Financial Planning: The Value of Including Offshore Trusts and Foundations

There are many options for those who want to establish financial accounts in an offshore environment. Along with personal checking, savings, and time deposit accounts, there is the option of creating an offshore trust or offshore foundation.

Would one of these approaches help you work toward your financial goals? Here is some information to help you decide and show you the value of why including one of these financial vehicles is worth considering.

What is an Offshore Trust?

An offshore trust is a type of financial arrangement in which specifically designated assets are held and managed by a trustee. The trust terms and conditions govern the powers assigned to that trustee. For example, for the trustee to sell or add to the assets held in the trust, the authority is granted in the terms and conditions.

An offshore trust provides a simple way for you to set aside assets for specific beneficiaries to receive at some future point. You may establish offshore trusts that include assets that each of your children will receive when they reach a designated age. Couples may set up reciprocal trusts that ensure recurring disbursements from the trust to provide for a surviving spouse.

Defining an Offshore Foundation

Unlike an offshore trust, an offshore foundation is a legal entity. It's basically a business or corporation that's formed to manage assets assigned to that entity. Opting for this approach is often a good idea when there's a wide variety of assets and the desire to make the most of the benefits offered to business and charitable entities that may not be available to individuals.

In some offshore settings, a foundation is helpful in terms of reducing the amount of information that's required to establish checking and savings accounts. It can also be beneficial when attempting to purchase real estate in some countries. Since this does vary from one setting to another, it's wise to find out what it takes to set up a foundation and how it would make it easier to create and manage other financial accounts based in the same country.

Protecting Important Assets

With both of these approaches, protecting assets is a key motivator. While there is already a degree of asset protection associated with individual offshore bank accounts, opting for a trust helps to increase the degree of protection. Legal issues at home will not extend to the assets held in the trust. That is true whether the cases involve you, the person or persons designated to benefit from the trust assets or even the person designated as the trustee.

In terms of a foundation, there is a high degree of protection for any assets held. In addition, a foundation is a legal entity and can take legal action if necessary. If there were some legal threat directed at the foundation, it would be possible to pursue legal action against that threat under the foundation's name rather than an individual's name.

Growing Wealth in a Tax-Neutral Setting

Much of the reason to establish offshore holdings is to enjoy the best possible tax situation. Typically, that means enjoying lower taxation on assets held within a trust or by a foundation. In some offshore locations, the hosting nation assesses relatively low taxes on any net increases. While the income must still be reported to domestic tax agencies, the amount of taxes due is often lower than would apply to assets held in domestic trusts.

Foundations are more likely to enjoy tax-neutral situations. This means that the nation where the foundation is established may not assess any taxes at all. It's also possible that the amount of taxes owed to the founder's home country will be lower. This is one more way to hang on to more of the income generated and gradually build more wealth.

Diversifying Investment Opportunities

Establishing a foundation is worth considering when identifying potential investment opportunities, regardless of how long you intend on holding on to those investments. Along with tax advantages offered in many offshore locations, the fact that the foundation is a legal entity makes it easier to obtain financing, buy and sell assets at will, and adjust the plan for wealth accumulation and growth. 

While an offshore trust can be used to accomplish many of the same ends, a lot depends on how the trust is structured and what powers are granted to the trustee or executor of the trust. In any event, the executor cannot buy and sell under the name of the trust in many offshore locations. The activity must be in the name of the person who established the trust and who then houses those assets in the trust. 

Accumulating Assets Under Privacy

Both offshore trusts and foundations provide a measure of privacy for the principles involved. In the case of a trust, the person managing it on your behalf will be the one most closely identified with it. Depending on how the trust is structured, your name will not have to appear in most public documents. Your name will still be present on any legal documents related to the trust or any of the assets held within the trust.

With a foundation, you also enjoy a great deal of anonymity. Conducting transactions in the name of the foundation, and routing them through financial accounts set up for the foundation, has the potential to tap into investment and acquisition options that would be closed to individuals. The result is that you enjoy more latitude in the variety of assets you can secure and use over the years.

Enjoying Peace of Mind About the Future

Defining your ultimate goals for any accumulated wealth will help determine if an offshore trust or an offshore foundation will work best. If the plan is to earmark certain assets for use as a financial cushion for loved ones, a trust is often the best option. An offshore trust can hold and manage assets, provide a clear plan for the gradual distribution of interest earned by those assets, and ensure a degree of financial security for all beneficiaries.

Offshore foundations can provide many of the same benefits but may also ensure you have reasonable access to those assets. In other words, it's not just about providing for loved ones in the future. Those assets can also create financial security for you later in life. Given the additional tax benefits, as long as the foundation continues to exist, it will be easier to report all income and incur fewer tax obligations.

Choosing the Best Offshore Investment Options

If you're unsure which of these approaches would work best for your situation, reach out to a financial consultant in the nation where you hope to establish your offshore financial accounts. Learn more about how each option works in those jurisdictions and what an expert recommends. 

Belize is a top nation for offshore banking and investments. You'll find that the professionals at Caye International Bank on Ambergris Caye in Belize is always ready to answer any of your questions. 

Contact our team today to learn more about how we can help you get started with your plans to establish and grow offshore assets. 

Author profile:

Luigi Wewege is President of award-winning Caye International Bank, headquartered in Belize, Central America. He is the author of The Digital Banking Revolution, now in its third edition, and has co-authored economic research presented before the United States Congress. He also serves as an Instructor at the FinTech School in California and as an Advisory Board Member of Fort Kobbe International Vaults in Panama. He holds an Italian MBA from the MIB Trieste School of Management with a major in International Business and a BSBA with a triple major in Finance, International Business, and Management from the University of Missouri-St. Louis.