berty, Second Passports, Panama, Offshore Banking, Commodities, Dual Nationality, Asset Protection, IBCs, Annuities, Offshore Ha xes,

Personal Security, Big Brother, PATRIOT Act, Self Reliance, Liberty, Austria, Estate Planning, CTAs, Insurance, APT, Varia onomic Citizenship, Offshore Residency, Spot Market, Precious Metals, Synthetic Currencies, Switzerland, Captive Insurance, Liec surance, Hong Kong, Limited Liability Company, IRS, Elite Global Investments, Currency, Asset Protection Trust, Offshore Banking

Forbidden Knowledge

by The Sovereign Society Research Team

Report Series

Forbidden Knowledge
A Publication of The Sovereign Society

Table of Contents
Introduction....................................................................................................................................... 3 Chapter ONE The Meaning of Liberty...................................................................................................................... 5 Chapter TWO Second Passports & Dual Nationality................................................................................................. 9 Chapter THREE Offshore Banking: Privacy & Asset Protection.................................................................................. 17 Chapter FOUR The Matter of Cash........................................................................................................................... 27 Chapter FIVE Investments....................................................................................................................................... 33 Chapter SIX Your Finances and Estate Planning.................................................................................................... 43 Chapter SEVEN Taxes & How to Avoid Them Legally................................................................................................ 51 Chapter EIGHT Offshore Havens............................................................................................................................... 61 Chapter NINE Personal Privacy & Security. .............................................................................................................. 73 Chapter TEN Retirement........................................................................................................................................ 81

Introduction
Welcome to Forbidden Knowledge. The information on the following pages is alarming, but it also counters by giving you peace of mind with methods and ideas to preserve your future. This book is a best of compilation containing some of the most informative and entertaining articles from the pages of The Sovereign Individual, The Sovereign Societys members-only monthly newsletter. When you see what we have to saywhen you understand who we areyoull never see things quite the same way again. In the age-old struggle for individual liberty against the power of the state, there can be no question which side has triumphed throughout most of the twentieth century. The one interest the state willingly sacrifices to the common good is personal liberty the freedom to produce and create, to buy and sell, to speak and publish, to travel, to live freely. By diminishing liberty, government systematically subverts peoples responsibility for their own lives. It robs those who produce in order to placate those who only consume. The result is economic stagnation, retrogression and political corruption. Since the 17th century, in England, France and America, and more recently in Russia and eastern Europe, revolutions against this tyranny of the state were fought on behalf of an alternative we can call natural liberty. At first successful, over time these revolutions cooled to complacency and hard-won freedom came to mean guaranteed entitlement to government largess. True natural liberty means that each of us is the sole legitimate owner of our own life and destiny, free to act as we wish so long as we use no violence, fraud or other aggression against others. That same freedom dictates a freemarket economy enjoying peaceful production and trade. It opposes government control by selfserving politicians. No activity of statist government has diminished personal liberty more than the unchecked power to tax. In the United States, the United Kingdom and Germany the effective rate of personal taxes far exceeds 50 percent of earnings. In some nations, such as France and Sweden, it is higher still. Business is taxed at even greater levels. And everyone pays the ultimate price. When government takes wealth from some and gives it to others, this forced redistribution diminishes the rights and well-being of the former, and often destroys the independence of the latter. The issue of taxation involves nothing less than the human and natural right to own, use and enjoy private property, a civil right of the most basic kind. Property and wealth determine personal power to control our own lives, to make decisions, to raise a family, to live free. As Albert Jay Nock noted, every additional tax imposed diminishes our freedom. In an economic history of the Middle Ages, Paul Craig Roberts, the economist and columnist, showed that medieval serfs bound to the land and their masters rarely paid more then one-third of the value of their labors in taxes. For good reason: with very low productivity, serfs could not survive if forced to pay more taxes. With nothing to lose, they would revolt and kill the tax collectors. Yet a half-millennium later, with capitalisms enormously increased productivity, we have even less right to our earnings than did those enslaved serfs. Says Roberts: You are not free when you do not own the product of your own labor. This report, Forbidden Knowledge, is a compendium of the acts and ideas of dynamic men and women who have exalted natural liberty in their own lives and professions. Albert Camus said, Revolutionaries are men who say no! These authors have said an emphatic NO to Big Brother government. These practical people refuse to bow down to government, to submit to bureaucratic demands for ever higher taxes, greater controls and increased regulation. Drawing on their experience and expertise, you too can have a life of natural liberty. You too can live, work, invest and do business without having to pay taxes to any government anywhere. And you can do this 3

legally and with maximum personal security and financial privacy. To knowledgeable people, true financial security means: the maximum possible tax avoidance the strongest possible financial privacy the greatest degree of asset protection the most profitable investments

CHAPTER ONE

The Meaning of Liberty

A Critical Lesson in Crusoe Economics: What You Must Know to Survive the Coming Attack on Inflation.............................................................. 5 You May Be an Anarchist If.... ............................. 6 The Best Form of Government............................ 7

A Critical Lesson in Crusoe Economics: What You Must Know to Survive the Coming Attack on Inflation
July 2008 by John Pugsley While the presidential candidates have focused their pre-election posturing on war, healthcare, and jobs, an unmentioned elephant has wandered into the room. His name is inflation. Of course, everyone else has noticed the elephant including the world press. For example, one recent issue of The Wall Street Journal mentioned inflation in no less than 19 articles. The average inflation rates around the world have nearly doubled in the past year from 3.6% to 6.3%. Food and energy prices are rising even faster. In the 27-nation European Union, food prices rose by more than 7% since 2007. Yes, these higher prices are painful. But beware. Increasing prices are not the threat. In fact, like a bitter medicine, they are a natural cure for a dangerous imbalance in the economic body. Higher prices represent a needed readjustment between the quantity of goods, and the money in circulation. If price hikes are allowed to run their course, they would lead to a new era of prosperity. But policymakers wont allow that to happen. Like an addict who refuses to go through withdrawal, the public will demand politicians do something. Rather than confessing to their own inflation-causing shenanigans, the politicians point the finger at the private sector itself. They blame the very consumers and businesses that are damaged. Misguided economists also promote this absurdity. They say the cause of rising prices isrising prices! They say cost-push inflation, and demand-pull cause inflation. They tell us cost-push inflation occurs when the prices of certain goods rise, thereby driving up prices of other goods. Similarly demand-pull infla5

The Meaning of Liberty

tion happens when too much demand pulls a products price up, and that products higher prices pulls up other prices. Whether McCain or Obama wins, the public will demand that the inflation elephant be shot. I say: Before swallowing this illusion, apply Crusoe economics. Imagine Robinson and Crusoe are on an island. Robinson fishes and Crusoe makes bread. They barter, exchanging one fish for one loaf of bread. The price of a fish is a loaf of bread, and vice versa. One day Robinson only catches one fish, so he brings half a fish to market and doubles his price, demanding a loaf of bread in exchange. If Crusoe agrees, has this caused inflation? No. Inflation is a rise in the price level. If Robinson raises his price, Crusoe must lower his proportionately, or no trade takes place. If one price doubles and the other falls in half, the price level remains the same. Producers cant cause the price level to rise, no matter what they do. The thing missing in the cost-push, demand-pull fallacy is money itself. When all other goods are priced in terms of the money commodity, and the money supply increases, all prices appear to be rising at once. All prices, that is except the price of money fall in exact proportion to the rise in price of other goods. Money is produced by central banks and governments, not by you or me. Whether McCain or Obama wins, the public will demand that the inflation elephant be shot. A near universal belief in these absurdities almost guarantees the next president will aim the gun at businesses and consumers. Prepare yourself for price controls, rationing, excess-profits taxes, and a tsunami of regulations. Solutions? Keep reading. Our Total Wealth strategy is your bullet-proof defense against the elephant gun.

You May Be an Anarchist If...

November 2006 by John Pugsley Liberty means responsibility. That is why most men dread it.George Bernard Shaw At a financial conference in Georgia some years back, I wound up on a panel seated next to Congressman Bob Barr, a conservative Republican. As we shook hands he commented that this was the first time he had met a real live anarchist. Mr. Barr was unaware that he had probably met many anarchists, especially if he knows any of the members of The Sovereign Society. Its not that most anarchists are in the closetits just that most anarchists dont realize they are anarchists. The term anarchist has been plagued by more than a century of bad press. Back in the early 19th century, a few bomb-throwing revolutionaries usurped this wonderful word. Now, not a week goes by that George Bush or some other politician doesnt accuse terrorists of being anarchists. Terrorists arent anarchists. Theyre not individuals who are demanding freedom from government they want to become the government. Terrorists are micro-governments that want to become macro-governments. Calling a terrorist an anarchist is Orwellian newspeak, in which good becomes evil, right becomes wrong and war becomes peace. In fact, its a vicious slur on anarchists. Consider the correct definition and history of the word from The Encyclopedia of Philosophy... ANARCHISM, a social philosophy that rejects authoritarian government and maintains that voluntary 6

The Meaning of Liberty

institutions are best suited to express mans natural social tendencies. Historically, the word anarchist derives from the Greek an archos, meaning no government.Pierre Joseph Proudhon (What is Property?, Paris, 1840) described himself as an anarchist because he believed that political organization based on authority should be replaced by social and economic organization based on voluntary contractual agreement. For more than a century, the word has been used by those in power to describe a doctrine of destruction, while its more proper meaning is a peaceful system of self-responsibility. As The Encyclopedia of Philosophy goes on to note, [T]here is no necessary connection between anarchism, which is a social philosophy, and terrorism, which is a political means occasionally used byactionists belonging to a wide variety of movements that have nothing in common with anarchism. Anarchism is a philosophy of freedom. We anarchists believe that voluntary cooperation is the answer and authoritarian government the problem. The Encyclopedia of Philosophy agrees: Anarchism in general rejects the state. It denies the value of democratic procedures because they are based on majority rule and on the delegation of the responsibility that the individual should retain. The main difference between the anarchists and the socialists, including the Marxists, lies in the fact that while the socialists maintain that the state must be taken over as the first step toward its dissolution, the anarchists argue that, since power corrupts, any seizure of the existing structure of authority can only lead to its perpetuation. Perhaps some of the confusion stems from the concept of government. What is a government? The word is derived from the Greek kybernan, which means to steer. You and I can be governed by someone else, or we can govern ourselves. There can be an external sovereign, or we can be sovereign individuals. Those who would control us and our property by force, and that includes every petty thief, terrorist and political party, advocate government by force... the complete antithesis to anarchism. What a tragedy that anarchism, a word that concisely describes individual sovereignty, has been co-opted by authoritarian governments to mean just the opposite. In the pure sense of the word, Im an anarchist and proud of it. I dont want to govern you, nor do I want you to govern me. If you believe that you should have the sovereign authority over your own life and assets, and steer your own futurethen, surprise! Youre ananarchist, too.

The Best Form of Government...

September 2006 by John Pugsley For 2,500 years, philosophers, politicians and social scientists have struggled to answer a profound question bequeathed by the ancient Greek philosopher, Socrates: What is the best government? During Socrates lifetime, Athens was a true democracy. All free citizens could vote at the Ecclesia (general assembly) on every law. Of course, of the 400,000 inhabitants of Athens, 250,000 were slaves, and only a small number of the 150,000 freemen or citizens actually presented themselves at the Ecclesia. Yet, all had the right. To settle disputes, Athens had a supreme court, the Dikasteria. But unlike the American Supreme Court with nine members, the Dikasteria consisted of over 1,000 members selected alphabetically from the roll of all citizens. Again, a true democracy. Socrates saw democracys flaws. HistorianWill Durant describes the great philosophers position: What could have been more ridiculous than a mob-led, passion-ridden democracy, a government by a debating-societyIs it not a base superstition that mere numbers will give wisdom? On the contrary is it not universally seen that men in crowds are more foolish and more violentthan men separate and alone? 7

The Meaning of Liberty

Plato, Socrates student and biographer, wrote: Until all philosophers are kings, or the kingshave the spirit and power of philosophy, and political greatness and wisdom meet in onecities [states] will never have rest from their evils no, nor the human race. At the time of Socrates death, Sparta had just defeated Athens, and a wealthy Athenian minority advocated abandoning democracy because it was inefficient during war. They formed the oligarchic party, advocating government by a few of the powerful and wealthy. They revolted, but their revolution failed. Plato felt he understood why. Aristocracy fails, he said, because power is limited to too narrow a circle, while oligarchy ruins itself by the scramble for wealth. Then democracy comes: the poor overcome their opponents, slaughtering some and banishing the rest; and give to the people an equal share of freedom and power. But then democracy turns into disaster because the average citizen is not intelligent enough to select the best rulers and wisest course. Mob rule ends in tyranny as the wiliest and the most unscrupulous flatterer, calling himself the protector of the people rises to supreme power. (Does this call to mind any of the politicians of the 20th century?) Socrates great question, What is the best government? has wended its way through all of the great philosophers of the past 2,500 years. Plato believed that a specialized form of communism was the answer. His famous student, Aristotle, argued one best man should hold all political power, and he tutored Alexander the Great, who became monarch after leading the greatest conquest in history. But this form of government also failed. Some 2,000 years later, the excommunicated Jewish philosopher, Baruch Spinoza, addressed Socrates question. Spinoza arrived at a more enlightened realization: The last end of the state is not to dominate men, nor to restrain them by fear; rather it is to free each man from fear that he may live and act with full security and without injury to himself or his neighbor. In fact, the true aim of government is liberty. Unfortunately, Spinoza could see no alternative except to give the power to the state. Arguing monarchy was efficient but oppressive, he stumbled back to democracy, while admitting democracy tended to put mediocrity into power, leading nations back to where they started. Hence, he wrote, I think it is that democracies change into aristocracies, and these at length into monarchies. He died before ever finding a satisfying answer to Socrates question. Great minds like Voltaire, Kant, Nietzsche, Locke, Rousseau and Spencer have also wrestled with Socrates question. Yet one of Spinozas conclusions seems to hold firm: the true function of government is liberty. If thats our starting point, what is the best form of government? Autocracy, with a single person ruling? Oligarchy, giving power to a small faction? Plutocracy, with the wealthy governing? Democracy, with power exercised by the majority? Or democracys variation, a republic, where a majority hands power to representatives? I argue that the answer is none of the above. If the function of government is liberty, then the best form of government is the one form that has never truly been tested self-government. It is a world in which every individual is sovereign. Somehow, I think Socrates would agree.

CHAPTER TWO

Second Passports & Dual Nationality

Best Second Citizenship & Residency Programs........................................ 9 Your New Country in a Matter of Months: Economic Citizenship for Sale.......................... 11 Paradise Passports - How the Right Property Could Unlock a World of Opportunity............. 13 From Choosing a Country to Actually Packing Your Bags.......................................................... 14

Best Second Citizenship & Residency Programs

September 2005 by Robert E. Bauman, JD Having a second passport and dual citizenship can bring you greater travel safety, faster access to living abroad, and may even lead to potential tax free existence in another country. And it all can be done legally. If youre in a hurry and want a second citizenship in a matter of months, there are only two nations that offer this quick service, but for a price. They call it economic citizenship but its really citizenship for sale. The two nations are the Commonwealth of Dominica and St. Kitts- Nevis, both in the Caribbean area. Several other nations, including the U.S. and Canada, offer immediate residence in return for substantial investments in a job-producing business, but not immediate citizenship. That usually requires several years of actual presence.

Single Investment Delivers Potential Profits, Dual Citizenship and Visa-Free Travel
The Commonwealth of Dominica is located at the northern end of the Windward Chain of the Lesser Antilles in the Caribbean Sea. Dominicas economic citizenship program is first rate. Since its inception in 1991, it has operated successfully. A single investor may acquire Dominican citizenship via a direct cash contribution of US$100,000 to government and private projects; the sum is raised to US$150,000 for a family of up to four persons. A new citizen of Dominica has the right to live and work there at any time, but living there is not required. Holders of a Dominica passport can travel without a visa to more than 100 countries and territories, including the U.K., Switzerland, Sweden, and Hong Kong. For citizenship information and assistance, contact Henley & Partners, Inc., Haus zum Engel, Kirchgasse 24, 8001 Zurich, Switzerland; Tel.: +(41) 1-267-6090; Fax: +(41) 1-267-6091; E-mail: Zurich-office@henleyglobal.com; Website: www.henley-partner.com/dominica. 9

Second Passports & Dual Nationality

Economic Citizenship in a Paradise with Splendid Beaches and Balmy Weather

St. Kitts-Nevis is the older of the two economic citizenship programs and it, too, has an established history of successful operation. Applicants must invest US$250,000 in an approved investment project. Government registration fees are now US$35,000 for a main applicant and US$15,000 for each spouse and dependent child under 18. Young adult family members over 18 must pay US$35,000 each. In addition, professional fees are US$15,000 for the main applicant and US$5,000 for each additional family member. St. Kitts (as it is called) and Nevis (say knee-vis) is in the Leeward Islands in the eastern Caribbean, 225 miles east of Puerto Rico, 1,200 miles south of Miami. Each tropical island is a volcanic mountain rising about 1,000 meters above the sea, with about 75% of the total population living on St. Kitts. The islands balmy, virtually unchanging weather and splendid beaches and accommodations have made them popular vacation spots, offering a wide range of recreational amenities. Nevis, which has its own Island Assembly, is a recognized tax and asset haven. It has a no-nonsense banking and business privacy law that even the U.S. government cant crack unless crime is involved. Its pro-offshore laws have existed for over two decades-so there is plenty of experience and precedent in the local courtsand the legislative assembly keeps the applicable laws current. There are well-established service companies that can manage an offshore business, establish a foreign trust, etc., and some have convenient U.S. offices. For citizenship information and assistance, contact Henley & Partners, Inc., Haus zum Engel, Kirchgasse 24, 8001 Zurich, Switzerland; Tel.: +(41) 1-267-6090; Fax: +(41) 1-267-6091; email: Zurichoffice@henleyglobal.com; Website: www.henley-partner.com/stkittsnevis2.htm.

Visa Programs Make This the Leading Destination for Foreign Retirees
Everyone knows about The Republic of Panama and its famous Canal, but Panama is also one of the worlds leading destinations for foreign retirees. Thats because it has numerous resident visa programs that welcome you with immediate residency status. Perhaps the best known of these resident visas is the turista pensionado visa. Anyone entering the country as a qualified pensionado is guaranteed to retain that legal status so long as they choose to stay in Panama. (The word pensionado does NOT mean you must be retired to qualify.) Under the pensionado program, the applicant must show proof of personal entitlement to a monthly income from an official foreign program (Social Security, disability, military retirement, government pension) or a private corporate pension plan, in the amount of at least US$500, plus an additional US$100 each for a spouse and other dependants. Panama truly does offer probably the best residence deal in the world today. For this comparatively small price, the benefits are incomparable, including exemption from taxes, tax-free importation of your automobile and household goods, and discounts on a host of goods and services. The visa application process for Panamas basic pensionado program is simple; a onetime application and no renewals or additional fees. Getting your permit takes as little as 30 to 60 days. Its fast, affordable and easy. But you need an attorney to do all this. Contact: Christoph Zollinger, Mossfon Group, Mossack & Fonseca Co., Arango-Orillac Building, 54th Street, P.O. Box 0832-0886, W.T.C., Panama, Republic of Panama; Tel.: +(507)263-8899; email: Zollinger@ mossfon.com; website: www.mossfon.com. This firm offers a wide array of visa and other legal services in Panama and around the world.

