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Guest Post: The Five-Million-Dollar Reason for Going Offshore
Submitted by Terry Coxon of The Casey Report
The Five-Million-Dollar Reason for Going Offshore
Just
when you thought there was nothing more the U.S. government could do to
motivate you to ship your financial life offshore, they came up with
another one. And if you have a sizeable net worth, it’s a big one; you
could save your family $2.2 million in taxes by acting on the
opportunity during the next 21 months. A husband-and-wife effort could
save twice as much.
Included in the 2010 Tax Act passed by
Congress late last year are gift and estate tax rules that apply only in
2011 and 2012. Compared to the rules they replaced, and compared to the
rules that will take effect in 2013, they are especially permissive.
The tax savings come from exploiting those interim rules before they
expire.
For this year and next, you are granted a $5 million
exemption from gift tax. If your bank account can handle it, you could
write a check today for $5 million to someone in the next generation and
incur no gift tax.
But it’s a use-it-or-lose-it opportunity.
Starting in 2013, the exemption from gift and estate tax drops to $1
million, and the top tax rate on gifts and estates rises to 55%. (That’s
substantially a reversion to the rules in effect in 2002.) So if you do
nothing, you lose a free opportunity to reduce your taxable estate by a
net amount of $4 million – which, at a 55% tax rate, means your family
loses an opportunity to avoid $2.2 million in estate tax.
Estate
tax has always been an avoidable levy. Regardless of the level of
wealth, for those who planned well and planned early, the tax eventually
incurred was trivial. The 2010 Tax Act doesn’t change that fact, it
just makes it easier, until the end of next year, to exploit the fact.
Even so, most people will let the $5 million opportunity slip by, as
people always do with estate-tax saving opportunities. Because I hope
you won't be one of them, let’s look at the practical impediments to
effective estate planning, the things that get in the way and eventually
cost the survivors so much in unnecessary tax.
Haven’t Gotten to It.
Estate planning is not the kind of topic that draws most people in. And
it’s generally about the far future, so it’s easy to tell yourself
there will be plenty of time to deal with it later. If that sounds like
you, maybe the $5 million opportunity that Congress is offering for just
the next 21 months will spark some action.
Already Did It. If
you’ve already done your estate planning homework, you probably don’t
want to reopen the matter. But if you have a large estate, making that
effort could save your heirs $2.2 million in estate tax.
They’ll Waste It. The
thought of your 16-year-old grandson touring America on a $50,000
motorcycle likely does not live up to your highest hopes for posterity.
Many wealthy individuals hold back from making gifts to younger
generations because they don’t want to see the money wasted. Concern
that gifts would remove capital from the control of the family’s most
astute investor and cunning financial manager also discourages gifts.
But such concerns are easily dealt with by using a trust. You can make a
gift to an irrevocable trust of which you are the trustee. The property
escapes the reach of estate tax, but you continue to decide how the
money is invested and when it turns into spendable cash for the
beneficiaries.
I Might Need It. You
don’t want to do such a thorough job of estate planning that you plan
yourself into the poorhouse. It’s pleasant to contemplate the financial
head start you can provide for future generations, but not if you see
yourself at the margin of the picture signing up for food stamps.
Offshore Solution
Those
are the four reasons the government is able to collect billions of
dollars in otherwise avoidable estate taxes every year. There's a way to
shrink every one of those reasons and keep your family from eventually
contributing to the government’s annual take: use an offshore trust.
Here's what happens when you put an offshore trust at the center of your
financial planning.
Haven’t Gotten to It. For reasons I’ll touch on, an offshore trust is the optimal environment for estate planning. But that’s really just a footnote.
An offshore trust is a cornucopia of benefits you can enjoy now.
It provides unbeatable protection for your assets – protection from
aggressive lawsuits, protection from lightning asset seizures and
protection from the possible gold confiscation and currency controls
that have many investors worried. It gives you entry to all types of
foreign financial institutions, most of which no longer want to deal
directly with Americans. That means more and better opportunities for
profit and for truly effective diversification, and it means access to
tax-efficient investment products you can’t get in the U.S.
Because
those benefits begin right from the start, they counter the psychology
of procrastination. And once you’ve established an offshore trust to
gain those benefits, it only takes about 5 minutes of your attention to
use the trust to capture the $5 million advantage I’ve been discussing.
Already Did It. An
offshore trust can accommodate every estate-planning strategy your
lawyer has told you about. You won't need to reinvent your estate plan,
you'll just need to relocate it. And while you're doing so, you can
bring it up to date to exploit the opportunity that was handed to you by
the 2010 Tax Act.
Moving your estate plan offshore achieves an
additional, highly attractive advantage. After your lifetime, the trust
completely disconnects from the U.S. tax system. Distributions to your
survivors will be reportable and partly taxable, but no one will be
subject to U.S. tax on earnings the trust accumulates. The trust needn't
be in anyone's taxable estate ever again. And no one will have a U.S.
reporting obligation for the trust itself. That's as out of town as
money can lawfully get.
