Tips for Managing Offshore Investments

When asked to share some important basics of managing investments in offshore trusts, Financial Advisor Richard Arnold responded with answers to a few frequently-asked-questions:

• The foreign bank is the custodian for the investments in the Asset Protection Trust, therefore it is important to choose a bank that is financially solid as the investments will be in excess of insurance on deposits. Financial information on the banks can usually be obtained and evaluated.
• Generally, foreign banks can buy any U.S. individual stock, ETF or mutual fund. They can also buy foreign stocks, bonds and mutual funds, but contrary to typical wealth management in the U.S., money managers are normally not used due to the volume of transactions. If the trust is using a U.S. Advisor, purchase recommendations are sent by the Advisor to the Trustee, who then instructs the bank to make the purchase.
• The custodian bank charges transaction fees to buy and sell securities, which are about 1.8% for both a purchase and a sale. If the bank is managing the assets, additional fees run about 1.1% to 1.3% depending on the size of the account. This fee can be avoided by using a U.S. Advisor whose fees generally range from 70 to 90 basis points depending on the size of the trust. Be sure to choose an advisor who is experienced with offshore trusts.
• IRS rules require the preparation of various forms and there have been recent changes to the reporting requirements. Consult a knowledgeable tax specialist to be sure you are complying. The tax requirements are not onerous, but of course must be complied with. We work with tax advisors who have experience in reporting offshore investments.

Ike Devji, Managing Investments Held in an Offshore Asset Protection Trust, Asset Protection Blog, Oct. 7, 2010 (quoting Richard L. Arnold).