Tax lawsuits are a pain. And if you find yourself entangled in one, you may want to take actions to preserve your wealth before “bad things” happen.
The goal of wealth preservation is to protect your assets before a cause of action (or “bad thing”), by moving them to a safe jurisdiction. Once authorities file a cause of action, you can no longer transfer assets offshore without violating U.S. law.
Below, we’ll discuss two of the most effective wealth preservation structures, the Cook Islands Trust and the Panama Foundation, and why the Cook Islands Trust is a better choice.
How To Preserve Your Wealth: Cook Islands Trust
Cook Islands trusts afford numerous asset protection benefits. Similar to a living trust, settlors have 100% control of the trust’s assets unless trouble strikes; and when it does, offshore trustees assume responsibility for accounts.
In the event of a hiccup, if you choose a Cook Island option, a licensed, bonded, and insured trustee in the Cook Islands will step in and manage your trust, until the issue is resolved. During this period, trustees can also facilitate overseas investments based on prior instructions.
Cook Islands Trusts Afford Mobility
Portability is another attractive aspect of a Cook Island trust. You can move the trust and its assets out of Cook Islands any time, which provides another layer of asset protection.
For instance, let’s say creditors prevail in a U.S. case and attempt to enforce the judgment in Cook Islands. Assuming the statute of limitations has not run out, to avoid the seizure of the trust and its assets, affected parties with Cook Island trusts can move them to another country.
New Zealand Courts Hear The Cases
If creditors want to bring a suit against Cook Islands trusts have to initiate the process in New Zealand, whose courts hear the cases applying Cook Islands Law. In such situations, creditors may spend many thousands of dollars bringing an action only to find nothing is left. And for the record, Cook Islands’ statute of limitations is only one year form the trust funded date or two years from the cause of action (the date the harm occurred). Once the statute of limitations runs out, New Zealand courts will refuse to hear any cases against your Cook Island trust.
Cook Islands Trusts Statute of Limitations Advantage
Moreover, even if it’s within the statue of limitation, the asset-protection-friendly Cook Islands can still protect your trust. The only feasible way creditors can enforce judgments against Cook Islands trust holders is to prove beyond a reasonable doubt that the sole reason for the offshore trust was to transfer assets away from creditors. Thus, each creditor must prove the transfer was a fraudulent transfer as to him or her — a very high legal standard.
Finally, an offshore asset protection can also facilitate your international investments, international estate planning, and general protection (not related to one particular creditor).
How To Preserve Your Wealth: Panama Foundation
Panama foundations are separate and distinct entities from their owners. To set up the Panama foundation, you don’t need members or shareholders. However, the structure requires a founder (you, the settlor), the foundation council, and a beneficiary. The council can be any three people or any one company that manages assets if you become unable. Under Panama foundations, settlors can also be beneficiaries.
As a legal entity like a corporation or LLC, the foundation must have a local address and local agent. However, foundations cannot operate active businesses. Foundations may form Panamanian corporations, but may not own businesses directly.
Be aware that parties operating businesses in Panama must pay Panamanian taxes. Moreover, you must also pay U.S. taxes on any income generated by the foundation.
In short and generally speaking, people use Panama foundations to diversify investment portfolios and minimize U.S. estate taxes.
Connect With An Offshore Tax Lawyer
Interested in learning more about how to preserve your wealth? Considering a Cook Islands trust or Panamanian foundation? Either way, we can help. Our team of offshore tax lawyers have helped countless businesses and individuals with various international tax matters. We know how to save clients money and protect assets.
Get in touch today. Let’s start discussing your options. The consultation is on us.
Disclaimer: This article is not intended to provide legal advice. Please consult an attorney for legal advice for your particular situation.