Apostille: Apostille is the certification of legal documents created in one country to be used as valid legal documents in another country, in effect "authenticating" or "legalizing" the documents. The process involves various official seals being placed on the documents by appropriate officials in the foreign country. Obtaining a special apostille certificate is generally all that is required if your document is intended for use in a country which is a party to the Hague Legalization Convention treaty.
Bank Jurisdiction: The country in which the bank used by an IBC, FLLC OAPT or PPLI is located.
Bankruptcy Act: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“Reform Act”). The Reform Act creates a new system that increases the proof necessary to qualify for filing for bankruptcy.
Belize: Belize is the only official English-speaking country in Central America, and it has one of the most modern and flexible trust legislation in the world. A high level of asset protection is achieved since a Belizean court cannot recognize foreign claims against trust property, or the order of a foreign (a U.S. court is Foreign in Belize) court in respect of divorce or claims by creditors. This protection insulates a trust’s assets from seizure, notwithstanding United States law relating to fraudulent transfers, Bankruptcy and the Reciprocal Enforcement of Judgments Act which could ordinarily be used to reach such assets.
Certificate of Filing: It is an official document. For instance Form LLC-1 is filed to memorialize the creation of a Domestic Limited Liability Company. Form LP-1 is filed to memorialize the creation of a Family Limited Partnership. The certificate is filed in the Office of the Secretary of State of the appropriate state.
Charging Order: State legislatures allow creditors a limited form of relief against Limited Liability Companies (LLC) through “Charging Orders”.
A Charging Order does not let the creditor become a Member of an LLC, it only allows him to receive his proportionate share of the entity’s distributions (assets) when they’re distributed, if they are distributed
Collapsing Bridge: A Collapsing Bridge Trust is usually a Domestic Limited Liability Company (LLC) which is 100 percent owned by an Offshore Trust.
The LLC’s Manager has total control of its assets, until a lawsuit arises. When a lawsuit arises, the trustee who controls the OAPT votes his 100 percent interest to dissolve the LLC, and 100 percent of the LLC's assets are transferred offshore to the OAPT. The connection between the LLC and the OAPT is dissolved; the “bridge” between the two entities collapses, and the LLC is dissolved. The Collapsing Bridge structure is appropriate for Americans who have concerns placing assets outside the United States and/or who want to maintain maximum control over their assets until a creditor or lawsuit looms.
Controlled Foreign Corporations (CFC): The U.S. tax and reporting obligations associated with a foreign corporation apply, if the IBC has a certain percentage of actual or deemed owners that are “United States person.”
A CFC is a corporation where one or more U.S. shareholders own, during the taxable year, more than 50% of (1) the total combined voting power of all classes of stock of such IBC entitled to vote or (2) the total value of the stock of the IBC.
A U.S. Shareholder is a U.S. citizen who owns stock directly, indirectly, or constructively. This means you are the owner if (i) you own the IBC directly (legal ownership) or (ii) indirectly (the IBC is in someone else’s name but you “somehow” can at your option obtain that ownership).
Direct and indirect shareholders of a CFC must include in their income their share of the CFC’s “subpart F” income, which includes passive income such as dividends, interest, royalties, rents and annuities, as well as any increased investment in U.S. property.
You must report the income whether you repatriate it or leave it in the corporation's foreign bank account. Any machinations done in an attempt to hide the true person who owns the IBC is unlawful.
Cook Islands: The Cook Islands are an English-speaking self-governing parliamentary democracy located about halfway between Hawaii and New Zealand in the Pacific Ocean, and one of the most commonly-used jurisdictions for Offshore Trusts. The Cook Island’s laws favor asset protection for trusts.
Court and Control Test: A trust that is setup in a foreign country is not necessarily foreign for U.S. tax purposes. A trust set up in the U.S. is not necessarily domestic for U.S. tax purposes. In order for a foreign trust to be considered a U.S. trust for IRS purposes, and therefore not have to file forms with the IRS, (see Forms 3520 and 3520-A) the trust must pass both of the following tests:
- • Court Test: A court within the U.S. must be able to exercise primary supervision over the trust’s administration, and
- • Control Test: One or more U.S. persons must have the authority to control all substantial decisions of the trust.
Custodial Trustee: Subservient Offshore Trustee for purposes of Trustee power and the Court and Control IRS test.
Date of Transfer: The date of asset “transfer” is the date an LLC is funded and its Membership Interests are placed an the Offshore Trusts possession, not the date a Foreign trustee votes to liquidate the LLC. With an LLC, when creditors do arise, you don’t make an asset transfer, you do not make a Fraudulent transfer, the Foreign Trustee makes the transfer under his responsibility to preserve the trust’s assets.