Significant Tax Incentives for Retirees

Although Belizes economic citizenship program ended in 1991, the country still offers significant tax 10

Second Passports & Dual Nationality incentives to retirees and other foreigners. You can become a permanent resident if you have a US$2,000 minimum monthly income from non-Belize sources. Belize is the only English-speaking country in Central America. Its mixed population of 280,000 includes descendants of native Mayans, Chinese, East Indians and Caucasians. Independent since 1981, its language came from its colonial days when it was called British Honduras. Situated south of Mexico and to the east of Guatemala, Belize is on the Caribbean seaboard. In 1998, the Retired Persons Incentives Act was enacted to attract foreign citizens and foreign currency. The law established a residency program for Qualified Retired Persons (QRPs), offering them significant tax incentives to become permanent residents (but not citizens) of Belize. A QRP is exempted from all taxes on income from sources outside Belize. QRPs can own and operate their own international business based in Belize exempt from local taxes. There is no minimum time that must be spent in Belize and QRPs can maintain that status so long as they maintain a permanent local residence. To qualify for the QRP program, the applicant must be 45 years of age or older and prove personal financial ability to support oneself and any dependants. A spouse and dependants (18 years and younger) qualify along with the head of household. Initial fees for the program are US$700 for the qualified retiree and US$350 for each dependent, plus US$100 for an ID card upon application approval. Contact: The Belize Tourist Board, New Central Bank Building, Level 2, Gabourel Lane, P.O. Box 325, Belize City, Belize; Tel.: +(501) 223-1913; Fax: +(501) 223-1943; Toll free: 1-800-624-0686; email: info@ travelbelize.org; website: www.travelbelize.org/.

Your New Country in a Matter of Months: Economic Citizenship for Sale

July 2006 by Robert E. Bauman, JD I often get questions concerning how to acquire dual citizenship and the second passport that comes with it. Folks want to know how it can be done, and why they should consider it. I start by assuring them that dual citizenship is legal under American law, as it is in many nations, and that the U.S. Supreme Court upheld this right in several cases decades ago. And of course, if the person is interested in expatriation, the formal act of surrendering U.S. citizenship (also a legal right), I explain that they certainly need a second citizenship to avoid becoming a man (or woman) without a country, a modern day version of Edward Everett Hales disturbing novel from 1917. A second nationality is a hedge against unforeseen events. It provides the option to legally reside and work in another country that may offer tax advantages, although this is of limited benefit to U.S. citizens. (If you are a U.S. citizen or green card holder, you are still accountable to Uncle Sam when it comes to reporting your taxes, no matter where you live.) Most countries require a foreigner to become a resident and live there for an average of five years or more before they are granted citizenship. But there is a quick route to a second passport in just a matter of months, but it will cost you dearly. Its known as economic citizenship and only two sovereign nations sell it, both tropical island tax havens in the Caribbean the Commonwealth of Dominica and St. Kitts-Nevis.

11

Second Passports & Dual Nationality

Escape from America

Using the excuse of drug wars and anti-terrorism, plus imposing excessive taxation, government controls on private capital and travel restrictions are becoming more prevalent around the world. Smart people of wealth naturally are seeking alternatives that allow them to protect their assets and income and to travel freely throughout the world. And, in the case of the United States, the only way to escape from taxes is to end your citizenship. Two Caribbean jurisdictions offer economic citizenship under government-sponsored investment laws. These nations want to create jobs, accelerate resort development and grow their tourist industries by bringing in more money. The laws provide a foreigner with instant citizenship, a new passport, and permanent residence, if desired. And both countries are offshore tax havens.

Become a Saint Kittian or Nevisian

St. Kitts-Nevis is an independent English-speaking island state situated in the northern part of the Leeward Islands in the eastern Caribbean. The federation is made up of two islands, St. Kitts and the smaller Nevis, separated by a channel two miles wide. It is a former British colony, a member of the British Commonwealth of Nations and the United Nations. It has a pleasant climate, particularly during the cool months from December to March. Humidity is relatively low, and constant northeast trade winds keep the islands cool. St. Kitts-Nevis offers good opportunities for investors and manufacturers. The workforce is well-educated, English-speaking and friendly. Other advantages include tax breaks of up to 15 years, repatriation of profits and the possibility of tax-free entry of produced goods into the U.S. market. Substantial European import benefits also apply. There are no income taxes and no net wealth taxes in St. Kitts-Nevis. St. Kitts-Nevis labels their instant citizenship plan, Citizenship-by-Investment Program. To qualify for citizenship, the government requires a real estate investment of at least US$250,000. The islands are an attractive place to own real estate, and there are some excellent real estate developments approved under the program. The new citizen is not required to spend any set period of time on the islands each year. Alternatively, there is an option available to purchase government bonds. Instead of real estate, one can purchase US$250,000 equivalent in EC$ (Eastern Caribbean dollar) Literacy Month 10-year Treasury bonds. Details of this program are not yet final and no date has been set for the next bond issue. Additional costs include official government fees of US$35,000 for a single applicant, plus US$15,000 for each dependent. There are also application/professional fees of US$15,000 (same as with Dominica) per application and a US$2,500 due diligence fee per adult applicant. They require a reasonable amount of documentation for the application, and the application procedure itself is fairly simple. The St. Kitts-Nevis passport is relatively well regarded since only a relatively limited number of passports have been issued under this citizenship-by-investment program during its nearly 20 years of existence. As a result, St. Kitts-Nevis citizens enjoy a passport with a good reputation and good visa-free travel. For example, passport holders still have visa-free access to Canada. Visa-free travel throughout continental Europe is also available by combining St. Kitts-Nevis citizenship with a residence permit in European Union countries.

A Passport of the Commonwealth of Dominica

Dominica is often called The Nature Island of the Caribbean. Its a small, beautiful island located in the eastern Caribbean between the French islands of Martinique and Guadeloupe. Independent since 1978, Dominica is English-speaking and a member of the British Commonwealth. It has a Westminster-style parliamentary government, free elections and peaceful transfer of power. There is a strong currency and almost no crime. The economic citizenship program has operated successfully since 1991, and it is based on a solid legal foundation in the Constitution of Dominica. A limited quota of applications has been set by the government. There are now two options for obtaining citizenship: a Family Option and a Single Option. Under the 12

Second Passports & Dual Nationality Family Option, the applicant pays US$100,000, which qualifies the applicant, his or her spouse and two children under 18 years old for citizenship. An additional US$25,000 per child is required for each child under 25 years old. Under the Single Option, a single applicant pays US$75,000. In addition to the above additional application, agent and registration fees amount to approximately US$2,200. There is also a US$5,000 due diligence fee per person. Further information on each program can be found at: St. Kitts-Nevis: www.henleyglobal.com/stkittsnevis.htm Dominica: www.henleyglobal.com/dominica.htm You may contact a member of The Sovereign Society Council of Experts, Mr. Christian Kalin, Executive Director, Henley & Partners AG, Kirchgasse 24, 8001 Zurich, Switzerland. Tel: +41 44-266-2222; Wedsite: www.henleyglobal.com; email: chris.kalin@henleyglobal.com. The Passport Book covers second passports in detail. More about the book at: http://www.web-purchases. com/190SGOPS/w190H605

Paradise Passports How the Right Property Could Unlock a World of Opportunity
October 2007 by Mark Nestmann Real estate investments may be suffering in the United States, but its a different story in many other parts of the world. And nowhere is that truer than in one of the Caribbeans most beautiful jurisdictions - St. Kitts Nevis. These two sister islands form a federation that has been independent from Great Britain since 1983. On these islands, tucked away 150 miles east of Puerto Rico, theres only so much room to develop real estate. St. Kitts is the larger and more populous island, but many people prefer the less hectic pace of life in Nevis. With densely forested mountains, brilliant tropical flowers and crystal-clear waters, property has appreciated in recent years, but still offers value for investors. If youre interested in making such an investment, a dwelling on one of these islands gives you a substantial opportunity for profits as real estate appreciates in the future. It can also give you a safe living alternative in a peaceful, stable jurisdiction in the event of turmoil at home.

Built-in Asset Protection

Whats more, real estate you own offshore will never show up in a domestic asset search. So it also provides practical privacy and asset protection advantages. Moreover, foreign real estate a U.S. person owns need not be reported to the IRS or U.S. Treasury as a foreign bank, securities or other financial account. However, if you rent out the real estate, the income generated is taxable and reportable. When you purchase qualifying real estate in St. Kitts Nevis, youre eligible for a remarkable - and almost instant benefit: a St. Kitts Nevis citizenship and passport. St. Kitts Nevis passport holders can travel without a visa, or obtain a visa upon entry, to approximately 90 countries, including the United Kingdom, Canada, Switzerland and many others. Theres no obligation for you to live or work on St. Kitts Nevis once you acquire citizenship and passport there, although you can do so at any time. Nor are you obliged to pay taxes in St. Kitts Nevis, because this country does NOT impose income tax, capital gains tax, wealth tax or inheritance tax. 13

Second Passports & Dual Nationality

Your Key to a World of Possibilities

Having a second passport and dual citizenship offers many advantages. It can expand your travel possibilities. It can also protect your identity, should you ever need to keep your nationality a secret for safety reasons. It can give you the right to reside in other countries, and give you a way to cross international borders if your primary passport is lost or stolen. For U.S. citizens, a second passport has another benefit - it is a necessary prerequisite if you want to legally disconnect, once and for all, from the U.S. tax system. The only way to eliminate all U.S. tax liability is to cease being a U.S. citizen. But before you do so, you must obtain a satisfactory passport from another country. Thats where a St. Kitts Nevis passport can provide substantial benefits. Since 1984, the St. Kitts Nevis Citizenship Act has allowed foreign investors who acquire qualifying real estate to obtain citizenship and passport. This makes it the oldest existing citizenship-by-investment program, and perhaps the most respected. This program is strictly regulated. All applicants must submit to a thorough background check, provide bank references and letters of recommendation, along with proof of no criminal record in their home country. Applicants for economic citizenship must invest US$350,000 in an approved real estate project. You may live in this dwelling, or rent it out - nearly all approved projects provide a managed rental program. A 10% property tax is generally added to the purchase price. However, there are no annual property tax payments once you purchase the property. There is also a registration fee of US$35,000 for a main applicant and US$15,000 for each spouse and dependent child under 18. A due diligence fee of US$3,500 applies for each applicant. Legal and processing fees add a minimum of US$10,000 to the cost, with higher fees applying for more valuable properties or larger numbers of dependents. Funds for your real estate purchase are placed in escrow and released to the seller only after your application for economic citizenship has been approved. Only after this process is completed is the registration fee due. The title for the property is then registered and you and your family receive your passports. Should you choose to apply, there is no requirement for you or, in the case of a family, the head of your household, to attend an interview in St. Kitts Nevis. The combination of real estate in a safe, peaceful haven such as St. Kitts Nevis, combined with alternative citizenship and passport, can provide numerous benefits, among them profit potential, increased travel options, and international tax planning opportunities.

From Choosing a Country to Actually Packing Your BagsHeres Every Thing You Need to Start Your New Life Offshore
June 2008 by Robert E. Bauman, JD One of the most frequent questions I hear from Sovereign Society members concerns moving abroad and making a new home in another country. They ask: How do I do it? When should I do it? What should I look for in a new country? Who should I contact? Or even further: Should I expatriate once I move? Now I know from experience that many of the individuals who talk about moving abroad rarely follow through with these ambitions. But honestly, I believe thats because many individuals have no idea how to pursue their dreams. So if youre interested in setting up your residence abroad or securing a second citizenship, here a few suggestions of where to start.

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Second Passports & Dual Nationality

Decide if This Is Really What You Want

The first step is a big one: Admit to yourself that you want to live abroad. Once youve made up your mind, its much easier to carry on with the details that follow. Next step: What exactly are you looking for in your new home? Do you want to live in a country that can reduce your taxes? Are you looking for bargain real estate? Do you want to move somewhere where youll find other American and foreign expatriates? Are you a beach person or mountain person? Would you rather live in a quiet countryside, at the heart of a major cultural center or in a large city?

Create Your Own Blueprint of an Ideal New Home

Make a list of your personal priorities and preferences. Determine whats most important to you. For example, are you looking for a low cost of living, cultural diversions, medical care or warm weather? Once you have your preferences down on paper, do a little research. Which places match your tastes? Then narrow down your list of possible paradises to two or three places, and spend some time in each one. You may have formed a mental picture of what a foreign place may be like, but unless youve been there, done that, you may be in for a surprise when you see it firsthand. After you have seen your two or three choices, cut your list down to one country. This is important: Plan an extended stay in that country during the least agreeable time of year (the tropical rainy season, the hot summer or the cold months). While youre there, tour the country and get a complete picture of what its really like. It helps if you speak the local language, or at least get an interpreter to accompany you. Its true that English is becoming the universal language, but more so in some places than others. Visit the country, meet other expats already living there and contact local real estate agents to inspect properties for sale. (Always get references and be very careful of land titles. In some countries titles are tenuous at best and you dont want any legal problems.)

You Have to Think about Taxes

Once you have your country picked out, you need to consider your tax situation. Otherwise, its very possible you could face harsh taxes even before you leave the United States. Fortunately, you can avoid these extra taxes by consulting the right professionals. First, speak to an international tax planner or attorney in your home country. Check new tax obligations in your chosen country. Places such as Panama or Belize impose no taxes except on local income. Switzerland is willing to negotiate with wealthy foreigners seeking residence for a set annual tax that may be much lower.

Let Us Be Your Guide On Your Journey Abroad

There are many Sovereign Society publications that can give you a wealth of information about living offshore. Included in the list are The Passport Book, Where to Stash Your Cash, Panama Money Secrets, Swiss Money Secrets and The Offshore Advantage Book. You can find them on our webpage at www.sovereignsociety.com/catalog/. If youre a U.S. person, determine your obligations owed to the IRS. (Americans owe taxes annually no matter where they live in the world or where they earn income.) You also should consult a tax expert, usually an attorney, in the country youre considering who, importantly, is experienced working with foreign residents. Again, get references and always ask questions when you have doubts about something. The best places are countries that have territorial taxation meaning they tax only income earned within the countrys borders and not income earned offshore. Consult a residency expert, usually a local attorney, in the country of your choice. Ask the expert which 15

Chapter Title

visa or residency permit is most advantageous for you. Immigration laws change constantly and you need to know exactly what youre eligible for as a foreign resident. While youre there, open a local bank account in your new country. In some countries this will require an introduction to the bank by your local lawyer and a reference letter from your home country bank. They usually wont take walk ins.

Choose Your Moving Day!

Once you have picked your destination, set a date for your move. Decide whether to ship household goods or buy new ones when you arrive. The type of visa you obtain may or may not allow for tax-free importation of personal belongings, like your car or boat, but consider the hassle factor of such shipment. These days moving companies can deliver a pod to your door. Pods are storage units that look just like the space on the back of a moving truck (only without the truck). You fill it up, and they deliver your belongings anywhere in the world. My son and daughter in law recently moved from Cape Town, South Africa to Atlanta, and had no problems with a pod move door to door of their furniture and property. Well before your move, set up a portable global office or mail drop in your home country for reliable and efficient mail forwarding, email, international phone calls, bill paying, and the like. There are numerous services that provide a permanent address with forwarding capacity. Make sure your local bank account is in good order, especially if you regularly receive direct deposits from official agencies. Living in a foreign country does not make an American ineligible for Social Security or government and retirement payments, but direct deposit to an American bank account is preferred.

Rent, Dont Buy at First

In my experience, Ive found its better to rent your first home abroad. Spend at least six months living in your new rented home before you commit fully to buying your own home. In some countries, such as Panama, the government gives a 20-year real estate tax moratorium on new buildings and some existing housing. Once you have done all this, youre ready to buy your tickets and pack your bags. Youre ready to move offshore and even expatriate if thats your ultimate goal. Best of luck on your journey and let us know if we can help.

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Offshore Banking: Privacy & Asset Protection CHAPTER THREE

Offshore Banking: Privacy & Asset Protection

Your Quick Fix to Total Wealth......................... 17 Profitable Investing In Your Offshore Bank Account (Existing)............................................ 19 How We Saved You By NEVER Recommending Switzerlands Largest Bank................................ 23 Go East For Private Banking............................. 24

Your Quick Fix to Total Wealth

August 2006 by Robert E. Bauman, JD One of the greatest threats to your wealth may be lurking deep inside your subconscious. Its called xenophobia. Xenophobia describes a person unduly fearful or contemptuous of that which is foreign, especially of strangers or foreign peoples. And tragically, this fear stops individuals from seeking the whole world of wealth opportunities available in other nations. These well-intentioned, but not very savvy, folks store every last cent of their wealth in U.S. banks and only invest in the U.S. investments their brokers suggest. But its not too late to purge these xenophobic tendencies and move your assets offshore. Here are just a few of the major opportunities waiting for you. 1. Asset protection. Lawsuits long ago reached epidemic proportions in the U.S. If a creditor gets a judgment against you where you live, you could lose all your assets, your business, home or bank accounts. In contrast, create a trust or family foundation or invest in a suitable offshore jurisdiction and your finances are essentially judgment-proof. At the very least, the long distance between a U.S. plaintiffs lawsuit and your offshore assets is likely to encourage a favorable settlement. And keeping assets offshore avoids the U.S. asset-tracking network, which permits lawyers and their investigators to easily identify and target the assets of a potential defendant. (Revealing your offshore assets may be the best way to discourage a lawsuit. Just tell that greedy lawyer, try and get em!) Thus, prudently using offshore havens can protect you from the threat of lawsuits, civil forfeiture, bank account freezes, business failure, divorce, foreign exchange controls, restrictive laws or political instability. 2. Financial privacy. Its only natural to want protection from the prying eyes of government bureaucrats, business partners, estranged family members or identity thieves surfing the Internet. Financial 17

Offshore Banking: Privacy & Asset Protection privacy can also be Offshore Banking: Privacy & Asset Protection the best protection against frivolous lawsuits that could end with big judgments against you (and no telling what cost). If you dont appear to have sufficient funds to justify a lawsuit in an attorneys mind, hell probably drop you as a target. Simply put, assets you place offshore are off the domestic asset tracking radar screen. The U.S. is one of the few nations lacking a federal law that protects bank or securities accounts from disclosure, except under narrowly defined circumstances. Many disclosures are illegal in other countries, either under international agreements or under national laws guaranteeing financial secrecy, as in Switzerland. Privacy is especially strong if you place assets in a nation with strong privacy laws. There is also greater privacy when you use an international business corporation (IBC) or a foreign-based asset protection trust (APT). Offshore financial centers protect the identity of trust and IBC owners. While these legal entities take a bit more time and effort, they can greatly enhance your financial privacy. 3. Investment diversification. Many of the worlds best investments and money managers will not do business with U.S. citizens or residents directly. Its easier for them to do business with the rest of the world than comply with the complicated and costly U.S. SEC rules. 4. Higher returns. There are opportunities in the traditional financial markets, such as offshore mutual funds and London-traded investment trusts with much higher returns than are generally available in U.S. markets. In spite of a recent downturn, offshore and emerging stock markets have done far better that those in America over the last several years. 5. Currency diversification. You can stabilize your portfolios and protect against the falling U.S. dollar by simply holding or trading other currencies. Example: earning nearly 20% on the declining dollar by trading it for the euro. For decades, the U.S. dollar has been losing value in relation to stronger currencies. In 1970, a U.S. dollar would purchase 4.5 Swiss francs. Since 1971, the franc has appreciated nearly 300% against the U.S. dollar. Now the dollar purchases only 1.2 Swiss francs. While U.S. investors can purchase foreign currencies through a few U.S. banks, offshore banks generally offer higher yields, lower fees and lower minimums. 6. Safety and security. Twenty years ago, the United States experienced a wave of bank and savings and loans failures at a rate unmatched since the Great Depression. In contrast, offshore banks arent exposed to risky investments such as Third World debt and highly leveraged derivative investments. Further, these banks are located in politically neutral countries that do not conduct offensive interventionist foreign policies (and thus are less likely to face a terrorist attack than other nations). 7. Insurance against closure of U.S. securities markets. We all learned the need to have part of our assets outside of the U.S. when our markets were shut down for five full trading days following September 11, 2001. But, although U.S. markets were closed, individuals with foreign accounts were able to trade securities on foreign exchanges. 8. Deferred taxes. In spite of all the fraudulent offshore hucksters trying to sell offshore tax savings, for Americans there are not a lot of tax savings to be had by going offshore. American citizens and resident aliens are liable for annual income taxes, no matter where that income is earned or where the person lives. But it is legal to purchase offshore annuities and life insurance which, if properly created, can defer current U.S. taxes until the time when the annuity or insurance actually is paid out. And these devices may be able to save on estate taxes as well, giving your heirs a bigger share.

