Offshore Trusts and Offshore Personal Holding Companies


INTRODUCTION

In recent years, an increasing number of families have established Offshore Trusts and Offshore Personal Holding Companies (OPHC) to make their investments in United States Stocks, Bonds, Securities, Real Estate and other U.S. Assets. Their objective in using these structures is to:

  1. Minimize Taxation
  2. Provide Confidentiality
  3. Retain Authority
  4. Protection Against Confiscation of Property
  5. Protection from Forced Heirship, and
  6. Transmission of Wealth

LAWS OF THE UNITED STATES

U.S. Estate Tax

The United States imposes an Estate Tax on the value of U.S. properties held by an International Investor (non U.S. Domiciliary). The kinds of property subject to U.S. Tax include shares of Stocks, Bonds, Notes and other Securities issued by U. S. Corporations, Bonds issued by the United States and it's Political Subdivisions, Real and Tangible Property located in the United States.

The U.S. Estate Tax is imposed at progressive rates up to 55% on the fair market value of the United States Property owned by the International Investor.

Shares of stock issued by a corporation organized outside the United States are not subject to U. S. Estate Tax if held by an International Investor at the time of his death. The U.S. Estate Tax can be entirely avoided if where all U.S. property, otherwise subject to U.S. Estate Tax, is held by a foreign corporation rather than directly by an International Investor.

Probate Proceedings

Careful use of a foreign corporation to hold the U.S. investment of an International Investor should also eliminate the need for their heirs to begin public probate proceedings in the U.S. at the time of death to establish their right to receive the U.S. property. A probate proceeding is time consuming and costly, requires the filings of information returns with the United States Authorities disclosing the identity of the deceased and his heirs, and may require authority be obtained from officials of the International Investor's home country, resulting in disclosure of the existence of the U.S. property to the foreign officials.

Information Disclosure

The internal records of United States Financial Institutions are subject to disclosure to the U.S. government authorities and to third parties through the judicial process. Pursuant to the provisions of most U.S. Income Tax and Exchange of Information Treaties, the U.S. government automatically sends it's Treaty Partners annual information concerning payments of U.S. source dividends, interest and royalties to residence of such other countries.

OFFSHORE PERSONAL HOLDING COMPANY (OPHC)

An OPHC is an offshore corporation established for the International Investor's U.S. Assets. The International Investor owns (directly or indirectly) the stock of the OPHC and appoints the Directors and Officers of the OPHC. The corporate agent, in the offshore jurisdiction, usually acts as the director and officer of the OPHC.

The International Investor, then transfers his U.S. assets to the OPHC. The OPHC can select a U.S. Brokerage Firm to invest the liquid U.S. Assets (e.g. Stocks, Bonds, Etc.) of the OPHC.

* Minimize Taxation

After the transfer, the International Investor owns stock of the OPHC, which is not a U.S. Asset subject to U.S. Estate Tax.

* Provide Confidentiality

Only the name of the OPHC and the identity of it's Officers and Directors will be known to the Brokerage Firm. To further preserve confidentiality and if permitted by the laws of the country where the foreign corporation is organized, the shares of the OPHC could be issued in Bearer form. With such shares, the identity of the beneficial owner of the foreign corporation cannot be discovered from the commercial registry of the country where the OPHC is incorporated.

* Retained Authority

The OPHC operates pursuant to the authority conferred upon it by the International Investor. Effectively the International Investor can choose Brokerage Firms as well as the individual investments owned by the OPHC. Further more, the International Investor retains the authority to liquidate the OPHC and regain possession individually of all of the OPHC's Assets.

* Transmission of Wealth

The OPHC does not, in and of itself, aid the International Investor in passing on wealth. For this reason we suggest that the shares of the OPHC be held by a Offshore Trust.

However, where the shares of the OPHC are either issued to the corporate agent as nominee shareholder for the benefit of another party or are issued jointly with right of survivorship, this could provide a limited aid to the transmission of wealth.

OFFSHORE TRUST

A Trust is a legal entity created by contract under the law of countries having the legal traditions of the English common law. The Trust is created by a document ("Trust Agreement") by which the assets are transferred by one party ("Grantor") to a second party ("Trustee") for the benefit of designated persons ("Beneficiaries"). A Trust Agreement identifies the beneficiaries, establishes the manner in which the Trustee is to hold, invest and distribute the assets; describes the responsibility of the Trustee to the Grantor and the Beneficiaries. There are Income Beneficiaries who are entitled to the income from the Trust and there are Principal Beneficiaries who are entitled to receive the principal upon the termination of the Trust. Usually, the International Investor will be the income and principal beneficiary during his lifetime.

