Topics Covered Hide
- Here is how the industry works.
- How the wealthy rely on trusts to preserve wealth
- A brief history of trusts
- Modern uses for today’s trusts
- No one can seize these assets if you end up in trouble with creditors.
- Becoming judgment proof with a trust
- Good jurisdictions to establish offshore trusts
- Taxes associated with transparency
- Defining asset protection
- A few words about privacy
- This is perfectly legal.
- Potential operational issues
John D. Rockefeller made an important statement once – Own nothing, but control everything. Coming from someone with incredible wealth, this aspect has been thoroughly analyzed overtime and has become a top rule for handling money.
What he meant is fairly simple to understand. If you do not own anything, it means it cannot be taken away from you. This is what asset protection truly means, and believe it or not, it can be done legally. Most people simply forget about this aspect, though.
Back in the early 1990s, only a few people knew how asset protection truly works. With time, the popularity of this concept grew, so by the late 1990s, most millionaires had some clues about asset protection – it started spreading overnight.John D. Rockefeller was born July 8, 1839, in Richford, New York, about midway between Binghamton and Ithaca.
The idea? What you do not own cannot be taken away from you – simple as that.
Own nothing but control everything – A few examples
Here is how the industry works.
You and your partner have a new baby – Mary. You give Mary $25,000 for her college fund – just to help her get a good start in life. Later on, you end up in debt, and creditors come knocking on your door. Can a creditor get the money you gave to Mary?
No, they cannot. The money is a gift for Mary and is not a fraudulent convenient. At this point, Mary is the new owner, and since she is not a guarantor, she cannot be involved in the process. She will never be held accountable for your financial mistakes.
If the money is under Mary’s name, there is nothing to be worried about. Meanwhile, you can make various payments, trade with it, buy holidays, make a mortgage payment or perhaps start a business. You can do anything, despite the money not being owned by you.
Furthermore, you can make more transfers to entities in your asset protection trust without losing control.
Here is another example. You get a brand new Audi, and you take some friends out. You park it in front of their house and talk about it for a few minutes. They both work in the police, so they have some credibility in terms of law enforcement.
Now, imagine a homeless man walking by with a bag. Something sharp in that bag scratches your brand new car. You have some good witnesses, and you even have the homeless man not trying to run away. But then, what can you do?
He only has the clothes he is wearing, as well as whatever rubbish he has managed to find in that bag. Even if you take him to court, you will get nothing. This man owns nothing. He will not be arrested for it, and he has no physical address – you are only wasting your time and money.
This is pretty much the concept of own nothing, but control everything. Of course, you do not want to end up homeless. But then, there are legal procedures to ensure you can accumulate wealth without risking to lose it.
How the wealthy rely on trusts to preserve wealth
Some of the richest families or dynasties in the world own nothing, but they somehow seem to control lots of wealth. If you think about it for a second, why would you do that? That is actually the secret to long term wealth – the type of wealth achieved over generations.
Owning too much may not be an issue, but a small mistake can seriously damage your wealth. On the same note, even if you manage to control money affairs, one of your successors may not have the same business spirit and throw everything down the drain.
Whether you think about the Rockefeller family or perhaps the Rothschild family, such families control billions. Their wealth is simply impressive. Do they own anything? No. John D. Rockefeller was not joking when he said you should own nothing, but control everything.
The name Rothschild is synonymous with extravagant, old world wealth.
This is how rich people ensure their wealth is not lost, but maintained and grown over multiple generations. Everything is owed to the people who created these dynasties and came up with the first steps in terms of wealth.
They were clever. They knew kids born in wealth might make terrible decisions. There are numerous temptations associated with money, and many of them are nothing but scandalous mistakes. This is why their wealth was placed in foundations and trust.
The best part about this concept is that no one actually owns the wealth. The ownership is confusing and vague – less likely to be affected by legal issues. Different trusts also have different rules regarding who can touch the wealth or how distributions are made.
A brief history of trusts
Trusts originally came to life in England. The Chancery Court gathered together a bunch of clever judges who decided that while some people may own property, someone else could benefit from it. It was unusual and confusing, but it was the base of what we see today.
The actual owner was referred to as a trustee. As for the beneficial user, they were known as the beneficiary. This law originated in the 12th century, and it persisted overtime – in fact, it was enhanced until it became what it is today.
Its popularity grew throughout the crusades. If a landowner had to leave the country to fight in such crusades, someone else was entrusted to manage the affairs while they were away. In return, the property would get back to the original owner.
