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Offshore Banking: Why People Use It to Protect Assets From Lawsuits

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It’s positive to think of the world as a kind place where you may never face any legal problems. However, there’s a good chance that at some point in your life, you may wind up with a lawsuit on your hands, and with it, an unscrupulous lawyer at the helm of your problems. This fact is even more true for regular people that own their own businesses, where an unexpected lawsuit for something that could be a false claim may be delivered at any time.

Whenever you wind up in court, whether it’s through a business issue, a personal issue like divorce, or even a tax issue, you want your assets, or at least some of them, to remain protected. As such, many turn to offshore banking to protect their assets from the unfortunate possibilities of life.

Why People Choose Offshore Banking?

The United States, with 4.4% of the world’s population has 80% of the world’s lawyers and 96% of the world’s lawsuits. So, asset protection is the name of the game for Americans when it comes to financial protection. Most people moving personal capital out of the country focus on this concept, and feel it is necessary to protect their gains from any types of threats that can come inside the US—creditors, litigants, and divorces. They also tend to use offshore accounts to minimize their tax payments, mostly on earned income coming in from other countries.

For people participating in asset protection, these assets are often placed in one of the several small, independent island-states who are finding a market of interested Americans ready for these types of tax helping services. Many of these countries include legislation that exempts the assets from taxes and provides a good deal of privacy to those investing in these accounts. Naturally, one is obligated to follow the tax laws of his or her own country.

Offshore Asset Protection

Asset protection sometimes takes quite a few forms, and while there are lots of onshore choices, offshore vehicles are opportunities that are usually more effective for the goal of asset protection. Typically, legitimate offshore agencies offer outstanding asset protection. And remember, if you feel guilty at all about taking this route, know that during its core, asset protection isn’t anything more than risk administration.

If you’re doing business today, then you understand how hard it is to earn a profit. If you conduct more than one business, you might want to think about an individual entity for each business so that claims arising from one activity do not jeopardize the other pursuits. Asset risk stays at a minimal if you do this overseas. So, what are your options for protection?

Nevis and Asset Protection

Nevis was one of the first offshore havens in modern time to offer asset protection and privacy statutes. One way to try and balance out the restrictions on multiple businesses and sneak attacks that may come from unscrupulous lawyers to utilize offshore banking. Using an online formation service, such as this one, you can set up an offshore business. Combining it with an offshore trust or an offshore foundation from various jurisdictions worldwide can help ease restrictions. Belize offshore businesses are often recommended because their laws favor privacy and asset protection.

“Belize is one of the countries that I would go to hide my money and to live if I had to,” said Dennis Lormel, a former head of the FBI’s Financial Crimes Section. “The fact is that I’m going to be protected down there, and the (U.S.) government is probably not going to be able to extradite me or get into my bank accounts.” Naturally, it is only recommended that you use offshore banking for one of the many legitimate, legal purposes.

Belize and Asset Protection

One way to try and balance out the restrictions on multiple businesses and sneak attacks that may come from unscrupulous lawyers to utilize offshore banking. Using an online formation service, such as this one, you can set up an offshore business. Combining it with an offshore trust or an offshore foundation from various jurisdictions worldwide can help ease restrictions. Belize offshore businesses are often recommended because their laws favor privacy and asset protection.

“Belize is one of the countries that I would go to hide my money and to live if I had to,” said Dennis Lormel, a former head of the FBI’s Financial Crimes Section. “The fact is that I’m going to be protected down there, and the (U.S.) government is probably not going to be able to extradite me or get into my bank accounts.” Naturally, it is only recommended that you use offshore banking for one of the many legitimate, legal purposes.

Shielding Your Assets

To insulate your assets from unscrupulous lawyer claims, you’ll need to evaluate each strategy when it comes to your personal situation. Offshore financial planning offers a vast range of choices which aren’t available domestically. To begin with, before you begin any advanced planning to shield your personal assets, you must make certain you have a great, solid asset foundation. Essentially, the assets must be effectively placed in the propert legal tools in select jurisdictions in order to attain the desired protection. You can diversify your assets in distinct banks located in distinct jurisdictions. It’s fairly straightforward and quick to establish. Most importantly, it is helpful to safeguard your assets and identity when conducting business internationally.

Shadow Companies for Financial Protection

Interestingly, The Tribune-Review noted that around fifty percent of all of the world’s commerce makes its way through accounts created as tax havens. One tax haven approach to offshore banking is getting a private bank account in a company name in order to keep money from just about anybody you wish to keep money from—creditors, lawyers, ex-spouses, or other financial vultures.

