Offshore Trust and International LLC: A Guide
As a high-net-worth individual, protecting your assets from undue threats should be first and foremost in your mind. When it comes to safeguarding your wealth, two of the best financial tools available are an offshore trust and an international LLC (aka an International Business Company or ‘IBC’). These two vehicles have shown to be highly effective in a range of situations for protecting estates from creditors, lawsuits, divorce, and more.
Many make the mistake of thinking that they need to choose one of these vehicles to protect their wealth, but why choose one when you can use both together and maximise your protection? In this article, we will explain exactly how this is possible and why you might want to consider doing it. We will first give an overview of what each of these vehicles are, and then discuss how and why to use them in combination.
Table of Contents:
- What Is An Offshore Trust?
- What Are The Benefits Of An Offshore Asset Protection Trust?
- How Much Does It Cost?
- What Is An International LLC?
- What Are The Benefits
- How Much Does It Cost?
- Combining An Offshore Trust And International LLC
- Why Use Them Together?
- How To Combine?
- Where To Set Up An Offshore Trust And International LLC?
What Is an Offshore Trust?
An ‘offshore trust’ just refers to a trust that is formed in a jurisdiction other than the one where the grantor/settlor of the trust resides. The most common type of offshore trust used by wealthy individuals is an offshore ‘asset protection trust’ (APT). This is a special type of trust which is specifically used for the purpose of asset protection.
An APT is a type of irrevocable trust, which means that the terms of the trust cannot be altered or terminated after it has been created, and the trust exists as a separate legal entity. These two features make it an excellent tool for asset protection, because once assets are transferred into the trust, they cannot simply be withdrawn, even in the case of a lawsuit.
Contrary to regular trust types, asset protection trusts allow the grantor to also name themselves as the sole beneficiary of the trust. In this way, they retain all benefits and effective control of the assets in the trust while relinquishing legal ownership and its associated risks. The trust is overseen by a reliable third-party trustee who is legally bound to act in the best interest of the trust.
Asset protection trusts which are formed in specific offshore jurisdictions offer much greater levels of asset protection and privacy than domestic APTs. This is due to the favourable trust and corporate legislature which exist in some offshore jurisdictions, as well as the additional layers of geographic and judicial separation from one’s home country.
What Are the Benefits of an Offshore Asset Protection Trust?
The main benefits of an offshore APT include:
- Asset protection: Offshore APTs offer unrivalled asset protection compared to almost any other type of offshore vehicle. History has shown time and again that these trusts work to protect your hard-earned wealth.
- Privacy: Offshore APTs in the right jurisdiction offer excellent financial privacy. The top offshore trust jurisdictions place a high value on financial privacy of their offshore trust holders. The assets in the trust will no longer be listed in your own personal name, and there are no public records which can connect you to the assets once they have been transferred to the trust.
- Tax reduction: Offshore trusts in tax havens can offer great tax incentives and can help to reduce your overall tax liability if structured correctly. In most of these jurisdictions, the trust will not be subjected to any income or capital gains taxes locally.
- Other benefits: Other benefits include (and can be read about in more detail here):
- Estate Planning
- Avoidance of Probate Procedures
- Access to New Investment Opportunities
How Much Does It Cost?
The cost of an offshore Asset Protection Trust varies quite a lot depending on the jurisdiction in which you set it up. On average you can expect to spend in the region of $10,000 for all the costs of formation, including hiring a trustee and professional to help you through the process. This is significantly higher than the cost of setting up an asset protection trust domestically, but the added protection and privacy that it provides is worth the price tag for most higher net worth individuals.
What is an International LLC?
An international/offshore LLC is a limited liability company that is incorporated in a foreign jurisdiction outside of the country of residence of the main member/s. Like offshore trusts, international LLCs have commonly been used as financial vehicles for the purposes of asset protection, tax reduction, and privacy. This usually involves setting up a shell/holding company which does not actually conduct its own business activities, but merely serves as a legal entity for the purposes outlined above.
In some situations, an international LLC may also conduct ordinary business operations, and offer its owners additional benefits related to accessing better opportunities, skilled labour, customers, etc. in the foreign jurisdiction of choice. You need to check the corporate laws in the country in which you incorporate, because some countries only provide special ‘IBC’ status to offshore companies that do not engage in day-to-day business within the country itself.
What Are the Benefits
An international LLC offers many of the same benefits as an offshore trust, but functions in a different way. This means that the two can be used together to complement each other’s protective features in a multi-layered approach.
The main benefits of an international LLC are as follows:
- Asset protection: Naturally, the main advantage of a limited liability company is that it provides limited liability protection. This means that the owners cannot be held personally liable for the debts and obligations of the company, and vice versa. An LLC formed in an offshore jurisdiction offers even more powerful liability protection than a domestic LLC.
- Privacy: Offshore LLCs preserve the privacy of the beneficial owners extremely effectively. In the more popular offshore jurisdictions for company formation, the names of the owners do not need to be recorded, nor is sensitive financial information publicly available.