Now, some trustees decided to go against the law, and after managing land for years, they decided they wanted to keep it. After all, it was their own work, and they actually deserved a part of what was built there.
The Lord Chancellor would then be petitioned for the so-called land return. Returning crusaders were always given the right of way. In other words, the trustee was supposed to return the land to the beneficiary when requested. This is how modern trust was created.
Modern uses for today’s trusts
These days, trusts are used with a similar, yet different purpose. Basically, their modern role is to preserve wealth. They are associated with families, rather than individuals. Simply put, assets achieved in one way or another are donated to the trust.
At that point, the donor no longer owns those assets legally, so they cannot be held responsible for them should any situations arise. Even as a beneficiary, there are certain rules associated with each trust out there.
For instance, you could come up with a trust for further generations. You can also set up a trust for charitable distributions on a regular basis. At that point, you can also control the trustees, so you decide for yourself when distributions are made.
You have full control of these assets, but from a legal point of view, you do not own them.
This is exactly what John D. Rockefeller meant when he said own nothing, but control everything.
When everything you have managed to gather overtime is held in a trust, the trust can lend you money and ensure you support your current lifestyle. You cannot be taxed on the respective money if you choose to pay a commercial interest rate.
No one can seize these assets if you end up in trouble with creditors.
The same rule applies if you end up in an ugly divorce – your partner cannot seize anything.
Bank balances can get out of trouble, too, as they should not be reported based on FACTA or CRS rules. After all, they are not your assets. This is another secret wherefore rich people stay rich for multiple generations and pay little to nothing in tax.
Now, unlike most expectations, it is important to know that foundations and trusts are more than just some clever and legal ways to disguise who owns your assets. Sure, no one will know, but further strategies take things even further.
These things change the actual ownership in terms of legal matters. For example, you could have control over $1M in assets, without owning anything at all. You can live in a fancy mansion owned by a business that is owned and run by the trust – no one will be bothered.
The trust will also lend you money on a regular basis, so you can take care of all your expenses. You can travel by private jets instead of commercial airlines. You can live in the biggest house in your town and hang around like a millionaire – all these without owning anything.
At the same time, imagine your partner filing for divorce. Sadly for them, if your wealth is held in trust, they would not be able to get anything. They can hire the most experienced lawyers in the world – they cannot enter a trust.
Bottom line, trust will offer more than just privacy. It does not come with any accounting rules – no disclosure laws either. Nobody will really know what the trust owns. Disguising assets has never been easier, and the good news is everyone has access to such things.
Becoming judgment proof with a trust
Get your assets in offshore trust, and you will become immune to any court judgment. No lawyer, judge, or court will ever be able to steal anything from you – something that is quite common in today's society anyway.
More and more people hope for fat paychecks when they divorce. Then, if a company is large enough or an individual is rich, chances are someone out there will try to steal their money with some random lawsuits. These things happen on a daily basis.
It does pay off choosing the optimal jurisdiction if you decide on establishing a trust abroad. Sure, most people will not be aware of all these things, so they can still try. But as they hire lawyers, a professional will be able to check your assets – owning nothing means you can chase them away.
If you think about it, no one will pour a fortune into a law firm if the outcome is not certain.
Things can get even better if your trust is in a jurisdiction that is known to be hostile to creditors. Some creditors may go beyond the borders to try their luck, but certain countries out there have extremely strict rules against such things. Seeing such a country will put most people off.
Obviously, for such things to work, you need to ensure that visible assets are mortgaged with loans from a company that runs under the trust. This way, lawyers or creditors cannot seize assets in your original country either.
Good jurisdictions to establish offshore trusts
Here are some of the best jurisdictions chosen by those who want to hide wealth in trusts.
- Cook Islands – known for having some of the strictest trust rules in the world, these semi independent islands can repel aggressive creditors with no issues at all. For maximum protection, assets should be in the trust for more than two years.
- Panama – asset protection is fairly simple if you choose a foundation in Panama. The high level of confidentiality is not to be overlooked either. Fines for leaks are quite high and may even lead to prison, so no one really bothers with such things.
Now that you understand the concept of owning nothing but controlling everything, is it really worth it? The above-mentioned benefits make this structure ideal to ensure wealth is preserved, but there are also some potential problems you should be aware of.
Taxes associated with transparency
These days are different from the days when Rockefellers used to grab wealth like there was no tomorrow. These days, there are automatic exchanges that share information, so governments can get more details about your actual assets – even if they are stored in other countries.
