You are on page 1of 17

YOUR OWN

INTERNATIONAL
TRUST
For Maximum Financial Safety

By Terry Coxon

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 1

MAXIMUM FINANCIAL SAFETY


Nothing will bring you and your family closer to complete financial safety than a
lawful international trust. This report explains how international trusts work and how
you can establish your own trust to protect your wealth and free it to grow faster.
A properly designed, properly managed international trust gives you:
A
 sset Protection. An international trust ends your exposure to potential
future lawsuits. The trust makes it extremely difficult for a lawsuit winner
to reach the assets youve protectedwhich comforts you every day while it
discourages lawsuit predators from ever making you a target. Asset protection
also means you cant be wiped out through a no-warning seizure by a runaway
government agency.
I ncome Tax Savings Now. Being international, your trust has ready access to
legitimate tax-saving opportunities that most US investors miss out on. An
international trust opens those opportunities to you, to shrink your tax bill on
investment profits.
I ncome Tax Savings Later. After your lifetime, your trust disconnects from the
US tax system. It can invest tax free all around the worldeven in the USfor
faster compounding and unhindered growth in family wealth.
E
 state Planning Advantages. An international trust easily accommodates all
the standard estate planning strategiesand then does much more. It eliminates
the fear of giving away too much too soon (the number-one barrier to effective
estate planning). And, because your trust eventually will disconnect from the
US tax system, it solves your familys estate planning problems once and for all.
It wont be part of the taxable estate of any future generationever.
F
 inancial Privacy. An international trust sets up a zone of privacy that gives
you greater control over who does and who does not have access to the details of
your financial life.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 2

PARTICIPANTS
The easiest way to understand an international trust is through the roles of the
four participants.
Th
 e Grantor is the person who starts the trust by transferring legal ownership of
the assets he wants to protect. If you decide to establish an international trust,
then you will be the Grantor.
Th
 e Beneficiaries are the people you designate as eligible to receive cash
distributions and other benefits from the trust. Most likely, you will include
yourself, your spouse, and your children and further descendants. You can even
include the grandchildren and great-grandchildren who will be born after your
lifetime. If you wish, you can include other relatives and friends. And you can
include charities and religious organizations. You have complete freedom to
decide who the Beneficiaries will be.
Th
 e Trustee of your international trust is a non-US financial institution (probably
a bank or trust company) that accepts legal responsibility for administering your
trust, for safeguarding the assets you transfer to it, and for distributing those assets
to the Beneficiaries (including you) when they are needed.
Th
 e Protector monitors the Trustees performance, advises the Trustee, and gives
the Trustee information about the needs and circumstances of the Beneficiaries.
The Protector also has the power to replace the Trustee with another financial
institution, if that ever becomes necessary. The purpose of naming a Protector for
your trust is to make sure that the Trustee never loses sight of your intentions.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 3

TWO KEY PROVISIONS


The relationship among the four participants is set out in a written, legally enforceable
Trust Instrument. That document defines the rights retained by the Grantor, the
rights of the Beneficiaries, the duties of the Trustee, and the powers of the Protector.
To deliver maximum asset protection and tax savings, the Trust Agreement needs two
key provisions. It should say that the trust is irrevocable and that it is discretionary.
Irrevocable means that you dont keep the right to order the Trustee to wind up
the trust and immediately return all the assets to you. It is critical that you not have
such a right. If you did, a court could order you to revoke your trust and retrieve the
assetsmaking them easy pickings for anyone who had won a lawsuit against you.
Your trust cant protect you unless it is irrevocable.
(Because the trust is irrevocable, you generally should include yourself as one of the
Beneficiaries. This allows the Trustee to make distributions to you.)
Discretionary means that the Trustee has a duty to decide which Beneficiaries
receive distributions or other benefits, how much they receive, and how and when
they receive them. With such a discretionary provision, no Beneficiary owns a fixed,
percentage share of the trust. No Beneficiary has, for example, a right to receive 50%
of the income or 25% of the principal. A discretionary trust protects the Beneficiaries,
because it creates no rights that a Beneficiary (including yourself ) can be compelled to
sign over to a creditor.
An international trust that is both irrevocable and discretionary is a thick wall against
potential future lawsuits, and those same two provisions lead to valuable tax advantages.
But they also are highly cautionary for the Grantor. How can the Grantor be confident
that the Trustee will use its discretion correctly? Putting that concern to rest is one
reason for naming a Protector for your trust and giving him the right powers.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 4

