Simple Answers to Complicated Offshore Asset Protection

Estimated Time to Read: 3 minutes

These days, the speciousness of offshore asset protection, the anxiety with which one may consider their merits and drawbacks, as well as the frequency of these considerations all appear to be coextensive. In the wake of the Paradise Papers and the Panama Papers scandals, many are understandably (whether justifiability is moot) anxiety-ridden and up in arms over the potential legal and ethical implications of protecting their assets. While, indeed, there are some instances where offshore financing strays past the threshold of legality, there are many more instances where investing in the security and maintenance of one’s hard-earned assets, liquid and locked, is perfectly legal—not to mention socially accepted, expected, and time-tested. For example, entities and individuals that hold assets in some Islamic nations may decide to establish foreign asset accounts in order to circumvent Islamic inheritance jurisprudence, which posits that only relatives with a direct blood relationship to the passed relative may claim inheritor status. In a similar vein, estate planning is a means of minimizing the incursion of gift and income tax in making claim to an inheritance—and is indeed considered tax avoidance, although a legal species thereof.

More commonly, offshore asset protection consists of managing one’s assets by way of a business entity in an alien jurisdiction with more complimentary laws. Such foreign entities serve as a line of defense between the products of your labor, past inheritance, gifts, and creditors, such as the American government represented by the IRS. It is helpful to think of such offshore protectors as tools in a kit: as there are different instances where a given tool proves its utility over others, so are there certain situations where one type of offshore asset protection will benefit the account holder more than other types. Sartorially and simply, you must tailor your type of protection for that against which you wish to protect yourself.

Types Vulnerabilities and Types of Protection

Although it is easy to establish trusts, partnerships, and corporations in the United States, there are still other countries that have laws more agreeable to not only the security of your assets from creditors and tax institutions, but also to the privacy of your dealings within that offshore asset protection. One elegantly illustrative example: say that you live in Detroit but must commute to Windsor, Canada, for work. During your commute, you receive a speeding ticket from Canadian police. Say that commute was your last, and you no longer work in Windsor: you will never be compelled to pay your ticket by United States officials because the US is not in the business of collecting money for other countries. Likewise, in an offshore account, the country of holding will not collect taxes for the United States.

This example has another relevant facet: the person commuting is not an extravagantly wealthy person; similarly, the benefits of employing an offshore asset protection strategy are not limited to the wealthy—it is not reserved for the likes of those involved with such scandals as the Panama Papers. Anyone is liable to be judged against in a lawsuit, which can open up that person’s current and future assets to possible claim.

Additionally, you are likely reading this article on a screen, online: the fact that information is so readily available and so remotely accessible today correlates to a higher level of vulnerability towards identity theft and digitally managed fraud. By securing assets either manifestly or digitally in offshore holdings, you can muster more material defenses against such attacks than with a mere social security number. Also relevant here, as mentioned earlier, is the notion of privacy—a luxury rapidly reducing in today’s digital world economy—social and financial! Securing your assets in a name or under an entity not explicitly associated with your person in offshore asset protection will not only ease your mind, but it will also allow for more fluid and creative development of your personal wealth.

Managing privacy does not, of course, excuse someone from acting outside the purview of the law. To be sure, however, it allows the law to work more favorably for you, rather than against someone trying to injure you and your wealth—a small but crucial distinction. Also regarding law, it must be noted that offshore asset protection will not excuse an account holder from paying US taxes.

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