Word to the Wise

Relatively few investors are taking advantage of this global diversification. But heres your chance to take 18

Offshore Banking: Privacy & Asset Protection advantage of the impenetrable asset protection available offshore. At the very least, this is your chance to store a portion of your assets offshore just in case. For the very good reasons listed above, and for self-interest as well, none of us can afford to be xenophobic in the 21st century. Theres a whole wide world out there offshore and you only need to recognize that fact and act.

Profitable Investing in Your Offshore Bank Account

January 2004 by Mark Nestmann An offshore bank account can give you almost unlimited access to the offshore investments we regularly feature in TSI. But for many investors, the idea of an offshore bank account is shrouded in mystery. In this article, Ill help you clear up the mystery. Ill help you decide what type of offshore account is best for you, where you should open it, what information youll need to disclose to get started, the best way to transfer money to and from your account and a few of the possible investments you can make with it. Plus, Ill show you some ways you can reduce the fees associated with an offshore account.

How to Choose the Right Offshore Bank

Most offshore banks specialize in one of the following areas: 1. Taking money on deposit and lending it to businesses (commercial banks) 2. Taking money on deposit and lending it to private individuals (savings and loans) 3. Buying and holding investments for private individuals (private banks) The type of account you need depends on your objectives. If you just want a small offshore nest egg, and dont plan to actively trade with your account, your best option is to use an offshore building society or savings and loan, or a commercial bank. Interest rates are usually higher and the fees are much lower. If you are doing business offshore, you will likely need an offshore commercial bank that specializes in business financing, multiple currency dealings and merchant payment solutions. However, if you are like most members of The Sovereign Society, and are an active investor, youll want to use a private bank. The Sovereign Society has established working relationships with private banks in Austria and Denmark. During the coming year, we anticipate establishing such relationships with private banks in other offshore centers. Once you decide on a bank, here are the questions you must ask: What types of accounts are available for international investors? Are there any investments that nationals of your country are not permitted to purchase? What taxes will be withheld from my investments? What investments are considered part of the banks balance sheet and thus available to the banks creditors (including depositors) in the event of the banks insolvency? What are the fees for securities transactions and custody? What other fees apply to the account? Is my account insured against losses in the event of the banks insolvency? How can I transact business with the bank? Are telephone, fax or e-mail orders accepted? Is online banking available? If so, is this service available in English? 19

Offshore Banking: Privacy & Asset Protection Youll also want to check out the financial standing of the bank. A convenient service for this purpose is at www.fitchratings.com.

Opening and Funding the Account

Banks worldwide now require customers to identify both themselves fully and the source of their funds before opening an account. However, information you provide a bank outside your own country will not be easily available to someone in your home jurisdiction. Indeed, in some countries, such as Austria, Panama and Switzerland, bank secrecy laws assure that information about your account will only be released in the event of a criminal investigation, and even then only with the order of a local court. For private banks, information you must provide will include: A detailed application, including your name and address; what type of account you wish to open; what currency you wish for it to be denominated in; and whether you wish to apply for a debit card. To satisfy the know your customer regulations, youll need to present a copy of your passport and possibly a utility bill to confirm your residential address. Investor profile. The bank will ask that you specify your investment objectives, investment experience and the investment risk approach you prefer. Source of funds. You will be asked to specify the source of your funds, and in some cases, obtain a reference letter from a bank in your home country stipulating that the funds have been earned legitimately. Choice of beneficiary.Without proper planning, its possible that upon your death, your account assets will not be made available to your loved ones without a complex and expensive legal proceeding. The best way to avoid this is to list your spouse, partner or other person as an account beneficiary. This designation is revocable you can always designate a new beneficiary. For banks that dont have this option available, an alternative is to make your intended beneficiary a co-owner of the account. A wire transfer is the fastest way to fund your account. Your account is also credited much more quickly than with a check. Just ask your domestic bank for wiring instructions. Most offshore banks also accept personal or business checks. The disadvantage is that it takes a considerable length of time for a check to clear. You can also fund your offshore account with pension assets. (For more information on this option, see TSI 7/03.) In most offshore jurisdictions funding accounts with cash is discouraged and in some cases prohibited altogether.

What Kind of Account?

Offshore banks offer the same types of accounts as domestic banks, although the name of the account and the way its used may differ. When you first deposit funds, your offshore bank will open a current account. The account will earn no interest or a very low interest rate, and the assets will be held on the banks balance sheet. Certificates of deposit are available at most foreign banks, in almost any currency. You earn more interest for a larger investment or for a longer commitment. The interest rate also varies depending on the credit quality of the issuer and the currency. Interest rates tend to be slightly lower than those published in financial newspapers, such as TheWall Street Journal or Financial Times. Depending on the banks policy, CDs may or may not remain part of the balance sheet. Securities accounts permit you to purchase stocks, bonds or funds, anywhere in the world. The purchase price for each trade, less commissions, is debited from your account and credited to a custodial account maintained by the bank. Your securities are usually segregated from the banks assets and are not available to meet claims by the banks creditors. But inquire to make sure this is the banks policy. As with a domestic securities account, you may issue limit orders, stop loss orders, etc. You may also buy and sell put and call options on many foreign securities, although the rules may be different than in your home coun20

Offshore Banking: Privacy & Asset Protection try. For instance, with European-style options, you can only cash out on the last business day before expiration. Dividend and interest payments may be subject to withholding tax, depending on the country in which they are issued. You can often reclaim withholding tax under a tax treaty between your country and whatever jurisdiction has imposed it. The United States, for instance, has tax treaties with more than 50 countries. While it is common for offshore banks to purchase U.S. securities on behalf of their clients, we dont recommend this strategy, due to the IRS qualified intermediary (QI) regulations. These legal provisions strip away all privacy for U.S. securities holdings purchased through a foreign bank. Precious metals accounts have purchase options similar to those available for securities. Depending on the type of custody you choose, the metals you purchase may or may not be part of the banks balance sheet. Managed accounts are available if you have the equivalent of US$250,000 (more at some banks) to invest. The stated portfolio management minimums of most private banking departments are negotiable, depending on the client. You can choose to have your portfolio managed for growth, income, or a combination of growth and income.

Buying Foreign Currencies

One of the advantages of a foreign account is that it gives you easy access to foreign currency markets. Heres an example of how this strategy might pay off. Lets say that you purchased a one-year CD denominated in euros with U.S. dollars on Jan. 1, 2001. You invested US$10,000 in the CD, which had an interest rate of 4.0%. On that date, US$10,000 would purchase EUR$9,414. One year later, on Jan. 1, 2002, you rolled over the CD for another year, this time at 2.5%. And you did the same Jan. 3, 2003, at an interest rate of 2%. On Jan. 1, 2004, your CD will be worth EUR10,236. But in the meantime, the euro has appreciated against the U.S. dollar.We went to press Dec. 9, 2003, so we dont know the year-end euro-dollar exchange rate. But if its around what it is today1.22if you cashed out your CD on Jan. 1, 2004, and converted it back to dollars, you would have US$12,488, less foreign exchange fees. Because of your currency gains, your total three-year return nearly tripledfrom 9% to 25%. Of course, the euro could have just as easily gone down against the U.S. dollar. But since the long-term trend of the dollars value is down, investing in global currencies may be an intelligent diversification.

Account Fees Youll Pay

Theres no getting around it fees in offshore accounts are higher than they are in U.S. accounts. This is a consequence, in part, to the fact that foreign laws generally prohibit financial institutions from disclosing any information about individual accounts to outside sources. In contrast, U.S. banks and brokerages can freely sell or exchange information about your account to third parties. Greater privacy, though, comes with a price. Fees and commissions you can anticipate paying offshore include: Currency conversion fees and hidden spreads. Commissions for currency conversions generally are about 0.15%- 0.5%, but beware of conversions that dont occur at or near the interbank rate, but at a less favorable retail rate that may mask a hidden charge of 2% or more. An account maintenance fee. This varies from a flat rate equivalent to about US$50/year to a percentage of your accountas high as 0.25%/year. A statement preparation fee. Each time the bank executes a transaction, it charges a fee to print and mail you a statement. Commissions offshore are significantly higher than in the United States. Expect to pay 0.15% or more for 21

Offshore Banking: Privacy & Asset Protection each bond trade and 0.3% or more for each stock you purchase. Commissions for precious metals generally are about 1%. You may even be charged a commission of 0.15%-0.5% to purchase a CD (although generally not to roll it over). The good news, though, is that commissions are coming down due to greater competition. Loads and management fees. When you purchase offshore funds, you can anticipate paying a front end load of 5% or more, plus annual management fees as much as 3%. Even offshore funds without a frontend load may impose a rear end load if you sell before a specified number of years have elapsed. Safe custody fees. For securities the bank purchases for your account, you will pay a custody fee from 0.15%- 0.5% per annum based on their market value. As custodian, the bank collects dividends, coupon payments and, if the security has a maturity date, the value of its principal when it matures. These fees are for collective custody. This means your holdings are not segregated from alike and interchangeable securities of other investors. Higher fees apply for individual custody, in which case your holdings are segregated and placed in secure storage under your name. In both types of custody, your holdings are generally not part of the banks balance sheet. Portfolio management fees. A typical portfolio management fee is 1% per annum. This fee does not include fees and commissions for trades on the account. Other fees. Many services provided at no charge by domestic banks or brokerages are only available for a fee at offshore banks. To avoid surprises, before ordering a service, ask about the fee associated with it.

Six Fee-Saving Strategies

Here are a few ideas to reduce fees in your offshore account: 1. Limit securities purchases to blue chip issues that you plan to hold for an extended period. This reduces commissions for securities trading. 2. Purchase closed-end funds that trade like stocks on a securities exchange. This eliminates the loads imposed by many offshore funds. Your bank will purchase and sell the fund at the market price, which may represent a premium or discount to the value of the underlying assets. You pay the same commissions as you would for any other security. Note: We generally do not recommend paying premiums for exchange-traded funds (ETFs). 3. Take delivery of your securities and precious metals and maintain custody in a safety deposit box or private vault. This avoids custodial fees, but you will be responsible for collecting dividends, coupon payments, etc. If you want to sell your securities, you will need to find a broker willing to execute the trade and then arrange to have the certificates or metals securely conveyed. 4. Use intermediaries for currency conversions. If your bank will not conduct a trade at or near the interbank rate, you may want to use a foreign currency account or trade currencies through an intermediary foreign exchange broker. One such intermediary is Asset Strategies International, headed up by Council of Experts member Michael Checkan (www.assetstrategies.com). Another foreign exchange service is www.customhouse.com, with an online affiliate at www.xe.com/fx. 5. Instruct your bank not to mail you account statements. This will eliminate or substantially reduce statement fees. At some banks, you can arrange to access them online. 6. Ask for a lower fee. If you are a good customer, and believe that a fee for a trade or service is too high, just say so. Chances are the bank will reduce it to a more reasonable level.

Tapping Your Offshore Nest Egg

Its generally best to leave your offshore assets offshore unless you need to tap into them in an emergency. This keeps the assets off the domestic radar screen. But if you require access to these assets, the same meth22

Offshore Banking: Privacy & Asset Protection ods used to fund foreign investments may also be used to reclaim them. The easiest and most convenient way to obtain payments from an offshore bank is via wire transfer. It may also be possible to have a check issued in your domestic currency by a correspondent bank located in your country. If you open a large enough account (approximately US$5,000 at commercial banks, higher at private banks), you can apply for a debit card to withdraw funds. Ask whether the card can be used outside the country of origin and what the fees are for using it. Also find out if the bank or credit card network imposes a currency conversion fee if you need to withdraw funds in another currency. However, dont use a debit card if you are seeking privacy from your government. The U.S. government has obtained the credit card records of hundreds of thousands of Americans. These Americans allegedly used offshore debit cards tied to bank accounts that the IRS says were never reported to the U.S. government and for which taxes were never paid.

Where to Open Your Foreign Account

Banks are part of modern commerce in every country. But The Sovereign Societys top country picks for offshore banking are Austria, Denmark, Panama, Switzerland and Liechtenstein. We recommend these jurisdictions because they offer favorable laws to foreigners investing or doing business there, including (in most cases) zero taxes for non-resident investors.

How We Saved You by NEVER Recommending Switzerlands Largest Bank

August 2008 by Robert E. Bauman, JD As you may have heard, the once venerable Swiss bank, UBS has taken a turn for the worse over the last year. When the sub-prime crisis hit the banks last year, UBS was caught right in the crosshairs. Eventually, the Swiss bank had to fess up to more sub-prime exposure than any other bank in Europe. Already the Swiss bank has written-down (crossed off) more off their books than any other bank worldwide. Truth be told: We did not foresee the terrible UBS business judgment that led to this billion dollar loss (very few could have guessed a Swiss bank would be so shortsighted). No, what disturbed us since The Sovereign Society began was UBSs unwillingness to stand up for their clients financial privacy. It all started back in 1998, when UBS surrendered to demands from the U.S. Federal Reserve. The Fed gave their blessing to the 1998 merger of Swiss Bank Corp. and Union Bank of Switzerland which created UBS. But the Fed only signed off on the decision after UBS agreed to provide U.S. regulators all information necessary to determine and enforce compliance with [U.S.] federal law. No doubt, that meant U.S. tax laws too. U.S. regulators had threatened to shut down the banks extensive U.S. operations, (an implied threat that still hangs over UBS today). Rather than defend their clients privacy rights and Swiss bank secrecy, the bank compromised in a big way. That is why we have always advised U.S. depositors considering Swiss banks to avoid UBS AG and any other Swiss bank with U.S. based branches, affiliates or banking operations, other than a mere representative 23

Offshore Banking: Privacy & Asset Protection office. We have informal arrangements for our members with reputable private investment banks in Switzerland, Liechtenstein, Austria, Singapore, Hong Kong, Monaco and other jurisdictions that do guarantee financial privacy by law and have no sub-prime exposure. As I said, as part of UBSs agreement with the Federal Reserve, they agreed to divulge financial information about their clients (which is unheard of in Switzerland). In other words, they agreed to run like an American bank. So is it any wonder that this bank suffered under sub-prime exposure just like the other American banks?

Go East for Your Private Banking! Why Singapore and Hong Kong Are Quickly Gaining Ground as the New Money Havens
July 2008 by Jack W. Flader, Jr Not so long ago, the joke was that you couldnt walk down the central districts of Hong Kong and Singapore without tripping over a plethora of lawyers. Fast forward to 2008, and you still hear the same joke. Only this time, you cant walk into a power breakfast, lunch, cocktail hour or gala dinner without tripping over a mass of well-groomed private bankers. The Go East mentality of private bankers has created opportunities for many as well as concerns regarding the realities facing the industry.

Why Bankers Are Going East

The onslaught of private bankers is heading east in earnest largely for two reasons. First, the European Unions infamous tax savings directive has forced bankers to pick up and move from Europe. The now infamous tax demands bankers to withhold taxes from their clients. This effort to coerce greater transparency has chased the well-heeled Swiss, Austrian, and Liechtenstein private bankers to Hong Kong and Singapore. Once they set up shop in Singapore or Hong Kong, these private bankers can continue to ply their trade without worrying about Europes longest arm grabbing their clients wealth. Second, the Asian Pacific Wealth Report boasted in 2006 that high-net worth individuals in the region hold assets equivalent to US$8.4 trillion. Thats up by more than 10% from 2005. And they also forecasted that annual growth would jump 8.5% per annum to US$12.7 trillion by 2011.

What Hong Kong and Singapore Can Offer You

It is clear to those bumping into private bankers every day at upscale restaurants, that the banking industry here is growing at top speed. This offers many opportunities such as... Access to international equities, bonds and foreign exchange that may not be available via your home banker Strong banking privacy Protection from anyone who might want to sue you in the future 24

Offshore Banking: Privacy & Asset Protection All the investment potential you would expect from a private bank in Switzerland or Liechtenstein An easier way to buy Asian real estate as local banks are well-versed in lending within their territories The peace of mind that comes with having a portion of your savings far beyond the economic troubles of both Europe and the U.S. right now. So by all means, go east for your private banker, but be prepared for the rough and tumble, competitive environment of Asias crowded private banking arena!

