Superlative Sanctuaries According to the Sovereign Society, an organization based in Waterford, Ireland, that collects and disseminates information on offshore asset protection, the world’s best asset havens are those that offer an attractive combination of legal, political and financial stability, a favorable economic climate and taxes, and privacy.
Switzerland Despite a slow erosion of its once impenetrable banking privacy laws, Switzerland still ranks as the world’s top asset haven. With its world-class banking system and fabled political stability, investors can house their assets in Swiss banks and still expect high degrees of privacy.
Panama According to the Sovereign Society, Panama “combines maximum financial privacy, a long history of judicial enforcement of asset-protection-friendly laws, strong anti-money-laundering laws, tax exemptions for foreigners . . . and a high degree of independence from
outside pressures.” Unlike Switzerland, however, Panama is liable to the socioeconomic swings of a developing nation, and has a history of political instability.
Liechtenstein With 32,000 residents, this European principality offers a no-tax environment and long-standing banking privacy laws. While in 2000 Liechtenstein came under criticism for dragging its feet in a global war against money laundering, its financial institutions and policies remain highly reputable.
Hong Kong What this former British colony lacks in political stability it makes up for in sheer financial sophistication. Furthermore, while its secrecy laws may not be as unassailable as those of Switzerland or Liechtenstein, China has been traditionally unreceptive to foreign demands for investor information. |
While investors might be reluctant to pass control of their wealth to a foreign trustee, advisors claim that safeguards are available. “If I have a client who is concerned about relinquishing title to his assets, I tell him he can’t legally own the assets anymore,” says Derek Sambrook, managing director of Panama-based Trust Services. “However, we can put in place certain breaks that will let him have checks made on the trustee to ensure that the assets are managed in the way he wishes.” The best-known strategy is to appoint a protector, whom the grantor assigns to oversee the trust. The protector must approve any important changes to the trust and has the power to replace the trustee if necessary. “It can be set up so that a custodian bank in the States holds all the shares of the trust’s portfolio, and there is a requirement that the joint signatures of a third party and a trustee are required for any of those shares to be removed,” Sambrook explains.Investors who establish an offshore trust must report it to the IRS using Form 3520. “In recent years, this has evolved to an extensive form that requires the submission of very detailed information,” Chatzky notes. It includes, for example, details on any memoranda of wishes, and even oral understandings with the trustee.
Offshore trusts offer no significant tax benefits, because the IRS treats all trust income as the grantor’s personal income. Bauman, however, suggests that there is one potential tax advantage. “The trust can be set up in such a way as to escape American federal and estate taxes,” he says. Bauman advises that assets placed in a foreign trust under the terms of a will are counted once for estate tax purposes as part of the grantor’s estate. Other than that, the trust and its assets may be exempt from most U.S. taxes. However, he cautions that taking advantage of this exemption requires very careful estate planning.
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