- Tax optimisation: Offshore LLCs are popular vehicles for reducing and/or eliminating taxes, due to the favourable corporate tax rates in offshore tax havens, and the additional tax incentives provided to IBCs.
How Much Does It Cost?
Just as with setting up an offshore trust, the cost for incorporating a foreign LLC varies from country to country. Typically, it is cheaper than the cost of a trust, and you can expect to pay in the region of $1000 - $2000. The all-inclusive cost of setting up an LLC in the Cook Islands, for example, costs about $1500, and in Nevis the cost is about $1200. Annual maintenance costs also vary, with the average being between $100 and $500.
Combining an Offshore Trust and International LLC
Why Use them Together?
Both an offshore asset protection trust and an international LLC are powerful asset protection vehicles in their own right. So why do we recommend combining the two in a wholistic asset protection framework? For the simple reason that a multi-layered asset protection strategy is always more robust and resistant to failure than a single vehicle. Both of these entities operate in different ways, and each serves to “fill the gaps” or “plug the weaknesses” of the other so to speak. Furthermore, the way in which they are structured makes them convenient to use in conjunction with one another.
In the unlikely event that your offshore trust fails to adequately protect your assets, having them further housed within an LLC can provide a failsafe protective layer, and vice versa. You can further add an offshore bank account into the mix for the ultimate trio of offshore asset protection.
How To Combine?
Let’s have a look at how this would work in practice. Combining an offshore trust and international LLC into a single asset protection structure is easier than you might think. It simply involves:
- Incorporating an international LLC in your jurisdiction of choice and transferring the assets which you want to protect into the LLC.
- Forming a trust agreement for an asset protection trust in the foreign country of choice. It helps if the country in which the trust is formed is the same as the LLC but it doesn’t have to be the case, and it is fine if they are located in different jurisdictions.
- Transfer ownership of the LLC into the trust. As the trust is a distinct legal entity, it can legally be the sole owner of the LLC. You may already see the brilliance of such a strategy, and how doing this would provide multiple layers of protection. Firstly, your assets which are in the LLC are already protected by limited liability and the legal separation that an LLC provides, then the LLC itself is under ownership of the trust, another separate legal entity which is almost impossible for creditors and foreign courts to penetrate. The transfer of ownership is easier if both the LLC and the trust are located in the same jurisdiction, which is why we earlier recommended going this route.
- Name yourself as “manager” of the LLC, which helps you to retain all practical control and use of the assets in the LLC. You would also be the sole beneficiary of the asset protection trust which means that the benefits of the assets would ultimately remain with you, without the risks of legally owning them during your lifetime.
Where to Set Up an Offshore Trust and International LLC?
There are many good locations in which to set up an offshore trust and international LLC combination, each with their own strengths. We will briefly mention four of the most popular:
The Cook Islands
The Cook Islands is undoubtedly the gold standard for offshore asset protection by means of their offshore asset protection trusts. They have the strongest case law which proves how successful Cook Islands trusts have been in protecting assets from a range of threats. You can couple your offshore trust with an international LLC in the Cook Islands quite easily, which offers several additional benefits. There are also other types of financial vehicles which can be used in the Cook Islands such as a foundation.
After the Cook Islands, Nevis is the other big name when it comes to offshore asset protection trusts. In fact, their legislation is even more protective than Cook Islands, but with less case law standing behind them. Many plaintiffs will not even bother pursuing a case when they learn that the assets are held in a Nevis offshore trust, or at the least will accept a measly settlement. Nevis is also a popular offshore jurisdiction for offshore company incorporation, and using a Nevis LLC along with an asset protection trust can provide strong asset protection.
One downside of Nevis trusts is that for the aforementioned factors, they are high on the radar of U.S. Law enforcement and their reputation is less than squeaky clean in the States. Many local U.S. companies and other corporate bodies refuse to do business with a Nevis trust for this reason.
Belize is yet another Caribbean nation which offers excellent asset protection and privacy via their offshore trusts and international LLCs. They are recognised as a tax haven which means there are great tax incentives involved too. However, Belize suffers from similar reputational issues as Nevis.
Lichtenstein is also added to this list because you can get access to extremely powerful asset protection through a Lichtenstein foundation. It is significantly more expensive to set up and maintain than an offshore APT, coming to approximately EUR 30,000 for formation. The cost and complexity may be worth it for those looking for an alternative asset protection vehicle. Lichtenstein is a reputable European nation which offers a “cleaner” reputation and other advantages of keeping your assets on European soil.
The most effective asset protection strategies are always those which utilise multiple layers of protection, and thus ensure that you are protected from all angles. Incorporating an international LLC and thereafter setting up an offshore asset protection trust to act as the sole owner of the LLC, is a tried and tested strategy to provide the highest level of protection to your personal estate.
The formation of both of these instruments in a foreign jurisdiction can indeed be a complex undertaking, for which it is highly recommended to enlist the services of a professional asset protection attorney to guide you along each step. With so much at stake, it is worth paying the small additional fees to ensure that everything is done correctly and in the most efficient way possible.
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