“Having an anonymous company is really handy for a whole range of…activities, and getting an anonymous company is pretty easy,” said Jason Sharman, an offshore banking academic at Griffith University in Australia.

While making the company can be fast and easy, getting the offshore bank account for it can take a bit more time and effort. So get help from someone experienced in the industry. You will likely find it very worthwhile when it comes to protecting yourself from financial attack. Some offshore bank accounts require just a couple thousand dollars as an opening deposit and some, especially Swiss banks, need a decent amount of money to fund, some from $250,000 to $1 million to open the account.

Offshore Trusts for Financial Protection

Offshore asset protection planning has become the subject of controversies the past few years. The very best asset protection plan is to make an irrevocable trust having a special power of appointment. This fact exists because trust assets aren’t thought of as a property of the Settlor.

When you buy the trust, you’re not purchasing a trust, but instead, you are purchasing the experience of the individual writing the trust. In order to protect you, it must be drafted properly based on both statute and actual case law experience. So, this is not a do it yourselfer. Get help. After all, this is your money.

There are many forms of trusts, each designed with distinctive purposes or goals. Possessing an offshore trust just may be your best option in regards to safeguarding your assets. Offshore trusts are used for more than avoiding the normal creditor who’s looking to recuperate on a poor debtor’s personal injury case. They can also be used to protect your assets from unscrupulous lawyers. As with other techniques of asset protection, it is best that the trust is put in place in front of a lawsuit to be able to best safeguard you. It can be used in a post-lawsuit shield, but preplanning is idea. An offshore trust, for this purpose, is drafted as an asset protection trust in that the end purpose is to guard your assets.

What Not to Do

While offshore trusts may offer asset protection planning opportunities, this option has to be wisely approached. The trust needs to be drafted properly and the choice of trustee should be guided by an organization who has a longstanding relationship with the trustee. Transferring assets out of the USA into a global trust to prevent a present creditor from collecting since this might be a fraudulent conveyance. However, this is merely a civil matter that generally holds no criminal consequences. A better term for this phrase is an “avoidable transfer,” because the word fraudulent tends to lead the uninformed to thinking that is more serious than it really is.

Offshore Banking Tax Laws

Basically, the one catch with these types of offshore investment accounts is to make sure to follow United States “tax haven” laws. These laws include making sure to do things like:

  1. Reporting any asset transfers into a foreign trust to the IRS.
  2. Any distributions from an offshore trust that are received by an American can possibly be taxed to that individual.
  3. Any and all undistributed earnings may be taxed as income.
  4. Any accumulated earnings in an offshore trust that may have been generated in prior years that made a distribution may cause the American to pay income taxes on those years, just as if it were income earned in previous years. If the income was not reported as in any other case, you may be required to pay both penalties and interest.
  5. The IRS will ask you (or your CPA) file a simple tax form that clarifies the value of the assets inside, as well as naming the actual beneficiaries of the trust. If you fail to file this report you may earn a fine, of among other things, a $10,000 late fee. If you fail to file the report altogether, it can get even more onerous. So, be sure to have your accountant complete and file the simple forms on time. 

Offshore Corporate Tax Tips

There are some important tax tips you should be aware of as grantor, transferor, or executor of a foreign estate as well as those covered above for those moving assets into a foreign trust as well as U.S. beneficiaries of foreign trust.

If you’re holding your foreign assets as in an international company, there are other things you need to be aware of if you fall into any of the below categories:

  1. You are a shareholder in possession of 10% or more of an offshore corporation, and more than half the stock of the corporation has five or fewer American owners.
  2. If five or fewer Americans are involved with your offshore company’s stock, and 60% and above of that company’s income is from investments.
  3. If you have shareholder control of an offshore company holding 50% or more of assets as investment assets, and also making 75% and above of the gross income with similar investment income.

If any of the above is true, you need to be sure to report the income on your personal tax returns. So, be sure to consult with a CPA who is experience with international entities. Most of the CPAs knowledgeable in this arena are from larger cities which have a high number of wealthy individuals. Your friendly neighborhood CPA from Bugtussle, Kentucky would likely be in over his head. You can still use your local guy or gal for your basic filings. But for offshore filings, get someone who knows the territory.

Clearly, an offshore asset protection trust should be done with your eyes wide open. They offer a way to place your assets beyond the reach of creditors. So, with smart planning, and awareness of the individual tax filings, you can both do things right and can hide your assets from unscrupulous lawyers. Just rest assured, there are effective and powerful ways to protect yourself from legal danger, like so many other regular people do every day.

Dr. Kristy Nelson


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