THE PROTECTOR
For you to reach the confidence level youll insist on before establishing an
international trust
Th
 e Protector should have the power to confer with the Trustee on any matter
pertaining to the trust, including investment policy and distributions to Beneficiaries.
Th
 e Protector should have a broad power to fire the Trustee and replace it with
another independent trustee.
Th
 e Trustee should be authorized to rely reasonably on the information and
advice it receives from the Protector.
Together these three features ensure that the Trustee will give proper weight to the advice it
receives from the Protector and never lose sight of your (the Grantors) intentions.
A conscientious Trustee welcomes the information it receives from the Protector about the
needs and circumstances of the Beneficiaries. That information makes the Trustees job
easier. And almost any Trustee wants to continue to earn its trustee fees, so it doesnt want
to get fired by the Protectorwhich could easily happen if it disregards the Protectors
advice. A Trustee also wants to protect itself from complaints and legal claims, which it can
do by reasonably relying on the information and advice it receives from the Protector.

Selecting a Protector
Who should be your trusts Protector? Because the role is so important, most Grantors
decide to keep it for themselves. They also keep the power to appoint their own
successor as Protector, so that they can decide which one or more of their heirs should
inherit the job of monitoring the Trustee.
But it isnt necessary for you to be the Protector if you dont want to be. The
alternative is to make someone else the Protectorsuch as an international attorney
or a second non-US trust company.

Protecting the Protector


Because the Protectors role is so important, the Trust Instrument should specify that the
Protector may act only of his own free willespecially if you are going to be the Protector
yourself. Such an anti-duress provision protects against any attempt to use a US court to
force the Protector to replace the Trustee with an institution located in the US.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 5

SOURCE OF ASSET PROTECTION


In principle, your trust frustrates lawsuit predators by putting your wealth under the
protection of a Trustee outside the US. Having transferred assets to your trust, you no
longer are the legal owner, so you no longer have the ability to surrender the assets to
a lawsuit winnerso no one can compel you to do so. The Trustee holds the assets,
and it is obligated to use them exclusively for you and the other Beneficiaries you
named when you established the trustnot for your creditors.
The Trustee is protected from coercion by US government agencies, because it is not
in the US. It is subject to the laws of its own countrynot to US laws. It is able and
obligated to say No to any US court order aimed at undermining your trust.
As Grantor, you are protected because your trust is irrevocable. You can (and should)
obey any order you receive from a US court and still be confident that your trust is safe.
As a Beneficiary, you are protected because your trust is discretionary. You can (and
should) obey any order you receive from a US court and still be confident that your
rights as a Beneficiary cant be touched.
As Protector, you are protected by the Trust Instruments anti-duress clause. You can
(and should) obey any order you receive from a US court and still be confident that
only your voluntary actions will influence the Trustee.

Respect Existing Debts


To make this protection actually work, it is important not to go too far in transferring
assets to your trust. You must not transfer more than some fraction of your net worth.
In other words, you should hold back at least enough assets to cover all your existing
and reasonably foreseeable obligations. An international trust is not a device for
defeating existing creditors or for ducking obligations you already suspect may be
headed your way.
And unless there is a practical reason for doing otherwise, the Trustee should hold
trust assets through a custodial account at a foreign banknot in the US in the name
of your trust. This guards against the arbitrary actions of any US government agency
that might be determined to seize trust assets despite established legal norms.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 6

INCOME TAX SAVINGS


Your international trust should be located in a country that levies no income tax.
Nonetheless, being US citizens or residents, you and the (other) Beneficiaries still
will be subject to US tax rules. One set of income tax rules about international trusts
apply during your lifetime. Different rules will apply after your lifetime.