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The Matter Of Cash CHAPTER FOUR

The Matter Of Cash

Gold, Money And Freedom: Inseparable Siblings.......................................... 27 Why A Few Misplaced Strong Dollar Words Could Force The Buck Higher..................................... 28 The 3 Currencies Everyone Will Want When Oil Hits $150.......................................................... 29 Why Emerging Market Currencies From Argentina to South Africa Offer Extraordinary Opportunities................... 30

Gold, Money & Freedom: Inseparable Siblings

March 2007 by John Pugsley Money is the most important thing in the world. It represents health, strength, honor, generosity and beauty money is the counter that enables life to be distributed socially: it is life as truly as sovereigns and bank notes are money. George Bernard Shaw When Shaw wrote those words in 1906, the money he praised was not the money we hold today. The sovereigns he referred to were quarter-ounce solid gold coins, and the bank notes he mentioned were redeemable in gold. At the beginning of the 20th century, all the major nations, including the United States, Great Britain, France and Germany, were on the gold standard. The governments of these nations chose gold as the medium of exchange for a simple reason. They knew that for over 2,000 years, governments that issued currencies not fully backed by gold or silver eventually toppled into economic chaos. The Roman Empire rose and fell through the debasement of gold money. By secretly pilfering gold from coins, emperors funded foreign adventures and expanded their power. In 15 B.C., Emperor Augustus established the Aureus at 126 grains of gold. In 60 A.D., Nero devalued it to 110 grains. By 200 A.D., it was down to 60 grains. And by 268 A.D., the coin no longer contained any gold at all. Each reduction in the gold content was used to increase the number of circulated coins. Gradually, the Roman Empire crumbled. In 1720, John Law convinced the King of France he could gain revenue without raising taxes. His money creation schemes brought hyperinflation and financial ruin to France. Only 70 years later, during the French Revolution, the French government again pretended prosperity could be restored by issuing paper money, called assignats. Again this resulted in economic ruin for the country. Mirabeau, a French politician of the day, said that infamous word, paper money, ought to be banished from our language. 27

The Matter Of Cash Near the end of the 19th century, U.S. bankers and politicians again argued to abandon the gold standard. In 1876, Andrew DixonWhite, American college president and diplomat warned a group of U.S. congressmen about the potential consequences. The expansion of paper money, he wrote, stimulates overproduction at first and leaves every industry flaccid afterwardbreaks down thrift and develops political and social immorality. Some listened, but in the end, the paper money advocates won. In 1906, Shaw could not have known the gold-backed money he praised was disappearing. The British, U.S. and German governments couldnt finance war without abandoning the gold standard. The U.S. passed the Federal Reserve Act, empowering the newly created Fed to issue IOUs backed not by gold but by Treasury IOUs. The German government simply began printing Reich marks. And the venerable British sovereign soon disappeared from circulation. The gold standard crumbled, allowing the world to be inundated by paper money. The 20th century was its aftermath.WorldWar I, the roaring Twenties, German hyperinflation, the tariff wars, the Great Depression, Hitlers rise to power, Roosevelts outlawing of Americans right to own gold, andWorldWar II, are all the offspring of the abandonment of gold-backed money. Today rivers of dollars, pounds, yen, euros, pesos, yuan, rubles, flow freely from central banks. They finance government expansion and erode every citizens control of his or her future. As sovereign individuals, we are relatively helpless to alter how gold rises and falls as money. However, we can devise a personal gold standard for ourselves, by investing in gold. We can invest in companies that produce gold and diversify into the strongest of the fia

Why a Few Misplaced Stronger Dollar Words Could Force the Buck Higher But It Will Take Time
July 2008 by Jack Crooks Something youll learn once youve got a good amount of trading under your belt is the markets dont owe you anything. And if you ever come to a place where you think youve got them figured out, expect a good beating instead. The last few months have certainly dished out a fair share of beatings to global investors. After touching an all-time low on March 17, the dollars consolidation path is definitely offering up far more questions than answers. And the financial market backdrop isnt shedding a whole lot of light on the situation.

Is This a Sign of a Dollar Bottom?

On the bright side, there are signs that we could finally see the dollar bottom this time around. Last month, President Bush got his two cents in about the need for a stronger dollar. But of course these comments have little clout, and merely mirror Treasury Secretary Hank Paulsons agenda for a stronger dollar. Thats an agenda that has mostly been backed by empty words rather than substantive action. However, the President was just over in the Middle-East trying to secure the current dollar pegs among Saudi Arabia, the United Arab Emirates, and Qatar. The potential for de-pegging among the Gulf Cooperation Council (GCC) countries has been a talking point for dollar bears over the last year or two. Mr. Paulson also mentioned a possible dollar intervention. Easier said than done, but he may get help... Last month Ben Bernanke sent the dollar soaring with inflation comments aimed directly at the conse28

The Matter Of Cash quences of a weak dollar. Its VERY rare for central bankers to discuss foreign exchange rates. But Big Ben has gone as far as labeling a weak dollar as a major negative. Talk about a change of heart. Of course, those comments were soon outdone by European Central Bank chief Jean-Claude Trichet. His remarks sent the euro soaring and the dollar reeling. The dollar-rout continued and trumped the dollars push to new near-term high. Then Bernanke came out firing again. His comments capped a strong dollar recovery and opened up the door for follow-through strength. Bernanke stated simply that he and policymakers will strongly resist a surge in inflation expectations. Its fairly clear where the Fed stands. In the face of a struggling economy, policymakers may not be able to raise their Fed Funds rate. But with rapidly rising prices, its a good bet that the Fed Funds rate wont be going lower than the current 2% any time soon. These are welcomed developments that at least point in the right direction for the buck. But it could still be a bit too soon to schedule a pause in the dollars long road down.

More Dollar Talk, Not Enough Action

Ultimately, a bearish flag pattern is emerging. This would imply an eventual break lower and then a powerful breakdown to new all-time lows for the buck. Until a there is clear resolution to the upside or downside, expect a lot of talk and a lot of whiplash. If you dont have the stomach for the whiplash, I suggest you stay away from the buck for now. Instead stay long the Aussie dollar and Japanese yen ETFs that are currently in the TSI portfolio.

The Three Currencies Everyone Will Want When Oil Hits $150 a Barrel Plus a FDIC-Insured Way to Own Them All
July 2008 by Erika Nolan Its official. The historic run-up in oil prices now exceeds even the manic rise of tech stocks in the late 90s, when these shares shot up 640%. Oil is now up 697% in the last seven years. But unlike tech stocks, oil has strong fundamentals going for it. Thats why prices wont drop significantly anytime soon. But while were all moaning about higher prices and scurrying for ways to cut back on our energy bills, three countries are very quietly reaping all the rewardsand you can too.

Three Countries Cheer Oil Prices On!

With oil prices steadily rising, you could say these three countries have already hit pay-dirt. Their neighboring countries are paying hand over fist for their resources. And all three countries are quietly tucking those assets away in their coffers, and building up their economies in the process. And of course, long-term their currencies are also profiting, from these soaring oil revenues. These fortunate countries are Australia, Canada, and Norway. According to our Currency Expert, Jack Crooks: In a world with an insatiable demand for commodities, 29

The Matter Of Cash betting on the commodity-based currencies over the long-term does seem to stack the odds in your favor. For starters, Australia benefits from the growing demand for raw materials from emerging economies and specifically from China. As a commodity-based currency, the Australian dollar is a popular currency with investors seeking to take advantage of the growing global need for resources. Meanwhile, Canada has the second largest oil reserves in the world, and the oil-guzzling U.S. is one of its best customers. As such, the value of the Canadian dollar or loonie is closely tied to the price of oil. And finally, Norway is the third largest net exporter of oil. Norways population enjoys one of the highest standards of living and a generous pension program fueled by oil revenue. Historically, the Norwegian krone also tracks the price of oil.

Introducing the Long-Term Way to Play Oil Currencies

EverBank has created a special new certificate of deposit (CD) that gives you exposure to each of these countries, and their dynamite currencies. Its called the NEW WorldEnergy CD. This CD was specifically designed to give you ultimate diversification across three currencies for a lower price. If you invested in each of these currencies individually, you would pay US$30,000. But this CD packed with all three currencies is available to you for a minimum investment of US$20,000. Best of all, this CD is FDIC-insured. That means that any account you open at EverBank is insured up to US$100,000, just in case. Of course, this NEW WorldEnergy CD has already enjoyed some impressive gains over oils recent run-up. In fact, its jumped over 16% in just the past year. But these commodity currencies will still pump up your long-term currency portfolio. And its the best way to fight against those higher gas prices as oil prices head higher. This CD is available in three to six-month terms. But I recommend you hold these currencies long-term for superior protection in your currency portfolio. For more information on the NEW WorldEnergy CD, you can view EverBanks page at http://www.everbank.com/001CurrencyCDIndexNewWorldEnergy.aspx?referid=11961 or call EverBank at 1-800-926-4922.

Why Emerging Market Currencies From Argentina to South Africa Offer Extraordinary Opportunities
August 2008 by Jack Crooks Theres no denying that some of the best investment opportunities on earth have been far outside the United States over the last few years. In fact, up until the last year (when the credit crunch put a dent in global investment values), investors were practically throwing money at the fastest-moving emerging markets. And even with the credit crunch, these so-called developing countries are still banking some serious profits. According to The Wall Street Journal, this market is growing millionaires like weeds, at a rate five times faster than just last year. But honestly, thats old news. Im sure youve been introduced to emerging markets before. But you may not know about the incredible opportunities available to you in emerging market world currencies often called exotic currencies. 30

The Matter Of Cash Never heard of exotic currencies? Youre not alone. This market has almost exclusively remained the playground of large Wall Street institutions. In fact, I would say the overwhelming majority of individual investors have never even considered investing a single dollar in this exclusive market. But now, thanks to the growth of many fine retail foreign exchange brokerage firms, really anyone can invest directly in the hottest emerging/developing world currencies in every major region across the globe, including Asia, Europe, the Middle East, and Latin America. Of course, this opens up a whole new asset class opportunity to your portfolio (which is a welcome development considering how stocks and funds have been hemorrhaging lately). But Gmore importantly, exotic currencies give you a chance to dramatically enhance your returns EVEN during bear markets. The reason major Wall Street investors like these currencies is because you can add increasing amounts of leverage by trading exotics. This leverage simply isnt available when youre trading stocks. That means you have the opportunity for huge returns in a very small window of time.

Why Exotics? Arent the Euro and Pound Good Enough?

Its true that most investors tend to stick to the seven major currencies. Those include the big name currencies like the U.S. dollar, pound, euro, Canadian dollar, Swissfranc etc. I, myself, am also a huge fan of the seven majors. But the truth is: These currencies are not the only game in town. By expanding your portfolio to the exotics, you can take advantage of the incredibly profitable trends that will drive the currency markets years from now. You could say youre investing in what COULD BE the next major currencies on the planet. But know this: These fast-moving currencies are not for the faint of heart. These currency plays are for hard-nosed investors who are ready to jump in the most volatile markets to grab the serious gains. Legendary emerging markets fund manager Mark Mobius trots around the globe digging out investment trends for the Templeton Fund group. Recently, he identified three key major themes that will drive the emerging markets in the years to come. I believe these key themes are the exact same reasons why well see much faster growth in the emerging world currencies compared to the seven major currencies from the developed countries. That means more profits

Theme 1: Asian Consumers Finally Buy

Asian shoppers are finally starting to open their wallets. Already we are seeing a sign of vibrant consumerism taking hold as overall wealth, as measured by per capita income. But hang on to your hat...because we are just at the beginning of this boom. Let me explain. In an emerging world market, it has been shown there are key thresholds of per capita income. Once consumers break through those thresholds, it typically leads to huge growth in consumer spending. For example, back in the beginning of the 20th century a French economist named Aftalion showed that if the average per capita income for a country is below US$1,000 no one buys a TV. When it moves above US$1,000 almost everyone buys a TV. We are seeing similar threshold levels for automobiles and other consumer items. So while market timers are dismissing the small blips in per capita income, you and I know these small blips are a sign of a huge booming consumerism to come. If the Asian population is buying, the huge global international firms will rush there to grab a piece of the market share. That means capital from the developed world will flow into the emerging world in the next few years. Capital flow drives free-floating currencies, so the exotic Asian currencies will also profit. 31

The Matter Of Cash Theme 2: The Need for Gas, Food and Everything Else The demand for commodities has already been an important driver of growth in many emerging/ developing world economies. Recently several emerging markets have soared on the back of skyrocketing commodities prices. Think Middle-Eastern Gulf State oil exporters, Mexico, Russia, and Brazil...just to name just a few. The demand for commodities has literally transformed Brazil from basket-case to a budding contender for superpower status. You could have road the profit wave in Brazil simply by owning Brazils currency, the Brazilian real.

Theme 3: The Next Superpower

Economic power is shifting dramatically and quickly to the white-hot nova we all know as China. I believe China will be among the top two or three major world economic powers 20 years from now. China already represents all the growth potential we think of when we consider the emerging/developing world. A vast workforce of low-cost and increasingly high-skilled labor, constant progress increasing the quality of final products, a burgeoning consumer-class and large flows of long-term capital investment flowing to the country characterize this economy. The integration of the Asian-bloc nations around Chinese growth opportunities should be a powerful, self-reinforcing driver for the entire region of currencies. I expect all these nations will move higher relative to the currencies of developed world nations over time. These are the three long-term drivers of growth for the emerging world economies. These drivers will literally dump money into the emerging markets in the next few years. And you can profit, simply by holding and trading their currencies. But in reality, growth never follows a straight line up. And thats another reason why exotic currency investing can be so profitable. You can invest in long-term trends, but you can also profit from huge volatility the ups and downs along the way in the short-term.

Make Money in the Long & Short Term

You rarely think about holding investments for 10 or 20 years. However, given the growth opportunities in the emerging world, that timeframe can make a lot of sense. And the exotic currency world offers you all types of opportunities, in all types of timeframes. As I see it, its hard to find any single investment class that offers the incredible potential for profit. Thats true whether youre investing for the long-runor youre targeting speculative profits over the intermediateterm by applying moderate-leverage...or youre swinging for the fences. But in the world of exotic currencies, you can ride major economic trends for years or days depending on your trading strategy to come. A whole new world of opportunity awaits...

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Investments CHAPTER 5

Investments
What to Do When Your Stock Earnings Wont Beat Inflation for the Next 10 Year............................ 33 How to Invest Where the Conservative Swiss Fly for Safety. .......................................................... 35 Your Guide to Understanding Foreign Currencies and Abandoning the Sinking Buck................... 37 Diversify Your Wealth with the Worlds Top Six Currencies and Gold (Existing.......................... 39

What To Do When Your Stock Earnings Wont Beat Inflation for the Next 10 Years
September 2008 by Eric Roseman Mark my words: The next decade will be a challenge for stock investors. Over the next 10 years (and possibly longer) were all facing a deadly combination of rising goods inflation and accelerated asset deflation. This two-punch combo could hit your portfolio from all sides if youre not careful. For the first time since the 1970s, weve been rocked by two severe bear markets in the same decade. Amazingly, over the last 10 years the S&P 500 Index has averaged a lowly 1.4% annualized return while the MSCI World Index has gained a paltry 2.5%. Returns like these wont exactly finance a comfortable retirement. And thats without inflation. If you adjust for inflation youll discover U.S. stocks have declined 3% per annum. In other words, stocks have not been beating inflation for the last 10 years.

The Pathetic Dollar Drags Down Profits

Even with the recent run-up in gains in August, long-term the dollar is still a pathetic monetary instrument. A months worth of gains does not change the long-term picture for the dollar. Inflation has literally eaten away at the bucks purchasing power for the last century. The dollar has sunk lower and lower under the guise of the Federal Reserve since 1913. In fact, the worlds reserve currency has shed a formidable 96% of its value against gold since 1971. In short, Americans and all international investors holding dollars continue to suffer from a dramatic loss 33

The Matter Of Cash of purchasing power. Worse, the weight of the ongoing credit crisis and its astronomical costs will continue to suffocate the U.S. because the Fed will expand credit to pay for bulging deficits and future bailouts. Admittedly, the future looks pretty scary for U.S. and international investors. In this type of bear market, you need an arsenal of options to protect your downside exposure and minimize the risks in your portfolio. Here are my five favorite strategies for protecting your portfolio during this era of chaotic markets: Selective deep value and income equities The TSI Chaos/Market Hedge Portfolio Fine Wine Investing Gold Foreign Currencies

Its Time To Get Selective with Your Equities

As I said, many stocks will remain hostage to rising inflation and a decline in domestic consumption over the next several years. However, that does not mean you should give up on EVERY single stock. On the contrary, you should still keep a handful of both major and emerging markets in your diversified portfolio. Depending on your age and risk tolerance, equities should represent no more than 35% of your portfolio. Mutual funds are one of the easiest ways to diversify your portfolio. Value-based mutual funds such as Tweedy, Browne Global Value Fund in the United States and Norways Skagen Global Equity Fund are excellent long-term products. TSI continues to recommend a host of companies and securities worldwide that trade at discounts to their peers and averages. Companies like Nestl and Kraft Foods are highly profitable multinationals that will continue to feed the world and grow earnings. For stocks, concentrate on securities that pay dividends. Even in a tough market, dividends can make a big difference. Stock prices can shift daily but dividends give you real money no matter what. Youll need those dividends long-term as equity markets come undone.

Profit from a Decade of Chaos!

One of the best ways to hedge your market exposure is to buy investments that dont follow the general trend of the stock market. In our December issue, we recommended the TSI Chaos/Market Hedge Portfolio to help your portfolio zig when the markets zag. Since January 1, the TSI Chaos Portfolio has gained 9.55% while the MSCI World Index lost 15.6% the S&P 500 Index dropped 14.9%. Right now, the Chaos Portfolio includes the Japanese yen, short-term Treasury bonds, a reverse index fund and the Prudent Bear Fund. Over the next few months, Ill introduce other chaos investments that can potentially thrive amid market mayhem.

Fine Wine: The Anti-Stock

Want something completely disconnected from the stock market? Try fine wine. The London International Vintage Exchange (Liv-Ex) is an index of leading vintages around the world. Just since 2004, this index has gained a cumulative 162%. Plus, its already up 9.5% in 2008. Fine wine has smashed the returns generated from major market stocks over the last several years. In some 34

Investments cases, investors have earned much bigger profits from high-quality and sought-after vintages. For example, in the last bear market for stocks (2000 to 2002) a case of Ptrus more than doubled in price to US$22,400. And if you bought a vintage case of 1982 Ptrus back in 1994 for US$3,000 youd be sitting on grapes worth more than US$30,000 today. Not bad for a wine speculation! Several online trading platforms are available to invest in wine although the minimums can be quite high. If youre serious about investing, you should commit at least US$3,000 for a good vintage, typically sold by the case. To learn more about fine wine investing visit www.liv-ex.com and www.worldwineXchange.com.

Gold: On the Road to $2,150

Gold is one of the best low-cost hedges against the long-term decline (and demise) of the dollar. Its a natural inflation-hedge because gold tends to rise in value as the dollar sinks (and vice versa). Since hitting a low of US$255 an ounce in 1999, gold prices have surged a cumulative 253%. Adjusted for inflation since 1980, gold prices should fetch approximately US$2,150 an ounce before this bull runs its course. Gold is a safe-haven in times of crisis, especially in a world marred by growing deficits, financial instability and the governments maddening efforts to destroy our purchasing power. I say every investor should hold at least 10% of his or her net worth in gold. You can hold your gold through certificates held in foreign private banks, gold coins or exchange traded funds. The TSI Chaos Portfolio also holds the iShares COMEX Gold Trust or IAU traded on the NYSE.

Finally, Dont Forget about Currencies

Since 2001, many foreign currencies have posted spectacular gains against the U.S. dollar. Currencies provide another source of optimal portfolio diversification because they negatively correlate to stocks. One of the best ways to diversify is with a basket of currencies like EverBanks All-Weather Portfolio and Asian Currency Portfolio. Both products are available at EverBank (www.everbank.com) and provide deposit protection insurance up to US$100,000. In Asia, most currencies remain heavily undervalued vis--vis the dollar. Over the next several years, Asian policymakers will revalue their currencies against the dollar. Therefore, the Asian Currency Portfolio is best suited to maximize this long-term trend. Its also already gained 10% since we first recommended a year ago here in The Sovereign Individual. Buy now. Bottom line: The next 10 years will not be easy on investors. Make sure your portfolio includes quality common stocks, mutual funds, alternative investments, currencies, gold and cash.

