What is an Offshore Trust?
An offshore asset protection trust is a legal solution that helps protects assets from future lawsuits and potential creditors. An offshore trust is established under the laws of a foreign country and managed by a professional trustee not subject to the jurisdiction of the settlor’s home country.
Offshore trust are often used for asset protection but having an offshore vehicle as an option to invest through can be beneficial. This article will discuss how investing through an offshore trust can provide greater investment freedom and why a serious investor should consider the opportunities provided by an offshore trust.
Why Offshore Trusts Provide Investment Opportunities
If you are a serious investor and a citizen or resident of the United States, you might have had the unpleasant experience of facing restrictions limiting your investment options. This is increasingly true with several innovative and promising cryptocurrency investments that the Securities and Exchange Commission will not approve for people in the U.S., even in the case of sophisticated and experienced investors.
While the increasing financial and banking regulation in the U.S. might be well intentioned, the result is certain investments, particularly those regarding securities from a foreign country, can be off-limits to Americans.
An offshore trust structure can be instrumental as a legal way to avoid such restrictions. The main reason is that an offshore trust is a separate legal entity that is not considered a U.S. citizen or resident. Thus, an offshore trust is considered a foreign entity that is handled differently by U.S. regulations.
These trusts can open certain investment opportunities that would be otherwise unavailable, particularly for investors looking at opportunities offshore or alternative investments.
What are Offshore Investments?
Offshore investing simply means placing your funds in any venture located outside of your home country. This does not necessarily need to involve establishing foreign bank accounts. In fact, you may already have foreign investments in your portfolio if you are holding foreign stocks or internationally focused ETF’s in your existing investment accounts.
One of the most common ways for U.S. persons to invest abroad is through American depositary shares (ADS), which are U.S. dollar-denominated equity shares of a foreign-based company.
ADS trade on American stock exchanges like the New York Stock Exchange alongside shares of domestic corporations but they tend to carry yearly bank fees that are passed on to the U.S. investors. Additionally, not every foreign corporation is able to trade in the U.S. markets.
Generally, it only makes sense for the largest global companies since they tend to be more popular with U.S. and global investors. To invest in smaller and less popular companies abroad, you will need access to foreign stock markets in order to place a trade.
Advantages of Investing Through an Offshore Trust
One of the main advantages of investing though an offshore trust, apart from the built-in asset protection and high degree of privacy that comes inherent with the offshore trust structure, is the availability of more investment options.
Offshore jurisdictions place very few restrictions, if any, on the types of investments they accept. At the same time, several offshore hedge funds and mutual funds are designed specifically for non-U.S. investors, but investors from offshore jurisdictions are almost always allowed. Once an offshore asset protection trust is established, a financial institution can help provide access to the global markets.
Investors in precious metals often prefer to hold their physical holdings outside of the U.S. for fear that legislation could be enacted to restrict or prohibit ownership of these types of investments. While it may sound far-fetched, there is an unfortunate precedent, in the form of the United States Gold Reserve Act of January 30, 1934. Until 1974, it was illegal for U.S. citizens to own gold in the form of gold bullion, without a special license. An offshore trust can also engage a custodian of physical assets in a foreign country.
Another benefit is the favorable tax treatment in the foreign country. Generally, offshore trusts are established in friendly jurisdictions that do not impose any additional income taxes on investment returns. While income taxes will still be applied by the U.S. Internal Revenue Service, this avoids the issue of double taxation.
Some of the most common offshore trust jurisdictions include the Bahamas, Belize, the Cayman Islands, the Cook Islands, and the island of Nevis. While many offshore jurisdictions offer numerous advantages, The Cook Islands and Nevis are considered by many asset protection attorneys as particularly good jurisdictions for their formidable asset protection legislation and good tax laws.
Types of Offshore Investments
Offshore investments can entail much more than just opening a foreign bank account or brokerage account with an offshore financial institution. Offshore asset protection trusts are well suited to hold a variety of different assets.
Foreign investments can include stock of foreign corporations, commodities such as precious metals, foreign hedge funds or mutual funds, foreign currencies, cryptocurrencies, real estate, life insurance, and private equity investments.
Having the advantage of greater investment freedom can help diversify a substantial portfolio and potentially open the door for better return opportunities and improved capital gains. An offshore financial institution can facilitate trading in stocks, options, futures, commodities, cryptocurrencies, and other vehicles.
Since all the transactions are carried out by an offshore trust, privacy and asset protection are greatly enhanced. Any dividends received and capital gains can remain protected by the offshore trust.
Setting Up an Offshore Trust
Whether looking to pursue specific investments abroad or simply greater diversification offered by a broader investment selection, an offshore trust can be an advantageous investment vehicle. Establishing an offshore trust structure is easier than it might sound.
You can start the process by working with an experienced attorney in the U.S. without the need to travel to a distant offshore destination. If you are thinking about setting up an offshore trust, or if you would like to know more about the advantages of offshore asset protection trusts, you can contact Blake Harris Law to speak with an asset protection attorney.
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