A well-structured offshore trust can protect assets, grow wealth, and avoid unnecessary taxes. If you are considering an offshore tax haven, it is important to understand the issues involved with moving assets offshore.
Why consider an offshore trust?
There are several reasons to consider setting up an offshore trust. Offshore trusts are an important financial tool for those looking to optimize—and protect—their wealth. Offshore trusts are not just for the ultra-wealthy, but for those looking for smart options for their assets and for wealth they hope to build. Basic thoughts to consider:
- Market volatility: Foreign bank accounts are helpful for harboring wealth while also protecting against instability. A well-constructed offshore trust can protect against currency fluctuations, economic swings, and bearish markets.
- Privacy and growth opportunities: Offshore accounts can provide ownership anonymity, good growth through interest, and correspondingly low tax rates. Given a foreign jurisdiction and a well-constructed trust, the arrangement can also provide shielding for estate planning purposes and protection from creditors and legal actions.
- Diverse portfolio: Assets strategically placed in differing financial tools and locations, like an offshore trust, can buffer against economic strife in different regions of the world. An offshore account can also be valuable if you travel frequently or live elsewhere in the world for part of the year.
Potential downsides of offshore accounts
Offshore tax accounts are a helpful financial tool when used as intended—but they have a bad reputation due to off-label uses for money laundering and tax evasion.
Avoid the attention of the Internal Revenue Service (IRS) by ensuring compliance is a priority when setting up an account in an offshore tax haven. Offshore tax accounts are not set and forget. Even though assets are held in trust in a foreign jurisdiction, the account(s) must be reported in the United States through a Report of Foreign Bank and Financial (FBAR) if they reach $10,000 at any point during the year. The same applies if you are an expat. If your aggregate accounts hold assets valued at $50,000, they must be reported to comply with the Foreign Account Tax Compliance Act (FATCA).
Given regulatory requirements, offshore and foreign bank accounts can be more complex and expensive to establish and maintain than domestic accounts. As well, for high-wealth individuals, exposure through rolling document leaks can be geopolitically embarrassing and costly in other ways.
If you decide to move forward with an offshore trust, consult with a tax attorney experienced with offshore accounts. There are several steps to creating your trust, including selection of the legal jurisdiction in which your account will be located, a trustee, and preparation of trust documents. Bottom line, be sure your trust is structured to promote tax avoidance and deter offshore tax evasion, and not the other way around.
Under IRS Scrutiny for Offshore Accounts? You’re Not Alone.
If you're already involved with offshore accounts or trusts and are now facing IRS scrutiny or legal uncertainty, the team at Robert J. Fedor, Esq., L.L.C. is here to help. Our experienced tax attorneys focus on resolving complex tax controversies, including issues related to offshore asset reporting and compliance. Whether you’re under investigation or worried about potential exposure, we offer strategic, confidential legal support. Contact us at 440-250-9709 to schedule a consultation—we represent clients locally and across the globe.
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