Two AAA Rated Currency Plays That Will Shield Your Capital No Matter What How to Invest Where the Conservative Swiss Fly for Safety
June 2008 by Robert Vrijhof Record-setting inflation all over the world. Rising unemployment. Credit defaults. Slashed interest rates. Sinking equities. Seriously compromised bank lending. Hundreds of billions lost to bad sub-prime debts...and no end in sight. Yes, indeed, its been a challenging 11 months for investors. Although Im sure I dont have to tell you that. 35

The Matter Of Cash While weve been monitoring these difficult markets from our offices here in Zurich, youve had your own front row seats to watch these markets from the center of the sub-prime mayhem in the United States. Of course, in the asset management business, you cant just wait around to see where the world economy will go next. Thats why over the last year, weve created our best short-order, anti-stock portfolios for all our clients. This short-order portfolio has included an overweight of precious metals, cash and high-quality, shortterm bonds. Our strategy has worked. Im happy to report our company has posted a positive performance so far for 2008.

Why Stocks Are NOT the Best Idea Right Now

But of course, everyone wants to know what lies ahead in the next few months. Our clients keep asking us if its time to aggressively start investing in stocks again. Honestly, I believe you should sit this one out. Im a conservative asset manager, so I dont try to outsmart the markets. Id rather preserve your capital and be ready for the next big up move in the markets. If you agree, I humbly suggest you avoid risky stocks for now. Instead, Ive found two stronger alternative plays hiding in a relatively unknown area of the currency markets.

The Best Anti-Stock Plays on the Market Right Now

So whats the alternative to stocks? Usually, when markets are sinking, asset managers recommend buying short-term U.S. Treasury or euro bonds. Unfortunately, inflation has climbed so high recently that you cant find a decent yield on either one of these options. But imagine a global play that has both the strength and security of a bond, but it lets you actually beat inflation. This play lets you earn income so you can offset the current high inflation rates. Plus, it puts you in the best position to dive back into the stock markets when the time is right. Its all possible with AAA rated currency bonds from the right nation of course.

The Two Strongest Commodity Currencies in the World

Youre looking for high-quality, short-term currency bonds that offer the best yields. All over the world, some of the highest bond yields are located in two nations: Australia and New Zealand. Both the Australian and New Zealand economies have held their strength right through this sub-prime debacle. In fact, while the Fed was slashing rates to the bone, both the New Zealand and Aussie Central Banks maintained some of the highest interest rates in the world. Australia has an amazing growth story right now. China has been buying up all of Australias goods, which has forced more funds into this countrys already robust economy. As this emerging market continues to grow, the hungry Chinese consumers will just demand more Australian goods.

Wealth-wise Checklist: What I Look for When Im Buying Bonds

1. Is your prospective bond backed by a strong economy? This is the most important factor when youre shopping for bonds. I search for countries that have high interest rates, rising inflation and a fundamentally strong currency. 2. Whats the yield? As Ive often said, Im a conservative investor, so I look for yields that are 4% or higher per year. 3. Is this a short-term or long-term bond? In these unsettling markets, its better to buy short-term bonds with two-year maturities or less to protect your capital. 36

Investments 4. How liquid is your bond? Can you find many alternatives to your prospective bond? If so, that means youll have more liquidity. 5. Does it carry the coveted AAA rating? I dont invest if a particular bond carries less than an AAA rating from both Standard & Poors and Moodys. If that wasnt enough, Australia just recorded its best trade surplus in the countrys history in the first quarter. That will only strengthen the Australian dollar and the overall economy even further in the coming months. Meanwhile, New Zealand benefits from its close ties to the strong Australian economy. Also, New Zealand boasts a strong agricultural economy. The country feeds the world with its dairy, fruits, vegetables, and lamb exports. So New Zealand has been cashing in as food prices have soared all over the world lately.

Higher Yields that Continue to Destroy the U.S. Dollar

Both of these countrys currencies are backed by their strong commodity exports. Money is rushing into both Australia and New Zealand because of the rising demand for agricultural products and other goods. As a result, inflation is rising in both nations, which will only help these two traditional commodity dollars in the months to come. Currently, we hold both of these short-term currency bonds in our clients portfolios. Two-year Australian bonds pay a current yield of approximately 7.8%, while New Zealand dollar bonds yield approximately 8.3%. Thats a healthy return compared to the pathetic 2.4% yields youll get from U.S. Treasuries right now. Long-term, both of these currencies promise to beat the U.S. dollar, so you can get extra appreciation if these currencies rise against the greenback.

How to Buy These AAA Gems

Any foreign bank should be able to buy these currency bonds for you. When youre searching for currency bonds, only invest in bonds that have maturities of two years or less. Look for bonds that are rated AAA by both Standard and Poors as well as Moodys. If youre buying through an offshore bank, your banker should have a bond list available, so liquidity should be no problem either. But make sure to instruct your bank to open an Australian dollar or New Zealand dollar account for you. Hopefully, you now have a couple of ideas about how to build your own anti-stock portfolio. Ill be back soon to give you more interesting ways to diversify out of the U.S. dollar.

Your Guide to Understanding Foreign Currencies and Abandoning the Sinking Buck
May 2008 by Erika Nolan It was so much easier on the floor then. When currency futures debuted at the Chicago Mercantile Exchange (CME) back in the early 70s, you could have fit all the currency traders on the floor in a corner of the cattle pit. That was because nobody really knew how to trade currencies back then. Simple as the CME tried to make them. 37

The Matter Of Cash Every contract represented a certain amount of the foreign currency based in dollars. So if you were bullish on the yen, you bought yen contracts. Simple, right? But then a monster market called the foreign exchange or Forex reared its ugly head into public consciousness. Suddenly, currencies were traded in pairs, like God and Richard Nixon intended them to be. Now the value of one currency was only worth something in terms of another currency. So now if you were bullish on the yen, what do you buy then? Simply put, currencies are traded in pairs. That means the price of any currency is only relative to the price of another. But which is which? The first currency in the pair is called the base currency. Its always equal to 1 of that particular currency. (So one dollar, one euro etc.) The second currency in the pair is called the quote currency. Its how much of itself 1 of the base currency will buy you. This is the price you see on a quote screen because otherwise everything would be quoted as 1.(And that would be dumb.) Say Im looking at the U.S. dollar against the Swiss franc. Id find a market that quoted me the USD/CHF (CHF = the Swiss franc). The quoted price would tell me how many francs I could get for my one dollar. Lets say the quoted price was .75. That means one dollar could buy three quarters of a Swiss franc. Say I check the quote later and the USD/CHF pair is at 1.2500. Suddenly, my one dollar will buy one and a quarter Swiss francs. That means Im buying MORE of the other currency. When your dollar buys you more of anything, your dollar is getting stronger. And the flipside is true too. If I check back the next day and see a quote of USD/CHF is .95, then my dollar is buying less. Its getting weaker. So the Moral of this Story is... When you look at a currency chart youre seeing the strength or weakness of the base currency. When the line is going up, it means the base currency is getting stronger. When the chart lines going down, your base currency is getting weaker. Check out the chart in the left column...this shows the U.S. dollars in terms of Swiss francs. The line is heading down thats bad news for the dollar. So, to recap: Currencies are traded in pairs The first currency is the BASE and = 1 The second currency is the QUOTE and = what 1 of the BASE will buy Strength or weakness shows whats happening to the BASE currency of the pair.... ...and it was a lot easier trading currencies back on the floor at the CME in 1970. Now that you know how currencies are priced, youre free to roam the globe and secure the best exchange rates possibleor even diversify out of the sinking dollar. Let me show you an easy way how Heres the Easiest Way to Ditch Your U.S. Dollarsand Reap the Benefits 38

Investments Our friends at EverBank have created a special FDIC-insured investment that allows you to instantly diversify your assets. We call it the All-Weather Portfolio. The All-Weather Portfolio consists of equal weights of six major currencies, plus gold. The portfolio includes the euro, Canadian dollar, Swiss franc, Singapore dollar, Chinese renminbi and Japanese yen. So you not only get diversification, you get the security of gold. Best of all, its as easy to open as any FDIC-insured bank account. Simply call EverBank and ask for the All-Weather Portfolio by name at: 1-800926-4922. Visit www.everbank.com/sovereignsociety or see the insert to learn more. Id like to note that The Sovereign Society has a commercial relationship with EverBank so we may receive compensation if you choose to invest in this or any of their offerings. But by mentioning The Sovereign Society you can take advantage of this opportunity for only a US$10,000 minimum US$55,000 less than youd expect to invest if you assembled this portfolio on your own.

Diversify Your Wealth with the Worlds Top Six Currencies and Gold to Make a US$65,000 Investment for just US$10,000
March 2007 by Jack Crooks I have never been much of a U.S. dollar doomer and gloomer. These days, the investment markets are full of these pundits, who say the U.S. dollar has only one place to godown. I have a slightly contrarian take on it. Im always ready for the U.S. dollar to go up, down or sideways in the short-term. When you trade the buck as often as I do, you must be open to a sharp U.S. dollar rally at times. But, no matter my short-term view, the fact is the greenback seems trapped in a long-term downward spiral. And the more I focus on the core reasons why I see the U.S. dollar heading lower, my angst against my native currency grows. But the question is: how to play it? Well now there is a single way to effectively protect yourself-and to profit from-a long-term decline in the U.S. dollar. But before I get into that, lets examine why America seems to be stuck with a falling currency.

Core Problem: Government Debasing Your Dollars

There are a lot reasons why the dollar has continued to decline against other major paper currencies. But there is one primary cause: our governments continual debasement of our currency. They have severed the link between money as a standard of value, and money as a tool to advance their own reach. Ludwig von Mises, the great Austrian School economist, warned us of this reality long ago in his 1923 essay entitled, Stabilization of the Monetary Unit, he wrote: If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down entirely I imagine von Mises would be stunned to see President Bushs latest budget, which called for an astronomical US$2.9 trillion in spending.

In the Good Old Days, Money Stood for Something

It didnt used to be this way. A short generation ago, government and citizens alike knew that a nations currency must stand for something. The government understood the U.S. dollar should be backed by assets 39

The Matter Of Cash with real value, as these assets were the underlying core source of stored wealth in the country. In the October 1922 edition of The Mentor magazine, the former Director of the U.S. Mint, Raymond Baker wrote an article entitled, The Story of Uncle Sams Money. In the article, Mr. Baker explains that even the amount of greenbacks were strictly limited by law. Any new notes printed, merely replaced those turned in for redemption, so as not to increase the total volume, he wrote. Wow! Compare that to our governments lip service about a strong dollar policy today. Its no wonder that I often hear from readers who know deep down that there is a fundamental problem with the U.S. dollar. And theyre right to be concerned. Looking down the road, the U.S. dollar is in trouble.

Greenback Continues to Disappoint Even the Most Optimistic Traders

Dont get me wrong I still bet on the U.S. dollar, when I see a dollar rally coming. Its a fact that the U.S. dollar has gone through several bouts of strength since President Nixon cut the U.S. dollar from the gold standard back in 1971. But, no matter how many intermittent rallies weve seen, the U.S. dollar always continues its march lower against the worlds major fiat currencies and against gold. You cant ignore that. When you look at the numbers, it makes sense to be very concerned about this downward trend. The U.S. is the dominant superpower on the world stage. The U.S. dollar is still the worlds reserve currency, so foreigners hold more U.S. dollars than any other currency. And Id have to rate U.S. economic performance as pretty good over the last few years, especially compared to its competitors, Europe and Japan. Knowing this, and only this fact, you would expect the U.S. dollar to have appreciated broadly in recent years. But the truth is: it hasnt. Thus, the deep-seated unease over the buck exists. Something just does not compute. The scary part of all this is that for now at least, the U.S. remains in the drivers seat of the global economy. So what happens to the U.S. dollar when we finally do see a real shift of power away from the United States? Already I would argue that we are seeing such fraying at the edges.

U.S. Dollars Ticket to Reckless Behavior Could Expire

Central banks across the globe are already adding more euros and British pounds in their foreign exchange reserves. All the while, the U.S. dollar is slowly losing ground. Like a leaky faucet, dollar reserves keep dripping out of foreign central banks. There is more talk about pricing vital commodities (such as crude oil) in euro because nations around the world have become increasingly concerned about the U.S. dollar economically and politically. There is a growing concern that regulation and political interference is making U.S. capital markets less competitive than markets in Europe and Asia. We see evidence of this in the form of new stocks listings shifting to London and Hong Kong, and away from New York. Plus, theres the fact that new issues of international bonds are now denominated more in euro than in the buck. Just beyond our horizon we see the next global financial super-power of the 21st Century-China-working feverishly to overtake the U.S. in preeminence. The reason why this fraying at the edges of the U.S. dollar as world reserve currency matters so much, is precisely because the greenbacks present status gives it a leg-up on other currencies. This allows the U.S. government to print and spread more U.S. dollars around the world more recklessly than any other nation would dare. You can afford to be reckless when your nation has deep and efficient capital markets, and when all other countries are forced to hold a large supply of your currency to pay for world trade. But both these assumptions may be severely challenged in the years ahead. Now that we have identified the problem, the question is what to do about it? Ive been asked many times if there is one single well-diversified long-term currency fund available to protect you from a falling U.S. dollar. I was tired of having to say no. So our Investment Director, Eric Roseman and I took the initiative to create a portfolio of my favorite currencies. Then we asked our friends at EverBank, to create a portfolio 40

Investments exclusively for Sovereign Society Members that would achieve this objective. I am happy to announce they have done so!

One Simple US$10,000 Solution to the Long-Term Dollar Decline

If you have a growing angst about the long-term down trend in the U.S. dollar, as I do, you may want to consider all the benefits of the Sovereign Society All-Weather Portfolio as a way to diversify away from the buck. This is the only way you can play all the currencies that I believe will be the best hedge against the U.S. dollar. Here are a couple key benefits of this fund: The fund is extremely well diversified The Sovereign Society All-Weather Portfolio consists of equal weights in six major currencies, plus gold. The currencies are: euro, British pound, Swiss franc, Singapore dollar, Canadian dollar and Chinese renminbi. So you not only get diversity across currencies, but the security of hard-money gold. And I consider the addition of the Chinese renminbi as a major benefit for capital growth. The Chinese currency is extremely undervalued against the U.S. dollar. And its growing value should be realized (probably in direct proportion to the bucks decline) in this portfolio over time. Low capital investment: As a Sovereign Society member, the minimum investment in the Sovereign Society All- Weather Portfolio is just US$10,000. Typically, if you tried to replicate these currency holdings on your own, it would require a minimum investment of US$65,000 at EverBank (US$10k for each currency; and US$5k minimum to buy gold). As you can see, this portfolio is an easy one-stop investment that achieves immediate diversity, with the six currencies that are poised to rally in the next few years. This portfolio offers potential for excellent capital growth over time. And unless things drastically change in our government, I still see a long-term downtrend coming for the greenback. And that should translate into huge profits for you, if youre properly diversified with the Sovereign Society All-Weather Portfolio.

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Your Finances and Estate Planning CHAPTER 6

Your Finances and Estate Planning

The Simplest Way To Create a Private and Protected Home For Your Money: Its One of the Top Asset Protection Secrets Every Investor Must Know................................................................ 43 5 Things you Need To Know Before You Choose A Home For Your Offshore Trust.......................... 45 A Blueprint for Disinheriting the IRS: How to Use a Dynasty Trust to Leave More to Your Loved Ones and Less to the IRS........................................... 47

The Simplest Way to Create a Private and Protected Home for Your Money Its One of the Top Asset Protection Secrets Every Investor Must Know
April 2008 by Erika Nolan Financial transparency has reached new heights in the United States, and so has the ease of access to your personal data. Yet, there is a way you can legally lower your wealth profile and energize your portfolio at the same time. And, best of all, implementing this simple strategy could cost you less than a weekend getaway. This strategy could be the answer to quick, affordable and flexible asset protectionlet me explain.

Build Your Personal Money Vault in a Three Easy Steps

1. Set up the offshore LLC. You can establish a valid LLC using only yourself as the one member. However, having two members to the LLC gives you stronger protection. For example, if you were sued for assets in the LLC, youd only have legal access to 50% of them, even if you were 100% accountable for funding the LLC at inception. 2. Choose a jurisdiction for the creation of the offshore LLC. My recommendation would be to use a Nevis LLC. Nevis offers affordable, yet iron-clad, asset protection. You can set up a Nevis LLC from anywhere between US$1,500 and US$4,500. The fees vary depending on whether you work with an attorney or company formation specialist. 3. Open an offshore bank account in the name of the newly created LLC. Once the LLC is established, you can open an account anywhere in the world in the name of the LLC. This offers you additional privacy since your name will not appear as well as asset protection again any claims.

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Your Finances and Estate Planning Recommended Contacts for Offshore LLCs: Michael Chatzky Chatzky & Associates 6540 Lusk Boulevard Suite C121 San Diego, CA 92121 Email: mgchatzky@aol.com Jack Flader Global Consultants and Services Limited 10th Floor, Baskerville House 13 Duddell Street Central, Hong Kong Tel: 852 (2526) 2736 Email: jack@gcsl.info Note: Offshore banks are required to know the beneficial owner of the LLC, so you will need to disclose it. In addition, it is not advisable to hold any offshore mutual funds in your corporate bank account due to negative U.S. tax consequences for Americans. Speak to a licensed tax professional before making any investments. I often speak with members who want to control their assets, yet still desire courtroom-proof asset protection. Typically, investment control and asset protection do not go hand in hand. To protect your assets, you usually have to give up legal ownership of your assets to an entity, like a trust. But, control freaks arent well suited to working with trustees. This usually means something has to givebut not necessarily.

Keep Tax Reporting Simple

You can elect to have your offshore LLC flow through you for tax purposes which means you wont have to file a corporate tax return. Register your LLC as a disregarded entity with the IRS using Form 8832. This step only needs to be done once and then all the proceeds of the LLC can be reported on your 1040.

Asset Protection Without Giving up Control

By combining two of the most basic offshore vehicles an offshore bank account and an offshore limited liability company (LL C) you can control your investment assets while benefiting from substantial asset protection. As youve read here many times, offshore bank accounts are by far one of the best ways to access the international markets and diversify outside of your home currency. Not to mention, having some money outside of the U.S. is a good way to recession-proof your assets. However, in many cases, offshore accounts only offer an illusion of asset protection. Heres why. Lets assume for a moment, that you have an offshore account in your name. If you lose a lawsuit, no matter how frivolous, and your creditors have a U.S. court order to attach your assets, this court order would be presented to your offshore bank. It is then up to the bank to decide if they want to comply with the U.S. request or if they want to send your creditor packing. Depending on the court order, its more than likely theyll comply, simply to get rid of the problem. But, you can take the decision out of their hands and back into your own. By establishing an offshore limited liability company (LLC), you could very easily open your offshore bank account in the name of your new LLC. In this case, you are immediately afforded substantially more asset protection. Under a typical LLC statute, the owners which are referred to as members are shielded from the LLCs debts. The 44

Your Finances and Estate Planning members are only liable if they affirmatively take responsibility for debt, such as by giving a guarantee to a lender. You see, an offshore limited liability company is similar to a domestic limited liability company except that it is based offshore. LLCs are typically in a jurisdiction that provides maximum flexibility and asset protection, such Nevis or Panama.

