Finding An Offshore Bank For Your Asset Protection Plan

Foreign bank accounts are an integral part of offshore asset protection. Clients who establish limited liability companies or corporations in foreign jurisdictions for asset protection frequent ask where and how their entities can set up a foreign bank account. This past week I visited an executive manager of a well-established offshore trust company that assists asset protection for U.S. citizens. The company serves as manager of foreign LLCs or as trustee of foreign trusts. The manager told me that the offshore banking environment has changed significantly in the past year or two as the IRS has cracked down on banks that have maintained secret bank accounts for U.S. taxpayers.

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Tax Reporting Requirements For Offshore Asset Protection

Many callers and clients express interest in offshore asset protection planning. I have prepared some offshore trusts and many offshore limited liability companies over time. Any type of offshore asset protection is complicated, in part, because of IRS reporting requirements applicable to foreign entities. I suspect there are many people with offshore asset protection entities who don't understand or comply with tax reporting rules. For example, a single member domestic limited liability company is by default a disregarded entity for tax purposes. This means the LLC on the entity level reports nothing to the IRS and is not required to get a separate tax number. The member treats the domestic LLC as a sole proprietorship for tax purposes. A single member foreign LLC established by a U.S. resident must file an election form 8832 to claim disregarded entity status. If it does not file this form timely the LLC may be treated as a C corporation and subject to corporate taxation. In addition, the offshore LLC once electing disregarded status must file information form 8858. Offshore entities taxed as partnership or corporation have different filing requirements.

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Nevis LLC Bank Accounts

Several of my clients who formed Nevis LLCs have told me that they have had difficulty opening bank accounts in the name of their LLC. Different banks have different obstacles. Common bank demands include registering the Nevis LLC as a foreign entity with Florida's Division of Corporations and getting a tax identification number even though the IRS does not recognize a single member LLC for tax purposes. Some other clients told me that they have opened financial accounts for Nevis LLCs through their stock broker and that these financial firms are much more accommodating. I am going to ask other asset protection attorneys for their recommendations of Florida banks who accept Nevis LLC accounts. I will post recommendations at a future time. Bank recommendations from a blog reader will be appreciated.

Thinking About Hiding Assets Overseas?

From time to time people ask me about using asset protection tools to hide assets from creditors or former spouses. Some people believe asset protection tools can be used to hide income from the IRS. My standard response is that asset protection is not asset hiding, and that current technology precludes secrets. To illustrate my point I invite those harboring images of asset secrecy to visit a relative new blog written to help creditors discover hidden assets here and overseas. The blog is called "The Asset Search Blog" edited by Fred Abrams, www.assetsearchblog.com.

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My Visit To Nevis, WI and Nevis LLCs

I am a proponent of Nevis limited liability companies as an offshore asset protection tool. I find the Nevis LLC to be more practical and more cost efficient than offshore trusts. The challenge in using a Nevis LLC is finding an offshore LLC manager to run the LLC and foreign banks to manage LLC funds. Meridian Trust Company is the best known institutional LLC manager located in Nevis, W.I. This past week I visited Nevis and met with Mr. Ernie Dover who represents Meridian Trust and its related companies in Nevis. Ernie has some advice and recommendations which many people considering offshore planning may find interesting.

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Swiss Annuities

More and more people have been asking me about using Swiss annuities as a financial asset protection tool. Trust and Estates journal, a respected legal publication, published an article in its March, 2007 issue about Swiss annuities for asset protection. Its the best academic article I have seen on the subject. Swiss annuities are an effective financial tool for offshore asset protection. I scanned a copy of the article which can be downloaded and read in this post. Download Swissannuity.PDF

Credit Card or Debit Card Tied To Offshore Bank Accounts

Most of my knowledge about offshore bank accounts comes from my clients' experiences. This past week one of my new clients spoke with me about an offshore bank account he had previously established and funded. I asked him how he accesses his money from a bank located in another country. Specifically, I asked whether the bank issued him a debit card which he uses to make payments in the U.S. or whether he uses a credit card tied to his offshore bank account.

