Offshore Asset Protection BLOG - Bob Bauman

Income Taxes & the Destruction of Liberty

Today at the 2008 FreedomFest in Las Vegas, my friend and longtime associate Vernon Jacobs, CPA, presented a fascinating lecture on the American income tax and the U.S. Constitution. The title of his talk was "Income Taxes and the Destruction of Liberty".

I have read Vern's 49-page paper and it is a clear, concise and arresting exposition of the income tax and what it (and the IRS) have done to diminish American freedoms and liberties.

Mr. Jacobs is not one of those "tax protesters" who believes the income tax is illegal, (the 16th Amendment answers that question), or that it applies only to esoteric small groups defined by arcane Internal Revenue Code provisions as interpreted by self-serving fraudsters, many of whom charitably can be called "tax nuts."

Rather his presentation carefully establishes the history of American taxation, the ideological demand for an income tax from socialist and Communist theorists, the role financing American wars has played in expanding the tax, and lastly, the brutal polices of the IRS that view all citizens as tax evaders to be treated to the lash.

He also touches on illegal tax evasion vs. legal tax avoidance and the use of offshore tax havens and government attempts at blocking such use.

Jacobs makes the historic point that while the British Crown's restrictions on religious and other freedoms certainly were reasons for the American Revolution, the principal cause was excessive taxation and its brutal enforcement by King George's agents, as witness the Boston Tea Party.

For those who are interested in what Vern calls "a semi-academic history lesson on the income tax and the related portions of the Constitution" a copy in PDF format is available at http://www.offshorepress.com/liberty/constitution.pdf

I recommend it heartily.

In Memory of Sir John Templeton

My esteemed colleague, Eric Roseman, Investment Director for the Sovereign Society, said today: "As a value investor, I mourn the passing of Sir John Templeton yesterday. The pioneering global value investor passed way in The Bahamas at the age of 95. More than any other individual during his lifetime, Sir John catapulted global value investing in the mid-1950s by uncovering cheap stocks across the world. His passing deserves a tribute because he influenced so many investors."

Eric is certainly correct about the worldwide influence of the man who popularized value investing and made mutual funds available to the mass of smaller investors. Templeton didn't invent the mutual fund, but he made it popular and reputable. But he was also a man of great personal conviction and deep religious faith.

Born in Winchester, Tenn., Mr. Templeton developed a strong Christian faith that defined his career and guided his philanthropic efforts. He founded the Templeton Prize in 1972 to encourage "progress in religion." The dollar amount has gradually increased over the years to ensure it remains a greater monetary reward than even the Nobel Prize offers. In 1987, the year he was knighted by Queen Elizabeth, Sir John Templeton founded the John Templeton Foundation, which funded projects that brought science and religion together. It has distributed more than $1.5 billion to date, with $70 million in annual grants distributed.

Profitable Prophet

A $10,000 investment in the storied Templeton Growth Fund in 1954 would have grown to $2 million by 1992, when Sir John sold his company to Franklin Resources, the San Mateo, Calif. based fund giant, for $913 million. That translates to an annualized 14.5% return.

But Templeton knew that when it comes to income taxation Americans face a nearly unique burden. Unlike most other nations, U.S. citizens and long-term residents cannot escape U.S. taxes by moving their residence to another nation. The only way to leave U.S. taxes behind is to give up citizenship or resident alien status.

In 1962, Sir John surrendered his U.S. citizenship to become a citizen of The Bahamas.

This move saved him more than $100 million when Templeton sold the well known international investment fund that bore his name. Many years after surrendering his U.S. citizenship, Templeton told The Wall Street Journal that the political frenzy over expatriation could happen "only in America." Sir John said his investment record improved after he distanced himself from Wall Street and was freed from worry about the U.S. tax consequences of his decisions.

Expatriation: the Ultimate Estate Plan

In explaining why "expatriation" was so attractive to wealthy Americans such as Templeton, several years ago a Forbes magazine article gave the compelling arithmetic that applied at the time: "A very rich Bahamian citizen pays zero estate taxes; rich Americans – anyone with an estate worth US$3 million or more – could pay 55%. A fairly stiff 37% marginal rate kicks in for Americans leaving as little as US$600,000 to their children." Even though U.S. estate taxes have been reduced since then (and may go up again soon), expatriation offered the ability to escape federal and state income, capital gains and other taxes.

Once Templeton became a Bahamian (and British) citizen, he lived tax-free in The Bahamas. Interestingly, his investment record improved markedly after he stopped worrying about the tax consequences. As a result of tax-free compounding, Templeton was worth several billion dollars at his passing and was one of the world’s wealthiest men.

However, Templeton did not necessarily recommend that other investors follow his lead and switch allegiance to a tax haven such as The Bahamas. (It's almost impossible for an American to become a Bahamian citizen today). But, Templeton did strongly recommended that smart investors take full advantage of offshore tax-deferral vehicles such as a life insurance, annuities, self-directed pension plans and incorporation of a business.

Politics as Usual

For more than a decade now expatriation to avoid taxes has been a favorite "hot button" issue kicked around by the American news media and "soak-the-rich" politicians. Templeton was often cited as an example of "tax traitors" who left the country. No doubt many of the hundreds of millions of dollars he saved in taxes went to the philanthropy and charities he supported, instead of to the IRS.