Twice the Headaches with Fewer Guarantees for your Creditors

Nevis in particular, is one of our preferred jurisdictions for offshore LL Cs. The government on the island of Nevis has enacted state of the art limited liability company legislation. Implementing this simple strategy could cost you less than a weekend getaway. From an asset protection perspective, the Nevis LLC assets are protected from its members creditors because these creditors have only one option to go after the assets: a charging order. Under Nevis law, the charging order is the exclusive remedy available to a creditor attacking the assets in a Nevis LLC. If you set up your Nevis LLC with a Nevis manager, it is virtually impossible for a U.S. creditor to obtain jurisdiction over the manager. And, even if a U.S. court orders the repatriation of assets in the Nevis LL C, the Nevis manager would not be forced to comply. The only option for the creditor is to attempt to re-litigate the claim in the Nevis court, and Nevis is one of the most unfavorable jurisdictions in the world for frivolous litigation. Take this and add to the fact that the creditor would need to post a bond in Nevis and hire local counsel just to have their argument heard. As you can imagine, the sheer cost and headache would encourage a creditor to seek a settlement out of courtor they might give up altogether!

The Best of Both Worlds

The real appeal of this partnership between the LL C and the bank account is that you can control your investment decisions while still having asset protection from lawsuit-happy foes. Plus, by opening your account in the name of the LL C, your name is never the name of record on the account. This gives you a layer of privacy to boot.

5 Things you Need To Know Before You Choose A Home For Your Offshore Trust
August 2008 by Mark Nestmann The United States has more lawyers than any other country in the world. The United States has 40 times as many lawyers as Japan, eight times as many as France, and more than three times as many as Great Britain. To keep themselves profitably occupied, American lawyers file more than 18 million lawsuits against individuals just like you each year. According to the Pacific Research Institute, in 2006, these lawsuits cost the U.S. economy an astonishing US$865 billion. That represents an annual lawsuit tax of US$9,827 for a family of four. Dont assume these one million lawyers will leave you alone, simply because youve never done anything wrong. Lawsuits happen without fault every single day. If this happens to you, you could still lose everything even if you win the case. Thats because unlike virtually every other country in the world, there are no loser pays rules in U.S. courts. Youre generally responsible for your own legal bills, no matter who wins. 45

Your Finances and Estate Planning

A Minefield for Sue-Happy Lawyers

Whats the answer to dealing with the proliferation of lawsuits in U.S. courts? One of the best ways to protect your wealth you simply cant afford to lose is with an offshore trust. Court cases dating back more than 20 years clearly demonstrate that a creditor simply cant seize the assets in a properly drafted and funded offshore trust. If you have net worth that exceeds US$5 million, the approximate US$25,000 cost to establish an offshore trust can be one of the most cost-effective investments you ever make. There are numerous reasons why a trust can give you the protection you need. For instance: U.S. judgments are not recognized. Courts in countries commonly used for offshore trusts will almost never honor a U.S. court order. Higher burden of proof. Compared to U.S. courts, many nations require an elevated level of proof before theyll agree to classify the transfer of your trust as fraudulent and agree to give assets to a creditor. Punitive damages are not awarded. If a court in a foreign country finds a transfer fraudulent, it will generally enforce only actual damages (not punitive damages) suffered by a particular creditor. More stringent rules. Attorneys in most foreign countries used for offshore trusts cant accept cases on a contingency basis. Furthermore, the loser pays rule generally applies. That means the loser in the case generally pays the legal fees for the winning party. Some countries abroad even require a plaintiff to post a bond to guarantee the creditor pays your legal fees if he is unsuccessful in court. Brief statute of limitations. Many foreign countries impose a substantially shorter period to assert a claim against trust assets than U.S. state or federal courts. Offshore trusts also have numerous advantages over your normal domestic trust. Some of these benefits are NOT even related to asset protection. These advantages include enhanced privacy, the ability to purchase nonU.S. investments, and serve the same estate planning goals as a domestic trust. Today, attorneys rarely form a trust in an offshore region abroad as a stand-alone vehicle. More likely, your attorney will recommend a comprehensive legal structure that may include a trust, one or more limited partnerships, limited liability companies, life insurance contracts, or variable annuities.

It All Started in England

Since common-law trusts originated in English law, you can form a valid trust in any of the 60 or so countries that inherited English law. A few countries without an English law background also have laws authorizing the formation of trusts. Here are some of the factors you should consider in choosing which jurisdiction you should use for your offshore trust: The jurisdiction shouldnt honor foreign judgments against assets transferred to a valid trust formed there. They could make an exception if your trust assets came from a fraud or other criminal activity, but otherwise, your assets should be protected. Choose a politically and economically stable jurisdiction. Nigeria and Zimbabwe inherited English law, but you probably wouldnt want to form a trust in these places, even if they have favorable trust laws. Make certain the jurisdiction has repealed or restricted the application of the Statute of Elizabeth. More than 400 years ago, the English Parliament adopted a law that established criminal penalties for anyone who withheld property from creditors. Even though England long ago repealed the Statute of Elizabeth, its principles may still apply in jurisdictions that inherited English law. This laws most insidious principle states a transfer may be voided with respect to future unknown creditors! Beware of self-settled trusts. In English law, and in most U.S. states, you cant be a beneficiary of a trust 46

Your Finances and Estate Planning you settle if you want it to protect your own assets. This is the self-settled trust principle. Fortunately, the laws of most offshore jurisdictions now permit self-settled trusts. Does the trust have a limited life? The laws of both England and most U.S. states provide that trusts must have a limited life. This is known as the rule against perpetuities and effectively frustrates the formation of long-term, so-called dynasty trusts. Most offshore jurisdictions have modified the rule against perpetuities or eliminated it altogether.

Bottom Line: It Depends on Your Needs

There is no best jurisdiction for an offshore trust. Depending on your specific objectives, many different ones may be suitable. You should only make your decision after talking to a qualified attorney. Assuming your offshore jurisdiction meets your requirements, the next step is to choose the right trustee for your trust. Remember: Youll be turning over legal title to your assets to your trustee. So youre depending on that person or company to reliably administer your trust for years to come. Your attorney will likely recommend a trustee for you. Finally, an offshore trust isnt the final word in asset protection. For a trust to protect your assets, you have to give up control over the assets. You also cant expect an offshore trust to protect you if you form it after a liability arises. Is an offshore trust for you? Speak to a qualified attorney to find out. If you need assistance, Michael Chatzky and Gideon Rothschild from The Sovereign Societys Council of Experts can help you. See our Council of Experts page at www.sovereignsociety.com for their contact details.

A Blueprint for Disinheriting the IRS: How to Use a Dynasty Trust to Leave More to Your Loved Ones and Less to the IRS
April 2008 by Mark Nestmann If youre a U.S. person, and you have a net worth over US$1 million, then January 1, 2011 should be a red-letter day. On that day, the U.S. estate tax exclusion will digress back to its 2002 level of US$1 million. Any estate worth more than US$1 million will be subject to estate tax at a maximum rate of 55%. Think this doesnt include you? Consider this: Everything you own, anywhere in the world, counts toward your estate. Your worldwide possessions are also valued at their highest and best use, which could bump you up into the over US$1 million category.

Ensure Your Assets Are Protected No Matter What

Sovereign Society Council of Experts member Gideon Rothschild cautions that proper drafting is essential to achieve superior asset protection. Distributions to beneficiaries should never be mandatory, but at your trustees discretion. In addition, your dynasty trust should contain a spendthrift provision to protect the beneficiaries interests from attachment. Rothschild also recommends that your trust provide for a protector. This is a neutral party who oversees the trust to ensure your trust follows its objectives and the laws. The protectors duty is to intervene if circumstances develop that could adversely affect the beneficiaries. The protectors most important power is the right to replace the trustee. 47

Your Finances and Estate Planning You can blame Congress for this war on inherited wealth. In 2001, Congress radically retooled federal wealth transfer tax laws. The amendments gradually raised the estate tax exemption amounts, lowered the top estate tax rate and eliminated the estate tax all together for 2010. But in 2011, estate tax rates will return and theyll be back to their extremely low US$1 million thresholds. Congress has been playing a ridiculous game with your heirs wealth. Its absurd, but unfortunately, its still the law. The good news is there are ways to reduce your estate tax responsibilities. One of the most effective ways to deal with this uncertainty is with a dynasty trust. This type of trust is designed to avoid wealth transfer taxes completely, once each generation. You should know that an irrevocable dynasty trust generally wont reduce taxes during your lifetime. But your foresight could save your descendents millions of dollars in future taxes.

Three Taxes to Avoid When You Finally Stick It to the IRS

To be effective, a dynasty trust must successfully deal with three separate, but related, taxes estate tax, gift tax and generation skipping transfer tax. Estate tax: For 2008, your estate must be worth US$2 million to qualify for taxes at a top rate of 45%. After disappearing in 2010, the estate tax resurfaces in 2011. Only, as I mentioned, your estate only has to be worth US$1 million to be eligible for estate taxes this time at a higher tax rate of 55%. However, you can double these exclusions if youre married and you do some basic estate planning (which need not include a dynasty trust). Gift tax: If it werent for gift tax, you could avoid estate tax simply by giving away most of what you own. The gift tax plugs that loophole by requiring that you pay a tax up to 45% on gifts you make while living that exceed US$1 million (US$2 million if youre married). That exclusion wont change in 2011, although in 2010, the maximum rate drops to 35%, and rises to 55% in 2011. Generation Skipping Transfer Tax: The tax targets transfers that skip generations, because the assets wont be included in the skipped generations estate. Essentially, the IRS applies the tax to each generation as if the trust beneficiaries own the assets in the trust outright. Every U.S. taxpayer has a lifetime generation skipping transfer tax exclusion of US$2 million. If you transfer this amount or less into a dynasty trust in 2008, your heirs wont pay this tax. This particular tax exclusion increases in 2009, will be repealed in 2010, and then brought back in 2011 with an exemption of US$1.06 million. Again, if youre married, the exclusions double.

These Two Experts Can Help You Set Up Your Own Dynasty Trust
Proper structuring of a dynasty trust requires substantial legal expertise. Be certain to retain a qualified attorney to put this strategy into place. Two members of The Sovereign Societys Council of Experts can assist you. Michael Chatzky Chatzky and Associates 6540 Lusk Boulevard, Suite C121 San Diego, CA. 92121 Tel.: 1 (85... Fax: 1 (858) 457-1007 Email: MGChatzky@aol.com Gideon Rothschild Moses & Singer LLP 405 Lexington Avenue New York, NY 10174 48

Your Finances and Estate Planning Tel.: 1 (21... Fax: 1 (212) 554-7700 Email: grothschild@mosessinger.com

And Now, for the REALLY Good News

A dynasty trust is irrevocable, so its assets are no longer part of your estate. The secret to building a good dynasty trust, then, is making contributions to it that avoid both gift tax and generation skipping transfer taxes. Then you just leverage your contributions value once theyre removed from your estate. Life insurance is ideal for this purpose. Usually, you pay contributions to a dynasty trust in the form of premiums for a life insurance policy. Neither the death benefit, nor your policys cash value, is subject to estate tax. Lets say you create a dynasty trust for the benefit of your two children, three grandchildren and their descendents. Under the gift tax rules, you can make a gift up to US$12,000 to anyone you want, once a year, without that gift counting toward the US$1 million limit. You and your spouse could each gift US$60,000/ year in your heirs names to your dynasty trust (US$120,000/year total) without lowering your remaining gift tax exclusion. Complex requirements apply to ensure that the gift complies with IRS present interest rules. To deal with this issue, make sure you hire a competent estate planning attorney to guide you. Over a seven-year period, your contributions will total US$840,000. And if youre under 70 years old and healthy when you begin funding the trust, your US$840,000 could purchase a life insurance policy with a death benefit of US$5 million or more. Thats six-to-one leverage. If youre younger when you create a dynasty trust, the leverage is even greater. Assuming your dynasty trust would avoid an estate tax of 55% applied to each successive generation, your grandchildren could save nearly US$4 million in estate taxes. And thats not counting the growth of the trusts assets!

Taking Your Dynasty Trust Offshore

Most dynasty trusts are settled domestically, in a state thats abolished the so-called Rule Against Perpetuities (RAP). In these states, a trust can literally last forever. Numerous offshore jurisdictions have also abolished this rule, so your trust can last forever offshore too. While this makes it possible to establish an offshore dynasty trust, if the trust has U.S. beneficiaries, this is usually a bad idea. Among other pitfalls, significant tax penalties apply once you die, unless all income and realized gains are distributed annually as earned to the U.S. beneficiaries. However, theres no reason a dynasty trust cant hold offshore investments. Again, competent tax advice is crucial to avoid numerous booby traps in the tax code. But when set up correctly, you can use this trust to save your heirs thousands in taxes so its well worth the effort.

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Taxes & How to Avoid Them Legally CHAPTER 7

Taxes & How to Avoid Them Legally

Take One of These Simple Steps Today and Save Thousands in Taxes in the Next 10 months....... 51 Sell Your Next Investment for a $1 Million Profit and Dont Give the IRS a Dime......................... 53 Five Offshore Tax Loopholes the Tax and Spenders Will Never Tell You About................ 56 Offshore Tax Troubles May be Brewing. ............ 58

Take One of These Simple Steps Today and Save Thousands in Taxes in the Next 10 Months
July 2008 by Mark Nestmann Chances are April 15, 2008 wasnt a particularly pleasant day for you. I know it wasnt for me. In my case, the good news was that I paid enough in tax before the April 15 filing deadline to avoid any penalties. The bad news even after taking all deductions is that I paid nearly 20% of my income in federal income tax. Not to mention Social Security tax, Medicare tax and state income tax! Fortunately, six months remain in 2008 to minimize your tax obligations before the next tax day, April 15, 2009. Here are some ideas you can put to work immediately and save thousands of dollars in unnecessary taxes.

Save Thousands in Self-Employment Taxes

If you own your own business, you can save a bundle in self-employment taxes (Social Security and Medicare taxes). Just form a subchapter S corporation to operate the business. Have the corporation pay you a reasonable salary. Then take the rest of your compensation as a dividend payment. There are no self-employment taxes on dividends you receive. Lets say your business made US$90,000 in profits in 2008. If you took all US$90,000 as a salary, youd owe US$13,770 in self-employment taxes. But if you took only a US$50,000 salary, along with a US$40,000 dividend, youd save US$6,120 in tax. Sometimes the IRS tries to challenge a dividend payment and treat it like a salary. This challenge will succeed if you pay yourself an extremely low salary, or take most of your compensation as a dividend. Be sure to pay dividends to all shareholders on the same date in proportion to their ownership percentage. Unfortunately, S-corporations provide little asset protection. If your business has significant assets, then a 51

Taxes & How to Avoid Them Legally limited liability company (LLC) is much more useful to shield your companys profits. You can form a limited liability company (LLC) and elect to have it taxed as an S-corp. Properly formed and managed LLCs (other than single-member LLCs) offer excellent asset protection. File IRS Form 8832 to have the LLC taxed as a corporation, then file Form 2553 to elect subchapter S status.

Use the Tax Plan You Already Have

Another way to save on taxes is through your retirement plan. You can contribute up to US$5,000 each year to an IRA (US$6,000 if youre over 50). Not only are earnings within your IRA sheltered from tax, but you can also take a tax deduction for your contribution if you meet certain income limits. Plus, retirement plans can offer excellent asset protection. You can even take your IRA offshore. Numerous offshore banks and asset managers now permit U.S. investors to invest their IRAs in a variety of non-U.S. investments. Sovereign Society Council of Experts member Larry Grossman specializes in such offshore IRAs. Learn more about Larry by checking out his website at www.sovereignpensionservices.com. Business owners have even greater flexibility to lower taxes with contributions to tax-deferred retirement plans. One of the simplest to set up is a Simplified Employee Pension Plan (SEPP). You can contribute up to 25% of your salary each year to a SEPP.

How to Get Around Any Penalties

One drawback of an IRA or other retirement plan is that the IRS taxes your income at your marginal tax rate when you begin receiving payments. You cant take advantage of the 15% rate on qualified long-term capital gains or dividends. However, over an extended period, this disadvantage becomes less relevant. Thats because every year, the income or gain within the plan is compounding tax-deferred. You also cant begin withdrawing income from a retirement plan until you reach age 59 1/2. If you do, youll pay a 10% premature withdrawal penalty. But you can easily avoid that penalty. Simply dont stash money into a retirement plan that youll need before retirement. Another tax-deferral idea is to contribute up to US$2,850 annually to a Health Savings Account. HSAs offer similar benefits to IRAs, except you can access the funds anytime for qualified health care expenses. You must combine your HSA with a high-deductible health insurance policy. The combination of tax savings and lower insurance premiums more than makes up for the higher annual deductible. Move Abroad and Earn Up to $175,200/Year Tax-Free Fed up with high taxes in the United States? If you are, move your home and work abroad. Once youre living in the country of your dreams, you can earn up to US$87,600 annually free of U.S. income tax. If your spouse accompanies you overseas, you can double this exemption and jointly earn up to US$175,200, free of U.S. income tax. You can exclude tax on additional income used to pay for your housing expenses. In most cases, the maximum exclusion for housing is limited to 30% of the exemption, or US$26,280 annually. These exclusions go up each year to keep pace with inflation. Fringe benefits that are non-taxable to a U.S.-based employee are also non-taxable overseas. Your employer can pay for your health insurance, or contribute to a retirement plan, with no additional tax liability. You must qualify under one of two tests to be eligible for this foreign earned income exclusion (FEIE): the bona fide residence test or the physical presence test: Bona fide residence test. If you have established legal residence in another country for an uninterrupted period of at least one year, you qualify under this test. 52

Taxes & How to Avoid Them Legally Physical presence test. You qualify under this test if youre physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Under either test, you must prove that you have a new tax home outside the United States. That means you live in a jurisdiction that can tax your income on the basis of residence or other ties. However, you need not live in a country that actually imposes an income tax. You must also file a U.S. tax return every year you wish to take advantage of the FEIE, along with IRS Form 2555. The FEIE provides no exclusion for unearned income rents, royalties, interest, dividends, etc. You also remain subject to capital gains tax and estate tax. And while U.S. Social Security and Medicare taxes dont generally apply to wages for services performed outside of the United States, if youre self-employed or work for a U.S. employer, you must pay Social Security and Medicare tax on the same portion of your earned income as you would in the United States. You also may be subject to these taxes if you work in a country with which the United States has signed a totalization agreement. For more details about the FEIE, see IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Dont Pay Taxes on Income You Wont Spend

Are you paying taxes each year on income you dont need? Lets say your US$400,000 investment portfolio generates US$25,000 in income or gain each year that accumulates in a bank or brokerage account. If you dont spend it, youre paying from 15%-35% (US$3,750-US$6,125) in unnecessary federal tax. Not to mention you risk losing it in a lawsuit. To avoid paying the tax, and protect the portfolio from litigation, consider placing the portfolio (or part of it) in a variable annuity. In a variable annuity, a portfolio manager invests some or all the funds in investments selected according to your objectives. The investment income and the eventual payout vary, depending on how the underlying investments perform. U.S. annuities are easy to purchase, but offshore annuities let you target investments anywhere in the world. They also offer enhanced privacy and asset protection. Theyre available for minimum investments of approximately US$50,000 from a variety of countries, including Switzerland, Liechtenstein, the Isle of Man, and Nevis. The drawbacks of variable annuities are similar to retirement plans. You pay tax on the income at your marginal rate, and you cant begin withdrawals until you reach age 59 1/2. Plus, you cant manage your annuitys investments without losing the tax benefits. For more information on variable annuities, see my report Amazing Annuities, available in the Sovereign Society bookstore at www.sovereignsociety.com.

