American foreign trust tax savings and asset protection, The

Attorney-CPA, The, 1998 by Eber, Alan, Double, Peter

Which Jurisdiction Should Be Used?

The corporate jurisdiction should have a lower tax rate than the U.S. There are numerous jurisdictions that have no taxes on trust and corporate activities outside the jurisdiction.lo The trust's jurisdiction should have favorable asset protection law.

The decision as to which jurisdiction to use is determined after a review of the activities in which the NGT and/or corporation will be involved, and is also dependent upon where the selected trustees and/or nominees carry on business.

It is common to have trust and trustees in one jurisdiction, the corporation governed by the laws of a second jurisdiction, and the corporate bank account and assets governed by a third jurisdiction.

Will my money be safe?

Absolutely safe. In our many years of practice in the offshore area, having extensive interaction with foreign banks, trusts, trustees, investment advisers and managers, and other involved in the foreign arena, we have never had a client lose money.

When large amounts of monies are involved, and the Settlor is concerned with safety, the perceived risk can be addressed as follows:

Have the NGT own two corporations, each corporation utilizing different nominees and each with it's own bank account in different banks; and/or

Have two separate organizations operate as corporate Nominees, and require the signatures of both before withdrawals can be made.

Loans from Offshore Corporation.11

The offshore corporation can loan the Settlor money, and secure the loan with a lien.12 If the interest payments are properly structured as portfolio interest, no withholding taxes will be payable when the interest is paid to the offshore corporation. If the offshore corporation is in a no-tax jurisdiction, no tax will be due. The terms of the loan repayments can be modified as the business needs of the Settlor change, provided changes are on "reasonable commercial terms"

Mortgages.

The Settlor can borrow from the foreign structure secured by mortgages on his or her home or other real estate. The mortgage is a lien against the real estate (to the detriment of future creditors), the interest tax deductible by the Settlor,13 and tax and withholding free to the corporation.14 This device has almost no peer in its ability to deter a creditor from attachment of a Settlor's home and other real estate.

Private Annuity.

A Settlor can sell assets to the foreign corporation as consideration for a private annuity.1 The annuity has many advantages: (i) assets transferred to the foreign corporation for the annuity are outside the estate for estate tax purposes, (ii) the assets are not available for creditors to attach, and (iii) to the extent that appreciated assets are transferred, the capital gain is deferred into the future and only need be paid when the annuity payments commence. If death occurs prior thereto the capital gain will not be taxed and the heirs will receive the appreciated assets free of estate tax. The private annuity must be calculated in accordance with IRS published criteria, and must be an unsecured promise to pay.