Trusts created by or for the benefit of U.S. citizens or resident aliens in a jurisdiction other than the United States are called Offshore Trusts. These trusts are similar in most respects to Onshore (U.S.) trusts, but have provisions that are governed by the laws of the selected foreign jurisdiction where the trust was formed.
Offshore Trusts can be created for Asset Protection, Charitable, or other investment purposes. Offshore trusts typically hold assets that are physically located outside the U.S. for any number of legitimate reasons. For example, real property located in Europe or Asia may be placed into an Offshore Trust for assets protection, to mitigate political risk, secure tax advantages, or to make the transfer of the assets easier and less expensive upon the death of the trust founder.
Many countries have specifically modified their laws to incentivize owners of foreign assets to create trusts in their particular jurisdiction. A few include Switzerland, the Bahamas, the Cayman and Cook Islands, and the British Virgin Islands. Each of the jurisdictions has different laws and provisions governing the creation and management of trusts and the assets in them.
Offshore Trust Reporting
Although a U.S. citizen or resident alien may establish an Offshore Trust the existence of, and the income derived from, the Trust assets must be reported to the Internal Revenue Service (IRS), and is subject to all the provisions of U.S law regarding the hiding of assets for the express purpose of tax evasion or to defraud legitimate creditors. The Offshore Trust itself is not required to be registered, but it’s existence, particularly as regarding U.S. income tax, must be appropriately disclosed.
Virtually all offshore jurisdictions have specific laws regarding the taxation, legitimate uses and limitations imposed on Trusts created in those countries. Certain offshore jurisdictions also limit the level of risk that may be assumed by the Trust and require that only fiscally conservative investments be allowed using Trust assets. International law such as the Hague Convention on the Law Applicable to Trusts and their Recognition is one example of some of the issues and treatment of Offshore Trusts by both onshore and offshore governments.
Do I need and Offshore Trust?
An Offshore Trust is not perfect for every asset owner. A Nevada Asset Protection Trust can likely handle most situations involving those individuals with highly valuable assets, such as professionals, business owners, real estate owners, officers, and directors who may be subject to legal liability. Nevada Asset Protection Trusts are not used to hide assets from current claims, creditors, or financial problems. However, in some circumstances, an Offshore Trust may be appropriate as described above.
Offshore Trust Attorney
Due to the continually changing nature of U.S. state and federal law, international law, and the laws of other sovereign nations around the world, the wisdom and utility of creating an Offshore Trust must be thoroughly evaluated from a number of legal, accounting, tax, perspectives in consideration of all the individual circumstances and the types of assets that may be contemplated for inclusion in an Offshore Trust.
Failure to comply with the relevant tax and legal issues involved in an Offshore Trust can result in significant civil and criminal penalties at home and abroad, including the seizure of assets and the assessment of penalties far in excess of the value of the assets placed into the Trust. As a result, the decision to create an Offshore Trust must be made only after a detailed evaluation of the asset owner’s individual circumstances by an experienced U.S and International tax and legal professional.
Contact Greg Smith, Certified Public Accountant and attorney, for a consultation of your current or potential Offshore Trust. Smith & Shapiro is open Monday – Friday, 8:00am – 5:00pm. Call 702-318-5033, or fill out our contact form above.