The International Investor ("Grantor") then transfers the stock of the OPHC to the Offshore Trust. The Offshore Trust owns the stock of the OPHC and the OPHC owns the U.S. Assets.

* Minimize Taxation

After the transfer, the International Investor is the Beneficiary of the Offshore Trust which owns stock of the OPHC, which is not a U.S. Asset subject to U.S. Estate Tax.

* Provide Confidentiality

Only the name of the OPHC and the identity of it's Officers and Directors will be known to the Brokerage Firm. To further preserve confidentiality and if permitted by the laws of the country where the foreign corporation is organized, the shares of the OPHC could be issued in Bearer form. With such shares, the identity of the beneficial owner of the foreign corporation cannot be discovered from the commercial registry of the country where the OPHC is incorporated. The Bearer Shares are held by the Trust. The Trustee of the Trust could also be the corporate agent in the offshore jurisdiction, who also usually acts as the director and officer of the OPHC. After the International Investor's death, the confidentiality continues, since the trust is able to transfer its assets without any governmental probate or inheritance proceeding or approval.

* Retained Authority

The OPHC operates pursuant to the authority conferred upon it by the International Investor. Effectively the International Investor can choose Brokerage Firms as well as the individual investments owned by the OPHC. Further more, the International Investor retains the authority to liquidate the Offshore Trust and the OPHC and regain possession individually of all of the OPHC's U.S. Assets.

* Protection Against Confiscation of Property

The Offshore Trust owns the shares of the OPHC and the International Investor's Creditors and other Government Agencies are thereby prevented from confiscating the shares of the OPHC.

* Protection From Forced Heirship

The Offshore Trust owns the shares of the OPHC, both before and after the death of the International Investor. The shares of the OPHC or the benefits therefrom, pass according to the Grantor's wishes, which are stated in the Trust Agreement. There is no Governmental inheritance of other probate proceeding at which a forced heirship claim could be decided.

* Transmission of Wealth

The Trust Agreement, which establishes the Offshore Trust, also acts as a will substitute. The Trust Agreement reflects the International Investors wishes as to who he desires to have the property which is held in trust after his death. A Trust Agreement identifies the beneficiaries, establishes the manner in which the Trustee is to hold, invest and distribute the assets; describes the responsibility of the Trustee to the Grantor and the Beneficiaries.

The Offshore Trust owns all of the assets, both before and after the International Investor's death. It will be able to distribute its assets, according to the International Investors wishes, without any governmental proceedings or approval.

LOCATION OF THE OPHC AND THE OFFSHORE TRUST

The choice of countries in which to establish the OPHC and the Trust depend on factors including:

  1. Absence of local taxation,
  2. Availability and enforcement of bank secrecy,
  3. Cost of organization,
  4. Amount of annual franchise and registered agent fees,
  5. Availability of reliable and experienced management and
  6. The political and economic stability of the country.

Among the countries commonly used are Aruba, Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, Netherlands Antilles, Panama and The Turks and Caicos Island. Each of these countries have positive and negative aspects. Based upon the above mentioned factors, the British Virgin Islands and the Cayman Islands rank the highest. Therefore, we generally recommend establishing an OPHC and/or an Offshore Trust in the British Virgin Islands or the Cayman Islands. Furthermore, as former British Colonies they have laws based upon common law, which is necessary for the operation of a trust. As between the British Virgin Islands and the Cayman Islands, the products are essentially the same however, the cost to organize an OPHC and a Trust in the BVI is much less expensive than the Cayman Islands.

ESTABLISHING AN OPHC AND AN OFFSHORE TRUST

Marini & Associates, P.A., is an International and Tax Law Firm, and is available through it's Offshore Corporate Agents, to establish an OPHC or an Offshore Trust in the jurisdiction of your choice. The firm represents many international investors and multinational corporations. Marini & Associates, P.A. employs lawyers who have extensive years of experience in structuring Offshore Investments.

You receive all the benefits of having an experienced International Tax Attorney structure your investments and personalize your international investment structure, while having the benefit of paying a flat fee rather than an hourly rate.