A Simple Offshore Plan

Don't feed the rent seekers

Introduction

I have had the unfortunate experience of getting swept up into “offshore planning” and have learned a few things that I wanted to share in this post. First of all, if you are looking into having an offshore Plan “B,” be very careful about who you work with and make sure they have a good reputation. A lot of these places are bucket shops that hand you off to low cost people who work off of standard checklists and there’s no real value add. Above all, shop around on price. It’s easy to overpay for “bespoke” services that you probably don’t need. Having said that, lets dive in.

The Eye of Sauron Sees All

While many international jurisdictions who provide a home for fiat assets are tax havens (and that might be a rationale for paying high fees annually to maintain these structures as discussed in more detail below, in addition to privacy), it’s not great if you don’t live in a tax haven yourself. US citizens who maintain foreign financial accounts have to report their holdings and activity to the government in several ways:

Reporting obligations in general

Under Sec. 6038D, an individual taxpayer is generally required to file a Form 8938, Statement of Specified Foreign Financial Assets, with his or her U.S. tax return if he or she meets three criteria. Briefly, these criteria are as follows:

• The taxpayer is a "specified person." This includes U.S. citizens and resident aliens of the United States and certain nonresident aliens.

• The taxpayer has an interest in "specified foreign financial assets." These generally include any financial accounts maintained by a foreign financial institution and other foreign financial assets held for investment that are not in an account maintained by a U.S. or foreign financial institution.

• The aggregate value of the specified foreign financial assets exceeds a certain threshold. For married taxpayers filing joint tax returns and living in the United States, this threshold is (1) $100,000 on the last day of the tax year, or (2) $150,000 at any time during the tax year. For other individuals, the amounts are $50,000 and $75,000 respectively.

Apart from this information return reporting obligation, a U.S. citizen or resident also must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report a financial interest in financial accounts located outside of the United States if the aggregate value of those accounts exceeds $10,000 at any time during the year.

Offshore Trusts

I am now especially wary of offshore trusts. In a way, I look at this as “old tech” and a fiat system relic. First of all, the cost of drafting and finalizing offshore trust documents is astronomical and it requires a great deal of time and coordination. But it doesn’t end there. I found out, for example, that the annual fees to maintain a British Virgin Islands company in good standing are $2,000 with the provider selected by my offshore consultant. Fees to maintain a Cook Islands Trust (including trustee and all governmental fees) in good standing are $6,000 annually. Even if you have a decent amount of annual income in the trust, these fees are just egregious.

Also, US citizens who are grantors of foreign trusts have to file not one, but two IRS forms annually (something called a Form 3520 and a Form 3520a). This is so the US Government can tell how much money you have over there, how much money you are moving in and out each year, whether you are getting any income that you aren’t reporting on your tax return, etc. If you file late or incomplete returns, the penalties are insane: the greater of $10,000 or 35% of the funds transferred to/from the trust. Clearly they don’t want people doing this at all and to the extent you do choose to set these things up, The Eye of Sauron must know and see all. Of course, the offshore consultant that helped me set this up didn’t explain all of this recordkeeping burden and added annual cost to me. Might have made me think twice about it.

Bitcoin is Better Technology

I have reached the conclusion that Bitcoin held in cold storage is superior to an offshore trust. There is no storage cost for Bitcoin, no third parties to trust, no rent seeking middlemen charging annual fees in perpetuity and no burdensome governmental recordkeeping. You might have to make an investment in a hardware wallet if you don’t already have one (or two if you are using a multi signature setup). You can get a Coldcard for about $150. You will incur some fees to move your coins on the network, but even in a high fee environment its less than a wire transfer and you don’t have a nosy bank asking all kinds of questions about it. Bitcoin is everywhere and nowhere at the same time, has no physical mass and as such is very portable across international borders, so it works well for an international lifestyle.

The only other thing you would need is a Bitcoin friendly bank with an OTC desk and a debit card so you can sell Bitcoin and get fiat if you need it for spending. The cost of setting up a personal bank account like this is minimal. Of course if you are a US resident, you would still need to report that to the government, but if you keep a small enough amount (less than $10,000 in all accounts throughout the year), you can avoid that. You could also move some Bitcoin to a Lightning Wallet and use that for spending if you are in a place that accepts Bitcoin for payments like the circular economy locations in some countries.

Conclusion

Once you have Bitcoin in cold storage and a Bitcoin friendly bank account, your offshore financial plan is good. Then all you need is a second passport and / or one or two residence permits. Second passports (typically citizenship by investment, but could be citizenship by descent) are time consuming / very expensive to obtain and the process is frustratingly long and bureaucratic, but this gives you the most optionality. I have found that getting a residence permit is generally cheaper and easier to get than second citizenships and still gives you the ability to stay for an extended period of time, should the need arise. Check out this post for more on Bitcoin Plan B where I discuss residence permits in Costa Rica and El Salvador:

Not financial or legal advice, for entertainment only, do your own homework.  I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2024.    

Thanks for following my work. Always remember: freedom, health and positivity!  

Please also check out my Bitcoin Fortress Podcast on all your favorite streaming platforms. I do a weekly Bitcoin news update every week on current items of interest to the Bitcoin community, usually 30 to 60 minutes depending on the number of topics to cover. Please check it out if you haven’t already. Also now on Fountain, where you can earn Bitcoin just for listening to your favorite podcasts.

Follow me on Nostr:

npub122fpu8lwu2eu2zfmrymcfed9tfgeray5quj78jm6zavj78phnqdsu3v4h5

If you’re looking for more great Bitcoin signal, check out friend of the show Pleb Underground here.

Lightning tips appreciated here.