Ironically a few weeks ago a long pending proposal for an "exit tax" on U.S. persons who end their proposal by U.S. Rep. Rangle (D-NY) was adopted by the Democrat Congress and signed into law by President Bush.

This outrageous law imposes an immediate confiscatory tax on unrealized capital gains on all the assets and property of anyone who dares to end their U.S. citizenship or resident alien status (a right the U.S. Supreme Court has upheld). The new law, unparalleled since the days of Nazi Germany and apartheid South Africa, also imposes Draconian restrictions on trust beneficiaries and pension income.

Rest in Peace

Sir John Templeton lived and prospered in a time and in a freer America that allowed him to use his talents, not only for profits for the many, but for global philanthropy that benefitted untold thousands.

Truly sad that petty American politicians now punish such talented men and women instead of rewarding them.

Blacklisting Tax Havens

A "blacklist" is defined as a list of persons or entities to be shunned or banned because they are said to be under suspicion, disfavor or censure. Of course blacklisting is in the eye of the beholder, and one man's blacklist is another man's Honor Roll; some see groups as terrorists, while others see them as freedom fighters.

I was mildly surprised to learn that the first recorded use of this word denoting such odium dates way back to 1692, the same year of the Salem, Massachusetts, Witch Trials. In those quaint times what passed for due process meant that five women were burned at the stake for the offense of being witches.

Perhaps that’s why blacklists and witch hunts seems to operate in tandem.

In American history, one of the most famous examples of blacklisting stemmed from an investigation in 1947 by the U.S. House of Representatives Un-American Activities Committee (HUAC) into the Communist influence on the motion picture industry.

Some in the industry were blacklisted because of their refusal to provide evidence to HUAC, including a group known as the "Hollywood Ten," most of them screen writers who were members of the U.S. Communist Party, a Moscow-dominated group that advocated the forceful overthrow of the U.S. government.

Involved in this episode was an actor named Ronald Reagan, who later said he was not very concerned about Communism until he returned from the U.S. Army after World War II to resume his movie career and became head of the Screen Actors Guild. It was a time of bitter controversy about Communist blacklisting. Reagan, under threats against his life, assisted in exposing the Reds and gained a lifelong suspicion of the Evil Empire that one may suggest contributed to the eventual downfall of Communism.

Phony Blacklists Exposed

What got me to thinking about blacklists was an article by Dr. Marshall Langer, the distinguished senior offshore attorney and a retired member of the Sovereign Society Council of Experts. In the May issue of Offshore Investment magazine, Dr. Langer exposed the stupidity and political prejudice of tax collectors from various nations who have decided to blacklist -- of all things -- tax havens.

Dr. Langer points out that so blind and irrational has been the hatred of some national tax collectors that they even have issued official blacklists of non-existent places (the "Pacific Islands," "Damask" and "Patau") and one nation, Venezuela, even issued a blacklist with itself on the list.

Fortunately, the United States under the Bush administration has refused to go along with tax haven blacklists, but Senator Barack Obama, the likely Democratic presidential nominee, is the proud author of a Senate bill that would not only blacklist scores of countries (Switzerland, Panama, Monaco et al), but would curtail the rights of Americans freely to do business there.

Tax Competition Is Good

You would think that few sensible people would object to tax havens -- countries or other jurisdictions that impose no taxes or very low taxes on foreigners who do business there. After all, tax competition among nations helps keep taxes lower everywhere, provides jobs, cuts costs and increases profits form business and investment.

But "sensible" does not include the Organization for Economic Co-operation and Development (OECD), a cabal that has often played bully and villain in its ham handed attempts to crush tax havens and force a uniform system of high taxes worldwide. In pursuing its dictatorial goals the OECD is simply doing the bidding of its 30 member nations, many of which, like France and Germany, are high tax, socialist welfare states bent on ringing every last dollar, pound or euro out of domestic taxpayers in order to finance continuing deficits and statist economies.

And you guessed it -- the OECD publicity instrument of choice in this pro-high tax campaign has been the phony "harmful tax competition" blacklist.

In the twisted OECD view, if a country freely chooses to impose no taxes, that policy choice is "unfair" to high tax countries who choose to soak taxpayers for all they can get. The OECD has created this smokescreen because they know that sensible people take their business to where taxes are low or non-existence.

Dirty Money/Terrorism Ploys

To lend drama to their demands the OECD spun off a subgroup, the Financial Action Task Force (FATF). These worthies claim to be devoted to fighting money laundering, (and more recently, countering terrorism), but in fact their goal has been to destroy financial privacy. Both groups want unrestricted, automatic government access to any and all financial accounts anywhere in the world. Again, doing the work of their tax collecting masters.

The irony in all this is that the OECD is nothing more than a paper tiger based on agreement of its members. It's not a government or international agency, even in the sense that the United Nations has legal standing.

The OECD presumes to tell the people and governments how they should conduct themselves by, as they claim, "setting standards and creating values for the entire world." These folks think they set the "ground rules for good behavior by multi-national enterprises and corporate governance principles."(A lazy world media trumpets every OECD press release, unctuous documents that always hawk the liberal, elitist, pro-tax line).

