The Most Powerful Offshore Trust for Americans

In my consultation service, many people approach me about creating international legal structures that will help them manage their wealth, estate planning, and taxation. It’s especially popular right now among Americans… many of whom are coming to realize the importance of getting some money offshore.

“Offshoring” solutions are all about regulatory arbitrage. Different countries have different rules about things like trusts, corporations, and reporting. It’s possible—and legal—to exploit these to your benefit.

The most popular jurisdictions for offshore asset protection trusts, for example, are Nevis in the Caribbean and the Cook Islands in the Pacific. Here, it’s very hard for anyone who might sue you to get at assets in the trust—and these islands also don’t tax foreign-source income.

But here’s something that even many who work in the trusts business might not know… The most powerful offshore trusts of all can be created in the United Kingdom. So-called “non-resident” trusts are available to people who do not live in Britain—Americans, for example.

Non-resident trusts have two advantages. First, any income received by the trust that doesn’t originate in the United Kingdom isn’t subject to tax. Second, the trustees (trust managers) can live anywhere in the world… including countries that don’t share financial information under the Common Reporting Standards. The CRS requires countries to share information about legal structures under their jurisdiction with any other CRS country.

Enterprising asset managers figured out that if a person creates a non-resident trust and assigns a trustee who lives in a place that is not part of the CRS, no government anywhere can track the income received by that trust. For the cherry on top, potential litigants have no way to find out who the trustees are and where to find them.

For example, some non-resident trusts choose trustees in places like the Falkland Islands, Saint Helena, and Ascension Island. These are all tiny British territories in the South Atlantic, but they are not part of the CRS. A trustee who lives there has no obligation to tell any government about the financial affairs of the trust they manage.

Two other potential havens are even more out of the way. One is the archipelago of Svalbard in the Arctic. It’s under Norwegian control but has an odd legal status under the Svalbard Treaty of 1920. Citizens and companies from the 48 nations that signed the treaty (including Americans) have the right to live and work there. It doesn’t tax trusts and has no inheritance taxes or custom duties. And it’s not part of the CRS.

But the strangest of all is Akrotiri and Dhekelia, a sovereign British territory in Cyprus. It’s a military base, but the spouses of personnel assigned there aren’t required to report anything under the CRS. One Swiss asset manager signed up the owner of the bed-and-breakfast he stayed in in the territory to become a trustee for several non-resident trusts.

The people who create such arrangements claim they aren’t intended to facilitate tax and reporting evasion. They stress instead the asset protection angle, since any potential litigant against such a trust would have to travel to these far-flung places to conduct their cases.

I don’t believe that for one second. Comparable asset protection is available in much easier jurisdictions, like the Cook Islands. The only reason to adopt a strategy like this is to avoid taxes. Nevertheless, the fact that clever asset managers are seeking “solutions” in such far flung places means that the global war against tax evasion is almost won, for better or worse.

There are of course many legal ways to achieve excellent asset protection and tax optimization using offshore trusts… not just those I’ve written about today.

If you’re interested, just book a consultation.