Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it and in this article I outline 10 ways to internationalize your assets to provide you with some much needed protection as the uncertain future unfolds.
The following article by Terry Coxon (caseyresearch.com) is presented in an edited ([ ]) and abridged (…) format to provide a fast & easy read.
Americans, by and large, run all their affairs within the confines of the U.S. [because] the U.S. economy is so large and so varied it is easy to assume that everything you want to do with your wealth can be done without crossing any borders People in the U.S….live with the habits and attitudes [they have] developed over generations…[as a result] of long experience with a government that was small and that generally practiced the rare virtue of following its own laws. In a happy exception to mankind’s experience with rulers, there was little to fear from it.
Stay at home is still the norm for Americans, but it’s a norm that is slowly fading [because]:
- every billion-dollar tick of the government debt clock,
- every expansion of the government’s regulatory apparatus,
- every overreaching judicial decision made in the name of a compelling public need,
- every inversion of protection for citizens into license for the state and
- every intellectually tortured discovery of a new meaning in the Constitution’s 4,400 old words
leaves a few thousand more people wondering how prudent it is to consign all their eggs to a single national basket.
Encounters with high-handed IRS agents and eager TSA gropers do nothing to ease that concern and for those who listen thoughtfully, the messages from our designated leaders and their would-be replacements only hurry the dawning sense of unease.
Specific worries include:
- exposure to predatory lawsuits, especially claims that could draw extra go-power by association with politically favored causes or legally favored groups;
- fear of where income tax rates might climb;
- the prospect of losing a family business in a regulatory battle or simply through estate tax;
- the fragility of financial institutions that have operated for forty years with the assurance that the Federal Reserve would rescue them from any folly;
- the possibility that a government desperate to protect the dollar from collapse might impose foreign exchange controls or capital controls;
- the memory and precedent of the forced gold sales of 1933 and
- the thought that a government floundering in deficits might start pilfering from IRAs and other pension plans,
but beyond the above specific worries, and perhaps more important than any of them, is the sense that from here on, anything goes.
The politicians will do whatever they find convenient, because there is no longer anything to stop them – not an electorate that is jealous of its freedoms and certainly not the Constitution, which is now just a playhouse for judicial imagineering. No one can know what’s coming next from the government and the financial system it has fostered, but for many of us there is an awful suspicion that we are not going to like it.
Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it…[They] want:
- to end their absolute dependence on what happens in the U.S.,
- to prepare for whatever is coming down the road, even though they don’t know what it will be and
- to be as ready as possible, even though their worries can only guess at what’s ahead.
Internationalizing your financial life means dealing with the unfamiliar…so it is best to start with the simplest measures, even if by themselves they don’t give you all the safety you’re looking for. Even from a simple beginning, what you learn with each step will make the next step easier to plan. Start with the first rung on the ladder of internationalization then climb [rung by rung] at your own speed to reach the right level of protection [you deem sufficient given your circumstances.
Below are suggestions as to what a number of those rungs would entail.]
Rung 1: Coins in Your Pocket
Gold coins that you’ve stored personally give you something whose value doesn’t depend on the health of the U.S. economy, doesn’t depend on any financial institution in the U.S. and doesn’t depend on any U.S. government policy. Gold coins are portable and hold their value no matter where in the world you might take them…
It’s best to buy the coins for cash, for maximum privacy and there is a good reason to favor one-tenth-ounce gold Eagles. Gold coins mean readiness for troubled times; if you ever need to dispose of the gold in an informal market, it will be easier to do so with small-denomination coins that are widely recognizable and whose value matches the scale on which large numbers of people normally trade.