A tall and very presumptuous order for the OECD's nearly 2000 bureaucrats, the salary of everyone of whom is tax exempt because of their coveted diplomatic status. Housed in a fine Parisian mansion with a wine cellar that once belonged to the Rothschild family, the Château de la Muette, the OECD's annual budget is over $300m (£200m), with U.S. taxpayers footing 25% of the total cost.

The Black Beast

At least for the time being, Americans still can and should avail themselves of their freedoms to bank and invest offshore.

In the meantime, I have an appropriate phrase to describe the OECD and the other blacklisters of tax havens -- the French bête noire, "the black beast," first used in French literature in 1844 and still applicable today.

It refers to someone or something unwanted or even hated, a pet peeve or strong annoyance -- like the OECD.

* While you still can, discover the legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash. Click here.

* If you're interested in Switzerland, click here for Swiss Money Secrets.

Does UBS Have the Guts to Fight?

A U.S. District Court judge in Miami, Florida has authorized the U.S. Internal Revenue Service to seek information from Switzerland's largest bank, UBS, concerning American taxpayers the IRS claims may have evaded income taxes.

The court order allows the IRS to serve a summons on UBS, which has extensive operations and thousands of employees in the United States, to obtain information on possible tax fraud by thousands of Americans whose identities the IRS claims are unknown to the tax collecting agency.

U.S. District judge Joan Lenard, (who badly needs an education in the Fourth Amendment), granted the so-called "John Doe" summons a day after the U.S. Justice Department made what it called an unprecedented request for the records, part of an IRS investigation into services provided to UBS American clients from 2000 to 2007.

The IRS demand is based on nothing more than the questionable testimony of a single ex-UBS banker and his U.S. client, both singing when faced with jail time for their tax evasion. On this slender basis, the privacy of a reported 20,000 UBS American clients is being destroyed.

More of the Same

This IRS scatter gun approach seeking thousands of names without showing any probable cause of tax evasion in individual cases is a repeat of the highly questionable use of the same IRS ploy in 2001. Then it was aimed at alleged tax fraud by Americans with credit or debit cards issued by offshore banks. As I have said before http://baumanblog.sovereignsociety.com/2008/07/irs-plays-hardb.html in that case the IRS managed to obtain tens of thousands of names of VISA and MasterCard and some from American Express, the only one of the card companies to oppose and limit the broad IRS demands.

End result: a paltry 1300 taxpayers paid $170 million in back taxes after the IRS claimed that tens of thousands of taxpayers owed billions.

Will UBS Fight

The big question now is whether UBS, the supposed giant of Swiss banking, will have the guts to take a strong stand based on the Swiss bank secrecy laws and fight for the principle of its clients' financial privacy.

That means the bank, already on shaky grounds financially because of billions in losses from its stupid sub-prime housing loan investments, must appeal the court order to block the production of the American names. Indeed, I think they should fight it right up to the U.S. Supreme Court, if necessary.

If UBS fails to defend its clients' privacy, as Swiss law certainly allows them to do, every UBS client who values their privacy immediately should transfer their accounts elsewhere. (We can recommend far more reliable Swiss or other banks).

Prior UBS Sellout

But don't bet on UBS standing up for privacy, if their past history is an example.

Disturbing to privacy seekers was (and is) a previous UBS surrender under pressure to demands of the U.S. Federal Reserve System. Official U.S. acceptance of the 1998 merger of Swiss Bank Corp. and Union Bank of Switzerland creating UBS AG was approved by the Federal Reserve only after UBS agreed to provide U.S. regulators all information "necessary to determine and enforce compliance with [U.S.] federal law." No doubt, that means U.S. tax laws too. Perhaps the IRS will call in that chit now.

U.S. regulators had threatened to shut down the bank's extensive U.S. operations (an unstated threat that still hangs over UBS now). Rather than defend their client’s privacy rights, the bank compromised. That is why we have always advised U.S. depositors considering Swiss banks to avoid UBS AG and any other Swiss bank with U.S. based branches, affiliates or banking operations, other than a mere "representative office."

Swiss Law Imposes Secrecy

Unless there is a strong suspicion of criminal wrongdoing, under Swiss law it is a crime for bankers to violate the secrecy of their clients. Swiss banks refuse to expose records to foreign tax authorities, unless a Swiss court order requires it. Until now in Switzerland the IRS has been up against the brick wall of statutory bank secrecy that can be pierced only by judicial decree in almost all cases.

In Switzerland bank secrecy is not just a right but also an obligation imposed on the banks and their employees to keep secret information relating to their customers.

Swiss banks are prohibited from responding to inquiries about an individual account, whether from attorneys, credit rating services or foreign governments. Under Swiss law banks must furnish information and testify before public authorities. But in instances involving criminal offenses under the laws of other countries (including tax and foreign currency crimes) that are not crimes under Swiss law, Swiss banks have no obligation to provide information or to testify.

