So you have an offshore trust—now what?
At Grant Morris Dodds, we are certainly not experts on the banking system; nevertheless, here are my thoughts on offshore banking, investment, and currency exposure.
The US dollar is, as we know, the reserve currency of the world–for now. So it is probably in the best interest of most people in the world, except those who are hoping for economic collapse and anarchy, that the dollar remain viable and continue to be the reserve currency. Certainly our enemies, China, Russia, and certain Mid-East countries would welcome a dollar collapse, regardless of the impact on their citizens because it would give them an opportunity to attain ascendancy over the US and spread their power and influence to the detriment of American power. Thus, I don’t rule out the possibility of the collapse of the dollar as the world’s reserve.
The immediate fallout, I think, would be the collapse of other Western currencies. If the dollar fails, I think the Pound, the Euro, even the Canadian dollar, the currencies of Australia and New Zealand, would be in jeopardy as well, at least temporarily. So if you want to avoid the dollar, where do you go? Certainly you don’t want to in invested in rubles or the yuan. Too much risk of nationalization, devaluation, confiscation there as well, it would seem.
So I think it is hard to avoid the fallout which would result from a dollar collapse; but perhaps it can be mitigated.
With that said, there is a big difference between a collapse of the dollar and confiscation of accounts, as pointed out by the article. For more than 100 years now, the dollar has been the safe place to be, avoiding major devaluations (other than the natural erosion which occurs due to inflation). The Pound was the reserve currency in the 19th century, but it has steadily eroded, significantly in our lifetimes. I remember when I was young a pound was worth $5.00; now about $1.60.
It seems a bit trite and obvious, but I think the Swiss banks and the Swiss franc still bear consideration. Certainly the Swiss banks have lost some of their cachet as a result of US policies regarding disclosure, etc. But when you combine a Swiss franc based account with an offshore trust, you get asset protection and you are invested in a currency that, although not truly backed by gold, does seem to have a strong backing. I would never put all my eggs in one basket, but I think an offshore account with a Swiss franc-based investment with a Swiss bank would provide a lot of protection. The account itself is free from US seizure laws. Various federal agencies have tried in several high profile cases to pierce offshore trusts and the offshore trustees, being the ones we deal with in the Cook Islands, have remained steadfast in resisting US federal pressure and the funds have remained safe.
Second, you can place your funds with a Swiss bank that is a general partnership and not a corporation. The reason is obvious when you think about it: if organized as a corporation, the bank, if it fails, causes no problem for the owners because of limited liability for a corporation. However, if a bank is a general partnership, then the owners have personal liability, so there is less chance they will jeopardize their investment and their personal wealth (although, frankly, the owners will hold their partnership interests in such a way to minimize personal exposure I am sure). Nevertheless, in the 2008 financial crisis, I have found it said that only one Swiss bank required state intervention. The sanctity of its banking system is vital to the Swiss and I don’t think they will jeopardize that by allowing much chance for depositors funds to be at risk. Furthermore, if the funds are held as segregated from the bank itself by a trusteed relationship, then you get even more protection against loss due to bank failure. I think even with the Barings Bank failure of the 1990’s where Nick Leeson, a rogue trader, brought down a 300-year-old bank, the depositors came out fine.
Aside from the Swiss franc and Swiss banking system, despite the immediate fallout of a dollar collapse or devaluation, I think the Canadian dollar is a potential safe haven, and maybe the Australian dollar and the New Zealand dollar, all of which have shown great strength against the US dollar in recent years. So if an offshore trust were created, the investments could be diversified among various countries’ currencies. I think the Euro is dangerous and as vulnerable at any time as much as the US dollar, probably more.
We always talk about diversification and that is usually meaning among asset classes. But today, diversification should also look toward avoiding too much exposure to one country, one currency, etc. Thus, an offshore trust like one established in the Cook Islands, and then either creating a Nevis limited liability company so the US person can directly control the account, or without a Nevis LLC where the offshore trustee would control the account, and then diversifying accounts around the world, perhaps in a Swiss account, perhaps New Zealand, and maybe other places that some solid research would demonstrate to be comparatively safe, might be a strategy worth implementing. The offshore trust gives access to all these currencies, and to all these banking systems, as well as protection from US seizure, even to the extent of an income tax levy. The IRS has incredible enforcement and intimidation powers, but they can’t get to your offshore money, and if you do ever feel insecure with one country or one currency, a removal to another country/currency is a phone call away.