The premium on one-tenth-ounce coins (the price compared with the value of the gold content) is higher than on the larger coins – usually about 15% for the small coins vs. 5% for one-ounce Eagles – but the premium isn’t a dead cost, like a commission or bid-ask spread. The premium is a second investment; it’s what you pay for the packaging, and you can expect to recover it when you sell or trade…
Rung 2: A Foreign Bank Account
On its own initiative, the IRS can freeze any bank account in the U.S. without warning. The action might arise from mistaken identity, from an erroneous filing by some other taxpayer, from your failure to respond to an IRS notice in time or even from a postal error – and that’s what can happen without malice. Other government agencies have similar powers to act on their own, without giving you an opportunity to object in court…In principle, there are legal avenues for undoing a freeze or a seizure but you’d need a lawyer, and being suddenly penniless could get in the way of hiring one.
A foreign bank account protects you from being trapped in such a nightmare. The U.S. government can get to your foreign bank account eventually, because it can get to you but a lightning seizure is very unlikely because it would require a foreign government to override its own legal processes, which it generally wouldn’t be willing to do except in a grave emergency so, if your liquid assets at home were frozen, you would have cash outside the U.S. to fund the legal cost of untangling the problem.
A foreign bank account is also a way to step back from the uncertainties of the U.S. dollar, since the account could [and in some cases must] be denominated in [the local] currency.
The U.S. government has seen to it that Americans are no longer welcome customers at foreign banks so forget about opening a Swiss bank account in your own name. However, if you apply in person (not by mail), you still can open a bank account in Canada. Be prepared to show your passport and to give the bank an original utility bill that confirms your place of residence.
Rung 3: Gold Abroad
The forced gold sales of 1933 were the work of an executive order signed by President Roosevelt. The purported legal basis for the order was the Trading With The Enemy Act, a legislative artifact of World War I. I have yet to find an explanation of how the authority for an order requiring Americans to sell their gold to the government at the government’s official price of $20 per ounce could be found in the Trading With The Enemy Act, but the fact that the enemy in question had gone out of business 15 years earlier didn’t seem to interfere with the legal logic.
The forced sale was a prelude to an increase in the official gold price to $35. The government’s reason for wanting that price rise was to gain leeway for a substantial, though limited, inflation of the dollar while keeping the dollar on the international gold standard. The forced sale was a way for the government, which operated in a political environment that still disfavored deficit spending, to capture the profit from the price rise. That profit would be a kitty for more spending without more borrowing.
Today there is no gold standard for the government to stay on and deficit spending isn’t something politicians especially want to avoid – they’ve promoted it as a civic duty, to stimulate the economy – so the depression-era motives for a gold grab don’t seem to apply. [That being said] you can’t listen to a conversation between two gold investors without hearing the seizure topic coming up…[and] there are two potential motives for the government to again treat gold differently from everything else:
- If the dollar’s slide in foreign exchange markets threatens to turn into a panic, the government might want to use gold sales to foreigners to mop up foreign-held dollars – in which case it might see a need to mop up the gold owned by its own citizens.
- At a visceral level, people who have centered their lives on government just don’t like gold. It’s an affront to the government’s authority to command and control and an insult to government’s supposed aptitude for solving economic problems…From their point of view every [troy] ounce purchased by an American is another tomato hurled at the political class and, [because] the purchasers still constitute a tiny minority of the voting population, what could be more satisfying and convenient for the politicians than to kick sand in the face of gold investors for being such lousy citizens?
- a prohibition on gold ownership coupled with a prohibition on sales of gold to foreigners – leaving only…the government left to buy, and being the only bidder, it would be a very low bidder,
- a commandeering of privately owned gold, with token compensation,
- a super tax, say 90%, on gold profits, which would get the job done slowly or quickly if it were accompanied by a mark-to-market rule,
- or it could be something none of us has thought of yet.