In most cases, the Swiss government cannot obtain information about an account without a court order. To obtain an order, investigators must demonstrate the probable violation of Swiss law and that there is reason to believe the particular account at issue is involved in that violation. Non-payment of foreign taxes is not a crime in Switzerland, but "tax fraud" is, and no doubt the IRS hopes that is a rather elastic phrase.

A guarantee of bank secrecy was added to the Swiss Constitution in 2005 and a violation is punishable under Article 47 of the Banking Law, even after termination of an official or employment relationship and even after retirement from banking. The law imposes a fine of up to CHF50’000 (US$38,800) and six months in prison.

1934 Swiss Bank Secrecy Law as amended in 1971 - Whoever divulges information entrusted to him in his capacity as officer, commissioner of a bank, as a representative of the Banking Commission, officer or employee or as a recognized auditing company, or who has become aware of such information in this capacity, and whoever tries to induce others to violate professional secrecy, shall be punished by prison up to 6 months or by fine up to CHF 50’000. The violation of professional secrecy remains punishable even after termination of the official or employment relationship or the exercise of the profession. (Art. 47, Federal Law on Banks and Savings Banks).

Make the IRS Prove It

I'll repeat what I have said before -- if the DOJ and IRS have probable cause to believe any individual American has illegally avoided taxes, that person should be investigated and prosecuted if the evidence warrants it -- which is what they did in the instant case.

But the IRS has no right to assume that every American with a UBS bank account is ipso facto guilty of tax evasion, nor should they have the right to access the banking information of tens of thousands of innocent persons in a massive fishing expedition.

If a Bank of America banker and a BOA bank account holder both pleaded guilty to conspiring to engage in tax evasion, on that grounds should the IRS be given the names and information about millions of BOA bank account clients?

There is still a Fourth Amendment in the Bill of Rights prohibiting unreasonable searches, as tattered as it may be under the Bush regime, but that Amendment and Swiss banking secrecy law should be more than enough grounds for UBS and its lawyers to appeal this horrendous court ruling.

But don’t hold your breath.

* While you still can, discover the legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash. Click here.

* If you're interested in Switzerland, click here for Swiss Money Secrets.

Tax Tyranny Video

A new "Tax Tyranny" video highlights the harsh consequences of oppressive taxation. The video also presents a stark contrast between the low tax rates of the dynamic economy of the Republic of Ireland and the stifling high tax policies promoted by the European Union and the Organization for Economic & Community Development (OECD) in the phony name of "tax harmonization."

Gather friends and family and click below to play this impressive video: YouTube Link: http://www.youtube.com/watch?v=uz1KxEeUvak

It's Simple Economics, Stupid

If American workers understood that corporate taxes are a tax on the common man -- on them! -- wouldn't they clamor for a cut in corporate taxes?

But the little most Americans know about corporate taxes is the blather from U.S. politicians demagogically demanding more taxes on the rich and the big corporations, making those bloated bond holders pay through the nose -- especially those greedy oil companies.

U.S. Senator John McCain, the Republican who may be president of the United States within a matter of months, has had the singular courage to advocate a cut in U.S. corporate taxes to 25% from the current 40%, now one of the highest in the world.

American corporate taxes start at 35% and when you add state and local taxes, the overall rate is nearly 40%. In 2007, corporate taxes brought in $370 billion, representing 14% of federal revenue. Cutting the rate to 25% could cost the Treasury about $100 billion a year. Senator McCain wants to fill that hole in the budget by restraining spending.

Hurting the Average Guy

McCain makes the point that a corporate rate cut to 25% would help a lot of Americans, even though they might not know it. As pointed out in a New York Times article (June 1st) by N. Gregory Mankiw, a professor of economics at Harvard and former Bush advisor, "...the most basic lesson about corporate taxes is this: a corporation is not really taxpayer at all. It is more like a tax collector."

The professor points out that "the ultimate taxpayers of the corporate tax are those who have a stake in the companies on which that tax is levied. If you own corporate stock, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax." That description includes just about every living person in America. And he adds: "The high corporate tax leads to lower returns on capital, lower wages or higher prices — or a combination of all three."

In other words, the worst of all worlds for the consumer.

Rates Revolution

Britain and the United States launched the corporate tax cut revolution in the mid-1980s. Since then, every major nation has cut its corporate rate. In the European Union, the average corporate tax rate has fallen by 24% since 1996. Further cuts are in the pipeline in Britain, Germany, and other countries. Canada has announced a cut to its federal corporate rate from 22% to 15%. The United States is far behind with that combined federal/state rate of about 40%.

Corporate tax reform was a key part of President Reagan's tax cutting blitz. Following the Tax Reform Act of 1986, the base of the corporate income tax was broadened but the top rate was slashed by 12 percentage points, from 46% to 34%, the biggest cut since the tax was introduced in 1909. Thus began a trend of reducing the tax rate on companies that has spread across the globe.

Many other nations have cut corporate taxes, from Ireland (with a super low rate of 13%) to even Communist controlled China, (which recently cut their rate to 25%), and the result has been increased jobs and prosperity as business has expanded.

To see an excellent video explaining why corporate taxes should be cut, click here: http://www.freedomandprosperity.org/videos/corporatetax/corporatetax.shtml

Let’s Talk About Trusts

If you watch late night American TV you may encounter a local lawyer claiming that you’re in dire need of something you hadn’t even considered – a trust.