Sell Your Next Investment for a $1 Million Profit and Dont Give the IRS a Dime
May 2008 by Mark Nestmann If you live in the U.S., then you just made it through another tax day. Congratulations. While those 1040s and tax bills are still fresh in your mind, its time to start thinking about how you can cut back on your taxes for next year. Many Sovereign Society members ask me how they can avoid taxes legally of course. 53

Taxes & How to Avoid Them Legally And I always tell them the same thing: Deferring your income taxes can be almost as effective a strategy as avoiding them altogether. Thats because the value today of a future tax obligation is much smaller than one you must pay now. So the longer you can defer your taxes, the more taxes you save. That principle can work just as well offshore as it does in the United States. And for U.S. taxpayers, theres no better strategy to defer taxes than a 1031 exchange.

Trade Your Way to Lower Taxes Abroad

This cryptic name refers to a section of the Internal Revenue Code that lets you defer tax on exchanges of like-kind investment property. Section 1031 lets you defer paying federal capital gains taxes when you sell an investment property and buy another like kind property through an approved exchange transaction. As a bonus, you may be able to deduct tax for depreciation on the new property, without needing to recapture depreciation on the property you sell. To have a fully deferred exchange, the property you buy must be of equal or greater value to the property you sell. You can exchange almost any like-kind investment property. That includes real estate, industrial equipment, business assets, artwork, aircraft, or vessels. For instance, you could exchange raw land for a shopping center, or an office building for an apartment complex. You can even exchange animals. But you couldnt exchange a jumbo jet for, say, a factory.

How to Legally Defer a Cool $150,000 in Tax

Most 1031 transactions are made in the United States. However, you can also exchange foreign property for foreign property but not U.S. property for foreign property, or vice versa. Heres a simple example of the power of this strategy. Lets say that in 2000, you purchased three lots and spent US$500,000 building houses on them in Croatia. Today, those houses are worth triple that amount US$1.5 million. Now you want to cash in and target real estate in Argentina instead. After visiting Argentina, you find a 20,000-acre ranch for sale for US$2 million, and agree to purchase the property. If you simply sold your three houses, youd owe US$150,000 in capital gains tax. But with a 1031 exchange, you can defer payment of that US$150,000. Youll also avoid Croatian income tax, because the government doesnt tax gains on real property held more than three years. Foreign-to-foreign 1031 exchanges are much less common than purely U.S. exchanges. Not that many Americans buy foreign property, and fewer still are interested in making a 1031 exchange on it. With foreign property, you could face different closing formalities and currency conversions. Fortunately, a knowledgeable QI the middleman can help you overcome these obstacles and successfully close the deal and defer U.S. tax. In addition, the properties you exchange in a 1031 transaction must either all be in the United States or all involve foreign properties. You cant exchange a domestic property for a foreign one, or vice-versa. 1031 exchanges are ideal if you want to reinvest the profits of one deal into a new, larger deal. Keep in mind that the countries you invest in may tax capital gains on real estate. If they do, its unlikely you can avoid paying that tax when you make a 1031 exchange. There are also non-tax reasons why a 1031 exchange may be useful: Improved financing options. You can exchange property that cant be easily financed for property that can be mortgaged. Higher cash flow. You can exchange non-income-producing or highly appreciated property for property that will generate higher cash flows. 54

Taxes & How to Avoid Them Legally Facilitate business or personal relocation. If you have a valued tenant or client whos relocating, you may be able to offer that client the same services you do now, and minimize the tax costs of doing so. Decreased management responsibilities. This might be accomplished by exchanging several smaller properties for a single larger property.

The QI: The Guy Who Makes it Happen

Naturally, the IRS doesnt let you handle the money in a 1031 exchange. That would be too easy. Instead, the IRS requires you to hire a middleman. The IRS rules call this middleman a qualified intermediary (QI). The QI must be independent. It cant be a family member or anyone youve engaged previously: Your lawyer, real estate agent, employee, etc. You sign a written exchange agreement with your QI to acquire and transfer the property youre selling and to acquire the replacement property and transfer it to you. Its important that you choose a reliable QI so that your exchange is handled properly and to ensure the security of your exchange funds. The following rules must be followed. First of all, you must sign the exchange agreement with your QI before closing on the first property youre selling. You also must identify one or more of your properties, within 45 days after closing on the first property. You have a maximum of 180 days about six months from the closing date of the first property sale to close on the replacement property or properties. There are many more possibilities in the world of 1031 exchanges. For example: The reverse exchange. Lets say you want to lock in the replacement property before you sell the original property, so its not sold to another party. One way to achieve this goal is to have the QI buy the property and park it in its name until you sell the original property. A tenants in common (TIC) exchange. You can also exchange into a TIC property, which represents an undivided interest in a professionally managed business. Purchasing property in this manner allows you to invest in much larger projects than you might not otherwise be able to target. Exchanging your personal residence. You can do a 1031 exchange on your former personal residence if it was an investment property for the last year and one day before you sell it. However, it may be a better deal tax-wise to treat it as a personal residence sale. If the gain from the sale exceeds the US$250,000 personal residence exclusion (US$500,000 for a married couple), you may be able to roll over the remainder of the gain in a 1031 exchange.

A Few Caveats Before You Start Trading

Ive already mentioned some of the most important things you need to remember when you conduct a 1031 exchange. There are, however, a couple other precautions to consider. The most important one is to avoid whats known as a 1031 boot. This term refers to any part of the exchange that triggers capital gains tax. A mortgage boot occurs when the mortgage debt on the property you sell is greater than the mortgage debt on the property you acquire. If it is, youll pay tax on the difference. A cash boot represents any cash or equivalent value you take out of the property. You must pay capital gains tax on any non like-kind property you receive such as cash. Interest is also subject to tax. Finally and this is important for asset protection neither partnership interests nor stock in a corporation qualify for 1031 treatment. If you have enough advance notice, you can retitle a partnership or membership interest to a tenant in common interest. That way you can engage in a 1031 transaction. Dont try to do this by yourself. Speak to your tax advisor first. (QIs cant give legal or tax advice.)

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Taxes & How to Avoid Them Legally

Five Offshore Tax Loopholes the Tax and Spenders Will Never Tell You About
October 2006 by Mark Nestmann FromWashington, D.C. to London and from Ottawa to Canberra, politicians worldwide are denouncing those individuals wise enough to move part of their assets offshore, to safe havens for wealth preservation and financial privacy. U.S. Sen. Carl Levin (D-MI) says offshore investors should be presumed guilty of tax evasion unless they can prove their innocence. U.K. Chancellor of the Exchequer Gordon Brown is calling for a crackdown on offshore loopholes. Yes, the U.S. and most other high-tax countries impose taxes on their residents worldwide income (and in the case of the U.S., upon their citizens worldwide income). But these laws have hundreds of loopholes you can use to reduce your taxes. And, while the politicians in high-tax countries dont want you know about them, nearly EVERY one of these tax breaks is available offshore where youll also find greater privacy and protection from the threat of lawsuits.

Five Perfectly Legal Tax-Saving Strategies

Heres a small sampling of whats available: 1. Buy a vineyard in France with your retirement account. You can own almost any non-U.S. investment in your retirement plan, including any kind of foreign real estate. You can even have your IRA pay you a salary to manage your offshore real estate portfolio! 1. Earn US$164,800/year tax-free, courtesy of Uncle Sam. If you live outside the U.S. full-time, you can exclude up to US$82,400 per year in foreign earned income from your U.S. income taxes. Your spouse is eligible for another US$82,400 earned income exemption-for a total US$164,800 exemption for a married couple. Of course, you may have to pay foreign taxes on this income, but youll still save money if the foreign tax rate is lower than the U.S. income tax rate. 1. Defer tax on foreign business income. If you form a foreign corporation that generates income from an active offshore trade or business, you dont need to pay taxes on the profits until theyre distributed to you. However, if you live in the U.S., youll have to appoint an offshore manager to run your business and your role must be limited to being a passive investor. Moreover, its important to reinvest most of the profits in growing the business, not in passive investments such as stocks and bonds. 1. Defer tax on offshore investment income. Its generally impossible for a U.S. person to avoid paying tax on foreign investment income, but theres an exception if that income accumulates within an IRS-qualified offshore variable annuity. If the contract meets the IRS requirements, income from its underlying investments is legally tax-deferred until you begin taking income from it. Minimum investments for offshore variable annuities begin around US$50,000. 1. Eliminate income tax and estate tax with offshore life insurance structures. An offshore life insurance policy provides the benefits of a variable annuity and more: the death benefit received by beneficiaries is not subject to income tax. The use of an irrevocable life insurance trust can make the death benefit free of estate and generation-skipping taxes as well. The minimum investment for an offshore life insurance structure begins around US$500,000. 56

Taxes & How to Avoid Them Legally To receive these benefits, particularly in the case of doing business offshore or using offshore insurance structures, its necessary to obtain expert tax advice. Are these investments a tax dodge? Not at all. Indeed, each of these is a perfectly legal, even if the assets themselves are outside the U.S. But, just in case youre feeling unpatriotic about taking your assets offshore, consider this: your own government likely provides significant tax breaks to favored individuals and commercial interests. The U.S. and U.K. both at the forefront of efforts to curb offshore tax fraud extend huge tax breaks to non-resident investors, yet deny those same tax breaks to resident investors. Here are just a few examples: The United States exempts all non-resident aliens and foreign corporations on interest paid by banks, savings and loan associations and insurance companies. It does the same with respect to portfolio interest and most capital gains. But residents, citizens and domestic corporations can not take advantage of such benefits. The United Kingdom exempts U.K. non-domiciled residents from paying tax on foreign income not sent back to the U.K. Domiciled U.K. residents (generally, persons born in the U.K. or who lived there for more than 17 years) must pay tax on their global income, whether or not remitted to the U.K. Canada, New Zealand, Spain and many other high-tax countries permit wealthy immigrants to be taxed only on their income in those countries-not on their foreign income. While these benefits generally expire after a set period of years, residents of these countries are forbidden to take advantage of the same programs.

...But Avoid These Tax Red Flags

There are also MANY tax scams you should avoid at all costs. Here are three of the claims youll hear from promoters. Decontrol a foreign corporation and pay no tax on its income. Some offshore promoters advise clients from high-tax countries that they can avoid paying tax on income from an offshore corporation by using nominees to control it. The client retains actual control, but the promoter acts as a nominee to execute the clients instructions. This arrangement is well known to tax officials in the U.S. and other countries and, if discovered, can result in criminal and civil penalties for those engaged in it. Move to the U.S. Virgin Islands (USVI) and cut your taxes by 90%. Under certain circumstances, a bona fide USVI resident may be eligible for tax incentive programs that can result in as much as a 90% tax savings. However, only permanent USVI residents are eligible for this benefit, and the income must be from within the USVI. Promoters may tell you that nonresidents can take advantage of this opportunity, but thats simply not true. In addition, Congress recently enacted legislation significantly tightening the requirements. Create a tax-free offshore trust. U.S. persons who create and fund an offshore trust are always subject to the tax on the trusts income. The trust also becomes part of that persons taxable estate. This is black letter law and has been part of the U.S. Tax Code for 30 years. But that doesnt stop promoters from claiming you can create a tax-free offshore trust by setting up an offshore corporation, transferring money to that corporation, and then have the corporation fund the foreign trust. This tax dodge could not only result in severe tax penalties, but potentially prosecution for money laundering. Practice safe and tax-compliant offshore investing! Remember: if it sounds too good to be true, it probably is.

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Taxes & How to Avoid Them Legally

Offshore Tax Troubles May Be Brewing: Use Ingenious Tax-Efficient Methods to Enjoy the Profits Offshore without Getting Burned By Taxes
March 2007 by Mark Nestmann Youve opened your offshore bank accountjust acquired shares of one of the worlds best-performing hedge fundsand purchased a second home on a sunny beach in Portugal. Now, all you have to do is to sit back and enjoy the warm weather and let your profits accumulate, right? Well, not exactly. While youre enjoying the sunshine, potential tax problems may be brewing. For instance, when you purchase offshore shares, you may suffer double taxation. And if theres one thing worse than being taxed, its being taxed twice. With double taxation, both your dividends and capital gains will be taxed by two countries ouch. A tax trap in the Internal Revenue Code could threaten to not only strip away all your profits you make in the hedge fund, but also effectively confiscate part principal! And you might be surprised to learn that your beachfront condo, which you purchased through your offshore company, is now subject to punitive taxes in Portugal. Fortunately, there are creative ways to deal with these problems: here are the details.

Double Taxation: Dont Get Stuck Paying Twice

Dividends, interest and capital gains from foreign securities may be subject to a withholding tax in the country in which the payment is made. The rate at which withholding occurs will generally depend on whether that foreign country and country where you reside have a tax treaty. Fortunately, you can usually take a credit against the foreign taxes paid toward your U.S. tax liability on the same income. For instance, lets say that you live in the United States and that you open an offshore bank account in Austria. You then purchase shares of a dividend-paying stock traded in Switzerland. Imagine your shock when you open your account statement and discover that Switzerland has withheld 35% of the dividend as a withholding tax! All is not lost. With the U.S.-Switzerland tax treaty, U.S. citizens or permanent residents are entitled to a reduced withholding rate of 15%. But youll need to apply to Swiss tax authorities for a refund of the excess tax. Of course, because U.S. persons are taxed on their worldwide income, youll need to declare the dividend on your U.S. tax return. But, youve already paid Swiss tax on this amount, so you can credit this payment against your U.S. tax liability and its likely you wont owe any more tax after that.

To Hedge Fund Hell and Back Again

Offshore funds, and particularly carefully selected offshore hedge funds, have many virtues. Probably the biggest advantage is you can invest in a portfolio of hedge funds offers a broadly diversified stock portfolio, but with substantially less risk. Unfortunately, unwary U.S. investors who purchase offshore funds can enter what is essentially a hedge 58

Taxes & How to Avoid Them Legally fund tax hell. When you purchase a U.S. mutual fund, your income or gain is passed through to you in proportion to your holdings and reported to the IRS on Form 1099. Offshore funds and unit trusts dont file Form 1099. This is where things get tricky. The IRS requires you, as the investor, to determine their share of the income and pay tax on it. This isnt always easy to do. And if its not possible to make the necessary calculations, using IRS-approved methods, the IRS imposes punitive taxes and interest payments on whatever taxes are deferred under what it calls the passive foreign investment company (PFIC) rules.

There are three ways U.S. investors can avoid hedge fund hell:
1. 1. Purchase offshore funds through IRAs and other types of pension or profit-sharing plan. Income or gain within a retirement plan isnt taxed until its paid out to the beneficiary, at which time its taxed as ordinary income. As long as the retirement plan is administered according to U.S. law, the investment selection and location of our IRA is mostly up to you or the plan administrator if you dont have a selfdirected plan. Unfortunately, most U.S. plan trustees dont permit investments in offshore funds, even though theres no law against it. One IRA custodian company that does offer this option is Sovereign International Pension Services, operated by Sovereign Society Council of Experts member Larry Grossman. For more information on how to safely hold offshore investments through your retirement plan, contact Larry at (727) 784-4841 or lgrossman@sovereignpensionservices.com. Link: www.worldwideplanning.com. 1. 2. Purchase offshore funds through a variable annuity. Under U.S. tax law, a variable annuity serves as a tax-deferred wrapper for an underlying investment account. Any income or gain in the account isnt taxed until its actually distributed. And theres nothing in the Tax Code subjecting offshore funds held within a variable annuity to a different standard. While U.S. annuity providers dont generally provide this option, numerous offshore insurance companies offer U.S. tax-compliant variable annuities that routinely hold off shore funds in their investment accounts. Minimum policy sizes start around US$50,000. 1. 3. Purchase offshore funds through a life insurance policy. A life insurance policy provides the benefits of a variable annuity and more: the death benefit received by beneficiaries is not subject to income tax. The use of an irrevocable life insurance trust can make the death benefit free of estate and generation-skipping taxes as well. A few U.S. life insurance companies will issue private placement policies to high net worth clients that permit the purchase of offshore funds. However, these have high minimums (US$5 million or more) are the norm. Offshore, the minimums for this strategy are much lower (typically US$500,000). Two members of the Council of Experts can help you purchase of variable annuity and life insurance policies: Colin Bowen and Marc Sola. Contact Colin c/o Isle of Man Assurance at +(44) 1624 681200 or info@ ioma.co.im. Link: www.ioma.co.im. Contact Marc at +(41) 1 266 21 41 or info@nmg-ifs.com. Link: www.nmg-ifs.com. Important: In order for a foreign variable annuity or life insurance contract to be qualified for U.S. tax purposes, stringent IRS requirements absolutely must be followed. In particular, youre not allowed to choose the specific offshore funds that are included in the contract. Consult with a qualified international tax advisor to confirm that any policy offered by an offshore insurance company is U.S. tax compliant.

Enjoy ParadiseJust Dont Get Burned

Well, there you have itnow you can go back to relaxing on the beach in front of your company-owned condo, and with your hedge fund portfolio securely wrapped in a variable annuity or life insurance policy. Enjoy the beach and relaxing in the sunjust be sure to use plenty of sunscreen! 59

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Offshore Havens CHAPTER EIGHT

Offshore Havens
Switzerland: Still Our Favorite Investment Haven............................................. 61 The Panama Boom Isnt Over! Plans for a Larger Canal................................................................ 63 Giving Switzerland a Run for the Worlds Money: Business: Banking and Investment Opportunities in the New Hub of Southeast Asia. .................... 66 A Financial Oasis in the Mideast: Why Dubai Has Become a Free-Market Mecca and an Emerging Tax Haven thats No Mirage.............................. 67 Obscure Tax Havens of the World..................... 69

Switzerland: Still Our Favorite Investment Haven The Strongest Personal Vault for Your Assets
April 2007 by Robert E. Bauman, JD Switzerland is one of those nations folks think they know a lot about, but much of what they think they know is based on rumors or stereotypes. For example, Switzerland is always neutral in war and peace, home to trillions of dollars in numbered bank accounts or its a mysterious place where bank secrecy is absolute. Not quite. Theres lots more. Aside from breathtakingly beautiful scenery, Switzerland also happens to be the worlds leading financial haven. Its a country where creative, expert professionals can design and build an iron-clad personal vault for your assets, while providing an excellent legal platform to discover and expand your profitable investments worldwide.

