Offshore Banking Terms
Many investors are puzzled by the various terms used by bankers in describing ways to protect their money. Here is a short list of some of the most common ones.
Asset Protection Trust (APT) is an irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting wealth against creditors. Title to the asset is transferred to a trustee. It is used for asset protection and usually tax neutral. Its function is to provide for the beneficiaries of the APT. A trust is a contract affecting three parties, the settlor (who sets up the offshore trust; also called the grantor in U.S. or IRS terms), the trustee and the beneficiary. A trust protector is optional but recommended, as well. Through the trust, the settlor transfers asset ownership to the trustee on behalf of the beneficiaries.
Business trust is created for the primary purpose of running a business. These trusts are treated as persons under the Internal Revenue Code (IRC). It must have a commercial purpose and actually function as a business.
CARICOM is the Caribbean Common Market. Its members consist of 14 member countries of the Caribbean community, including Antigua, Bahamas, Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. The purpose of this organization is to encourage free trade and free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, the two major players in international banking and finance, which did not wish to be regulated by a small local community because of greater international ties.
Discretionary Trust is a grantor trust in which the trustee has sole discretion as to who among the listed beneficiaries receives income and/or principal disbursement. The trustee has full authority over the fund, or it would cease to be a discretionary trust. A letter of wishes, or side letter, can provide guidance to the trustee without having any legal and binding effects. The letter(s) must be carefully drafted, as the trustee cannot be seen as a pawn of the beneficiaries or there is basis for the argument that there never was a complete renouncement of the assets.
Estate is the sum of personal interests in real and/or personal property.
Flight Capital is money which flows offshore and likely never returns. It is exacerbated by a lack of confidence in government fiscal management.
GmbH is a German form of a limited liability corporation.
High Net Worth (HNW) Person is any individual with more than $1,000,000 in liquid assets.
International Business Company (IBC) is a corporation formed (incorporated) under the Company Act of a tax haven, but is not authorized conduct business within that country. It is intended to be
used only for global operations. It is owned and operated by members and/or shareholders, just like other corporations.
Limited Company is not an international business company. May be owned by a resident of the tax haven and is set up under a special corporate law with a simpler body of administrative laws. A Limited Liability Company (LLC) consists of member owners and a manager, at a minimum. It has tax advantages and operational flexibility found in a partnership, operating in a corporate-style structure, with limited liability as provided by the state’s laws. A LLP is a Limited liability partnership, a form of the LLC frequently used for professional associations, such as accountants and attorneys. A LLLP is a Limited liability limited partnership, intended to protect the general partners from liability.
Member is an equity owner of a limited liability company ((LLC), limited liability partnership (LLP), limited liability limited partnership (LLLP) or a shareholder in an IBC.
NRA is a nonresident alien of the U.S. An NRA is not a U.S. person a defined under the Internal Revenue Code (IRC).
Offshore is an international term meaning not only out of your country, but also out of its tax jurisdiction.
PLC is a UK public limited company.
The Revenue Reconciliation Act of 1995 proposed changes to the Internal Revenue Code affecting foreign trust reporting, among other changes.
Securities are shares and debt obligations of every kind, including options, warrants, and rights to acquire shares and debt obligations.
Settle. To create or establish an offshore trust. Done by the settlor (offshore term) or the grantor (U.S. and IRS term).
Settlor. One (the entity) who (which) creates or settles an offshore
TCI are the Turks and Caicos Islands, a popular tax haven.
Trustee is the controller of a trust fund. This person is independent of the settlor or grantor and has the fiduciary responsibility to manage the assets of the fund as a reasonable prudent business person would do in the same circumstances. The trustee must defer to the trust protector when required in the best interest of the trust fund. The reporting requirements of the trustee are defined at the creation of the trust include how often, and to whom, the trustee will respond to instructions
or inquiries, investment strategies and fees for the trustee’s services. The trustee may have full discretionary powers to distribute the fund to beneficiaries.
Uniform Partnership Act (UPA) is one of the uniform laws adopted by some states or used as a baseline for other states.
Vetting is the process used by the offshore consultant for evaluating whether a prospective client is a good candidate for offshore asset protection.
World Bank was formed to be the lender and technical advisor to developing countries, utilizing funds and technical knowledge from member nations. It has often been criticized for promoting austerity programs in indebted third-world nations.
Hopefully this short guide will help investors seeking asset havens and offshore banking facilities.