A trust is usually touted as the best way to protect your assets, cash and investments from claims and lawsuits – and indeed, America is one of the most law-suit happy nations in the world.

Stripped to bare bones, a trust is a three-way legal device, a contract of sorts, that allows one person (the trustee) to take title and possession of cash or property to be held, used, and/or managed for the benefit of one or more other persons (the beneficiaries). The person who creates the trust (the grantor) decides what it will do and donates property to fund it. A trust is created by the writing and signing of a trust declaration, usually as part of an overall estate plan. Setting up a trust requires expert advice and a careful review of existing arrangements that affect the grantor’s estate.

One special kind of trust that I often recommend, the offshore asset protection trust (APT), can place your wealth well beyond the easy reach of claimants, creditors, an irate ex-spouse and even the government of your home country. More about that in a moment.

What a Trust Can Do

Most offshore asset protection trusts are discretionary trusts, a form that allows lots of planning flexibility. “

Discretionary may mean the trustee is given power to decide how much will be distributed to beneficiaries and, in some cases, who qualifies as a beneficiary. A trustee often is given the authority to recognize beneficiaries in a class of persons, (“my children and their heirs”), or the trust may contain what is known as a “power of appointment” allowing the trustee to choose beneficiaries from a class of eligible persons. A trust may be created for any purpose that’s not illegal or against public policy.

A trust can own title to, and invest in, real estate, cash, stocks, bonds, negotiable instruments, and personal property. Trusts can provide care for minor children or 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.

Foreign Asset Protection Trust

One of the most popular asset-protection devices in trust form is the foreign asset protection trust (APT), a personal trust created and based in a foreign nation. This kind of APT shields your assets far better than any domestic trust, because it is located outside the United States or your home country. Distance makes the trust grow stronger. This trust shields business and personal assets against demanding creditors, litigation and other unpleasant financial liabilities in your home country.

The key to creating such a trust is simple: planning. The offshore APT must be planned and created long before you really need it, at a time of personal financial calm. As a last minute response to a sudden financial crisis, an APT will help very little. Belated attempts to create an offshore trust can lead to civil liability for concealing assets or fraud under the fraudulent conveyance laws. In litigation-crazed America, you shouldn’t wait for trouble before taking offshore precautionary measures. As a practical matter, placing title to property in the name of an offshore APT cannot really protect assets if they physically remain within an American court's jurisdiction.

Assets actually transferred to the APT's foreign jurisdiction, like funds moved to an offshore bank account, are usually safe from a U.S. creditor, even if he knows the account exists.

A few reasons why offshore APTs have proven to be so effective:

1) Start-Over: In many cases, the courts of foreign “asset haven” nations will not recognize the U.S. or other nations’ domestic court orders. A foreign judgment creditor seeking collection must re-litigate the original claim in the local asset haven's courts after hiring local lawyers. He may be required to post a bond and to pay legal expenses for all parties if he loses. The legal complexity and cost of such an international collection effort is likely to stop all but the most determined adversaries and promote quick settlement.

2) Minimal Requirements: An offshore APT does need not be complicated. Creation can be done with little more than the signing of formal documents and opening a trust account managed by your local trustee in a bank in the foreign country you choose. Respected offshore banks traditionally provide experienced trust officers to handle offshore trust matters. U.S. asset protection attorneys routinely work directly with such offshore banks and trust companies. Most international banks have U.S. dollar denominated accounts, often with better interest rates than American banks offer.

3) Greater Protection: Under the laws of asset haven nations, assets placed in an offshore asset protection trust have far more protection than under domestic U.S. trust law. The law in such countries provides an asset protection “safe harbor” that is unavailable in the U.S. and many other nations. With an offshore APT, foreign-held trust assets are not subject to the jurisdiction of your local or home country judicial system.

4) Fast Acting: The statute of limitations imposed on initiating a foreign creditor’s suit varies. In many asset haven nations, the statute begins to run from the date the APT is established. Some haven nations, such as the Cook Islands, have a limit of one year for initiation of claims. Others impose a claims filing limit for certain creditors of two years after APT formation. As a practical matter, it may take a creditor longer than that just to discover the existence of a foreign APT to which your assets have long since been transferred.

5) Confidentiality: The offshore APT can provide greater privacy and confidentiality, minimization of domestic, home country inheritance taxes, and avoidance of the probate process in case of death. It provides increased flexibility in conducting affairs in case of personal disability, allows easy transfer of asset titles, and avoids domestic currency controls in your home nation.

6) Estate Planning: An offshore APT can serve the same traditional estate planning goals achieved by domestic strategies. These include using bypass trust provisions to minimize estate taxes for a husband and wife, trusts that allow maximum use of gift tax exemptions through planned giving, and trusts that provide for maintenance and tax free income for a surviving spouse. An APT also avoids the problems, delays, and costs of the domestic probate process in the U.S. and other nations.

7) Profitable Investments: An offshore APT is an excellent platform from which to diversify investments and benefit from global tax savings. The APT permits access to some of the world's best investment opportunities, without concern for your home nation’s legal restrictions. Offshore foreign stock, bond, and mutual fund trading are not covered by laws such as the U.S. Securities and Exchange Act or its administrative arm, the SEC. An offshore APT can also purchase attractive life insurance and annuity products not available in the U.S. and other nations.