During Your Lifetime


If your international trust has any Beneficiaries who are US citizens or residents (the
usual case), it initially will be classified as a grantor trust. This means you must
include all the trusts income, deductions, etc. on your own personal tax return. It
also means that your dealings with your trust are completely income tax free. You
can transfer assets to the trust (even if they are highly appreciated) tax free. And
you can receive distributions back from the trust tax free. During your lifetime, its
almost as though, for income tax purposes, your international trust were a simple
brokerage account.
Because of the grantor trust rule, the mere structure of the trust has no effect, good or
bad, on your personal income tax bill. Instead, during your lifetime, the income tax
advantages come from the way the Trustee plans and manages your trusts investments
(assuming you give the investment management job to the Trustee).
For an investor, tax planning means deferring tax bills as long as possible and favoring
untaxed appreciation instead of income that is taxed as its earned. Most investors do
at least a little tax planning. But a qualified Trustee in certain non-US jurisdictions
is likely to be far more effective at it than the average investor, since an alert Trustee
has advantages most individuals lack. Thats why it is important to pick the right
Trusteeone with the following qualifications:
F
 or the Trustee, tax planning is a full-time business. It can devote more
attention to the task and budget more resources for the best professional advice.
Th
 e Trustee operates in a zero-tax environment. It is comparatively simple for
the Trustee to structure tax-saving transactions between trusts it manages for US
clients and other, non-US clients that are not subject to US tax rules.
Th
 e Trustee has ready access to tax-favored investment opportunities that are
effectively blacked out in the US by securities laws, insurance regulations, and
other artificial barriers.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

For Your Heirs


After your lifetime, the income tax rules change. Your trust becomes completely
foreign. Neither it nor any of the Beneficiaries will be subject to tax on trust income.
Wealth will grow faster, because the trusts earnings can accumulate and compound
tax free. This makes a dollar left in an international trust far more valuable to your
heirs than a dollar they inherit directly.
Distributions to Beneficiaries after your lifetime are partly taxable and partly tax free.
The tax-free portion represents the assets in your trust at the end of your lifetime. The
taxable portion represents later trust earnings.
In some cases, your heirs can achieve even better tax results by dealing with the trust
(buying, selling, borrowing, lending, etc.) than by receiving direct distributions. And
in nearly all cases, the Trustee can improve the tax results for Beneficiaries who receive
distributions through the way it manages the trust.1

1 F
 or certain technical reasons, tax planning is easier after the Grantors lifetime. But it remains
important, especially if the trust is used to accumulate investment profits.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 7

ESTATE PLANNING ADVANTAGES


Someday, your estate could be taxed at a rate as high as 40%. Your heirs would lose
much of what youve built up.
If concern about estate tax leads you to visit an estate planner, you probably will
hear about:
Lifetime credit amount ($5 million, as of 2013)
Annual gift tax exemptions ($14,000 per recipient per year)
Crummey trusts (another way to use annual exemptions)
Marital exemption (for gifts to your spouse)
Marital deduction (for bequests to your spouse)
QTIP trusts (to capture the marital deduction for money left in a trust)
Life insurance trusts (to avoid estate tax on life insurance proceeds)
G
 rantor Retained Annuity Trusts (GRATs, to efficiently remove an unlimited
amount of wealth from your taxable estate)
These are the standard tools of estate planning, the techniques designed to reduce
the eventual tax bill on your estate. You readily can apply any or all of them with an
international trust. But an international trust lets you do even more.
Your trust makes estate planning easier. With an international trust, you can remove
assets from your taxable estate and still keep them available for your own support, in
case you need them later. This frees you to do a thorough, energetic job of estate
planning without fear of planning yourself into the poorhouse by letting go of too
much too soon.
A thorough estate plan may call for transactions between you and other family
members. You can simplify those transactions by wrapping them in your international
trust. Because of the grantor trust rule, transactions between you and your trust have
no income tax effect. Thus the trust lets you pursue powerful transactions for estate
planning without entangling yourself in unwanted income tax complications.
And an international trust is the grand slam of estate planning: It eventually
eliminates the need for estate planning. Because the trust is discretionary, it wont be
included in the estate of anyone in a later generation. In other words, your trust leaves
the estate tax system forever.

