Offshore Asset Protection Trusts Are Not "Tax Magic"

Watch out for Promoters and Scams!
There are many "services" and foreign companies trying to sell almost "magic" trusts. Promises are made that assets will be shielded from ex-wives/husbands and other creditors. This promise of a Tax Haven and asset protection can be the goal of a physician or other professional worried about a large malpractice claim, or an executive suffering from a greedy ex-spouse. The promoter also promises an almost "mystical" tax savings citing "common law" or some supposed "perfectly legal source." Watch out for these scams!

Cayman Island Banks No longer Secret!

The Cayman Islands has signed an agreement with the United States to share information on bank accounts held in the islands. This is being hailed by the US government as important step in the fight against international financial crime - in this case tax evasion.

The information exchange agreement will enable tax officers to break the bank secrecy laws in the Cayman Islands, a British colony long considered a haven for tax evaders and money launderers.

Bahama's Corporations are Not Secret

The change in the law as of June, 2001 in the Bahama's requires offshore corporations to list the names of their beneficial owners - shareholders. "Bearer" shares are not permitted. Anyone can look up the public records to determine the owners and officers of the corporation. On top of the public nature of the information concerning Bahamas corporations, there are simply no tax advantages.
Asset Protection Trusts Do Not Save Taxes!

US Citizens Must Report WorldWide Income

U.S. citizens are required to report all income earned from any source worldwide. Click here for IRS Form TD F 90-22.1 which is to be filed by June 30. This means an asset protection trust made with a United States citizen or resident as the "grantor or "settler" is designed to be "tax neutral." Typically, no additional income, estate, gift or excise tax should be due because of the establishment of an asset protection trust. The counter proposition is the trust will not save taxes.
Foreign Asset Protection Trusts are Targeted by the IRS

The U.S. government is afraid of losing taxpayers and their assets from the grip of the U.S. Treasury. The Department of the Treasury has established an inter agency task force to hunt money laundering and tax avoiding offshore trusts. Substantial resources, personnel and computer equipment are used to track transactions. The change in the Internal Revenue Code (1996 Act) has greatly increased the penalties, excessive unnecessary taxes and complexity in operating an offshore trust.

Nevada Corporations

Nevada corporations do not protect your assets better than most states. Corporations are legitimate forms of asset protection. Nevertheless, setting up a Nevada corporation with phony liens on property is an easily defeated scheme. Even though Nevada has no state corporate tax, it is subject to US Corporate Tax and IRS audits. Frankly, unless you are doing business in Nevada corporations in that state are not advantageous. Furthermore, due to the heavy marketing of Nevada Corporations by asset protection scam artists, any Nevada Corporation is suspect.

Offshore Asset Protection Trust Advantages

Offshore Trusts can potentially offer substantial privacy and possible protection from creditors. They may be advantages in some cases for some tax payers. Tax savings is not one of those benefits. In order to limit the potential burden of unnecessary taxes and penalties, US citizens should always structure offshore asset protection trusts so that they are considered "domestic" for the purposes of United States taxation.