Puai Wichman, founder and CEO of Ora Partners, an international trust provider and wealth management firm, explains the most common misconceptions about offshore trusts in this exclusive piece for Crain Currency.
About two-thirds of Americans have not taken the basic steps in developing any type of estate planning, such as placing assets in a trust. The low percentage of the population who have placed assets into trusts can be partly attributed to the myth that trusts only benefit a privileged few. However, taking the steps to transfer ownership of their assets to a trust can help individuals protect their hard-earned wealth and potentially reduce tax liability.
Similarly, offshore trusts are a powerful tool for wealth management and asset protection, but the misperceptions about trusts are amplified when it comes to establishing a trust in a different jurisdiction. These myths persist even though a wide range of people can benefit from trusts in general, and those benefits can be extended substantially by creating an offshore trust.
In this article, we will examine some of the most common myths about offshore trusts and clarify how offshore trusts provide a secure and private way to reduce the risks and liabilities that threaten anyone who has financial or real estate assets.
Myth No. 1: Offshore trusts don’t offer any unique advantages
One of the most common misconceptions about offshore trusts is that they don’t offer any advantages compared to domestic trusts. However, offshore trusts provide a range of enhanced benefits, including better statutory frameworks, stronger asset protection and enhanced privacy protections, compared to trusts created under domestic laws.
For example, many offshore jurisdictions have favorable laws that allow enhanced versatility in administration and management. Additionally, offshore trusts can be structured to provide greater asset protection, as they are often established in jurisdictions with stronger legal frameworks that make it more difficult for creditors and other legal claimants to seize your assets. They are also regulated under the same standards as banks and insurance companies and are required to maintain certain capital adequacies as other financial institutions. Finally, offshore trusts extend greater privacy protections, as they are often subject to strict confidentiality requirements that protect the confidentiality of your financial affairs.
Myth No. 2: The expenses of offshore trusts negate the potential benefits
Even when the potential benefits are well-understood, it’s a common myth that the expense of setting up and managing an offshore trust outweighs its value. While it is true that offshore trusts can often be more expensive to set up than onshore trusts, the administration of an offshore trust is virtually identical to that of a domestic trust and also offers significant advantages.
When one considers the costs of litigation, along with the potential losses associated with frivolous and contingency-based lawsuits, the value of asset protection afforded by these modern problems becomes apparent. Moreover, as privacy concerns grow amid a shifting landscape of technology and regulation, offshore trusts provide greater protection for private financial affairs and prevent that information from becoming public or falling into the wrong hands. For high-net-worth individuals, offshore trusts offer a stronger layer of asset protection than domestic trusts because they provide access to banks and custodians with higher capital adequacy requirements than those found in the United States. Additionally, offshore trusts offer other benefits, such as access to foreign currencies and highly skilled money managers and advisers focused on protecting the hard-earned wealth of individuals.
Working with experienced professionals who can guide you through the setup and management process can help minimize costs and maximize the perks of having an offshore trust. Planning and creating a trust should be viewed as part of a long-term, often generational, process of building and protecting wealth. Holding assets within the right type of trust vehicle can far outweigh the costs over the typical time frame that a trust remains in effect.
Myth No. 3: Offshore trusts present greater risks than domestic trusts
Another common misconception about offshore trusts is that they are riskier than their domestic counterparts. This misunderstanding is usually due to a lack of familiarity with the legal framework in offshore jurisdictions, as well as a lack of awareness of the risks that domestic trusts are exposed to.
The popular jurisdictions for offshore trusts have strict legal and regulatory frameworks that help protect your assets and provide greater transparency and accountability than many trusts created domestically. The robust legal systems and regulatory frameworks of these jurisdictions help minimize the risk of fraud, embezzlement and other types of financial crime.
When establishing an offshore trust, it’s important to work with the right professionals who have a deep understanding of the legal and regulatory landscape in the offshore jurisdiction. These experts can also help you mitigate risks to ensure that your offshore trust is not only set up but also managed in a responsible and secure manner.
Myth No. 4: Offshore trusts are cumbersome to set up and manage
Another common fallacy about offshore trusts is that they are too complex to realistically manage. While it is true that offshore trusts can be more complex to set up than onshore trusts, that is not always the case. Working with reputable trust companies that have extensive experience and adept client service can help simplify the process and provide ongoing support and management services that help you navigate the legal and regulatory landscape and tailor the trust services to your planning needs.
Myth No. 5: Offshore trusts are used by only the elite or James Bond-esque criminal masterminds
When creating an estate plan or securing our assets, we often dismiss offshore trusts as an option because we imagine that offshore trust products are used for only nefarious purposes, like money laundering or to hide the ill-gotten assets of criminal enterprises. But that’s simply a falsehood. Offshore trusts are established every day by many normal, law-abiding individuals and families for legitimate purposes, such as tax planning, asset protection and estate planning.
Additionally, offshore trusts are not just for billionaires. While it is true that some offshore trusts require a significant amount of assets to be established, many offshore trusts are accessible to individuals and families of more modest means. For example, some offshore jurisdictions have low minimum investment requirements, making them accessible to a wider range of investors.
In fact, offshore trusts can be an effective tool for middle-class families who want to protect their assets and ensure that their financial affairs are managed in the best way possible. With a dependable and growing industry of offshore-trust companies, most individuals and families can set up and manage offshore trusts in an affordable way to help protect their assets and meet their estate planning needs.