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
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
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
Estate is the sum of personal interests in real and/or personal
Flight Capital is money which flows offshore and likely never returns.
It is exacerbated by a lack of confidence in government fiscal
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 as
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
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 austurity
programs in indebted third-world nations.
Hopefully this short guide will help investors seeking asset havens and
offshore banking facilities.
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