One of the most important reasons that people decide to protect assets abroad is to find strong jurisdictions that resist or eliminate many of the traditional threats against wealth. Yet compliance with US laws and regulations has never been more important than today. That begs the question: is it possible to do both? The simple answer is "yes".
 
 Regulatory compliance for foreign based structures and assets held abroad has increased over the past years. Just some of the forms that need to be filed include:
 
 A) The Report for holding a foreign bank account with more than $10,000 commonly referred to as the FBAR. This is an annual form required to be
 filed with the US Treasury.
 
 B) Annual Return For US ownership of a foreign corporation (sometimes called a "Controlled Foreign Corporation" or CFC) filed on Form 5471.
 
 C) Form for establishing a Foreign Trust. Form 3520. As well as the "Annual Return for the Trust" on Form 3520A.
 
 D) Excise Return for buying foreign life insurance and foreign annuities.
 Form 702.
 
 E) Catch All form for ownership of foreign financial assets over $50,000.
 Form 8938.
 
 Many of these forms have domestic counterparts, especially in the case of corporations or trusts, while others, particularly the new 8938 form, have a level of disclosure equivalent to an actual balance sheet not required for domestically held assets.
 
For someone considering international asset protection planning, estate planning, doing business or even just living and spending time abroad, the question becomes "are you willing and able to handle the level of necessary disclosure in operating outside the US". One of my legal colleagues simply asks his clients "Are you ready for this cheese"?

The cheese he is talking about isn't American, cheddar or provolone. It is multiple layers with exotic characteristics, maybe a really complex French cheese. Some folks think it is the best stuff in the world, great for gourmet cooking, a wholly unique element that cannot be duplicated. Others think it just smells funny and they'd never ever eat it. So again, think about it honestly, educate yourself about what you'd like to do and then ask yourself "am I ready for this cheese"?

If you are, expect on-going annual compliance work and/or fees to accounting professionals.  Again you'll need to have much of the same type of work done for domestic structures, but you'll need to involve professionals at both home and abroad conversant with the necessary regulatory forms and US tax laws.

If you are not ready for this cheese, look for the best forms of substitute domestic entities and investment elements that will give you the best protection possible without going abroad. The balance of this article is designed to give a quick overview of foreign structures and asset protection strategies and explain the nuances that make them superior to their domestic counterparts. Since my law firm focuses exclusively on international jurisdiction shopping to achieve global asset protection for our clients, I clearly believe it is superior to domestic planning. At the same time I recognize that not everyone is "ready for this cheese", so to the extent I can integrate concepts to make domestic structures better, I'll try and include those as well.

 Trusts:

Trusts are integrated frequently in international asset protection and estate planning for a variety of reasons. The main reason is that once you have transferred an asset to a trust, it is simply no longer yours. If it is no longer yours, then future creditors, plaintiffs, even government agencies can no longer take it from you.

An extra benefit to a foreign trust is that the trust actually creates a foreign "juridical" person. That foreign person is not a US person. That means that foreign banks, for example, which are closing bank accounts of their US clients will frequently spare the accounts of foreign trusts, even where there is a US person involved as a guarantor or beneficiary.

Other types of global investment including offshore hedge funds, insurance products, private placements, and even real estate acquisition can be made possible through the creation of a foreign trust. US regulatory agencies such as the SEC that keep foreign investment closed to US persons, simply have no legal authority to regulate foreign trusts. For people interested in establishing global bank and brokerage accounts and in making real foreign investment, the foreign trust can open a world of opportunity quickly being closed to US persons.

The second benefit of a foreign trust has to do with the actual legal protection and the timing when it goes into effect that extends to both the grantor and the beneficiary. While this concept is governed largely by the 50 state laws in the US, certain characteristics of US law, such as the British Common Law prohibition on what are referred to as "fraudulent conveyances" is not permitted.

While nobody would agree that someone should be able to evade creditors by running out and forming a trust in which he or she places his or her assets, the opposite is also true in that nobody can get inside someone's brain to try and figure out what he or she was thinking when they created a trust. The various US states have solved this dilemma by introducing "waiting" period after a trust is created before the benefits of the trust can be extended to the assets inside the trust. This time period ranges from one year to three years. California, for example, has a waiting period of three years.

So let's imagine an obstetrician in California who helps deliver "premature" babies. Any baby that is anything less than perfect automatically means that he or she (or I should say their insurance carrier) will face a lawsuit. Under the traditional standards of fraudulent conveyances, it would be virtually impossible for that physician to ever try to protect any of his or her assets from lawsuits, real or nuisance.

Jurisdictions outside the US, however have interpreted or legislatively handled the English Common law concept of fraudulent conveyances differently. Belize for example, has made a legislative "bright line" test for fraudulent conveyances which simply asks the question "what came first, the lawsuit or the creation of the trust?" If the lawsuit came first, then the trust can be legally attacked. But, if the trust creation came first, then the claim against the trust is barred under Belizean law.

