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Belize: A Haven for Privacy and Profits

Belize: A Haven for Privacy and Profits

An International Living report

Designer: Marsha Swan

Cover photo: © Fotolia.com/vetkit

© Copyright 2014. International Living Publishing Ltd., Elysium House, Ballytruckle, Waterford, Ireland.

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written consent of the publisher. The information contained herein is obtained from sources believed

to be reliable, but its accuracy cannot be guaranteed. Registered in Ireland No. 285214.

Belize: A Haven for Privacy and Profits

your haven for privacy and profits

The U.S. was once at odds with some of Belize’s safe haven policies, but in 1997 Belize enacted legislation designed to attract international banks to the country. Coupled with this legislation were bank-privacy laws that contained U.S.-style “know-your-client” provisions to prevent money laundering. By adopting these rules, Belize ensured that the U.S. had to take it off a list of countries barred from U.S. foreign aid and a variety of trade preferences.

Since then, the number of banks and investment houses, trust companies, accounting firms, and offshore specialists doing business in Belize has grown dramatically. So has the amount of U.S. dollars being deposited in both the private banking system and the Belize Central Bank.

Individuals and companies establishing themselves in Belize are finding a government committed to privacy and a no-tax system. These advantages, combined with an English-speaking population and laws similar to our own, make Belize one of the world’s top tax havens—a truly safe locale for your money.

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trusts that offer protection

Belize has become a premier jurisdiction for asset-protection trusts, thanks to the Trusts Act of 1992. Today, Belize is a haven that offers rock-solid protection of assets that are transferred into a Belizean Trust. It’s also one of the few trust jurisdictions in the world that offers protection from court action initiated by creditors that might challenge your transfer of property into a trust.

Unless there’s actual fraud in the creation of a trust, the assets of a Belizean trust cannot be attached to satisfy the judgment of a foreign court. Belizean trust laws have been tested and proven solid. In one landmark case, “Securities and Exchange Commission v. Fund International,” the Supreme Court of Belize upheld the Trusts Act, and the SEC was stymied in its attempt to acquire confidential trust documents in Belize.

Belizean legislation allows you to establish a trust for the benefit of any person or any charitable or non-charitable purpose; your trust can also benefit a combination of people and purposes. To structure your Belizean trust deed (the “trust deed” is a legal, private agreement between the settler [you], a protector, and a trustee), you must answer the following questions:

Who is the trustee, and who can order his replacement or retirement? What are the trustee’s powers and restrictions? What are the assets of the trust, and how are they to be managed? Who is to benefit from the trust? Who is the protector; what are this person’s powers and duties; and what are the mechanisms

for the protector’s removal, resignation, or succession? What jurisdiction provides the governing or proper law for the trust? What is the procedure for adding or withdrawing assets? What is the procedure to amend the trust?

These questions should be answered with the help of a lawyer who specializes in trusts, such as Barrow & Williams, Equity House, 84 Albert Street, P.O. Box 617, Belize City; tel. +501 227-5280; email: attorneys@barrowandwilliams.com; website: www.barrowandwilliams.com. You’ll find a list of other attorneys in the Contacts section of this report.

There are two principal types of trusts to consider—a discretionary trust and a purpose trust. For many years the discretionary trust was the more popular type, largely because of its flexibility. Today, however, many people are choosing purpose trusts because they put more distance between you and the Internal Revenue Service.

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How to create a shield for your assets with an offshore trust

by Robert E. Bauman JD*

In the United States, Suze Orman is a popular financial guru on public television. Typical of her advice: “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”

One of the best ways to minimize the “what-ifs” and the worry that goes with them is with a trust. With an inventory of your possessions, a few hours’ planning, and the help of a good attorney, anyone with wealth and assets can create one and they are among the most fool-proof, ironclad legal entities known to man.

One popular trust form, the offshore asset protection trust (APT), can place your wealth beyond the reach of claimants, creditors, irate ex-spouses, and even the government of your home country. That “offshore” distance creates an added layer of protection that thwarts attacks and promotes compromise.

What is a trust?