Not only can’t we know the shape of a future gold grab, we can’t know whether or how the rules would touch foreign-held gold. Owners of gold stored outside the U.S. would be a minority of a minority. Their gold wouldn’t be the low-hanging fruit – it would be higher up in the tree and more trouble to get to. That’s why, in a casino sense, gold overseas is a different bet and a better bet than gold at home…
Rung 4: A Swiss Annuity
A conventional annuity contract is a device for accumulating investment returns and eventually converting the value into a lifetime income. The investment return on an annuity from a U.S. insurance company is tax deferred until it is paid out to you. If you buy an annuity from a foreign company, tax deferral is available only if the annuity’s value is tied to the performance of a pool of investments (a variable annuity). Swiss annuities have long held a special place in personal financial planning…
Rung 5: Foreign Real Estate
Owning real estate in another country gives you a suite of protections that distinguishes it from other steps toward internationalization:
- the property’s value will depend on economic conditions in the country you’ve chosen, not on what happens in the US. If the economy of the foreign country grows and prospers, there is likely to be a spillover effect on the market value of your house, apartment, farm or patch of land – regardless of what is going on in the U.S.
- a foreign real estate investment would be hard to digest for any future capital controls imposed by the U.S. New rules could compel you to repatriate the cash you have in a foreign bank; rules forcing you to liquidate your foreign real estate and bring the money home would be another matter. Selling real estate isn’t quick or easy. How does the government compel an unwilling citizen to do what an eager seller often finds difficult to accomplish?
- as a potential prize for a lawsuit attacker, foreign real estate is a stinker. If you lose a judgment, foreclosing on your foreign property would be difficult to impossible, since it would require the cooperation of the courts in the foreign country, about whose rules and procedures the attacker’s attorney probably knows nothing…Even if he persuades a court in the U.S. to order you to sell the property, the inherent illiquidity of real estate would give you plenty of opportunities for foot-dragging.
Where to buy? The whole world is open to you… which can be a problem. So many possibilities and no obvious place to start. One approach is to think about where you’ve been that you’d like to visit again or about some place you’ve long wanted to see. Plan to spend a few weeks there. Minimize your hotel hours, to maximize your exposure to the rest of the locale. Try to meet Americans, perhaps expatriates, who know their way around the place and who can point you toward a real estate broker who won’t try to treat you as an out-of-town sucker. [Mexico has many locales with large numbers of expats (Canadian, American, European). Read “Top 10 Places to Live and Retire in Mexico” for an insight into the best places to consider there.]
Buying foreign real estate isn’t for everyone. It requires a big investment in time and effort, but it could repay you with an asset that is low on the list of things anyone might try to take from you.
Rung 6: A Foreign LLC for Investments
A limited liability company organized under the laws of a foreign country is easy to set up and not too expensive. To bring the company into existence, you (or a service you hire) would file a simple form with a government office in the country you’ve chosen and pay a small fee. Then you, as the LLC’s Manager and you as the LLC’s owner, would enter into an agreement (the “operating agreement”) that would be the company’s governing instrument.
As the LLC’s Manager, you would open a non-US bank account or brokerage account in the name of the LLC and transfer your personal cash and investments to that account. Again as Manager, you would make all the investment decisions.
For an American, a foreign LLC can be a powerful door-opener. It is welcome at many banks and brokerage firms where you personally would be turned away. This enables you to keep a wider range of assets outside the U.S., which puts more wealth beyond the reach of any arbitrary bureaucratic action. It also gives you investment choices that aren’t available at home.
Access to foreign investments and overseas financial services is reason enough to consider using a foreign limited liability company but it can do much more for you, although at the cost of some complexity.
Notice the fundamental difference between a foreign LLC and what is going on at the first four rungs of the ladder of internationalization. With the LLC, you no longer personally own the assets you are trying to protect; the company owns them. This makes the LLC a powerful device for reducing your family’s expose to gift and estate taxes and with the right provisions in the operating agreement, it can provide strong protection against loss to any malicious lawsuit.
If you are the sole owner of a foreign LLC intended for holding investments, you can and almost certainly should file an election for the LLC to be treated as a disregarded entity (indistinguishable from you for income tax purposes). If your spouse or anyone else is going to share in ownership of the LLC, the company can, and should, elect to be treated as a partnership for income tax purposes.
