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If
everything you own is held in your own name in your own country, then you are
not merely exposed, you are vulnerable absolutely, to whatever decisions the government
might make about how you should behave and who gets the wealth you’ve
earned. Tomorrow's new government measure, which might land out of the blue,
could be a law that affects everyone, or it could be a rule devised to deal
with people like you. Or, it could be an administrative action aimed at you
alone. In any case, with all your assets at home, you'd find out how the
lobster feels when his trap is being hauled out of the water. Nothing he can
do about it.
The only way to protect yourself against the risk of being boiled in a
government pot is to keep some of your assets in another country. Depending
on how you go about it, the specific benefits you might achieve are:
- Protection from currency exchange controls
- Protection from the confiscation of precious
metals
- A lower profile as a lawsuit target
- Income tax planning advantages
- Estate planning advantages
- Easier access to investments in other countries
- A measure of financial privacy
- Practical readiness to move additional assets
quickly
- Psychological readiness to think and act
internationally when you need to
There are many ways to go about getting those benefits. None is right for
everyone, and they all come with some element of cost or inconvenience.
Here’s the main menu.
Small bank account. A small account at a foreign bank gives you a
ready and private landing spot if you ever decide you want to move a large
amount of money in a hurry. If you're a U.S. person, the account is
non-reportable, so long as the balance (together
with any other foreign financial accounts you own) never reaches $10,000.
Large bank account. A large account at a foreign bank also provides a
landing spot for anything you want to send later. If foreign exchange
controls are ever imposed, the new rules may require you to repatriate the
money – or they may not. Depending on the specifics of the new rules,
your account may be grandfathered. In that case, the overseas funds would
enable you to travel outside your own country while others are forced to stay
at home.
A foreign bank account also slows things down if you’re ever under
attack. It’s safe from an instant seizure by functionaries of your own
government or by the unassisted order of a court in your own country.
The disadvantage of a large bank account vs. a small bank account is the loss
of privacy. If you’re a U.S. person, you are required to report your
foreign financial accounts if their aggregate value reaches $10,000.
Physical gold. Gold stored in a safe deposit box in a foreign bank is
not a foreign financial account, nor is physical gold in segregated storage
with a non-bank safe-keeping facility. So a U.S. person can store an
unlimited amount of metal that way without triggering any reporting
requirements. Avoiding a need for annual reporting is a plus, but don’t
rely too heavily on the privacy you get with a safe deposit box, since the
steps the gold takes to get there may create records of their own.
Foreign variable deferred annuity. As with an annuity issued by a U.S.
insurance company, a variable annuity issued by a foreign company is
tax-deferred for a U.S. investor until he withdraws the earnings. The annuity
can be invested in major currencies or in portfolios of international stocks
and bonds. If the annuity is big enough (a minimum of $1 million or more,
depending on the insurance company), it can be invested in real estate, a
private business, or just about anything else.
It’s only conjecture, but if foreign exchange controls are imposed,
they are unlikely to disturb any foreign annuity that’s already in
place, which is a big plus for an annuity vs. a foreign bank account.
A foreign variable deferred annuity isn’t private for a U.S. investor.
When you buy one, you generally must file an excise tax return and pay a 1%
tax, and you must report the annuity as a foreign financial account.
Swiss immediate lifetime annuity. A Swiss annuity that begins paying
you an annual income when you buy it isn’t a foreign financial account,
which may save you a reporting burden. And under a tax treaty with the U.S.,
Swiss annuities are exempt from the 1% excise tax. There’s nothing
private about it, however, since part of each annual payment you receive will
be taxable income.
You can make it difficult for a creditor (such as someone who won a lawsuit
against you) to get his hands on a Swiss immediate lifetime annuity by
electing not to have the option to cash it in. A forced assignment to a
creditor generally would not be valid under Swiss law.
Offshore mutual funds. The array of mutual funds available internationally
is even broader and more varied than what’s available in the U.S. And,
like a foreign bank account, your share account with an offshore fund is safe
from a lightning seizure by your own government. But for a U.S. investor, an
investment in a foreign mutual fund comes with certain tax disadvantages.
They are tolerable if you handle the investment properly or truly ugly if you
don’t. And your shareholder account would be a foreign financial
account and so would be reportable.
