Frequently at seminars and in consultations with clients, people will ask me why they should consider international asset protection and estate planning. Won’t it cost a lot? Won’t I become the subject of IRS scrutiny? Can’t I accomplish all the same things with domestic planning? This is some of the common refrain.

To me, international planning is all about addressing jurisdictional systemic risk.  What do I mean by that?  Well, most people would agree that we live in a country where litigation has become the national pastime.  If someone is not happy with someone else, whether a customer, business partner, patient or spouse, they turn to litigation as the answer.

That is just one systemic problem in the US. Offshore planning addresses this risk.  Selecting other jurisdictions that are pro “defense” rather than pro “plaintiff”; where it might be difficult or impossible for someone to bring litigation against you, is a major solution to this systemic issue.  Domestic planning does not address this type of risk because even the best domestic structures still need to function within the US legal and regulatory environment while foreign structures do not. 

It is also becoming more difficult for American Citizens to directly open foreign bank / brokerage accounts. That is another problem based on our nationality. It is too much hassle and costly for the overseas financial institutions to comply with various US Government mandates including the recently enacted FATCA (Foreign Account Tax Compliance Act).  Many of the financial institutions that won’t open accounts directly for US Citizens will, however still open accounts for foreign structures such as trusts and foundations even when the ultimate beneficial owners are American.  Again, this is a challenge for us as Americans that domestic planning and structures will not address.  “Jurisdiction shopping” in overseas venues integrated with asset protection and estate planning techniques can open back up these closed doors to Americans.

Once foreign structures are created with foreign bank / brokerage accounts, the investment world also opens up wide.  Over 70% of the world’s equities are “closed” to US persons because the investments are not SEC regulated.  Everything foreign from publicly traded stocks and bonds to private placements, investment funds and hedge funds are closed to US persons and US structures.  If one creates an asset protection trust in a favorable offshore jurisdiction such as Belize or the Cook Islands, your structure can invest in practically anything you want.  Again, the doors are wide open.

Finally, most jurisdictions limit in many ways what you can do with your money and to whom you can leave it at your death.  Offshore estate planning utilizes jurisdictions where you can control your money after death for as long as you want.  This can be for many generations or into perpetuity (i.e. forever).

International asset protection and estate planning simply cannot be compared to domestic planning.  This is not to say that one should only do foreign planning.  Some assets such as domestic real estate are better handled with domestic structures.  But, for people with significant or even modest wealth, international planning compliments domestic planning and is usually the better solution of the two.  It protects wealth in ways domestic planning cannot.  It opens up access to investment and the global financial system in ways domestic planning cannot.  It allows for flexibility in estate planning that goes beyond the ability of most domestic planning vehicles.

As for IRS audits, I have never seen any fact to suggest that folks with international structures are more likely to be audited than those with domestic planning structures.   Most experts believe that your risks go up dramatically only when you try to hide assets offshore from the Government.  I concur with this reasoning and believe that if all the proper filings are done, your exposure to an IRS audit is minimal.  The IRS really doesn’t care in the end whether you have offshore structures as long as you are reporting properly and paying the correct amount of tax due.  In that sense, foreign and domestic planning is exactly the same.

The cost can be somewhat higher with international planning when compared to domestic planning.  Generally, you need professionals in at least two and sometimes three or more jurisdictions contributing to the end work product.  So, yes, to do it right your initial upfront costs will be a bit more.  On an on-going basis, however, the cost of foreign trustees and registered agents is comparable to what domestic service providers charge. So the question is does the access to world markets, investment opportunity, superior asset protection and more flexible estate planning justify the added costs to create the legal structures?  I think the answer is clear.

For most people it comes down to what you believe about the future.  If you believe that we will see real tort reform, less litigation, lower taxes, a stronger dollar and a more flexible less onerous business and personal regulatory environment, then US planning is sufficient.

If you believe the US is facing political, social and economic problems that our current system cannot or will not address, along with higher taxes and a weaker dollar, then taking steps now to plan around the various systemic and jurisdictional risks are exactly why people engage in international planning.  In the end, the choice is yours and almost any type of planning is better than no planning, but for me international planning is superior in almost every way to domestic planning.