Foreign Trusts: Powerful Offshore Asset Protection in 2022

Setting up a foreign trust is a good asset protection strategy that will add a strong layer of protection between your assets and any third party trying to get to your wealth. Its main difference, compared to a conventional trust, is that the foreign trust is often established in offshore jurisdictions which will offer additional benefits and protection.

Why establish a trust?

If you are storing all of your assets in your home country, any bureaucrat can freeze your assets with the click of a mouse. Your wealth is at risk no matter how honest and law abiding you are as a citizen. Having an offshore trust overseas is very much like storing all of your assets in a safely locked vault that is not owned by you. If someone goes after your assets and you have correctly set up a trust it doesn’t matter if they try breaking down the vault door, because legally the assets inside don’t belong to you anymore.

…establishing an offshore trust in the right jurisdiction is a great way to put some legal distance between you and your assets, providing an extra layer of protection. By holding assets in foreign accounts through a foreign trust, you’re building a brick wall around your wealth.

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Setting Up A Trust

Establishing a foreign trust can be very complicated and expensive if you don’t know what you’re doing. But you should not be scared away by the paperwork involved. This is a big step towards building your independence and resilience. Any paperwork is worth the additional protection you’ll get from having your own trust. To set up a trust, you need capital. And while it’s fully possible to start your trust with as little as $5000 the yearly costs are prohibitive with such a small amount. So if you don’t have a fair amount of capital already, truth to be told a trust may not be for you.

A point worth mentioning is that setting up an offshore trust is not about hiding your money from the tax man. It is about diversifying your sovereign risk, i.e. not betting all your money on one horse – your home country.

The first and most important step for establishing a foreign trust is to choose a jurisdiction. You’ll often find many trust companies based in Panama, Seychelles, Switzerland, and the Cayman Islands. Which one to choose? That depends.

IRS Form 3520: Don’t Forget!

If you intend to create an offshore trust as a US citizen it’s very important that you get familiar with IRS Form 3520, which is required annually to “Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts”.

Who must file Form 3520?

If you’re a US Citizen and fulfill one of the below circumstances you need to file Form 3520:

  • Create or transfer money or property to a foreign trust
  • Receive (directly or indirectly) any distributions from a foreign trust
  • Receive certain gifts or bequests from foreign entities

Form 3520 Instructions have more detailed information about who must file a Form 3520; when and where to file, and possible penalties for late or incomplete filing.

More About Foreign Trusts

If you don’t want to end up in jail with heavy fines, it’s very important that you follow all reporting requirements of the IRS.

It used to be illegal for the government to spy on citizens, but not anymore. You can end up on a “hot watch”-list where upon they can track your phone calls, emails, credit card purchases etc. in real time.

Need help with setting up a foreign trust?