Inherit Your Offshore Wealth

A new day has dawned for productive Americans. If you have invested years building a successful business, a large investment portfolio, or valuable real estate holdings, you probably know the threats you face: frivolous lawsuits, divorce, creditor claims, etc. The more you have these days, the more you are a target.

There are multiple benefits to be gained by moving part of your assets outside the country – you lower your wealth profile on US databases, make it harder for attorneys to attack your assets, and can also take advantage of the stronger asset protection laws that many countries offer.

However, once your offshore account or assets are set up, have you thought about how these assets will transfer to your heirs upon your death? It’s a critically overlooked area of estate planning that could be important if a probate court tries to access a trust’s assets, and one that could cause your family a great legal headache.

The good news is that there is an easy way to make sure your family inherits your offshore holdings in a quick, efficient and affordable way. You can eliminate the need for foreign probate and create a simple succession plan in less than 48 hours and for under the cost of a long weekend in Miami.

Just over 200 miles east of Puerto Rico lies the island nation of Nevis, the smallest country in the Western Hemisphere. In addition to being an upscale vacation spot, Nevis, part of the Federation of St. Kitts & Nevis, is an excellent offshore financial and asset protection jurisdiction. For nearly 30 years, Nevis has been home to strong asset protection laws allowing trusts and limited liability companies. Its government and courts have enviable records of support for offshore business. Plus, structures in Nevis can be established quickly and affordably.

One of the most affordable and robust offshore solutions available today is a Nevis LLC. For less than $4,500.00, a Nevis LLC can be used in a variety of legal ways. It can hold title to an offshore bank account, foreign real estate, or an active offshore business.

Avoiding legal delays for your heirs:
If you have a bank account overseas in your own name, you probably haven’t thought about what would happen to that account if you passed away. Even if you have named a beneficiary on the account, this doesn’t mean that the account will automatically be handed over without some type of legal probate process. Many foreign banks may have cumbersome legal requirements before your estate can transfer title to your heirs and foreign countries.

The same is true for foreign real estate. Using a Nevis LLC to hold the bank account or the real estate will eliminate this problem. Rather than setting up a bank account in your name, you have the LLC establish the account. As a corporate account, the LLC lives on after your death. You have the ability to be a member of the LLC as well as the manager of the LLC. This gives you greater control over the activities of the LLC and allows you to make all the decisions while you are alive.

Two ways to set up your LLC:
By using the LLC to hold title to your offshore account, you have two options as to how the LLC may be established to best transfer your assets.

The first option is to set up the Nevis LLC as the sole member. As a sole member LLC, you may choose to treat the LLC as a disregarded entity for tax purposes. This means that any tax liability associated with the activities of the LLC will roll up to you and may be handled as part of your personal tax return. Of course, there are additional US Treasury and IRS reporting requirements that I’ll cover in a moment.

Once the sole member LLC is established, you may open the offshore bank account in the company’s name. The next step is to name the LLC in your US will or revocable trust. This is where the distribution of the LLC assets will be made so that your last wishes are carried out. The company will live on after your death and the succession planning instructions in your will or revocable trust can be implemented or drafted by your US lawyer.

Transferring your wealth easily:
The other option is to establish the Nevis LLC and name your heirs as members of the LLC. When the LLC is created, you can write the LLC operating agreement to specify what should happen upon the death of a member. Depending on which US state in which you live, having multiple members in the LLC may give you more robust asset protection, and depending on your personal situation that may be more desirable.

However, if you choose to have multiple members, you will not be able to treat the LLC as a disregarded entity for US tax purposes. Rather, the LLC will be treated as a corporation or a partnership and different reporting requirements and tax considerations will apply. It isn’t too difficult or too costly, but it’s important to be aware of this before you make any decisions. Regardless of which option you select, be aware that US citizens and tax residents are required to report their worldwide income.

Reporting is as easy as checking the box:
Another benefit is that a Nevis LLC is quite simple to report on your US tax returns. The LLC may be classified by your CPA as a “disregarded entity.” This means the company itself incurs no tax. But the liability for taxes “passes through” to the members who become liable based on their interests in the LLC. A Nevis LLCs IRS tax reporting requirements are less cumbersome than corporations in other foreign jurisdictions. The IRS recognizes Nevis LLCs as eligible entities. This means that a Nevis LLC can elect its federal tax entity classification and you may check off the box on IRS tax form 8832 to elect its classification. Also, you can check off the box on the applicable tax form and elect to classify the LLC as a foreign partnership, which affords greater asset protection against creditor claims than a single member foreign LLC that is “disregarded” for US income tax purposes.

Get set up quickly and easily:
It’s quite simple to form a Nevis LLC. You must file the Articles of Organization with the Nevis Registrar. The filing must contain the name of your company, accompanied by the LLC acronym or state “Limited Liability Company.” You must designate your registered agent’s address which must be based in Nevis.

Any US attorney who creates Nevis LLCs can assist you with this process. Next you select whether you will have designated managers or whether all of your members will manage the LLC. The LLC can select you (the client) to manage its affairs. If you wish to limit your LLCs existence, you must state the date it will end. You should also include any other matters that are not inconsistent with Nevis law.

Similar to a shareholder or partnership agreement, an Operating Agreement defines the LLCs operation and the members’ rights. A Nevis LLC can have any number of members, even just one. Individuals or business entities, regardless of nationality or domicile, can be members or managers of a LLC. But the LLC must appoint a registered agent situated in Nevis.

The reporting requirements:
The IRS Treasury tax reporting requirements associated with a Nevis LLC include the following:

1. Form SS4, Application for Employer Identification Number

2. Form 8832, Entity Classification Election (if applicable)

3. Form 8858, Information Return of US Persons with Respect to Foreign Disregarded Entities (if applicable); or,

4. Form 88665, Return of US Persons with Respect to Foreign Partnerships.

Once you open your offshore bank account, in the name of your LLC, please keep in mind that there are two additional required reporting forms. Those include:

1. TDF 90-22.1, Report of Foreign Bank and Financial Account

2. Form 1040, Schedule B, Part 3, to report ownership in foreign bank accounts.

3. IRS Form 8938, Statement of Specified Foreign Financial Assets.

Diversifying your assets and properly protecting them never been more critical. Since 2008, lawsuits have been on the rise as desperate people seek money from any possible source. At the same time, the future of the US and the fate of the US dollar look very cloudy. When you do make the decision to move assets abroad, be sure you have a solid succession plan in place.

Josh N. Bennett Attorney, Law Firm of Josh Bennett, Esq., PA
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