They'll Waste It.
An offshore trust can do as well as a domestic trust in dealing with
the spendthrift problem, and maybe a little better. It has an edge
because it provides better protection from the creditors some of your
heirs someday might attract. In the meantime, it allows you to continue
to manage the underlying investments just as you do now.
I Might Need It. Here is where an offshore trust shines for anyone who wants to exploit the $5 million opportunity.
If
you transfer money to a trust, whether offshore or not, and you include
yourself as a discretionary beneficiary (one who is eligible to receive
a distribution but who has no fixed right to demand a distribution),
and you later discover that you need the money for yourself, the trustee
will have the power to give it to you. But if the trust is formed in
the U.S., the money in the trust probably will remain in your taxable
estate, because courts in the U.S. generally will tap into such a trust
to satisfy your creditors.
By the standards of U.S. gift tax
rules, if something is still available to your creditors, you haven't
really given it away. (A few states have passed laws that attempt to
protect such a trust from the grantor's creditors, but those laws can't
protect a trust formed in the U.S. from lawsuits against the grantor in
federal courts. The money is still available to at least some of the
grantor's creditors, so it is still in the grantor's estate.)
The
situation in some offshore jurisdictions is different. You can include
yourself as a discretionary beneficiary of your trust, and if you later
have a problem with a creditor, the courts there will tell your creditor
to go away. Because the trust is protected from your personal
creditors, your transfers to it move the money out of your taxable
estate – even though the trustee has the authority to give the money
back to you if you later need it.
With an offshore trust, the
money's continued availability for your own support makes it far easier
to exploit the $5 million opportunity that Congress has handed to you.
And if you are married, it's a $10 million opportunity, but it runs out
at the end of 2012.
Terry Coxon, co-editor of The Casey Report, is president
of Passport Financial, Inc., and for over 30 years has advised clients
on legal ways to internationalize their assets to optimize tax, wealth
protection and estate planning goals. Read here how you can take
advantage of a U.S. tax act and save a lot of money in the process…
»
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Can I use my Bama Bucks? Although I do think they will be rather useful to wipe my arse with by next year!
I think trusts can hold assets in brokerage accounts (PHYS, etc.) or tangible assets...
Moving to Peru is something that my wife and I have given much thought to.
Peru, putaz!
It should be on everyone´s ¨Take A Look At¨ list.
Peru is nice, but I prefer the Chilean coast...
Chile is a much better choice for an expat. The Peruvian Evo Morales (Ollanta Humala) is in the lead for president. The vast majority of Peruvians are sick and tired of bankster imposed "neoliberalism" and the multinationals stealing their wealth. I think this guy is in for a rude awakening about Peru.
Gold can be bought for $400 USD/ toz in the remote villages of Peru. It supports an extremely environmentally destructive business, but . . .
Amigo - Wait and make sure Humala doesn't win the election before making any plans.
Who or what entity are we being asked to trust?
/Fukushima/
/TARP/
/Fiat/
/Scroomed/
I need to figure out a way to kite a five million dollar check and gift it offshore to my 'wife', who may just be a polish nurse. Who has expertise in this field?
If your polish nurse shines things shouldn't she be called a head nurse
I formed off shore trusts, when (Franken Doodle) was being incepted and CFTC was conceiving screwing FX traders with reduced leverage and FIFO.
If you are going to do this type of off-shore planning you should only utilize the services of an attorney who specializes in the field.
You will want to establish the trust in a country that has no tax or legal treaty with the US - Like the Cook Islands.
The trusts can be expensive ($40,000) but if you can afford to gift $5-$10mil, this should'nt pose a problem.
it goes a lot simpler too:
with that kind of money buy yourself another passport, renounce the US and live free of them 5-10Mill! I live in Zurich now and my US re..is in process, one last tax return this year or latest next year and i'm DONE!!!
.
USD5-10M doesn't buy the CHF it used to.
But it's offset by the sensation and financial benefits of living in one the highest tax cantons, while playing less than 50% of what uncle sam wanted to his Swiss cousin, without even having to go to the effort of tax efficient structuring.
Americans really shouldn't believe the BS their masters feed them about Europe, as their masters never even had the sense to fall off the turnip truck/tour bus when visiting.
You can always move to New Zealand, like I did. No estate tax here. They do have a tax treaty with the US though, so I suppose you would have to renounce US citizenship to take advantage. Plan ahead, getting visa takes a year or more, and you have to be a resident for 5 years before becoming a citizen
Haven't gone offshore yet?
Follow the rainbow and it will lead you to PANAMA.
Our firm of attorneys has been buying up the best agricultural land and the nicest beachfront lots for the last 30 years. Come and get your titled lots and your second passport while supplies last.