* If you want to know more about how an offshore APT can help you, click here: https://www.sovereignsociety.com/catalog/product_info.php?cPath=22&products_id=35

U.S. Social Security Facts

This week I am in Mexico at a conference dealing with possible offshore residence by Americans. Here, as in other such meetings, I often get the same question: if I live abroad, will I still be eligible to receive my U.S. Social Security or other federal benefits?

In the past, based on my research, I always have responded that, "Yes," SS benefits will be paid if you live offshore, although many Americans in this situation have their SS checks directed deposited to their U.S. bank account to avoid confusion.

It was therefore with surprise that I read an April 30 article in The Washington Times that seemed to claim that any SS payments to Americans outside the country were illegal.

The article cited reports by the Social Security inspector general and the Government  Accountability Office (GAO) that claimed millions of dollars had been wrongfully paid to otherwise eligible U.S. persons because they lived outside the country. The Times articles stated flatly: "The Social Security Administration is paying out more than $100 million a year to people getting benefits overseas despite rules that say recipients cannot live outside of the United States."

I checked with my good friend Vern Jacobs CPA, a distinguished guru about all things financial offshore, and Vern's research turned up a much different answer than did the lazy Times reporter. An official web site of the U.S. Social Security Administration states: "If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them." See http://www.socialsecurity.gov/pubs/10137.html

That Social Security web site goes on to explain that there are certain qualifications in indvidual cases that may alter the right to SS payments offshore, but it lists scores of countries where there are no restrictions on SS payments to Americans living there.

It pays to check all the facts before you go offshore, but this is one question that is settled in your favor.

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Avoidance Is Its Own Reward

The late, influential and decidedly liberal economist, John Maynard Keynes, (1883 - 1946), once sagely observed: "The avoidance of taxes is the only intellectual pursuit that carries any reward."

What a kidder that Keynes was. Surely he knew that many other intellectual pursuits, (reading, writing, philosophizing, dreaming about money or sex), also has intellectual rewards. 

It was certainly with the worthy goal of legal tax avoidance that this week Shire Pharmaceutical, a leading British drug firm, announced plans to relocate to Dublin for tax purposes.

Irish Tax Haven

Ireland is well known for having one of the lowest corporate tax rate (12.5%) among the 27 EU nations. (Only Cyprus is lower with a corporate tax of 10%). That Irish low tax compares with a hefty 28% tax in the U.K. But, according to reports, what bugs Shire and a host of other companies is Britain's policy on foreign dividend income. Many countries, including Switzerland and the Netherlands, have holding company tax regimes that enable firms to import dividends tax-free from foreign subsidiaries. Only profits earned within the country are taxed. Shire says it is moving not by a desire to avoid tax, but out of concern that Britain will tighten up rules further with anti-avoidance measures that will harm multinationals, such as Shire, that earn profits from a many overseas subsidiaries.

Other companies have already voted with their feet. Shire is the first FTSE 100 company to shift its domicile, but tax advisers say that a number of others are considering it. The big drug firm is following Experian to Ireland, and Yahoo and Kraft Foods recently moved their European headquarters from Britain to lower tax Switzerland.

The Labour government doesn't seem to realize that higher taxes on business and the rich are self-defeating, sending mobile taxpayers to greener low-tax pastures. Recent changes to the UK tax regime - including a £60,000 (US$30,000) annual tax for non domiciled foreign workers in the U.K. – and present discussions about the rules governing overseas corporate earnings, give British companies with big international operations major concern.

More Taxes to Come?

Is the Labour government going to make the UK tax environment even less attractive? Shire isn't waiting to find out. It's shifting domicile to Dublin, where the corporate tax regime is already more friendly. And a lot more stable.

PM Gordon Brown in 2006 said that the key to economic success in a globalizing world is not just stability in monetary and fiscal policy but also “stability through a stable and competitive tax regime”. Yet the UK tax regime has been anything but stable and increasingly less competitive.

For many business leaders, the recent changes to capital gains tax and the tax assault on non-dom workers was the last straw. They have lost confidence in Labour's commitment to stability and competitiveness. Companies and people indeed are voting with their feet. Goodbye U.K. Another good example of why tax competition among nations is a positive benefit for all.

* Find out why smart taxpayers are moving to Switzerland. Just published -- my latest book, Swiss Money Secrets, explores in detail Swiss bank secrecy, low taxes, possible residence for foreigners and current policies. For your copy, click here: LINK: http://www.web-purchases.com/190SSMON/E190J355/landing.html

To Die For: Estate Planning

Someone once observed: “Death is more universal than life; everyone dies but not everyone lives.”

Living a full life means different things to different people. But an important component of a successful life, for even the modestly wealthy, is to have a plan that controls what happens to that wealth when you “shuffle off this mortal coil,” as Shakespeare had Hamlet note.   

A senior U.S. Federal Reserve economist estimates that by 2050, the so-called U.S. “baby boom” generation will pass on to their heirs some $41 trillion in assets, the largest potential inter-generational wealth transfer in world history.

