Near term Swiss Franc futures are today at $.9433 to the Dollar. The Swissey, as its called, has been over parity to the Dollar several times in the past couple of years for a potential 8% profit plus interest if nothing at all happens. If the US economy implodes its value Vis a vis the greenback could run up a lot. Note: A Swiss bank account is no longer secret and gives nearly no asset protection (It will be a pain for a creditor to go there to claim it, but he certainly can as with any other account(s) in your name).

You can add an asset protection component by creating a Bahamian trust or Family Limited partnership which would own the bank account. Bahamas law protects against most any claim (not the IRS), including a claim of fraudulent conveyance unless made within two years of creation. This is a very powerful legal protection. The money isn't subject to whims of the Bahamian Government (though by offshore standards they are close to golden) since the money is in Switzerland, one of the most secure places on earth. Alternatives would be Singapore, Japan, Australia and New Zealand currency denominated accounts in a safe country. Spreading some money around may protect you a bit more from a global economic disaster.

Is it safe? As safe as anything can be if the US collapses. Is it legal? Yes, IF you document the lawful purpose of the transfer, currency hedging is certainly lawful, foreign accounts are lawful, a Bahamian (or most any other place) legal entity is OK too if done for a legal purpose. Do all the paperwork. Document the transfer of funds. Report the interest or any other income and pay all foreign and US taxes. File the proper forms with the IRS and the US Treasury Department showing your interest in any foreign entity and account(s). Keep all records for the audit.

See, it's Simple. Its not for everyone but if you're rich and paranoid it is doable (and someone MAY really be out to get you). The cost of doing it is $10,000 to $20,000 plus nominal annual trustee fees in the Bahamas and possibly Switzerland. Using a corporate trust department of a bank with branches in both Switzerland and the Bahamas (USA too) is recommended.

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