Domestic Family Limited Partnership (FLP): Refers to a domestic limited partnership formed to hold family business assets or investments. FLPs serve as asset protection vehicles, mainly because partnership interests are subject to Charging-Order-only remedy protection in many states. FLPs can be very powerful estate planning and asset protection planning tools.
Domestic Protector: Same as a Protector.
Domestic Trustee: A Domestic Trustee is subject to the power of the U.S. courts. A Foreign Trustee is not subject to a U.S. court.
Due Diligence: Due diligence is a concept involving either an investigation of a business or person, or the performance of an act with a certain standard of care. Banks around the world, prodded by FATF and OECD and the interests of the governments forming these international groups, are increasingly pressing for more controls and procedures so banks know the customers with whom they are dealing. Adequate due diligence is key to gaining that customer knowledge. Without this, banks are concerned they will become subject to reputational, operational, and legal risks.
Event of Duress: means the service of communication by a court under which a person seeks relief for himself by means of:
- • assertion of a claim adverse to the Trustee over Trust property
- • an order to a Trustee in contravention of the Trust;
- • a request for information concerning Trust property with a view to asserting a claim adverse to the exercise of the powers of the Trustees;
- • the placing of limitations on the Trustees other than in accordance with the Trust;
- • the threat of or the actual compulsion of the Trustees to sell, transfer or otherwise dispose of assets in a manner inconsistent with the terms and provisions of the Agreement.
The Trustee will not comply with a request from the person who set the trust up if that request is made under duress.
FAPT or OAPT: Foreign Asset Protection Trust: Same as Offshore Asset Protection Trust (OAPT).
Foreign Domicile: A home in a country or jurisdiction outside the U.S.
Foreign Protector: A Foreign Protector has all the functions and powers of the U.S. Protector, however, being foreign he or she is not subject to the jurisdiction of the U.S. court system.
Foreign Trustee: This is a person or company licensed by their country where they reside to carry on a trust business. A Foreign Trustee differs from a Foreign Protector. A Trustee can make decisions and undertake a course of action. A Protector cannot undertake a trust action. A Protector can only negate an action a Trustee wishes to undertake.
General Partner: A partner of an FLP with unlimited legal responsibility for the debts and liabilities of the partnership, and whose actions can legally bind the entire business.
Hague Legalization Convention: Refers to the Special Commission of the Hague Conference on Private International Law. The Special Commission formalized the requirements for an Apostille. An “apostille” is a certificate issued by a designated authority in a country where a treaty called the Hague Convention Abolishing the Requirement for Legalization of Foreign Public Documents applies.
Fraudulent Transfer: A person who sets up a trust in such a manner as to “hinder, delay or defraud” his creditor’s ability to collect is guilty of an improper and fraudulent transfer.
In an Offshore jurisdiction that does not recognize U.S. judgments. Before the trust can normally be sued, a creditor must show that there also was an improper transfer to the OAPT under the Offshore jurisdictions law. Unlike in the U.S. the standards for so proving are different and difficult. In several jurisdictions, a creditor claiming a fraudulent transfer must show:
- 1. The property was transferred with the "principal intent to defraud"
- 2. The transfer rendered the transferor insolvent without assets to satisfy the claim and
- 3. The creditor’s allegation of fraudulent transfer need be proven "beyond a reasonable doubt".
International (Offshore) Asset Protection Trust (OAPT): A non-U.S. trust which provides for funds to be held and distributed on a discretionary (not mandatory) basis. It affords more financial privacy than a domestic trust. One of it's purposes is to protect assets by placing them under the laws of a jurisdiction (a country) that is unfavorable to the claims of creditors.
An OAPT can provide unparalleled asset protection. OAPTs exist because of the demand to shelter wealth from perceived threats arising from the U.S. contingency legal system that targets the wealthy.
International Business Corporation (IBC): IBCs are corporations incorporated outside of their country of residence. They conduct international business and investment activity. IBCs are recognized and permitted by law in every country.
The rules which govern the operation and management of an IBC are similar, but not as strict as those that govern U.S. corporations. IBCs are also known as Offshore or Foreign corporations.
International Business Corporation Jurisdiction: The country in which the IBC is set up.
International Trustee: Generally a company, licensed to do trust business by the jurisdiction (the country) in which it is located.
Irrevocable Trust: An arrangement in which the person who sets up the trust relinquishes ownership and control of the trust property. The trust then stands as a taxable entity and pays tax on its income. If the person who sets the trust up can receive, at his command, the return of all or some part of the assets transferred, the trust is Revocable.