Many people may not need this level of asset protection, but then again the obstetrician is not alone in having lawsuits as a normal occupational hazard. For those with above average occupation hazard risks, the foreign protection offered by this type of statutory bar against lawsuits may be the difference between keeping or losing one's wealth.

The last main area of difference between US and foreign trusts have to do with their length. Again, English common law tradition mandates how long assets can be held in trust. Essentially, they have to be for what is called a "life in being", meaning by the time the grantor dies, the generation identified as the trusts' last beneficiaries (normally grand children or great grandchildren) must be in existence. If you leave assets beyond that point in time, you are said to have violated the "rule against perpetuity". The concept is actually pretty technical and complex and many a young lawyer has failed the bar exam for not being able to properly navigate through the rule against perpetuity.

But rather than parse into complex nuances, some jurisdictions have simply eliminated this Common Law rule with time limits or in some cases no time limits as to how long an asset can be held in trust. After all, you earned your money, so why should any government tell you what you can or can't do with it (provided the activity is legal). If you want to hold assets in perpetuity for the next thousand years to allow your heirs to have a college education or to start a small business or to buy a home, why shouldn't you not be able to do that?

Many offshore jurisdictions agree with that logic and eliminated any limitations on trusts. To be fair, there are also some states in the US including Alaska and Nevada that allow for very long periods of trust for up to 350 years and certainly more States will follow as business is lost to foreign jurisdictions and or these States.

So in the case of Trusts, if you are looking to create a foreign platform for investment; if you are in need of above average asset protection with a short or no waiting period before the protection comes about; or if you are looking for a very long holding period to hold assets beyond the normal limitations offered by your home State, then you should consider offshore jurisdictions for your planning needs. If you don't need or want these levels of complexity and prefer something that your local community bank can administer, then you don't want an international trust.

 Corporations:

Companies can be created anywhere and can generally do business anywhere, so why would someone want to create a company outside the US?

Well, lots of reasons. In some countries only a domestic company can own property or engage in certain types of business. In other countries you may get residency or nationality preferences by establishing a local company.

From the US' perspective, the IRS defers taxation in certain limited circumstances. If you meet the proper criteria, you only pay tax when money is repatriated in the form of salaries or dividends. So what is the proper criteria?

Imagine a quadrant graph where the vertical axis is divided between foreign and domestic income and the horizontal axis is divided between active and passive income. If your company generates ANY US income foreign or domestic, you do not get any tax benefit. If you generate foreign income, but that income is passive, you do not get any US tax benefit. But, if you generate active foreign income, that is the circumstance in which US income can be legally deferred. Even where a form 5471 must be submitted because the company is a Controlled Foreign Corporation or CFC, no tax may be due.

Again, if you do not generate foreign income or the foreign income you generate is passive, THEN you do not need a foreign company. But if you have the opportunity to generate foreign source active income, then a foreign company is the right "cheese" for you.

 Foreign Insurance and Annuities:

Foreign insurance products (including annuities) appeal to people for a variety of reasons. First, the death benefit or payout currency could be something other than dollars. So if you are looking for a hedge against the dollar, foreign insurance products may be just the right type of insurance for you. Additionally, insurance in the US is regulated by both the Federal Government (with regard to tax matters) as well as the various States (with regard to the investments allowable within an insurance wrapper).

If you buy foreign insurance, it must still be compatible with the Federal rules with regard to the ratio between premium and death benefit as well as the minimum diversification within the policy. But if you observe those rules correctly, then you achieve US tax deferral on the buildup of the growth.

Because it is offshore, there are no State rules to observe as to the type or quality of the underlying investments. So whereas the State of New York may limit insurance policy investment to 20 or so mutual funds, a policy issued offshore may permit virtually any type of public or private investment for the funds within the policy.

Popular annuities include Swiss Franc Annuities, foreign currency baskets and variable annuities with virtually any type of global investments inside them. Such annuity and insurance products can offer asset protection as well as currency and investment diversification away from the dollar and standard US investment.

For folks who want direct exposure to global investment on a diversified non dollar denominated and tax deferred basis, foreign insurance and investment products meet the need.

 In conclusion, global asset protection and estate planning is right for the "right" type of person. I'm not saying it is something for only the most affluent, but rather for those wanting the specific benefits and willing to commit the time and energy to be compliant and make the commitment worthwhile. Is this "cheese" right for you? Weigh the benefits and rewards versus the cost and energy of compliance. If you have a clear reason to utilize international planning, then embrace it and the cheese will be great. If you don't have any reason to utilize offshore structures, stick with the American or Cheddar cheese and you'll be happy you left the gourmet cheese to others.