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Offshore Banking

Often, asset protection clients asked me for recommendations about offshore banking. Many have preferences for banks in Caribbean islands which are reputed offshore asset protection havens. I always tell people that I do not have any first hand experiences with offshore banking, no offshore banking recommendations, nor any advice about how to open offshore bank accounts. I do, however, collect recommendations from other attorneys and my own clients and pass on these reports of other peoples' experiences.

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Swiss - Liechtenstein Annuities

I had an interesting discussion with an estate planning attorney about offshore annuities. Swiss annuities are a sophisticated offshore asset planning tool because the Swiss law protects these annuities from foreign creditors, including U.S. judgment creditors. The attorney informed me that the small country of Liechtenstein has annuity laws modeled after Swiss law, and in many ways, offers better asset protection annuities

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Homestead Depends on Timing

Timing is a key element in asset protection as evidenced by this story submitted by a caller last week. . A man owned two adjacent lots. He lived in a house on one lot. The adjoining lot was vacant. He and his family wanted to build their new home on the vacant lot. So, he sold his residence to a third party and used some of the sale proceeds to pay a contractor to begin construction of his new home on his vacant lot. He and his family rented an apartment during construction. Approximately two weeks prior to obtaining a Certificate of Occupancy on the new home and moving in a civil court entered a money judgment against the caller. He asked whether his new home is protected homestead.

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Income Tax Savings Offshore?

Many businessmen who are interested in asset protection also are concerned about reducing income taxes. Some people mistakenly believe that asset protection involves tax reduction by utilization of offshore entities. Asset protection and tax planning are for the most part separate issues. When asked about income tax savings in offshore planning I quickly explain to people that I am not experienced in income tax law and cannot offer competent tax planning advice. Last week, I had lunch with a local tax attorney who gave me interesting information about how some of his wealthy business clients have substantially reduced their income tax.

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Domestic Checking Accounts For Nevis LLC

Some of my clients who formed Nevis limited liability companies report difficulty opening bank accounts at their local banks in the name of their LLC. The bankers stated that they are reluctant to open an account for a foreign entity because of "9/11 issues." Clients have encountered problems opening accounts for their Nevis LLCs even at banks where the client has a long standing banking relationship.

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New Entities: Same Effect

A prospective client asked me about the following asset protection plan. The wanted to establish an entity known as "an Independent Pure Business Trust." The beneficiary of the trust would be an offshore trust. The offshore trust would establish a Swiss bank account. The client could borrow money from the Swiss account to pay living expenses. The loans would be secured by something called a "common law lien" on the caller's property.

I told the client I would not take his money to investigate or set up such an asset protection plan, because I saw no legal benefit. I never heard of a "common law lien" (maybe there is such a thing somewhere), and the only pure business trusts I am familiar with are a type "abusive trusts" used to evade income tax. I authored a post a few days ago about complex asset protection plans usually fail. The same comment applies to asset protection plans that use novel legal terms like independent pure trust that few lawyers would recognize or endorse.

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Another Offshore Protection Plan Fails

This is important. I have written previously on this blog that complicated offshore trust planning is overrated because the more elaborate plans are the most difficult properly to design and execute. A few years ago a creditor retained me to help his collection attorney pierce a very complex offshore asset protection plan. The creditor was owed close to one million dollars, and the debtor's asset protection entities had much more than one million dollars of assets. The asset protection plan was among the most complex and potentially effective protection plans I have seen. The debtor had placed real property in domestic limited liability companies whose share were owned by family limited partnership whose partners were offshore trusts with foreign trustees.

The collection attorney and myself analyzed the complicated plan in search of some rights or control retained by the debtor. We focused on two provision of the plan. First, the documents required the offshore trustees and LLC managers to distribute all income earned to the debtor who was the ultimate beneficiary of the entities. Second, the debtor retained the right to remove and replace trustees. Ultimately, a Florida court said that our client, the creditor, could levy upon both of the debtor's retained powers, and it ordered that all income generated by assets owned by the asset protection entities be paid to the creditor. This order cut off the debtor's source of income, and because the debtor's wealth generated substantial income, the order produced a quick and favorable settlement for the creditor.