You may have heard about “trusts,” but what are they, really? Something rich people set up for their spendthrift kids? In the 1958 Broadway hit musical Auntie Mame, a mean banker controls a trust for Mame’s beloved orphan nephew, Patrick.

But trusts have actually been around in various forms for thousands of years, dating back to ancient Egypt, the Roman Empire, and medieval England.

The basic trust is simply a legal arrangement recognized by the laws and courts of every country. It has three parties: a person (variously called the “grantor” or “settlor”) who creates the trust and donates assets to fund it; a trustee who administers the trust; and the beneficiaries who receive benefits from the trust.

All this is accomplished by the grantor’s signing a formal trust declaration that sets forth the purpose of the trust, and then funding the trust.

The key protection a trust provides is this: All cash and property correctly donated to the trust are then owned by the trust rather than by the donor. To make the arrangement even more useful, a trust’s creator (or grantor, if you will) can usually also be a beneficiary of the trust, reaping the rewards of his or her former property.

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But what a trust creator cannot do is control the trust; that is the role of an independent trustee. If a trust creator treats the trust as his own thing, courts will rule it a “sham” trust and dissolve it.

A trust can be created to carry out just about any purpose that is not illegal.

A trust can hold title to, and invest in, real estate, cash, stocks, bonds, and personal property. Trusts can provide for care for minor children or for the elderly, or pay medical, educational, or other expenses. A trust can provide financial support in an emergency, give help for an older person’s retirement, pay for a young person’s education, administer financial plans during marriage or divorce, or even carry out premarital agreements.

But a major role of a trust is to invest its assets to produce income that will fund the trust’s goals. Meaning an offshore trust can be an excellent platform for international investment.

How a trust protects wealth

In modern times, asset protection has become a major goal of trust creation.

Through taxation and regulation, the government excels in attacks on wealth. In the U.S. and Europe, there is now official talk of wealth and retirement-plan confiscation. Last year a large chunk of every bank account in Cyprus was subject to “bail-in” tax overnight.

The judicial system also has become a threat to prosperity. Especially in the U.S. and the U.K., courts are clogged with thousands of civil suits demanding enormous sums for sometimes-imagined injuries for alleged victims of harassment, disability, or discrimination. With TV commercials seeking plaintiffs, contingent-fee lawyers whip up billion-dollar class-action suits against persons or corporations they see as ripe targets, seeking outrageous jury awards and fat fees for attorneys.

These real threats have increased the popularity of the offshore asset protection trust.

The offshore asset protection trust (APT) is especially useful because it is, in fact, based in a foreign nation. That shields your assets better than any domestic trust ever can, simply because it is located outside the jurisdiction of your home country. Distance makes the trust grow stronger. The offshore APT shields business and personal assets against creditors, litigation, and disputed financial liabilities.

With the help of an experienced trust attorney, an offshore APT can be accomplished by little more than the signing of formal documents, transferring property, and opening a trust account managed by a local trustee in a bank in a foreign country you choose. Offshore multinational and

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local banks provide experienced trust officers and staff. For example, a simple trust registered in the Cook Islands can cost less than $5,000.

Other jurisdictions that specialize in trust creation and administration include Panama, the Isle of Man, the Channel Islands of Guernsey and Jersey, Bermuda, Cayman Islands, Liechtenstein, Gibraltar, and Hong Kong.

Offshore APTs have proven so effective because: 1) courts of some foreign “asset-haven” countries will not recognize U.S. or other domestic court orders, so a plaintiff must re-try his case in a foreign court at great expense; 2) claims against a trust in such countries must be brought within a limited time. In the Cook Islands, the statute of limitations can be one or two years from the time the APT was created; 3) foreign trust laws allow a “duress clause” that allows the foreign trustee to shut down the trust if it is threatened legally in any way.

The key to creating an APT is simple: planning. The trust must be created long before it is needed, at a time of personal financial calm. As a belated response to a pending financial crisis, trust creation creates more problems. Last-minute attempts to create an offshore trust can lead to civil liability for concealing assets. So if you think you may need a trust, act now.

A word about taxes

The United States imposes taxes on all worldwide income earned by its citizens and all income of persons with permanent U.S.-resident status. (Citizens of Canada or the United Kingdom can escape most domestic taxation if they live in other nations.)

