Protecting What’s Yours – A Look at Asset Protection and Taxation

“The secret to success is to own nothing, but control everything.”

~ Nelson Rockefeller

If you live in Europe, the United States, or Canada then the biggest threat to your wealth is right in front of your nose.

It’s a faceless man that comes around to your house every year, demanding 50% or more of your annual income. If you refuse to fork over the allotted sum by an arbitrary deadline date, then this faceless man will start to charge you exorbitant fees and penalties on your outstanding fees.

If you continue to ignore these increasingly aggressive demands for compensation, then he will call in some goons in blue outfits to take you from your home and lock you up in a tiny cell until you learn to get with the program and pay up. Failing that, they’ll just take the home itself and consider the transaction even.

I’m not describing some elaborately organized crime racket here; this is essentially how every federal and state taxation system works.

Forget Everything You Think You Know About Taxes

Now, proponents of the social safety net may claim that taxes are designed to redistribute wealth and provide for public services such as transport, education, and defense. But between layers of government red tape, systematic inefficiencies, powerful lobbyists, and corrupt officials how many of those tax dollars actually end up going towards infrastructure investments?

As the owner of multiple businesses, I can safely say that if I ever attempted to charge my clients half of all their earnings and failed to provide a detailed receipt for services rendered then I would have some sizeable lawsuits on my hands.

While many people may gripe about how much they’re paying out in taxes, few of these individuals actually take the time to consider whether there are any options available for protecting their earnings.

You know who doesn’t think like that? The ultra-rich. Interestingly enough, it isn’t the 9 to 5 wage earners or plucky small business owners that are trying to protect their assets from the tax agencies; it’s the multi-millionaires and billionaires.

Which begs the question; what do the elite know that the rest of us don’t? Well, if I were to wager a guess, I’d say they’ve realized that the modern tax system is irreparably broken and that anyone who actually attempts to play by the government’s rules is bound to lose out.

Let’s just take social security as an example. Now, this system ostensibly provides financial assistance and affordable healthcare for elderly citizens that are too old to earn a regular income on their own. Sounds great in theory, right?

Now, when this system was first set up in the United States the average life expectancy was around 61. At the time, the government set the minimum age for social security benefits at 65. In other words, most seniors passed away before even reaping the advantages of years of forced income deductions. Does that sound like a system that’s set up for the public good to you?

As populations have aged, countries like the US have increased initial age limits and slashed benefits payouts to ensure that they can cover an influx of new retirees. The result is that all those years of dutiful tax payments are now earning you far less than they would have a decade or two ago. In fact, you’d have been much better off simply parking the money in a conservative ETF.

I don’t know about you, but this whole scheme smells like a scam to me.

Of course, the indignities don’t stop at the grave. Let’s say you purchased a generous insurance policy and worked diligently to save up a sizeable inheritance to pass on to your nearest and dearest. Don’t expect the handover of wealth to go through without a hitch.

First, you might well have to deal with a lengthy probate process that will open all of your assets to the courts for valuation. All properties, monies, and intangible assets will then have to be proven against the terms of the last will and testament, a task that will involve substantial court fees and extensive legal discussions. All of that, just to get your assets to the ones you love.

While inheritances are generally not taxable under the terms of the law, any income earned off of these assets certainly are. So your family members will immediately have to account for the earnings generated off of your investment portfolio and bank accounts.

Enter Asset Protection

This is why asset protection is so important. Whether you’re talking about living trusts, offshore bank accounts, foreign-incorporated companies, or something as simple as a business insurance policy, if you can hand over the responsibility of your assets and liabilities to another entity while still retaining control of how funds are distributed, then you can significantly reduce your tax burden.

Now, it should be noted that these strategies come with a few caveats:

Legislations like the US FACTA (Foreign Account Tax Compliance Act) and European GACTA (Global Account Tax Compliance Act) require financial institutions across the world to reveal information on foreign account holders. Banks that fail to comply with these policies are faced with heavy sanctions that make it almost impossible for them to operate internationally. Policies like these have pretty much put numbered Swiss bank accounts and shadowy offshore structure companies out of business.

Just moving your assets overseas won’t save you from paying taxes. If you’re still spending the majority of your time in your home country then you’re still liable to pay taxes on any earnings within the country regardless of where the actual funds are situated. If you’re a US citizen then you’re liable for tax payment regardless of where you live.

Many of the smaller island-states that position themselves as tax-havens lack the financial, legal, or political structures to support complex foreign investments. If you’re setting up an offshore bank account, then make sure that your investments are placed in a stable location.

The IRS and other tax agencies recognize that individuals will attempt to move funds into offshore structures to escape taxation, and they have set up various traps to capture these assets as they enter or exit the country. These traps include income taxes on earnings from foreign investments, reporting of trust transactions, and taxation of distributions from foreign trusts. If you want to keep your wealth intact, you need to be aware of these traps and work around them.

So What's Next?

My advice is to start preparing yourself today. We all have a responsibility to do everything in our power to legally eliminate our tax bill and protect what’s ours with a sound business structure.

If you don’t know where to begin then pick up a copy of my brand new book on Amazon; it’s called Expat Secrets: How To Pay Zero Taxes, Live Overseas & Make Giant Piles Of Money.

Humble title I know…

You can grab a copy right now by clicking here

Ed. Note: Mikkel Thorup is the host of The Expat Money Show podcast and the author of #1 Best-Selling book Expat Secrets. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe and Iran.

His goal is to help people just like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again.

Editor's note: Clearly, there are many strange things afoot in the world. Distortions of markets, distortions of culture. It’s wise to wonder what’s going to happen, and to take advantage of growth while also being prepared for crisis. How will you protect yourself in the next crisis? See our PDF guide that will show you exactly how. Click here to download it now.

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