Intro

Asset protection, which involves securing one’s assets from possible risks like lawsuits, creditors, and other legal claims, is a crucial component of financial planning. Asset protection can assist people and companies in preserving their wealth and reducing the risks brought on by unforeseen events.

We are aware of the fact that you are concerned about the protection of your personal or enterprise assets. One of the best ways to keep your money safe is to open an offshore account. And yes, it’s clear that this is one of the best ways to preserve your assets in the future!

After opening an offshore account you will face other challenges:

What type of offshore account best suits your needs? Have you considered including an offshore trust or a foundation in your financial planning?

Both of these strategies, as part of your planning, are excellent ways to ensure your assets are properly managed and benefit the people you care about. However, you need to pay attention to the distinctions between these options, otherwise, you may risk getting a false impression that one option is inherently superior to the other.

Firstly, the starting point is that asset protection is not only about protection against litigation but also extends to family and estate planning, as well as the holding of physical and non–physical assets, offshore accounts, offshore banking, etc.

Secondly, it is necessary to highlight that there are no real limits to the use of a trust or an asset protection foundation. In fact, both structures are capable of managing and protecting all forms of financial assets and services.

Overall, the establishment of an offshore structure offers a number of advantages to investors and individuals seeking to:

• diversify their wealth using non-resident international offshore entities
• protect their assets in a safe, legal, and financially sound environment
• preserve the confidentiality of their assets or business 
• ensure the longevity of their wealth in a tax-neutral location.

A better understanding of both structures

Although they may differ in definition, it is clear that there are many similarities between these two entities. In fact, they both share many of the same offshore benefits, financial services, as well as management structures.

An offshore trust is established for the purpose of placing property assets in the name of a trustee, who holds them for the benefit of intended beneficiaries.

In contrast, an offshore foundation is a term commonly used to refer to a separate legal entity without members or shareholders. This entity is established according to the founder’s wishes, described in a charter.

The distinctions

In developing an understanding of these entities, it is important to note the basic distinctions between them. While there are other subtle differences, these depend largely on the type of trust and foundation as well as the physical location of the structure.

Offshore trust: features

• Split between asset ownership and the assets themselves
• No registration needed
• The trust deed is non-public (it can be confidential)
• The trust is not a legal entity, and therefore the rights belong to the trustees
• Trustees act and are sued in their own name rather than suing for or against the trust
• The assets must be placed in the trust.

Offshore foundation: features

• Require registration to operate
• The Foundation charter is public (except Panama)
• The legal entity is incorporated as a company (except Panama)
• The assets are the property of the foundation itself
• The foundation can sue and be sued in its own name
• The assets do not have to be placed in the foundation.

Let us go further and analyze the particularities of the two entities in depth. Hoping that this analysis will help you to have a clearer vision and to make well-founded decisions at the right time.

Establishment

In the case of foundations, a legitimate entity must be established. The procedure may vary slightly depending on the international context, but it is similar to the incorporation of a company. The main distinctions are that there are no investors and that a management board operates instead of a board of directors and a management team.

There is nothing to worry about when it comes to incorporating a company if you decide a trust is the most convenient option. Basically, you set up a trust and name, an administrator to manage the assets you decide to include in the trust. This includes making payments to a beneficiary according to the rules set out in the trust agreement.

Registration

Regardless of the jurisdiction you choose, setting up a foundation requires the foundation to be properly registered under the government. The registration process may vary slightly from country to country. Usually, specific forms must be submitted to identify the nature of the foundation, the board of directors that will govern it, and copies of other basic documents such as the articles of association.

On the other side, an offshore trust does not need to be registered by the government. The same as an offshore checking and savings account must meet the banking laws of a country when established and so does a trust. You deal directly with an institution to create trust rather than a government agency or department.

Assets transfer

In almost all offshore jurisdictions, it is possible to set up a foundation with no need to immediately transfer assets to the new legal entity. You certainly have the option of creating the foundation, opening an offshore current account, and then funding it with an opening balance.

In the case of offshore trusts, they work in a slightly different way. You will need to pledge assets to the trust when it is set up. Depending on its structure, you will have no problem transferring other assets into the trust later. It is therefore possible to set up the trust with a minimum of assets and build it up over time.

Assets ownership

Please note that a foundation is a legitimate entity, which means it is the owner of the assets you choose to transfer into it. The management of the foundation has full authority to take all necessary steps to protect those assets. In fact, the managers may consult with you, but most offshore sites would not insist on doing so.

On the other extreme, trust is quite different. It does not actually own the assets held. Rather, it is the methods of managing those assets, ideally in a way that achieves the objectives of the trust.

Revocable nature

The foundations can be structured in such a way that they are revocable or irrevocable. Regarding the status, this is documented in the foundation’s charters and deed of incorporation. Since there is no clear distinction, the foundation can be considered revocable in the absence of evidence to the contrary.

Trust is in the opposite situation. Like the foundation, the trust can be revocable or irrevocable. In effect, you will have to declare which option you want when you set up the trust. It is not unusual for a trust to be considered irrevocable if it is not expressly identified as revocable.

Using multiple offshore jurisdictions can increase the effectiveness of asset protection measures

The efficiency of the offshore trust entity’s leverage in a specific jurisdiction is enhanced by appropriate offshore structuring, which is extremely important. In order to assign the management of the entity through various management structures while protecting it through various corporate laws that aim to ensure its preservation.

The privacy and assets protection is currently optimized when combining a trust (similar to a Cook Islands trust), a limited liability company (similar to a Nevis limited liability company), or a foundation (similar to a Panamanian foundation). It is under the foreign trust, subsequently held by the LLC, that the account or the assets are placed.

The multi-jurisdictional advantages of using two offshore jurisdictions with two separate offshore corporate entities enable you extra protection by:

• Keeping distance between you and the asset

• Proposing two different types of company laws to protect these assets and environmental protection laws.

• Enhancing privacy because your assets are held by entities and not by you personally.

The problem is that some nation–states do not like watching people take their assets out of their jurisdiction and so act within their self-interest to ensure this does not happen but force compliance amongst offshore financial centers or risk being blacklisted or faced with trade barriers.

This seems to be the current state of the offshore banking and offshore company formation industry, as it is continually changing due to the global environment, so be sure to check with local laws and have a knowledgeable tax consultant and service provider who can give you up-to-date information.

Conclusion

To conclude, the main problem is that local authorities do not want to see people taking their assets out of their countries of residence and putting them elsewhere. So they act in such a way as not to let this happen. That means they force offshore financial centers to conform to international legislation, and if that is not respected there is a high risk of being blacklisted or facing trade restrictions within a specific jurisdiction.

This observation leads us to the conclusion that the global business climate is a major factor in the ongoing evolution of the offshore banking industry. That being said you have to be aware of the local laws by making sure you have a competent tax advisor and service provider who can provide you with up-to-date information.

Are you interested in diversifying your offshore investments? Read our How To Diversify Your Offshore Investments article.

Shall you wish to discover your options available based on your current situation, do not hesitate to book a free consultation with our team now.

Disclaimer

Widelia and its affiliates do not provide tax, investment, legal or accounting advice.  Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, investment, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Please consult https://widelia.com/disclaimer/ for more information.