Under U.S. tax law, for the trust grantor, ATPs are “income-tax neutral,” as are domestic trusts. That means all offshore trust income is treated as the grantor’s personal income, reportable annually as gross income on IRS Form 1040 and taxed at applicable personal income-tax rates. There are also other IRS reporting requirements for trusts, trustees, and beneficiaries.

In a world of expanding global trade and investment, the offshore asset protection trust offers advantages unavailable in any domestic asset-protection device. It has been tested by time and found to be a solid choice of intelligent investors. For those who want to protect their hard-earned wealth, the offshore asset protection trust is well worth adopting.

* Editor’s Note: Bob Bauman JD is legal counsel for International Living, one of the world’s foremost offshore experts and editor of Offshore Confidential, the ultimate wealth protection resource. To find out more, click here.

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Advantages of discretionary trusts

Consider the benefits of discretionary trusts when you’re planning your offshore presence:

1. Protection

You have the option of appointing a protector for the discretionary trust; the protector can protect both the trustee and the beneficiaries from potential risks. The protector can be an individual or a corporation and ideally should be somebody of good character and integrity. This person need not reside in Belize. The powers of the protector include appointing new trustees and beneficiaries and arbitrating among the trustee(s) and the beneficiaries.

2. Flexibility

Your assets do not have to be held for specific beneficiaries in specific amounts; distribution can be arranged at the discretion of the trustee. You can establish a trust with minimal assets (in the form of cash, real estate, or stock). These can then be supplemented or reduced later on. What’s more, beneficiaries, protectors, and trustees can also be replaced later.

3. Privacy

The most important advantage of a Belizean trust is the extent to which Belizean law protects the secrecy and anonymity of the settler, trustee, beneficiaries, and assets. The laws governing financial confidentiality in Belize, based on English common law, are specific, aggressive, and effective. You are now required to register a trust, appoint a trust agent, and pay annual license fees to maintain the trust on the register, but the actual terms of the trust are only accessible with the written consent of the settler, trustee, or trust agent.

The Trusts Act of 1992 also allows for the trust to be revoked or terminated, the trustee can be removed, and the location of the trust can be transferred to another jurisdiction if global political developments make this advisable.

4. Tax benefits

Assets contained in a Belizean trust are exempt from taxes in your home country and are usually exempt from all Belizean taxes as well. In order to be exempt from Belizean taxes and stamp duties: The settler must not be resident in Belize for that tax year. None of the beneficiaries can be a resident in Belize for that tax year. The trust property must not include any land in Belize.

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5. Asset protection

Belizean courts will not recognize the validity of claims made against the assets of a Belizean trust based on the laws of another country in matters that pertain to any of the following:

Personal or proprietary claims that stem from marriage or the termination of marriage. Successors’ rights, including the fixed shares of spouses or relations. The claims of creditors in insolvency proceedings.

In other words, the system creates a solid barrier against anyone from another country who might come in search of your assets—even if that person is armed with a court order from that country. Belize does not recognize such orders.

6. Inheritance protection

You can, in a letter of wishes or within the trust deed itself, administer the terms of the trust up to the time of your death. This benefit is particularly attractive if you have assets in several different countries. In many countries, you must have a legal will and testament in that country in order for friends and family to inherit your assets upon your death.

With a Belizean trust, however, any foreign investment that is part of the assets of the trust is covered posthumously by the letter of wishes. Therefore, no additional documents are required for your beneficiaries to claim their inheritance. Essentially, the assets in the trust are not deemed part of your estate upon your death. The property passes directly to the beneficiaries, and no estate duty is due. Moreover, with this structure, there are no transfer taxes to be paid. This eliminates endless red tape and further protects your beneficiaries from inheritance taxes and restrictions.

The benefits of a purpose trust

Purpose trusts can be created for “American persons,” a legal term that refers to companies, individual citizens, and immigrants to the U.S. who hold Green Cards. The IRS has reporting requirements for American persons who are grantors of a foreign trust as well as for the beneficiaries of foreign trusts.