Forbes magazine estimates that in 2007 there are 482 billionaires in America. A record nine million U.S. households had a net worth of $1 million or more in 2006, an increase of 800,000 or 11 percent from 2005.

But in contrast to these impressive statistics, many wealthy people I meet seem unprepared in the proper ways and means of passing on their wealth to their natural heirs or chosen beneficiaries. Perhaps the prospect of acknowledging their mortality blocks needed action.

Classic Case

Jack Kent Cooke was a leading U.S. businessman who grew rich in life, but in death, created financial chaos. The Wall Street Journal reported that when "...he died of a heart attack in April 1997, the 84 year old Mr. Cooke...had amassed a $1.3 billion collection of media companies, sports teams and real estate. But he also left a convoluted will, amended eight times, that named seven executors..." Seven years later, after numerous lawsuits and $64 million in lawyers’ fees, the dust finally settled.

If ever there was another convincing case arguing for prior estate planning, the notorious Anna Nicole Smith's death and the poorly drafted "last will and testament" she left behind should be a clincher. It's a classical example why all of us should act now to avoid such a legal swamp.

A recent study looked at the attitudes and behavior of travelers from the top 5% of U.S. households with annual incomes of over $150,000. It lists the tastes and meticulous demands of the wealthy who seem to know exactly what they want when it comes to service and comfort. One wonders why some people of wealth are not so meticulous when it comes to their personal estate planning.

Good Reasons

There are many good reasons for paying close attention to estate planning. Reducing taxes is a major consideration.

The IRS's latest figures (2005) reveal that the top earning one percent of U.S. taxpayers earned 21.20% of the income, but they still are forced to pay 39.38% of the taxes collected. In other words, the rich paid almost double their share, based upon the income they earned

Both “rich” and the “middle class” Americans get socked with high taxes    taxes that may be lowered with smart estate planning. Indeed, one of the potentially highest taxes of all, the death tax, can be substantially cut with proper use of trusts and gifts during your lifetime.

And keep in mind the present U.S. estate taxes are in a political muddle, by law declining now, but possibly snapping back to the highest rates in 2010, especially if both a Democrat president and Congress are elected in 2008.

After 2011, the taxable estate tax minimum will drop down to US$1 million from the present $2 million exemption. And these days, individuals with an entire estate (including real property) worth US$1 million or more are fairly common. That's just one more reason to start planning your estate now.

Act Now

All of this calls for good estate planning advice and prompt action. You've worked hard all your life, why not devout similar energy to assuring your wishes are followed after you've gone?

At a minimum, for the protection of loved ones left behind by wealthy Americans, a will or other means of transferring property, (a trust, family foundation or jointly title property or financial accounts), is a must. (Kids, talk to your aging parents!)

Otherwise, assuming your business and other assets are worth more than US$2 million your family could be stuck with a considerable estate tax burden. In fact, they might be forced to hand over to the IRS 80 percent of your total estate just to pay income and estate taxes.

Offshore Protection

By all means, when you create your estate plan, consider an offshore component.

By taking some of your estates offshore, the offshore assets you leave your heirs enjoy far greater protection from domestic U.S. creditors and lawsuits. Importantly, those assets can remain highly confidential and can avoid the glare and hassle of the American probate process.

You also can pass title and wealth with offshore vehicles such as offshore annuities or life insurance, both of which can allow deferred taxes during your lifetime. An offshore asset protection trust (APT) is another device that both protects assets during life, and provides for heirs afterwards.
My guess is that with the sordid cast of characters surrounding Anna Nicole Smith’s infant daughter, Dannielynn, she may face the same sad fate of the “poor little rich girl,” the late Barbara Hutton.

Hutton inherited the Woolworth-E.F. Hutton millions at the age of 18. At an early age she lost her mother to suicide and her father to alcoholism. Raised by a governess, she married seven times and died a relative recluse, alone surrounded by what was left of her great wealth.

Moral of this story: money does not guarantee happiness, but a well drafted will and a sound estate plan at least guarantees that your heirs, not the IRS, will get their money without all the costly hassle.

Dumb American Taxes

The fact is that the United States government and the U.S. Congress stupidly imposes on corporations one of the highest taxes in the world -- 35% on corporate income, plus many other taxes.

And that badly hurts U.S. products and workers who must compete in an increasingly globalized economy where lower taxes are a major factor. And, oh yes, American consumers pay these taxes in increased prices for goods and services.

This week the U.S. Treasury Department released a report alleging that American-owned companies incorporated in offshore tax havens, including Bermuda and the Cayman Islands, are shifting “substantially all of their income out of the United States”. While this is legal under U.S. tax law, the report to Congress claimed that a dozen companies are using a technique known as "earnings stripping" to avoid or minimize taxes on their U.S. profits. The study looked at companies that have their headquarters in offshore tax havens, while also continuing to operate out of the United States.

No doubt the fact that the U.S. imposes one of the highest corporate taxes in the world, (second only to Japan among developed nations), is the cause of these tax saving offshore moves.