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 8

FINANCIAL PRIVACY
To increase your financial privacy, simply locate your trust in a country where privacy
is the norm.
In most of the zero-tax jurisdictions you might consider for an international trust,
privacy is respected by law. A financial institution or professional that discloses your
private information to third parties would be violating its legal duty. And in most
jurisdictions that are appropriate for an international trust, financial privacy is a
matter of business necessity. Local institutions couldnt attract business if they failed
to safeguard the privacy of their clients.
During your lifetime, however, financial privacy wont be complete. Because you must
include the trusts income on your own personal tax return, there are IRS reporting
rules. You are required to report transfers to your trust on IRS Form3520 and to
report the trusts activities each year on Form 3520-A. You also must file form FBAR
(which deals with foreign financial accounts). These forms are mandatory. It is by
filing them correctly and on time that you keep your international trust completely
non-controversialso that it truly is a source of protection and comfort and not a
source of risk and worry.
After your lifetime, the trust becomes completely foreign. No one in the US will
have a reporting obligation for it. Beneficiaries will have to report distributions they
receive, as indicated earlier. But the trust itself can remain silent for as long as the
Beneficiaries find it advantageous.

10

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 9

WHAT YOU CAN PROTECT


Your international trust can protect almost any kind of assetcash, stocks, bonds,
precious metals, foreign currencies, even real estate and business assets.
T
 ransferring cash and securities to your trust is easy. For cash, simply write a
check. For stocks or bonds, mail the certificates to the Trustee or instruct your
broker to make the delivery.
I f you own stock in a private corporation, you can protect your shares by
transferring them to your trust.2
T
 o protect real estate, youll probably need to use a limited liability company.
First, transfer the real estate to a limited liability company formed under the laws
of your own state. Youll be the LLCs manager and keep direct management
responsibility for the property. But your trust will be the LLCs owner.
Y
 ou can transfer the value of an unincorporated business to your trust in the
same way, by using a limited liability company.

2 Y
 ou should not transfer shares in a sub-chapter S corporation to an international trust. Doing so
would disqualify the corporation from the favorable tax treatment available under sub-chapter
S. However, there are special strategies for using an international trust to protect the value of a
sub-chapter S corporation.

11

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 10

INVESTMENT MANAGEMENT
A properly structured international trust gives you wide freedom in arranging for
investment management.
I f you want to make investment decisions yourself, advise the trustee to open
a brokerage account for your trust and appoint you as the trading advisor. You
will deal directly with the broker and give the buy orders and the sell orders.
I f you want to maintain even closer supervision over trust assets, transfer
your investments to a limited liability company that you manage. Then transfer
ownership of the LLC to the trust.
I f you want to put an outside advisor in charge, advise the Trustee to open a
managed account for your trust with the advisor you select.
I f you want to reduce your income tax bill, pick a Trustee that is alert to the
importance of tax planning and let it manage the investments.
With an international trust, you can have any type of investment management program
you want. You also gain access to investment opportunities not available in the US.