Purpose trusts get around the reporting requirements in two ways. First, the trust company in Belize creates the trust and therefore becomes the grantor. Second, purpose trusts are established for a specified purpose rather than for beneficiaries. That means there are no beneficiaries who would have to report to the IRS.

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Attorneys in Belize believe that, in practice, chances are slim that the IRS would discover that the beneficiary of a discretionary Belizean trust hasn’t followed its reporting requirements. But as one attorney put it, “Why take a chance?” A purpose trust avoids the problem entirely.

incorporation laws help with tax savings

A trust is not the only way to keep your assets intact in Belize. The International Business Companies Act of 1990 gives foreigners an opportunity to incorporate in Belize and enjoy huge advantages.

IBCs are exempt from taxes on all income. There are no Belizean citizenship or residence requirements for directors, officers, or shareholders of IBCs. Meetings of shareholders and directors can be held in any country and may be attended by proxy.

A Belizean IBC requires only one shareholder and one director, each of which can be either an individual or a corporation. Your IBC is not required to have staff members or to establish an office in Belize. And IBCs are not subject to any foreign exchange controls.

IBCs can be used for financial management, investment holding, ship or property ownership, shared ownership of other companies, leasing of assets, copyrighting and licensing, and general commercial trade.

There are, however, significant restrictions on IBCs. They’re not allowed to do business with Belizean residents, own real estate in Belize, engage in a banking or insurance business in Belize without a license, or act as an agent for another Belizean IBC.

Belizean IBC laws are among the easiest in the world to use, and incorporation fees are low. For an IBC with authorized capital of $50,000 or less, the incorporation fee is usually $700, plus registered office/agent fees of $300 a year. Fees typically include the arrangement of the incorporation of the company, the certificate of incorporation and preparation of the minutes of the first meeting of the director(s). To register an IBC, a memorandum and articles of association must be submitted to the registrar via a registered agent. Contact information for registered agents can be obtained by viewing the list of agents at www.ibcbelize.com.

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tax benefits of second homes

Second homes usually aren’t thought of as tax shelters, but they have very similar advantages—whether the homes are inside or outside the U.S.

IRS rules, for example, let you avoid capital gains tax if you’ve lived in the home for at least two of the last five years before selling it. The limit on this capital gains exclusion is $250,000 for an individual or $500,000 for a couple.

While few Americans will take out a mortgage in Belize, those who do will have another tax advantage—that is the ability to deduct mortgage interest and property taxes.

Even better, you can rent the second home for up to two weeks a year without being required to report the rental income to the IRS. On the other hand, if you do rent the second home for more than 14 days a year, you lose the mortgage and property tax deductions and you cannot deduct any expenses.

Unfortunately, many IRS rules on second homes are complex. For that reason, it’s important for overseas residents to consult an accountant or tax attorney who is familiar with their specific situation.

To find out more about your U.S. tax obligations when you move overseas, contact Nick Hodges and his team at NCH Tax & Wealth Advisors. Nick Hodges (CPA/PFS, MBA, CFP) has been a Certified Public Accountant (CPA) for nearly 30 years. NCH Tax & Wealth Advisors, 1661 E. Chapman Ave., #2A, Fullerton, CA 92831; tel. (800) 748-4159; email: info@nchwealth.com; websites: www.nchwealth.com and www.expatcfo.com.

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offshore financial strategies

by Robert E. Bauman JD

It’s easier than ever to take advantage of offshore opportunities to protect your assets, reduce your taxes, and gain privacy. You don’t have to move to another country or go through the hassle of getting a second passport.

Not long ago, for instance, only the wealthiest investors could benefit from having an offshore bank account. Now, after dramatic changes in international banking and communications, you can make a quick and inexpensive entry into the world of foreign-investment opportunities.

Four strategies to get you “offshore”:

A foreign bank account

Your offshore bank account is not just for keeping your cash safe. It also gives you the ability to trade freely and invest in foreign stocks, bonds, mutual funds, and national currencies that are not available in your home country.

There’s another benefit. The existence of the account is not readily known to a possible claimant trying to collect a judgment against your assets. Sometimes it even makes good financial sense to discourage a potential litigant by letting him know how difficult it would be to reach your offshore assets.

