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Our practice is dedicated to a few key areas, and a big portion of what we do is focused on asset protection trusts. There are two types of asset protection trusts: foreign and domestic. Domestic means using one of the state laws in the U.S. that offer asset protection trusts—not all states have these legal structures available. Foreign asset protection trusts, on the other hand, involve setting up the trust in an offshore jurisdiction, like Nevis or the Cook Islands. We particularly like the Cook Islands for this purpose.
One of the common questions we get about foreign asset protection trusts is whether they involve committing tax evasion. The short answer is no. Just because you have a foreign asset protection trust doesn’t mean you’re committing tax evasion in the United States or any other jurisdiction. These trusts are completely legal from a tax perspective. The only way you’d get in trouble is if you’re actually committing tax evasion by not reporting income or failing to follow the necessary legal requirements.
If you’re a United States citizen with a foreign asset protection trust, there are specific tax forms you must fill out when you have an offshore account. You need to make sure you’re staying in compliance with these requirements, as there are hefty fines involved if you’re not. Additionally, you must pay taxes on any taxable activity inside your foreign asset protection trust. As long as you’re filling out the correct forms, reporting to the Treasury and IRS, and paying your taxes on any income generated within the foreign asset protection trust, you have nothing to worry about.
In a different video, we’ll discuss whether you should choose a domestic or foreign asset protection trust, but for now, just know that using a foreign asset protection trust does not involve tax evasion.