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Offshore Planning Requires Tax Reporting

When people use offshore trusts and some offshore limited liability companies for asset protection they are required to submit to the IRS some informational tax filings. For example, US Citizens (including
dual citizenship), who have bank accounts or investment accounts in a country outside the United States, they must file an annual Treasury Department form TD F 90-22.1 every year, or there are civil and possibly criminal penalties for non-compliance. People with offshore accounts must find a CPA who is experienced in international tax to make sure that all required tax forms are being filed.

Tax Reporting For Nevis LLC

Nevis limited liability companies are frequently used as an economical legal tool for basic offshore asset protection. Many Nevis LLCs are formed as single member entities so that the owner can pass through profit and loss and keep tax reporting as simple as possible. Nevertheless, Nevis LLCs, like other offshore entities, entail tax reporting and tax laws which are more complicated than most any domestic entity. It is important for people using LLCs to hire a tax accounting familiar with complex laws about offshore taxation.

As example, the Jacobs Report which is found at offshorepress.com/jacobsreport/ recently published valuable advice about tax reporting requirements for Nevis LLCs. Anyone using a Nevis LLC for asset protection should make sure that their CPA or tax attorney is familiar with the forms and issues mentioned in the Jacobs Report article which follows.

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What is Nevis?

Much of my offshore asset protection work involves legal entities in the island of Nevis, West Indies. Nevis has the best foreign limited liability company statute, and its offshore trust laws are considered among the best offered by foreign jurisdictions. Many of my clients who have used Nevis legal entities know little or nothing about this small country. This past week I made my first trip to Nevis to learn more about this island. Here are some things I learned about Nevis:

The correct pronunciation emphasizes the "e": The country is called "knee-vis" , not "neh-vis"

Charlestown , the capital of Nevis, is the only city on the island and it is very small. Charlestown is about three blocks long and two blocks wide. Nevis probably has a government and a judicial system, but I walked all around Charlestown and saw no government buildings. I could not find the courthouse.

Nevis has one national bank called the Bank of Nevis. I went inside the lobby where I saw many people lined up to do banking transactions. The lobby is very small and not air-conditioned. The bank has recently appointed an English banker to handle offshore accounts. His office is in a separate building, and this office is air-conditioned.

There is one two-lane highway which circles the island. All other roads are in horrible repair, filled with potholes.

I presume the national symbol of Nevis is the goat. There are wild goats everywhere. There are goats along the side of most roads; there are goats in the middle of the smaller roads; goats roam people's yards. I heard there are more monkeys than goats, but the monkeys stay in the forest.

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Offshore trusts

Offshore trust planning is a highly-publicized method of asset protection. Offshore planning involves establishing legal entities in favorable foreign jurisdictions under the control of trustees who are neither United States citizens nor persons having a business presence in the United States. The purpose of offshore planning is to remove legal battles with creditors to jurisdictions beyond the reach of the United States courts. Offshore planning works, foremost, when an offshore jurisdiction does not recognize judgments rendered by U.S. courts. In order for judgment creditors to reach assets located in such jurisdictions, a creditor must start over and reinstitute the lawsuit against the same defendant in the foreign court system.

The second advantage of offshore planning is that favorable offshore jurisdictions have relatively short statutes of limitation on fraudulent transfers. Domestic asset protection is often vulnerable to a creditor's allegations that the debtor has transferred assets, or has recently converted a nonexempt asset to an exempt asset, in an effort to defraud or delay creditors' collection. Most states have four-year statutes of limitations, which means that a creditor's attorney can attack any asset transfers up to four years after the transfers took place. Favored offshore jurisdictions have two-year statutes of limitation on fraudulent transfers. The shorter statute of limitations makes it easier for debtors to defend creditor challenges of their asset protection planning.

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