To find an offshore bank without domestic branches in your country, visit your local library and ask for the Thomson/Polk World Bank Directory (International Edition). This lists banks in more than 212 countries, with updated sections issued twice a year. It also analyzes a bank’s financial size and strength and tells you how and whom to contact. The “Worldwide Correspondents Guide” section contains correspondent information for more than 12,500 banks worldwide and includes city locations, phone numbers and routing numbers.

An offshore asset protection trust

An APT is another way to protect your assets. In recent decades it has become popular among those “in the know.” Places such as the Isle of Man, Bermuda, Panama, Belize, Liechtenstein, the Channel Islands, Hong Kong, and Singapore specialize in creating and managing APTs.

The trust process can seem complex and difficult, but it isn’t. In fact, a trust is one of the most flexible yet efficient legal mechanisms recognized by law. A trust is just a formal legal arrangement created and funded by you (the grantor) that directs another person (the trustee) to take legal title

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and control of your donated property, to be used and managed for the benefit of one or more other persons you choose (the beneficiaries).

The beneficiary of a trust receives income or distributions of assets from the trust and has an equitable title to the benefits. However, he or she does not control the assets or manage the operations of the trust.

A trust can hold title to and invest in real estate, cash, stocks, bonds, negotiable instruments, and personal property. The foreign asset protection trust (APT) is a targeted form of trust set up under the statutes of another country. Because the trust is governed by the laws of the nation in which it is registered or administered, it serves as a shield for your business and personal assets.

An offshore variable annuity

This is one of the easiest ways to invest in offshore funds. What’s more, as a U.S. citizen you get deferral of taxes until you withdraw funds.

Variable insurance annuities offer significant asset protection. The policies are issued by offshore insurance companies with no affiliates in the U.S., and the policy’s underlying assets are held entirely outside your home jurisdiction. Any domestic investments are made in the name of the insurance company, not in your name.

But offshore variable annuity investments typically start at around $250,000, and commonly exceed $1 million or more.

Offshore life insurance

Despite all the talk of tax reform in the U.S., the combination of income tax and estate tax can still consume 50% or more of a U.S. person’s estate.

This can be avoided with various planning techniques, but only life insurance provides four key benefits: tax-free build-up of cash value, including dividends, interest, and capital gains; tax-free borrowing against cash value; tax-free receipt of the death benefit; and freedom from estate and generation-skipping taxes.

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Belize banking/trusts contacts

Attorneys

Emil Arguelles, Arguelles & Company LLC, 4th Floor, The Matalon, Coney Drive, Belize City; tel. +501 223-0088 and +501 223-0858; website: www.belizelawyer.com.

Barrow & Williams, Equity House, 84 Albert Street, P.O. Box 617, Belize City; tel. +501 227-5280; email: attorneys@barrowandwilliams.com; website: www.barrowandwilliams.com.

Denise Courtenay, Courtenay Coye LLP, 15 A Street, P.O. Box 234, Kings Park, Belize City; tel. +501 223-1476 and +501 223-0279; email: advice@courtenaycoye.com; website: www.courtenaycoye.com.

Banks

Belize Bank Limited, International Division, 60 Market Square, Belize City; tel. +501 227-7132 and +501 227-7082; website: www.belizebank.com.

Scotiabank (Belize) Limited, 4A Albert Street, P.O. Box 708, Belize City; tel. +501 227-7027 and +501 221-7028; website: www.scotiabank.com/bz/en/0,,2840,00.html.

Business contacts

Belize Trade and Investment Development Service (BELTRAIDE), 14 Orchid Garden Street, Belmopan; tel. +501 822-3737; website: www.belizeinvest.org.bz.

International Business Companies Registry of Belize, Marina Towers, Suite 201, Newtown Barracks, Belize City; tel. +501 223-5108; website: www.ibcbelize.com.

U.S. Commercial Service, with trade offices throughout the United States; website: www.export.gov. At the Service’s Belize site, http://export.gov/belize/index.asp, you can access information about doing business in Belize, market research on Belize, services for U.S. companies, and trade events.