Offshore LLC. You can use a limited liability company formed outside
your home country as an international holding company. It, not you
personally, would buy and hold the overseas investments you want.
An offshore LLC can be designed to be very unfriendly to your potential future
lawsuit creditors, even more so than an LLC formed in the U.S. An additional
plus is that while many banks, mutual funds, insurance companies, and other
financial institutions shun business from individual Americans, many of the shunners will welcome business from a non-U.S. LLC even
if it is American-owned.
An offshore LLC owned by a single U.S. person (or by husband and wife) can
elect to be treated as a disregarded entity for U.S. income tax purposes,
which makes it absolutely income-tax neutral. Or it can elect to be treated
as a partnership, which makes it almost income-tax neutral. The LLC also can
be used for estate-planning in the same way as a U.S. LLC.
By the ratio of benefits to cost and complexity, an offshore LLC rates
especially high. But it does not eliminate your reporting burden. If the LLC
owns a large foreign bank account, you will be required to report it. And
there will be annual reports for you to file about the LLC itself.
Foreign real estate. A direct investment in foreign real estate is
free of any special U.S. tax or reporting rules. It’s just like buying
a farm in Kansas. It would also present added difficulties for a lawsuit
creditor looking for ways to collect. And it is unlikely that any regime of
foreign exchange controls would touch existing foreign real estate
investments.
Foreign real estate can also pay you a psychological dividend. Knowing you
have a place to go to, should you ever want or need to go, provides a sense
of security. That apartment in Buenos Aires or the acreage in New Zealand
means you’ll never be a lobster.
Foreign real estate partnership. By investing in a private foreign
partnership or LLC that owns foreign real estate, you can achieve all the
advantages of a direct investment. In addition, you increase your protection
against foreign exchange controls and lawsuit creditors because there is no
ready resale market for your partnership interest.
International IRA. An IRA or a solo 401(k) is permitted to own
anything other than life insurance and so-called “collectibles.”
Anything.
Some IRAs and solo 401(k) plans own a domestic limited liability company and
use it as a vehicle to buy and hold other investments. Such an LLC can own an
offshore LLC that does the real investing. As with your direct ownership of
an offshore LLC, this does nothing to reduce your reporting duties; in fact,
it adds to them.
The advantage of such an arrangement is that it allows you to
internationalize your retirement plan. Anything international you might do
with your personal investments, you can do with your IRA’s investments.
And it’s the ideal structure if you want to invest in offshore mutual
funds. The IRA short-circuits the special tax rules that apply to investments
in offshore funds, and the offshore LLC’s shareholder account
application is likely to get a warmer reception from the fund than would your
own American hand knocking on the door.
Private international investment contract. Depending on your
circumstances, it may be possible to structure an investment contract between
you and an international financial institution that is tax-deferred,
non-reportable, and protected from future exchange controls or prohibitions
on owning gold. This is custom work, so, of course, it’s only practical
for large chunks of capital.
International asset protection trust. A properly structured
international asset protection trust provides the maximum level of protection
from anything that happens in your own country. It does so by leaving you
with a measure of influence, but not control, over the trustee. The trustee
is outside of your home country and thus is not subject to its laws. And you
don't possess the authority to compel the trustee to invest or distribute the
trust fund in any particular way. Thus there is no direct means for your own
government to impose any regime of exchange controls or investment
restrictions on the trust fund.
An international asset protection trust is far and away the most powerful of
all financial planning devices. Handled properly, it is virtually
impenetrable to future creditors and is especially helpful in estate
planning. It is also the most complex device and hence the one most likely to
be handled ineptly. And of all the tools mentioned in this article, it comes
with the heaviest reporting burden if it is funded by a U.S. person.
Of course, this is the briefest of overviews of a complex topic. For specific
guidance on each of the menu items listed, and pros and cons related to your
own circumstances, you’ll need to seek qualified counsel.
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With an ever-growing number of regulations and financial restrictions that
gradually choke your ability to build and maintain wealth, protecting your
assets by getting them out of the country should be a critical part of every
investor’s strategy. We recommend you get started before it’s too
late. Read more about the 5 best ways to
internationalize your assets.
Terry Coxon
The Casey Report
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