Contact: panamax AT gmail.com
Hit me with some literature at hotfx@ymail.com Make sure you use (TDTW) as a notifier and I will look at it. I have been researching that area for FX trading. Thank you.
Been there done that. Bought real estate as well. The tax issues are not that big of a deal. It is not 40 K to do the deal. I can assure you of that. From what I'm getting. People are looking at repatriating. Trusts can be shielded in other ways. Ask Warren and Bill.
So, I guess the elites plan to finish most of their looting this year and next, then Obama will trap us with the Berlin Wall of Capital in 2013. This fits with the idea that there will be no 401(k) confiscations until after the election.
Cool. Now the only thing I need to do to take advantage of this wonderful window of opportunity is finding a relative who will give me $5 million.
If I were you. Which I'm not. I would invest in real estate over seas. Just a hint.
where overseas? Libya? France? Chile? Argentina? - Egypt? Iraq?
South America or Australia.
Aussie bubble?
Aussie bubble?
Aussie bubble?
Speaking of gifts, did any catch Cramer's 'kiss of death' to physical silver buyers (hope I'm wrong) yesterday on businessinsider.com? :-(
http://www.businessinsider.com/jim-cramer-buy-physical-silver-2011-3
XAG has been really flat. I'm not spot trading it. I am trading proxies.
What a Jonah! Heaven help the silver market now.
No, you're looking at it all wrong!
'The sun shines on a dog's ass every once in awhile.'
Granted Cramer record is dog shit, and he is years behind the silver wave, but we still have a long way to go yet.
Yep, even a broken clock is right a couple of times a day.
"...you could write a check today for $5 million to someone in the next generation and incur no gift tax."
Wrong.
The increase was in the lifetime exclusion. The annual limit is still $13,000 per person.
http://wills.about.com/b/2011/01/19/2011-gift-tax-exclusion-annual-exclu...
Actually it's right.
$13k per person is what you can gift per recipient per year before you start to eat into your lifetime exemption (now $5M). If you hadn't used any of your lifetime exemption yet (was $1M before the change), you could write a $5M check with incurring gift taxes.
One thing that I didn't see mentioned though (may have overlooked it) is that any amount you use against your lifetime exemption reduces your estate tax exemption dollar for dollar, so all you are doing is using your estate tax exclusion to give away assets during your life vs. at your death. The main reason for doing this is to push the future growth of assets out of the estate.
The article has some problems.
It also neglects RULE #1: Move appreciating and income producing assets out of high tax jurisdictions and into low tax jurisdictions before they appreciate or generate income.
An added complexity for US citizens or residents is the IRS’s inconsistent (read: whatever is in the IRS’s best interests) recognition of Trusts. The strongest tax deferral and reduction structurings tend to involve a combination of corporations and trusts in both civil and common law jurisdictions.
The hardest part is finding competent and skilled advisors who can develop and implement a solution that best meets their clients’ needs, and not just peddle existing contract inventory. It’s not quick, not cheap and not to be undertaken lightly.
Why does this feel like last call last call before the lights go out. It almost seems that they have given a sign for the rich to get as much of their wealth out before the hammer comes down.
Shhhhhhh!!!!
Are you the guy/gal that wants to let the cat out of the bag?!
Let us pilage incognito!
For this year and next, you are granted a $5 million exemption from gift tax. If your bank account can handle it, you could write a check today for $5 million to someone in the next generation and incur no gift tax.
Not so fast. The government will probably collect more money with this new rule.
$5mil cash might work but there's a new catch to property (and more high net-worth people have their wealth tied up in property, not sitting around as a huge cash balance). If you bought a house way back when for $100k that is now worth $1mil. last year you could pass that along to Jr. or whomever and if the beneficiary turned around and sold it he/she would only pay cap gains on anything north of $1mil.
Now that stepped up basis is gone and if Jr. turns around and sells the family manse for $1mil. he owes taxes on $900k. He inherits the low basis with the "tax free" $1mil. estate.
For really rich folks with gobs of cash laying around this is great but for the much greater number of "rich" people with family farms, businesses, land or real estate, it's hardly a windfall.
Taxed at 15%...and only if Junior sells. That beats the living piss out of being forced to sell a family farm, business, etc. if there aren't enough liquid assets to cover the nut on a 45% (+ state if applicable) estate tax scenario last year.
In some cases yes. But not having that stepped up basis will snag a lot of money which wouldn't have been there before (at a (most likely) combined rate ~20% with state). RE prices continue to slump but the cost of carrying RE (property taxes etc) continues to rise so it's that much harder for the beneficiary to hang onto the asset as is.
The pisant Goldies are with out control. You heard me first. Goldies, Mellon wana be third band are (INSOLVENT). I'm over the crown!
Double DOWN #2.
Who is this pussy that dis respects Me?
I'm tired. some little puke is out there. I'm tracking the the puke.