Going 'offshore': Is international asset planning right for you?

July 1, 2008

Over the last decade, an increasing number of doctors have looked at international approaches to their wealth planning. There are numerous pitfalls for using international planning that can catch naïve doctors. Learn what to do - and what to avoid - in international planning, and about specific tools top attorneys use in their international planning.

Key Points

Over the last decade, an increasing number of doctors have looked at international approaches to their wealth planning.

There are numerous pitfalls for using international planning that can catch naïve doctors. Learn what to do - and what to avoid - in international planning, and about specific tools top attorneys use in their international planning.

Tax evasion

This is the chasm in which many greedy clients or unscrupulous advisers operate. This is also where tax evasion - a federal crime - is committed.

While the client is required under U.S. law to report income earned internationally, many clients may keep quiet and hope that they are never caught.

This "hide-the-ball" strategy is used not only by knowing clients, but also by shady advisers who concoct ever-more-sophisticated schemes, such as moving money from a trust to another company and then to a third foundation in hopes of avoiding detection.

Although the pitch may seem complex and impressive, astute doctors know to always ask the following question: "If the income will eventually accrue to my benefit, why don't I have to report it to the IRS?" They know that they must steer clear of these schemes, unless they want the cloud of a possible tax evasion indictment hanging over them for years to come.

Scams and frauds

The desire to get rich quick leads many clients into problems most pervasive in the investment arena. Here, scam artists and frauds abound, poised to take advantage of the next client who wants to "get rich offshore."

The savvy doctor understands that any investment that offers truly outstanding returns is on the radar screen of the world's most sophisticated financial institutions and their super-affluent clientele.

Then, the investment is reserved for the financial institution's billionaire clients. They know that the only thing that can be achieved from chasing fantastic returns in international markets is a significant, if not complete, loss of principal.

International LLCs and trusts

Done right, these tools can be used to achieve a high (+4/+5) level of protection. Compared to state (+5) exempt assets, which do not have professional, government or accounting fees, these tools are expensive. They may be the best non-exempt options for doctor clients who must have the top level of protection.

A number of jurisdictions have adopted LLC legislation over the last decade, most notably, Nevis. Also, many jurisdictions have international trust (IT) laws as well. Common uses of these tools include:

1. Owning foreign insurance policies. One of the leading international financial planning strategies today is purchasing a permanent, cash-value life insurance policy offshore.

In terms of tax planning, if the policy is U.S. tax-compliant, then all of the growth within the policy will accumulate tax-free.

Further, the proceeds will pay out income tax-free to the beneficiary, and the client can take loans against the accumulated cash values during his life tax-free. This is similar to the benefits of a domestic cash value life insurance policy.

2. Multi-generational planning for an international family. Let's say the goal of a client is to create a nest egg for future generations, and let's say it is important that the nest egg be asset-protected in an ironclad way.

In this circumstance, an IT would be an ideal tool. This would be especially appropriate if the trust was created in a country where the law does not limit the duration of trusts under the "law against perpetuities" found in many of the states.

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