Overview
This episode of the Swiss Money Secrets podcast features Blake Harris discussing offshore trusts, particularly Cook Islands trusts, asset protection strategies for Americans, key misconceptions, tax implications, and practical setup steps.
Offshore Trusts: Misconceptions and Tax Neutrality
- Offshore trusts cannot be used to legally avoid or evade income taxes.
- Trusts are tax neutral; they neither increase nor decrease tax liabilities.
- IRS reporting requirements must be fulfilled for offshore trusts or bank accounts.
- Proper compliance with reporting does not increase audit risk.
Asset Protection: Importance and Context
- Asset protection structures assets to prevent loss from lawsuits or to improve settlement leverage.
- The U.S. legal environment is highly litigious, increasing the need for asset protection.
- Domestic trusts are easier to set up but offer weaker protection compared to offshore trusts.
Offshore Trust Jurisdictions: Cook Islands, Nevis, Belize
- Cook Islands, Nevis, and Belize are leading jurisdictions for offshore trusts.
- Cook Islands trusts have stringent legal barriers for claimants and a pro-asset protection mindset.
- Nevis and Belize have strong laws but may lack the same stability and government commitment as Cook Islands.
- Jurisdictions are chosen based on client needs and asset locations, with Cook Islands being the default choice.
Types of Assets and Trust Setup
- Almost any asset (cash, stocks, bonds, cryptocurrency, real estate, business interests) can be protected by offshore trusts.
- Liquid assets are easiest to protect; real estate requires creative structuring due to its immobility.
- Trust setup typically takes about 30 days and requires thorough KYC and source-of-wealth documentation.
- Clean legal background expedites the process.
Tax and Privacy Considerations
- U.S. citizens are taxed on global income; offshore trusts require detailed IRS reporting.
- Offshore trusts provide enhanced privacy but do not offer secrecy or enable hiding of assets.
- Courts can require disclosure of all assets, including those held in trusts, but cannot compel access or transfers if funds are protected by trust structure.
Swiss National Referendum on OECD Minimum Tax
- Switzerland is voting on how to allocate revenue from a new 15% minimum tax on large corporations.
- 75% of excess revenue is proposed to be returned to local cantons; 25% to the state.
- Vote outcome will determine distribution; declining would redirect funds outside Switzerland.
Practical Steps for Setting Up an Offshore Trust
- Complete due diligence including source-of-wealth verification.
- Engage an expert to advise on jurisdiction and asset structuring.
- Ensure compliance with all legal and tax reporting obligations.
Decisions
- Cook Islands is the preferred jurisdiction for most client trusts.
- Offshore trusts will remain tax neutral and compliant with all reporting requirements.
Action Items
- TBD – Clients: Share detailed tax memorandum with CPA or use referred specialist for IRS reporting obligations.
- TBD – Blake Harris Law: Guide clients through trust setup and due diligence process.