Learn About the Value of Asset Protection
Why Go Offshore?
Note: This is the first in a 2-part series. To read the 2nd part of this series, click here.
The question I’d like to answer today is: why go offshore? After all, a plethora of asset protection and estate planning options are available domestically. I myself routinely implement a wide variety of both domestic and offshore plans.
Some people think going offshore is a bit scary. People see markets such as Hong Kong, Brazil, or Singapore as being the Wild West of investing, when really they are anything but. Let me ask you: have you noticed that, when adjusted for inflation, the U.S. stock market is worse off today than it was 10 years ago? Many other markets have realized huge gains in the last 10 years. Thus, the real question we should be asking is not “why go offshore”. Rather, we should ask “who in their right mind would keep their money in the U.S. over other far more lucrative markets and currencies?”
There are several reasons why one might want an offshore asset protection, estate, and investing strategy over a domestic one, for example:
- Stronger protection arising from the fact that your assets are no longer in the U.S.;
- Broader investment opportunities with higher yield potential, from markets with stronger economies than the U.S. (such as Brazil, Russia, India, and China, a.k.a. the “BRIC” countries and other emerging markets);
- Not having to worry about a U.S. court suddenly changing its mind as to how much protection your domestic structure actually has (this recently happened with regards to Florida LLCs, both single member and multi-member, in the landmark Florida Supreme Court case Olmstead v. FTC, which I’ll discuss in a future article);
- Purchasing a foreign life insurance policy with less overhead and ‘drag’ than may be available in the United States.
One way to illustrate the benefits of going offshore (besides to protect your assets, of course) is to compare the performance of the Japanese Yen vs. the U.S. dollar since January 2000. In January 2000, 1 Yen would buy 0.0094846 U.S. dollars. As of January 2011, 1 Yen would buy 0.0120764 U.S. Dollars. In other words, if you would have merely taken your U.S. dollars and placed them in the Yen, you would have, in 11 years, realized a gain of 27.3%. Had you invested in Euros in the same time period, you would have realized a gain of 31%. Swiss Francs would have netted you 62.2%. Even the Canadian dollar would have netted you a 46% return. It’s not that these currencies have grown in value, mind you. They’ve actually decreased in value somewhat, thanks to inflation. But, the U.S. dollar has decreased in value much more. This trend will increase exponentially at some point in the near future, which brings me to my next point.
You see, none of the above is the greatest reason to go offshore. The reason that overshadows all others is this: an enormous financial storm is coming to the United States. When this storm hits, you will want at least some of your wealth offshore, i.e. far away from ‘ground zero’. Some people think the storm has already hit, and indeed our country is currently in a very deep recession, perhaps even a depression. But what we are experiencing now is only a precursor. The macroeconomic fundamentals comprising the underpinnings of the U.S. economy point to an even worse dilemma that is likely less than a decade away, or even just a year or two away.
Perhaps David Walker, who was until 2008 the U.S. Comptroller General, described what’s coming best when he said:
“People seem to think the government has money… the government doesn’t have any money… The factors that contributed to our mortgage-based subprime crisis exist with regard to our federal government’s finances… The difference is that the magnitude of the federal government’s financial situation is at least 25 times greater.” — David Walker, 7/17/2008 [emphasis is ours].