If you are trying to avoid tax like wealthy families decades ago, it is less likely to happen today. Indeed, you will gain some protection, but you cannot avoid tax completely. Other countries have professional tax authorities too. Putting money in someone else’s name without reporting it could be an issue.
In the USA, you need to report accounts even if you only get a beneficial interest. If your signature has control over that money, it must be reported. Most other countries are not as strict, though, but the USA could be a real problem.
The idea that you could hide some money in an offshore account is not always viable. Many jurisdictions collaborate to prevent tax evasion. Indeed, if you pay your taxes and follow the rules, your protection is still in place.
Indeed, you will pay more today than what you had to pay decades ago.
But then, you can still benefit from asset protection in front of problematic lawsuits.
Defining asset protection
In theory, authorities cannot go after you if you do not own anything. If your name is not listed on an account, it is not yours. However, over the past few decades, there have been a few exceptions here and there.
Normally, no one can chase you for something that is not yours. But then, some judges have looked at the substance and circumstances, rather than the actual paperwork. A good lawyer can prevent all these things, though.
When putting people in charge of what you actually own, some judges may still link things to you. But these things are irrelevant if there is no major crime. Sure, if money comes from selling cocaine and can be linked to you, chances are you will get in trouble.
The general idea is fairly simple to understand. While you do gain some asset protection, not having anything in your name will still make your assets taxable. Avoiding tax is difficult, but as long as you pay what you owe, there should be no problems at all.
A few words about privacy
Privacy was one thing 30 years ago and a completely different thing today. While there are still plenty of tax havens to help optimize tax, the truth is you can no longer hide money – as in promoting tax evasion. This is a thing of the past.
More and more tax havens have now started complying with international laws. They are more transparent than ever. Indeed, they will share your details if needed, but you can still move your business operations to another country to pay 3% instead of 19%, for example.
This is perfectly legal.
On the other hand, hiding completely is almost impossible these days. Owning a company without anyone to know is hard, yet trust can make the information ambiguous. Some corporate registrars are open to the whole world – such as the one in the UK.
Technology does not help too much either. The whole world is interconnected now, so countries are open when it comes to business registrations. There are new rules to respect in tax havens too, yet you can still save a fortune.
Privacy is critical if you want to own nothing, but control everything. Privacy is still there in terms of the available information, but being completely anonymous is a thing of the past. If your goal is to avoid taxation, that is illegal.
Now, a trust can still hide who owns companies or the people behind the trust. But certain tax is still paid.
Potential operational issues
Operational issues can be avoided if you know how to handle your money or who to work with. For instance, dealing with high-quality institutions asks for a large budget, but it will also make your life easier in the long run.
This is one of those cases where having $100M is much easier than having $5M only.
Implementing the concept to own nothing, but control everything implies having structures. There is nothing wrong with that. But then, the more structures you run, the more complicated your venture will be – plus, expenses may add up.
Other than that, you will find banks that have specialized in trusts and similar structures. Affluent people will most likely go into the commercial category if they operate through a trust. There will be more paperwork and bureaucracy then.
Now, the point is to avoid getting involved with things you do not understand. Do your homework, research, read and become familiar with systems. If you think you can be one of those people you see in movies with 50 offshore companies with different names in the middle of nowhere, you are wrong.
This rule does not apply to trusts only, but to anything related to the offshore industry.
Once you dig deeper and get involved, you realize that there will be new ongoing expenses and further fees. As a general rule of thumb, the simpler your structure is, the better you will be. You need to keep things simple, so you can understand everything without any headaches.
Finally, if your concept of own nothing, but control everything is about creating luxurious lifestyles with fancy mansions and fast cars, you might fail – unless you already have millions. If you are new to this game, you might be disappointed by the outcome.
Instead, you need to do things bit by bit. Get in from scratch and grow from there while you still educate yourself. As you get more money, you will have more complications and so on. Doing things slowly can keep you on track without risking your hard earned money.
As a short final conclusion, the idea to own nothing, but control everything is definitely an appealing one. It used to work wonders decades ago, but things have changed a lot lately. It is not as easy as it used to be, yet running your assets through a trust can still bring in a plethora of advantages.
From protecting your assets and hiding identities to reducing tax, such things can still be done. But then, everything must be done within the law. If you hope to avoid tax completely by running a company in an exotic location, you are breaking the law, so it is out of the discussion.