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The MOST - The Modular Offshore Structure: A Basic Tax-Neutral Offshore Asset Protection and Investment Structure

For persons who desire a basic tax-neutral offshore asset protection and investment vehicle, we have developed a very flexible, modular offshore asset protection structure. We have nicknamed it the MOST - the Modular Offshore Structure.  This structure is particularly well-suited to hold and protect cash, marketable securities, closely held business interests, receivables, and other personal property interests.  With additional planning, it is also possible to protect real property within this structure.

The MOST:

• Provides a high degree of asset protection, along with other significant advantages, including
  • the opportunity for truly diversified investing in global markets otherwise closed to U.S. investors;
  • facilitation of the transfer of wealth to other family members while avoiding the hazards and restrictions of other forms of co-ownership;
  • consolidation of management of family assets;
  • ease of liquidation;
  • restrictions on the access of non-family members (ex-spouses, etc.) to family assets;
  • investment flexibility without the restrictions placed on trustee-directed investments, such as prudent investor rules;
• Is income tax neutral, i.e., you will pay no more or no less tax than you would without the structure, and is intended to be fully disclosed to Internal Revenue Service, although it is designed to legally minimize required foreign entity information reporting;
• Can be designed to provide estate tax advantages in the same manner as a U.S. family limited partnership or family limited liability company (LLC)
• Contains significant disincentives for future creditors designed to discourage a creditor attack;
• Provides privacy, but does not rely on secrecy for its effectiveness;
• Is very flexible and is designed so that it is easy to add assets or additional asset protection modules (such as additional domestic or offshore LLCs, IBCs or trusts) to the structure;
• Is designed so that partial or total liquidation is quick and easy;
• Is easy to operate; and
• Can be formed and capitalized very quickly.

The lynchpin in the MOST is an offshore limited liability company (OLLC), most often formed in Nevis.  An foreign corporation, such as a British Virgin Islands International Business Company (IBC), is formed to serve as the manager of the OLLC.  Ownership of the management company is structured according to the client's individual needs.  Ideally, the management company shares will be held by a trust, either onshore or offshore, established by the client for other members of his family, or established, for example, by the client's parent for the benefit of the client and the client's family.  The proper use of a trust in this capacity (i.e., a true trust relationship between the trustee(s) and the beneficiaries, for the benefit of third-party beneficiaries, and not for the benefit of the settlor, with a trustee who has traditional trustee powers and duties) does not present the sorts of problems often raised by the use of offshore self-settled spendthrift asset protection trusts.

The legal costs associated with the MOST (LLC and IBC) generally range from $7,500 to $11,000, with filing fees, first-year registered agent fees, and other miscellaneous disbursements (i.e., third-party fees) generally totaling about $1,500.  Costs vary depending on the assets involved and the amount of time and expense necessary to transfer assets to the structure.

Having the IBC shares held by an onshore trust will increase costs slightly if new trust documents are required.  Having the IBC shares held by an offshore trust will increase initial costs by several thousand dollars, depending on the choice of jurisdiction, the structure of the trust and the choice of offshore trustee, and annual costs will be increased by a few thousand dollars, again depending on the factors listed above.

The MOST structure is very flexible.  Additional features may be added with relative ease to segregate and protect various classes of assets.  Additional LLC and management company business identity services (mail, phone, fax, and e-mail) can be provided for a small annual fee.

The MOST is entirely legal, and is designed to be fully disclosed to the IRS.  The MOST will generally be treated no differently than U.S. structures for tax purposes, although there may be foreign entity and/or foreign trust information reporting requirements (which for most clients are less onerous than often described).  While the MOST may open up tax-advantaged offshore investment opportunities for its owners, such as offshore variable life insurance and offshore variable annuities, there are no income tax advantages particular to it.  It is designed to provide simple pass-through taxation.