IRS Form 3520 - Foreign Trusts: Titled “U.S. Informational Return – Creation of or Transfers To Certain Foreign Trusts”. Information reported on this form includes: the names, addresses, and taxpayer identification numbers of the foreign trust, the fiduciary, the beneficiaries and their percentage interest, the amount of cash and value of other property transferred to the foreign trust, and the location of the foreign trust’s books and records. This form must be filed as an attachment to the grantor’s income tax return no later than the due date of the return for the taxable year of the transfer, along with a copy to the Philadelphia IRS Service by the same date.
IRS Form 3520-A - “Annual Return of Foreign Trust with U.S. Beneficiary(s)”. Under IRC Section 679, the U.S. Settlor that is subject to income tax will be responsible for failure to file or comply with the annual return requirements.
Judicial Order: A Judicial Order is the court’s “command” in a judge’s decision. This command may be an award for damages or the liquidation of a business.
Letter of Wishes: It is useful in a discretionary powers. The letter sets out the manner in which the settlor wishes the trustees to exercise their powers and discretions, but is not binding on the trustees.
Limited Liability Company (LLC): A legal form of business company offering limited liability to its owners. Similar in structure to a corporation but with more flexiblity. An LLC with one member may be treated as a disregarded (for tax purposes) entity. An LLC with multiple members may choose to be treated for federal tax purposes as a partnership. An LLC can elect to be either "member managed" or outside "manager managed".
Limited Partner: A limited partner is a partner who has a limited liability to the partnership's creditors. The limited partner is liable only to the extent of the amount of money he invested, and is generally not liable for the debts of the Partnership.
Low Profiler: The “Low Profiler” Trust is an IAPT set up to take advantage of the benefits of being international, and yet is exempt from IRS reporting requirements. The “Low Profiler” is most useful for those who:
- • Do not want to spend the time and money involved in filing IRS reports.
- • Are concerned that filing will raise their IRS profile.
- • Fear that creditors will obtain their filing.
- • Want no trace of their IAPT to be publicly available until after they are in litigation and only then, if and when the U.S. trustees are removed, does the trust turn foreign for IRS reporting purposes and only then does it need to begin to file the 3520s and 3520-As.
LP-1: See Certificate of Filing.
Managing Trustee: To draft a Low Profiler Trust, you need to set up an OAFP that has both a Domestic Trustee, a Domestic Protector, and a Foreign Trustee. The foreign trustee is assigned “custodial” tasks and the U.S, trustee is designated the “Managing Trustee” for the OAPT.
Nominee Shareholder: A company or person who appears as the registered shareholder in a company but who holds the shares on behalf of another person, normally undisclosed, who is called the beneficial owner. A nominee shareholder is a person, unrelated to the actual owner. The purpose of a nominee shareholder is to shield the real owner of the IBC from being publicly associated with ownership of that IBC.
Protector: The Protector oversees the Trustee. The Trustee may consult with the Protector when administering the Trust. The Protector has the power to negate actions the Trustee may want to pursue. The Protector can be foreign or U.S., and can be authorized to remove and appoint a new trustee. This power usually “persuades” the Trustee to act in accordance with the current Letter of Wishes.
Reciprocal Enforcement of Judgments Act: An Act to facilitate the Reciprocal Enforcement of Judgments and Awards between countries. If Country A enforces judgments and respects the courts of Country B, then Country B will reciprocate.
Registered Agent: OAPTs, LLCs and other entities are set up to help protect assets from liabilities. These structures are formed by an official state (or country) filing. There are several legal and tax documents that the entity will receive each year from the state (or country). Most jurisdictions require the entity to designate and maintain a Registered Agent to receive and forward such documents on behalf of the entity. The Registered Agent must reside within that state (or country), hence they are referred to as "Resident" Agent. Your entity’s Registered Agent is required to be available at all times during normal business hours to receive documents and tax notices and service of process from any legal proceedings. Failure to maintain a Registered Agent can result in loss of the entity’s status.
Treasury Regulation §301.7701-7: Treasury Regulations, commonly referred to as Treas. Regs., pick up where the Internal Revenue Code (IRC) leaves off by providing the official interpretation of the IRC by the U.S. Department of Treasury. Treasury Regulation §301.7701-7 provides a two-pronged objective test under which a trust is treated as a U.S. trust if:
- 1. a court within the U.S. is able to exercise primary supervision over the administration of the trust and
- 2. one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.
Trust: A trust is a document which separates Legal from Beneficial ownership. The person who sets it up:
- 1. transfers the legal ownership of his assets to a trustee and
- 2. designates who is to be given the benefit of the assets (the Beneficiary). The trustee legally owns and manages the trust assets, the Beneficiary receives the use of the assets.
Trustee: A person or legal entity who has the legal ownership of Trust assets and must administer the Trust and those assets pursuant to the equitable rights of the Beneficiaries as set forth in the Trust Instrument.