12

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

Topic 11

THE NEXT STEP TOWARD REAL SAFETY


By Nick Giambruno
I hope you learned as much about real financial protection as I did by reading Your
Own International Trust. (If you havent had a chance to read its companion piece,
Why You Dont Have An International Trust, you can access it by clicking here.)
The core message is emphatic. If youre looking for the strongest protection for your
assetsprotection that cant be undone by any runaway government agency nor even
by the cleverest lawsuit attackeran International Trust is the solution that fits you.
Nothing else comes close. If youre looking for permanent protection from high taxes
on your capital, an International Trust is the solution that fits you. Nothing else comes
close. If you want to get ahead of the next round of new rules from Washington, an
International Trust is the solution that fits you. Nothing else comes close.
The list of the benefits an International Trust delivers is long and rich, and it includes:
P
 rotect your assets from potential future lawsuits. Your Trust can shut out all
future lawsuit predators.
P
 rotect your assets from seizure by arbitrary government agencies. Your
Trust follows the laws of the jurisdiction you chooseits not subject to the laws
where you live.
P
 rotect family wealth from gift and estate taxes. With an International Trust,
you get estate-planning advantages that are impossible with any stay-at-home
estate plan. Equip your family with an International Trust, and even a billiondollar fortune can pass from one generation to the next without loss to estate tax.
P
 rotect assets from possible future exchange controls, capital controls, or other
desperate government measures, such as forced sales of privately owned gold. The
licensed institution that serves as your trustee is beyond the reach of any asset grab.
P
 rotect future generations from estate tax and from the full burden of
income tax. Your Trust eventually disconnects from the US tax system, so you
could be the last person in your family who needs a plan for estate tax. And
for future generations, your Trust will be an ideal vehicle for compounding
investment returns free of current income tax. Better yet, for future generations
it can lawfully be silent and lawfully invisible.

13

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

P
 rotect your peace of mind by knowing that the politicians next big idea cant
damage the wealth youve protected with your Trust.
It all sounds so wonderful. But how do you make it happen?
Ive found a resource that will show you exactly how to use an International Trust
to achieve all those advantages for yourself and your family even while you stay
completely within the rules. Its what Id been hoping for. As soon as I saw the
working draft, I knew I wanted to publish it with the International Man imprimatur.
Its Terry Coxons International Trust Guidebook, and it has everything Ive been
looking for to take readers from concept to action.
The Guidebook is complete. It answers all my questions and answers them in such
depth and detail that Im prepared to act on what I learn. Its not just ideas; its 115
pages of readiness for getting the job done.
The Guidebook is clear and understandable. Although it speaks precisely, it speaks with
the simplicity, directness, and clarity that are the authors trademark. Its not a jargonfilled manual meant only for your professional advisors. Its written for them and for you.
The Guidebook is authoritative. It is thoroughly footnoted with tax law and court
case references and with knowledgeable commentary, all by Robert B. Martin Jr., a
prominent international tax attorney with decades of experience in international trust
matters. Thats the kind of careful detail your lawyer or accountant will insist upon in
a serious publication.
Theres so much in the International Trust Guidebook.
D
 rawing on your Trust. The purpose of putting money into the Trust is to get
money out of the Trust later. Page 23.
Y
 our Trusts limited liability company. Use a foreign LLC that you manage to
hold Trust assets a simple way to maintain hands-on control of investment
decisions. Page 28.
O
 pen bank and brokerage accounts for your Trust (or its LLC). Your Trust
is a welcome customer where you as an American might not be. Understanding
the procedures of non-US banks and brokers opens up more choices and makes
it quicker and easier to start an account. Page 35.
T
 ransfer assets to your Trust (or to its LLC). There are several routes for
placing assets under your Trusts umbrella learn how to document your
transfers to close the door on any possible attack from a future creditor and to

14

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

get the tax results you want. Page 37.