Rung 7: A Foreign LLC for Business
A business that operates outside the U.S. does even more than a portfolio of foreign investments to give you the benefits of internationalization.
By its nature, a foreign business lives in a different environment than a business in the U.S. Economic troubles at home might not touch it. If it’s a business that depends on your personal efforts, it’s even less attractive as a lawsuit prize than foreign real estate. Being foreign, it would be outside the range of capital controls in the U.S. And many of the financial institutions that might turn away an investment-owning LLC because it is owned by an American will welcome an LLC that makes or sells goods or services.
If you already have a business in the U.S. that has foreign customers or foreign suppliers, you may be able to relocate the business’s non-U.S. activities to a foreign LLC. Internet-based businesses are especially amenable to internationalization.
Locating your business in a low-tax or no-tax jurisdiction, if it is practical to do so, can reduce your overall tax burden. In many cases, a foreign LLC that operates a business should elect to be treated as a foreign corporation for US income tax purposes. That can allow the business to reinvest its earnings while it pays little in current taxes and you personally pay nothing.
Rung 8: Establish An International Trust
Establishing a trust outside the U.S. is the strongest internationalization step you can take for yourself and your family. Doing so costs more than any other measure, but the costs needn’t be prohibitive if your goal is to move $500,000 or more into the safest structure possible. What you achieve is a very high level of protection from aggressive lawsuits, from potential capital controls and from the possibility of a gold seizure. The trust also puts your wealth in a far better environment for income tax planning and for estate planning.
To serve the purposes of protection and tax savings, an international trust is irrevocable (you can’t simply call the institution you’ve chosen as trustee and say you’ve changed your mind) and discretionary (meaning that the trustee has a responsibility to decide when to send a check to you or to any of the other beneficiaries you’ve included). Putting assets under the control of a trust company under such an arrangement is a big step. You’re not going to do it unless you’ve done the homework needed to understand how and why you can count on the trustee to handle the assets in the way you intend.
Getting the protection and tax savings of an international trust doesn’t require you to give up management control of the assets. The trust can be limited to owning just one thing – an LLC that you manage. The LLC owns all the investments, under your supervision as LLC Manager.
If you establish an international trust, it will be tied to you for income tax purposes but at the end of your lifetime, it will completely disconnect from the U.S. tax system. At that point, for the benefit of your survivors, it becomes…
Rung 9: Have Someone Else Established An International Trust For You
Being a beneficiary of an international trust established by someone other than a living U.S. person is as good as it gets. It’s not linked to you by any transfers you’ve made to it, and you don’t have a determinable percentage interest in it (since it’s a discretionary trust) so, until you actually receive a distribution, there is nothing for you to report, nothing for you to pay tax on and nothing a potential lawsuit creditor can hope to take from you. Having no living connection to the U.S., the trust is far beyond the orbit of any conceivable US gold seizure or currency controls.
One Toe over the Line
It’s a long way from walking into the local coin shop and buying a few one-tenth-ounce gold Eagles to setting up a trust in a foreign country but the distance isn’t nearly as great as you might imagine, and it will get shorter both in fact and in apprehension with each step you take.
As you move up the ladder, you’ll learn about the reporting requirements for US taxpayers. Rung 1 (gold coins in your pocket) entails no reporting, nor does Rung 8 until you actually receive a distribution. Rung 5 (foreign real estate) also is free of reporting requirements, at least for now. Under rules in effect now, or soon to come, everything else covered in this article entails filing a form with the U.S. government. The most reliable way to make sure that you stay within the rules, so that internationalization adds to your safety and not to your problems, is to let your accountant know what you are doing. Keep him informed, so that he can see to it that all the reporting requirements are satisfied.
The original article, written by Terry Coxon (CaseyResearch.com) has been edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide you with a fast and easy read. “Follow the munKNEE” on Facebook, on Twitter or via our FREE bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)
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