When planning a will, estate, or trust, protecting assets from taxation is a primary concern. Today, U.S.-based estate planning investors have the option of offshore or onshore trust formation. Rooted in the English common law traditions of wealth and property protections, the offshore tax-exempt Foreign Asset Protection Trust (“FAPT”) of trusts in Belize, the Cayman Islands, Cook Islands, Isle of Man, or Luxembourg is a customary “institution” dating several centuries. For U.S. high net worth investors, offshore trusts remain an option for the protection of vital financial assets, yet the benefits of offshore tax-exemption can also be found domestically, in the statutory trust provisions of some states.
Offshore Protections, Still Reporting Obligation
There have been rule changes to offshore investment since President Trump’s tax reforms of 2017 insofar that failure to file a Foreign Bank Account Report (“FABR”) with the Internal Revenue Service (“IRS”) on a foreign bank account or $10,000 or more, is no longer subject to “delinquency” penalties. Transfer of wealth to a FAPT account for purposes of tax-exemption, does not entitle the account holder universal immunities from legal penalty, however. If an offshore trust account is called into question by a court, the establishment and transfer of assets to the account will be reviewed to determine if the amount qualifies for sentencing under federal fraudulent conveyance rules.