P
 rotect real estate and subchapter S stock. These assets are different, but there
is a right way to use your International Trust to protect their value, including
the value of your home. Page 41.
R
 eporting. Filing the reports required under US tax rules is essential. Review
this chapter to understand how to keep your Trust completely noncontroversial.
Page 80.
M
 istakes not to make. When you read this chapter, youll wonder Who would
do anything like that? In fact, people have made those mistakes but you
wont be one of them. Page 86.
G
 etting as much help as you need. Experienced professionals are available
to assist you with planning for your Trust and using it to gain permanent
protection for family wealth. Page 90.
And there is so much more youll gain from the International Trust Guidebook.
Reviewing the model Trust Deed (page 95its written in clear, standard English
for easy understandability) is like looking under the hood of an International
Trust. Theres no better way to learn how all the pieces fit tightly together to deliver
maximum financial safety for you and your family. And the Guidebook answers all the
what about questions youll probably think of, including:
W
 hat about financial controls? Set up your Trust so that money never moves
without your say-so. Youll always know where every penny is.
W
 hat about the trustee? How can I be sure the trustee never loses sight of my
goals? Retain sufficient influence over how the Trust is administered so that the
Trustee thinks of you as a customer who can always take his business elsewhere.
W
 hat about the IRS? How do I avoid creating problems? The recipe is
ridiculously simple. The tax rules tell you what taxes to pay and what reports to
file. Follow the rules (the Guidebook explains them clearly and in detail) and live
without problems. Its disregarding the rules that invites trouble.
W
 hat about me? How can the an International Trust adapt for my family
and my situation? The Guidebook explains how to put the Trusts inherent
flexibility to workto eventually split into separate Trusts, to pass on your
guiding role to a spouse or to one or more children, and to allow for the special
needs or circumstances of any beneficiary.
W
 hat about cost? How do I get all the safety of an International Trust without

15

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

getting a fat legal bill? The knowledge you gain from the Guidebook will make
you a decidedly shrewd shopper for legal and trust services; its knowledge that can
save you many thousands of dollars in consulting fees with lawyers. What others
have paid $40,000, $50,000 or more to achieve, youll do at a cost that will look
like peanuts.
An International Trust is a serious matter. To gain all the financial safety and taxplanning power that is possible only with an International Trust, you need to know
how it works and how to make it work for you. Terry Coxons International Trust
Guidebook explains it all. Its an action bible. Its The Big Book of Answers.
Sincerely,
Nick Giumbruno
Senior Editor, International Man
Act now to get the Guidebook.

16

I N T E R N AT I O N A L M A N . C O M

YOUR OWN INTERNATIONAL TRUST


For Maximum Financial Safety

DISCLAIMER: Casey Research, LLC does not provide investment, tax or legal advice, and nothing
in this e-mail or any document found at InternationalMan.com should be construed as such. Before
undertaking any action, be sure to discuss your options with a qualified advisor.
The information contained within this article is based on the best research we could find as of the
date of publication. However, the world changes fast and information can become out of date
relatively quickly. So, two points... First, before undertaking any action described in this material,
please conduct your own due diligence and verify all facts. Second, if you happen to spot an out of
date fact or figure (or even suspect something is out of date or false), simply get in touch with us and
well look into it. International Man is a network made up of some very smart people - tax specialists,
accountants, lawyers, analysts and many other talented individuals. As a group, we can create and
maintain a very accurate and highly actionable resource for internationalization.
Affiliate Notice: Casey Research has affiliate agreements in place that may include fee sharing. If you
have a website or newsletter and would like to be considered for inclusion in the Casey Research
affiliate program, please contact us at service@internationalman.com. Likewise, from time to
time Casey Research, LLC may engage in affiliate programs offered by other companies, though
corporate policy firmly dictates that such agreements will have no influence on any product or
service recommendations, nor alter the pricing that would otherwise be available in absence of such
an agreement. As always, it is important that you do your own due diligence before transacting any
business with any firm, for any product or service.
Casey Research, LLC.
Terms of Service Privacy Policy
Casey Research, LLC PO Box 1427 Stowe, VT 05672

17

I N T E R N AT I O N A L M A N . C O M