25 times greater than the 2008 crisis? One may find that hard to believe, much less comprehend. But before planting your head in the sand and writing off Mr. Walker as a raving lunatic, consider this: until 2008 Mr. Walker was the federal government’s chief accountant. If anyone is qualified to talk about our government’s financial state, it is him. Furthermore, he is not the only respected individual who’s sounding the alarm. We highly recommend everyone watch the 2008 documentary IOUSA — it’s perhaps the scariest film ever made. It features commentary by multi-billionaire Warren Buffett, former Federal Reserve chairman Alan Greenspan, former U.S. Treasury Secretary Paul O’Neill, U.S. congressman Ron Paul, former Federal Reserve chairman Paul Volcker, and Bob Bixby of the Concord Coalition. It is a must-see. (At the time of this writing, you may watch a 30-minute version of IOUSA for free online at: http://www.iousathemovie.com)
The underlying premise behind this movie is that federal entitlement programs such as Medicaid, Medicare, and Social Security (which comprise almost 40% of all federal spending) will, in the next decade or less, spiral hopelessly out of control. The 2008 $700 billion bailout (only one of several bailouts that total over $12.7 trillion) and the cost of the Iraq War further exacerbate the matter. Nevertheless, the worst culprit by far is entitlement spending. Entitlement spending woes arise largely because of a demographic anomaly known as the baby boom generation. This term refers to a period in U.S. history marked by a sharp increase in births arising from unprecedented economic prosperity. The bad news is, as of 2008, the baby boomers became eligible to collect early retirement benefits, and a few years later they’ll be eligible to begin collecting full benefits. What does this mean to the federal budget? As popular CNN commentator Glenn Beck puts it, it means a $53 trillion financial “asteroid” will hit us sometime next decade. Mr. Beck refers to this threat as an asteroid because, just like an asteroid hitting earth could wipe out all life on the planet, this asteroid could wipe out all wealth in the U.S., something not even the Great Depression managed to do.
Specifically, this asteroid arises from, according to the 2007 Financial Report of the United States, “[the] federal government’s total liabilities and unfunded commitments for future benefits payments promised under the current Social Security and Medicare programs”. Note that in the 2000 report, these obligations were a “mere” $20 trillion. If these obligations grew by $33 trillion in only 7 years ($8 trillion because of so-called “conservative” President George W. Bush’s signing of the Medicare-D prescription medication program into law), how much will they grow in the future?
Even President Obama is aware of this problem. Here is an excerpt from a 2009 C-Span interview where he admits how bad things really are:
SCULLY: “You know the numbers, $11 trillion debt, a national deficit of $1.7 trillion. At what point do we run out of money?”
PRESIDENT OBAMA: “Well, we are out of money now. We are operating in deep deficits… This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.
So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue…
So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.
Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything...” [emphasis is mine.]
What will happen when this asteroid hits? No one can say with 100% certainty. However, if history is any indicator we have a good idea of what will probably occur: stagflation (severe inflation in a recession or depression) or more likely hyperinflation coupled with an economic collapse (or near-collapse) and the federal government’s bankruptcy. Also, the government will likely respond to the crisis with exchange controls. There has also been talk in congress of nationalizing qualified retirement plans, such as 401k plans, and replacing them with “Universal Government Accounts” – a trick that would be stolen from Argentina, which nationalized its citizen’s retirement plans in 2009.
We’ll discuss hyperinflation, exchange controls, and the potential nationalization of your retirement in more detail in the next newsletter. For now, let me leave you with this: our government is overwhelmed with debt, and in the coming years our debt load will grow exponentially worse. It will crush our nation. The government can only sell so many treasury bonds and only raise taxes so high. The only other option will be to monetize the debt by printing massive amounts of fiat money. This is a trend that has happened in many, many countries throughout history; 30 nations in the 20th century alone experienced hyperinflation and its devastating effects. Historically, hyperinflation is often followed by exchange controls. Exchange controls are the confiscation of precious metals (gold, silver, etc.; note that our government once already confiscated our gold in 1933) and foreign stable currencies, or restricting the exchange of such currencies at rates far below actual market rates. The only way to legally avoid the fallout from hyperinflation and exchange controls is to legally place your wealth outside of the U.S. government’s reach before these contingencies occur. And, if you have the power to unilaterally repatriate such assets, moving wealth offshore by itself won’t work, as you’ll likely be subject to a law or court order requiring repatriation of your wealth back to the U.S. In addition to moving wealth offshore, you’ll need an offshore trust (OAPT) or some other foreign structure that, when properly implemented and maintained, has a history of surviving severe creditor threats. We will discuss all this in the next letter.
To your asset protection and financial success,
W. Ryan Fowler
Chief Consultant, Founder