The Wall Street Journal reports that the Bush Administration will soon propose a cut in the U.S. corporate income tax, following House Democrat U.S. Rep. Charlie Rangel's proposal to cut the rate to 30.5% from 35%. It also cites a new study that makes clear that such a reduction would give a lift to the U.S. economy when it really needs it.

The study, from the National Bureau of Economic Research, looked at corporate taxes in 85 countries from 1996 to 2005. The study found that high corporate taxes have a significant negative effect on economic performance. High business taxes were found to reduce a nation's domestic capital investment, the amount of foreign investment into that country, and its overall growth in GDP.

The authors conclude that "corporate taxation reduces the return on capital and thus discourages investment" and "reduces the cash flow of the firm" in such a way as to reduce the after-tax capital available for reinvestment. The researchers also found that high corporate levies reduce entrepreneurship, which drives new industries and job growth.

Meanwhile, Democrat presidential hopefuls scream for more taxes on business while the U.S. is far behind the rest of the world in reducing corporate tax rates. One also might ask why it took seven years for the Bush corporate tax cut to surface.

* For more information about the need for corporate tax cuts, see the Center for Freedom and Prosperity video at: http://www.youtube.com/watch?v=%20QSB_-g-GQCA

U.K. Tax Haven Dead?

Yet another example of the beneficial impact of international tax competition may see a major shift of the wealthy from London to Switzerland and/or Monaco.

When the British Labour Party first won power in 1994 one of now Prime Minister Gordon Brown's pledges was to close the so-called "non-dom loophole" when Labour came to power.

The non-dom loophole refers to a provision in United Kingdom tax law that, until now, has made it a major tax haven, but with a different twist -- the U.K. gives major tax breaks to wealthy foreigners who actually make their home there. Under the law, anyone living in Britain and not born there simply can choose the non-domiciled tax status and thereby escape almost all income taxes. The tax break was originally formulated in 1799 to help British colonialists avoid tax on their overseas income.

That means scores of billionaires living there only pay tax on the relatively small amount of money they bring into the U.K. each year. They do not pay U.K. taxes on their much larger worldwide earnings. This has made London a tax haven for everyone from Russian oil tycoons to thousands of international investment and hedge fund bankers. The country now has 68 billionaires - three times as many as four years ago. Only three of its 10 richest people were born in Britain. A current estimate of 150,000 to 200,000 non-doms for 2007 is “entirely reasonable” says one expert.

Wealth Tax

But now the Labour Party, egged on by the so-called "Conservative" Party, is considering imposing an annual minimum tax on all foreigners in the U.K. who claim non-dom status -- a fee of £30,000 (US$62,000). Cato Institute tax expert Dan Mitchell suggests that higher U.K. taxes would result in a major shift of economic activity to Switzerland.

According to the The Times of London, lower tax  Switzerland would welcome the opportunity to make their system more attractive to the British financial services industry who well may want to move. The Labour proposal would exclude those who have lived in the U.K. for less than seven years. This is so a not to scare away the many hundreds of bright foreign bankers who come to the City for a few years and then go elsewhere. But experts says the new fee effectively raises the tax paid by a U.K. private equity or hedge fund manager on his investments from 10% to 18%.

The Labour Party pro-tax shift is attributed partly to embarrassments over millions in non-dom Labour political fund donations and the International Monetary Fund’s designation of London as a de facto tax haven.

But even talking tough on non-doms remains risky. Hedge fund managers have only to move to Zurich and the new tax may result in a big net loss to the Exchequer. “The Monaco property market is booming,” a leading real estate agent mused, referring to that tax haven for the wealthy. “These people already feel on safer ground there.”

Chinese Government Eyeing Offshore Tax Avoidance

Another example of healthy, global tax competition in action: the Communist Chinese government is reported to be examining the issue of offshore tax avoidance after new figures confirm once again that the bulk of investment by Chinese based companies is flowing to and from traditional low-tax or no tax offshore havens.

A crackdown on the offshore activities of Chinese companies may come after data released by the Chinese Ministry of Commerce showed that between January and May 2007, Hong Kong topped the sources of capital investment list, followed by the British Virgin Islands, Japan, South Korea, Singapore, the U.S.A., the Cayman Islands, Samoa, Taiwan and Mauritius. With the exception of Japan and South Korea, all of these countries are tax havens of some note. (The U.S. is a tax haven for foreign investors, but not U.S. citizens or residents). The report stated that the figures reflect the actual amount of foreign capital invested from the various jurisdictions, which accounts for 86.16% of China’s total foreign capital. Direct foreign inmvestment in China during 2006 exceeded US$60 billion.

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Under current law domestic Chinese firms pay a corporate tax at a rate of 33%, but foreign-owned firms can reduce their rate through various tax breaks down to as low as 13% in some cases and can also set up low tax operations in various Chinese Special Economic Zones. By "round tripping," in which Chinese citizens set up offshore international business companies in Hong Kong and elsewhere, domestic Chinese firms can use them as mainland investment vehicles in order to qualify for foreign rates of tax. This legal and low tax practice has inflated China's foreign direct investment figures for years.

As a first step towards the reform of its tax system, China will be introducing a sort of corporate "flat tax" rate of 25% on 1 January 2008 and this single rate will apply to both domestic firms and foreign-owned firms.