A Reputation for Independence, Safety and Neutrality That Has Stood the Test of Time
When The Sovereign Society first chose the five leading tax and asset havens of the world we all agreed that Switzerland was the leader. Today the Confoederatio Helvetica (with the abbreviation CH) still stands as the worlds best all-around offshore banking and asset protection haven, despite a few compromises that international pressures have forced the Swiss to make. A global survey of private banks published by PricewaterhouseCoopers (PWC), found that reputation more than anything else, attracts new banking clients to Switzerland. Certainly, Switzerlands solid financial reputation helped make this impressive nation banker to the world, a unique role it has played for centuries. And the Swiss are highly independent. Frustrated outsiders repeatedly try to tell them how to conduct their business, but they regularly fail. For example, in the 1992 and 2001 national polls, Swiss voters rejected 61

Offshore Havens European Union membership, rightly fearing EU bureaucratic interference with Swiss privacy and banking laws. (And indeed the EU has tried to meddle with Swiss bank secrecy and tax policy, but to no avail!) After each of these Swiss national votes, and during periodic world recessions, even greater amounts of foreign cash have flowed into Swiss banks. This historic reaction confirms the widespread belief that Switzerland is the place to safeguard cash and personal assets, especially in times of crisis. It is estimated that currently Swiss banks manage at least one third of all assets held offshore by the worlds wealthy. The Swiss banking system holds an estimated US$1.5 trillion in assets, while the value of total securities deposits is over US$4 trillion. Switzerlands currency, the Swiss franc, generally has reflected the state of Swiss banking strong, stable and unaffected by inflation and monetary fads. Since 1971, the franc has appreciated nearly 300% against the U.S. dollar. U.S. owners of Swiss franc denominated assets have profited handsomely as a result.

Still a World-Class Banking Center, But Not Because of Numbered Accounts

Although Swiss banking secrecy is legendary, (those numbered accounts), thats not the most important reason for Switzerlands success. The countrys political, financial and economic stability and strength are of far greater significance. Many of the worlds leading companies and hundreds of thousands of non-Swiss foreigners choose to bank in Switzerland. Even the Bank for International Settlements, which acts as an international intermediary for all other banks in the world, is located in Switzerland. Switzerland is actually home to several hundred banks, ranging from small private and regional banks to the two giants, Union Bank of Switzerland (UBS AG) and Credit Suisse. Major Swiss banks, such as Julius Baer, have branch offices in most of the worlds financial centers, from New York to Panama to Singapore. As in every country these days, to some extent, know your customer rules have complicated the process of opening a Swiss bank account. Proof of identity and references are required. But, the biggest downside is the high minimum deposits required by most banks. Switzerlands popularity among foreign investors, along with the cost of administering stricter anti-money laundering laws, has led to sharp increases in deposit minimums, which now average about US$250,000 for private investment accounts.

Nearly Any Investment You Can Imagine Available Through Your Vault-Like Account and Annuity
You can invest worldwide in certificates of deposit, stocks, bonds, mutual funds and commodities. You can buy, store and sell gold, silver and other precious metals or invest in insurance and annuities. Swiss banks and asset managers can act as your agents to buy other types of assets, such as art and collectibles. To guard against inflation or devaluation, Swiss accounts can be denominated in any currency you choose Swiss francs, U.S. dollars, euros or any other major currency. An account opened in one currency can be switched to another denomination when the time is right for short-term profits or long-term gains and safety. By law, Swiss banks collect a withholding tax of 35% on all interest and dividends paid by Swiss companies, banks, the government or other sources. Foreign investors this tax applies to may be eligible for refunds of all or part of the tax under the terms of Switzerlands network of more than 50 tax treaties with other nations. There are many legal ways to avoid Swiss taxes by investing in accounts structured for foreign investors. These include non-Swiss money market and bond funds, fiduciary precious metal accounts and other tax deferred instruments such as annuities and life insurance. Switzerland is also a world-renowned center for insurance, reinsurance and annuities. Swiss financial institutions and insurance companies offer a broad range of financial services that, in some cases, approach the 62

Offshore Havens flexibility of a bank account. Indeed, many Swiss residents use their insurance company as their only financial institution. Swiss insurance policies offer other important advantages. For example, they generally offer higher interest rates than bank accounts. They may be configured to offer significant asset protection, unlike a bank account. Also insurance accounts arent subject to the Swiss 35% withholding tax on earned bank interest. Now you can see why Switzerland tops our list of world financial centers. Whether you seek more profitable investments, greater asset protection or guaranteed financial privacy, Switzerland has it all.

The Panama Boom Isnt Over! Plans for a Larger Canal, Government Backed Financial Privacy and Zero Taxes for Foreigners Keeps This Nation Booming
February 2007 by Robert E. Bauman, JD Sometimes it seems as if I commute to Panama. Ive been there so many times over the last seven years for business and research trips, that it really does seem like my home away from home. I can tell you where to buy your prescriptions for a fraction of the cost (I paid US$29 for a nasal spray that cost me US$59 in Florida). I can give you directions to the doctor who charges a mere US$15. And, where you can catch the latest movie in English for, US$1.50. But no matter how many times I visit, I always come away impressed at the phenomenal growth and free enterprise spirit in Panama that goes unabated. Its a major change from the colonial Panama I still remember from the 70s. Small wonder that first time visitors today marvel at the modern skyscrapers, scores of new condo towers going up, building cranes eve ry w h e re, first-class hotels and restaurants, excellent digital Internet and other communications, as well as the Americanized culture. Unlike many other foreign countries, Panamanians love Americans and many consider the U.S. their second home. Many got their education and their spouse in America and Intermarriage between locals and Americans is common. And Panama is, at this moment, in the midst of a major economic, construction and modernization upsurge. It is no exaggeration to say that Panamas current boom is without precedent in the century-long history of this South Carolina-size country of three million people. During my recent visit, I talked with a major developer I have known for several years. In the last two years, he has built a major oceanfront resort, a new business tower, two condo buildings (both of which have completely sold out) and now he plans to build a new hotel. The boom goes on! This economic upsurge is accompanied by an increasingly stable government situation, in the same nation that was once notorious for political instability and even dictatorship and revolution in the past. In recent months, the United Nations elected Panama as a member of the UN Security Council and a national referendum overwhelmingly approved a multi-billion dollar widening of the famous Panama Canal to accommodate the very largest ships. Add in the growing Panama real estate boom and the future looks bright for this isthmus. With a Free Trade Agreement between Panama and the United States now completed, the world is at last becoming aware of what we have known for years. Theyre finally realizing this is a nation ripe for foreign business opportunities and investments, and an attractive place for a second home or for retirement.

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Offshore Havens

An Economy Set Apart from Its Neighbors

Panama has always stood apart from Central and South America. Its dollar-based economy and stable political situation, sustained by its canal, the Colon Free Trade Zone and its role as an international financial center and tax haven place it in a class all its own. For decades, Panama has been chosen by many Fortune 500 companies as a profit center and a base to coordinate their multinational or Latin American regional operations. In short, Panama is stepping up in the world. While dollarization is debated as a novel concept elsewhere in Latin America, since 1904, the U.S. dollar has been Panamas official paper currency. Panama is in much better shape financially than its Central American neighbors. Economic growth has expanded in recent years. Direct foreign investments increased dramatically in 2003, ending at US$791.5 million as a result of major investments in the energy and construction sectors as well as resurgence in the banking sector. Since then, annual foreign investment has approached US$1 billion, with nearly 40% coming from America. For the last 45 years, inflation averaged only 2.4% a year. During the 1990s, inflation barely exceeded 1% per year. Annual inflation has averaged 1.4% for the past 30 years, which is much lower than in the United States.

A Tax Haven Unlike Any Other

But before there was a boom, Panama was (and remains) a leading world haven a tax haven, residential haven and haven for protecting your assets with maximum financial and personal privacy guaranteed by law. Alone among current offshore tax havens, Panama combines maximum financial privacy, a long history of judicial enforcement of asset protection-friendly laws, strong anti-money laundering laws and tax exemptions for foreigners. Plus, due to its unique historic relationship with the United States, Panama maintains a high degree of independence from outside pressures, especially from Washington. But the country is not so well known for what it has become in the last three decades. After Miami, it is Latin Americas second major international banking and business center, with strong ties to Asia, Europe and a special relationship with the United States that, however contentious, continues apace. Panama is rapidly attaining world-class tax haven status. Indeed, in many respects, for its financial privacy, solid asset protection and freedom from outside political pressures, Panama has moved to the head of the class.

Privacy, Profits and Zero Taxes

In many ways, the Republic of Panama is ideally suited for the offshore investor who wants to enjoy the increasingly rare privilege of strong, legally guaranteed financial privacy and no taxes, either corporate or personal. According to Canadas Fraser Institute, Panama is near the top of the list of the worlds freest economies, ranked eighth with Australia, Ireland, the Netherlands and Luxembourg. Panama has adopted more than 40 laws protecting foreigners financial and investment rights, including the Investments Stability Law (Law No. 54), which guarantees foreign and local investors equal rights. Among the current 80 plus banks, the major players are the 58 multinational banks representing 30 countries that primarily conduct offshore business. They hold 72% of a reported total US$37 billion in total assets. Banking alone accounts for about 11% of Panamas GNP.

Mums the Word for Financial Privacy

Along with other established havens, such as Luxembourg and Liechtenstein, Panama is one of the worlds oldest tax havens, with legislation establishing tax advantages for corporations dating back to the 1920s. 64

Offshore Havens A central part of the long tax haven tradition has been statutory guarantees of financial privacy and confidentiality. Violators can suffer civil and criminal penalties for unauthorized disclosure. There is no requirement to reveal beneficial trust or corporate ownership to Panama authorities and no required audit reports or financial statements. Bearer shares are still permitted. Panama has no double taxation agreements and no tax information exchange agreements with other countries. Pressured by Washington to sign a TIEA with the United States, Panama has politely ignored such demands. In contrast, under American and British pressure in the last few years, numerous so-called privacy havens have capitulated, including The Bahamas, Bermuda, the Cayman Islands, the British Virgin Islands, the Isle of Man and the Channel Islands of Jersey and Guernsey. Panama has stoutly resisted outside demands for the imposition of taxes on foreign investors. In a ringing speech in 2002, Panamas foreign minister denounced foreign imperialism and said flatly his nation will not bow to such outside pressures. Panamas defense of tax competition has created major opportunities for the country. Panamas growing financial sector also includes an active stock exchange, captive insurance and re-insurance companies, and financial and leasing companies. Panama has liberal laws favoring trusts, international business companies, family foundations and holding companies.

And Its a Leading Retirement Haven

Despite its relatively advanced industrial and financial infrastructure, Panama remains an affordable place to live. A live-in maid earns about US$120 a month. Unlike much of Central America, Panama boasts a first class health care system with low costs compared to the United States. There are also many well-priced buys on condos and other real estate, particularly in Panama City and the surrounding areas. But with all the construction, the market is approaching a glut. Yet, only a few hundred miles away is a subtropical forest, with cascading waterfalls, mountainsides covered with flowers and springlike weather year-round. For this more quiet lifestyle, check out Boquete in Chiriqui province near the Costa Rican border. This area boasts beautiful mountains, clear air and fields of flowers, just a one-hour plane ride from Panama City. The government makes retirement in Panama easy. Laws provide important tax advantages for foreigners who become residents. The only significant requirements are good health and a verifiable monthly income of at least US$500. There are no local taxes on foreign income and you can import your household goods taxfree. And under a special pensionado program, foreigners who move to Panama receive a host of tax exemptions (including real estate taxes) and discounts on goods and services ranging from medical fees to movie tickets. If all this sounds too good to be true, do what I did. Come on down to Panama, roughly two hours by air from Miami or Houston and see for yourself.

Giving Switzerland a Run for the Worlds Money: Business, Banking and Investment Opportunities in the New Hub of Southeast Asia
November 2006 by Lawrence Fong Switzerland and the legendary Swiss Bank Account has the tradition of being the preferred vault where the worlds richest would stash away their cash. For decades, individuals have relied on the masterful Swiss art 65

Offshore Havens of banking secrecy and the Swiss talent for keeping mum to keep their precious assets out of harms way. But today, Switzerland also participates in the EU Savings Tax Directive. In its bid to end client confidentiality in European tax havens and catch tax evaders, the European Union (EU) and the Organization for Economic Cooperation and De velopment (OECD) has pushed for this information exchange against harmful tax competition. With the introduction of this mandatory European withholding tax, especially in financial havens like Switzerland, Luxembourg and Jersey, Singapore has become a channel for avoiding these intrusive policies. As a result, many major Swiss banks have moved their private banking centers to Singapore to meet the growing client demand. Credit Suisses largest private banking center outside Switzerland is located in Singapore. Credit Suisse moved the head of international private banking to the Republic to oversee its eurodesk, tasked specifically to serve its European clients. UBS moved to Singapore for the same reason. Singapore is not a member of the EU or the OECD and remains unfazed by their pressure.

The Switzerland of the Far East

In recent years, Singapore, known as the country run like an efficient corporation, has changed its marketing strategy. Already the most competitive Asian nation and a major financial center for the Far East, Singapore set out to become a financial hub for the entire world. Singapores governing body tweaked many of its relevant laws and regulations to attract the worlds wealthiest to her shores. Banking secrecy laws were beefed up, trust and financial laws were made friendlier, tax rates were reduced and residency laws were relaxed to attract the well-heeled to the paradise island at the tip of the Malayan Archipelago. Singapore also entered into more than 50 Double Taxation Agreements (which means if youre from one of over 50 nations, you wont have to pay taxes to both your home country and Singapore). Tax rates have also been steadily decreased and corporate tax now sits at a comfortable 20%. Only income earned in and remitted into Singapore is taxable. To ensure bank secrecy, Singapore made it a crime to breach the confidentiality of bank customers. They dictated penalties that are even stricter than Switzerlands confidentiality laws. Violators in Singapore face both hefty fines and imprisonment of up to three years. The only exception to this confidentiality would be cooperation with foreign governments when money laundering and terrorism is involved. Trust laws were further tweaked to remove forced heirship, which mandates that part of your estate must pass to certain family members, regardless of your will or trust. The Republic has also made entry and residence in Singapore easier for wealthy individuals. Foreigners with a certain amount of assets can easily apply for residency if they place about US$1.2 million (S$2 million) into government approved funds in Singapore. They may also use a part of these assets to purchase resort-style waterfront housing on the paradise island of Sentosa. Sentosa is south of Singapore, where a mega-resort, including theme parks and casinos, will soon be built. Singapore has now adopted an open-door approach to all who may wish to work, play or reside there. All these measures have already seen dramatic results in Singapore. Poised in a strategic region in South East Asia, private banking funds have flooded into the Republic. Its estimated that private banking funds alone now account for about US$95 billion (S$150 billion), with funds streaming from various sources, including many Europeans moving money from Switzerland.

Singapore is Booming Along with the Rest of Asia

As a banking center, Singapore also targeted the new wealthy individuals who have profited from Asias economic boom. Chinas rapid economic growth as superpower has produced many millionaires literally overnight, who are all eager to keep such private funds out of the country. Hong Kong is often perceived as part of China, so Singapore has the competitive edge to attract such wealth. To date, about a third of Singapores 66

Offshore Havens private banking funds are from the Asia Pacific region, with the potential to grow exponentially with China blazing ahead in its quest to be the largest economy in the world. Not to mention, Vietnam, and the other South East Asian countries are ripening with growth. Many of these private funds reside in the Singapore branches of Swiss banks, serviced by Swiss bankers. Singapore companies have also become a much sought after brand in the realm of tax structures. After all, the Republic has a premium reputation of being a first class, legitimate and respected business arena. Her companies do not get labeled as offshore jurisdictions. Singapore has a long history of political stability and, in fact, she has been independent since 1965. A solid structure of laws, business friendly government, consistently strong economic growth and an educated and dedicated workforce make Singapore an ideal location for setting up a company. Many other banks are following suit in the steps of Credit Suisse and UBS to set up in Singapore, all taking advantage of Singapores new order. It is said that Singapore will be the fastest growing offshore private banking center in the next five years. As it is, there are already 104 foreign banks in this island-city. So the only question that remains iswith the many Swiss banks and bankers now in Singapore, has Switzerland moved to Singapore?

A Financial Oasis in the Mideast: Why Dubai Has Become a Free-Market Mecca and an Emerging Tax Haven thats No Mirage
May 2007 by Robert E. Bauman, JD I doubt most Americans had ever heard of Dubai until recently. This city-state first intruded on the fickle consciousness of Americans in 2006 when a Dubai-based corporation planned to buy a company that managed several of Americas major seaports. To listen to chauvinistic U.S. politicians, you would think Arab terrorists were about to invade America again. As USA Today noted: Dubai has become a convenient symbol to stoke fears about global security and globalization. It can be depicted as a terrorist haven, as it was during the ports debate or a tax haven...The image one is left with is rather incongruous, kind of like a Bermuda run by the Taliban. But USA Today has also asked the cogent question: Why Bash Dubai? adding, If there is any place in the Arab world that the United States should not have a beef with, it is Dubai.

Getting Acquainted with Dubai

Dubai is one of the United Arab Emirates (UAE), a union of seven sovereign sheikdoms formed when the British withdrew from the Arabian Gulf in 1971. Dubai is located on the eastern end of the Arabian Peninsula, along the southern coast of the Persian Gulf.With this strategic location, Dubai boasts mountains, beaches, deserts, oases, camel racing, markets and renowned duty-free shopping, all packed into a relatively small area. Dubai is also home to 1.7 million people, majority of which are foreigners, especially south Asians. Some 100,000 British and other Western expatriates all live there, with Brits leading this offshore financial sector. A quarter of the people trace their origins to neighboring Iran. This diversity discourages any real 67

Offshore Havens ethnic tensions. And while conflict rages further north in Iraq, Dubai has remained blissfully trouble-free. The UAE government does not offer naturalization or permanent residence to expatriates. However, foreigners are permitted to purchase and own designated property without a local partner or sponsor (these are called freeholds). Its hard to believe, but this free-market Mecca and major global economic player was little more than a desert settlement less than a century ago. Only decades ago, Dubai had no running water, no roads and camels were its main source of transportation. But that was all before Dubai struck oil in 1966, and theyve never looked back.

Proud Tax Haven in the Mideast

Yes, Dubai is a tax haven and proud of it. Jebel Ali, the first free trade zone in the UAE in 2003, led the way as a planned offshore financial center. Soon Ras Al Khaimah (RAK), another sheikdom, also launched an offshore financial facility. Jebel Ali and Dubai offshore centers have positioned themselves as the Mideast equivalent of the Cayman Islands or Liechtenstein. Observers have predicted the UAE will become the world center for Islamic finance. As a strategically located member of the seven emirates, Dubai is becoming the leading UAE commercial gateway to more than 1.5 billion consumers in Asia, Africa, Europe, India and the Middle East. Construction is booming everywhere, fueled by billions of dollars in oil wealth. The Dubai government says that as many as a quarter of Fortune 500 global firms now service the Middle East and North Africa from a base in Dubai. Dubais evolution has been dramatic, with modern skyscrapers and gleaming office blocks springing up on the banks of Dubai Creek. Development has been well-managed and oil wealth well-channeled. The rulers of Dubai have a penchant for grand projects such as a new extension to port facilities, the worlds tallest hotel, the Palm Islands, a massive project with 62 miles of new beachfront, as well as hotels, villas, shopping malls, cinemas and Offshore Havens, Dubais first marine park. Land-hungry Dubai is increasingly looking to the waters of the Persian Gulf to find new land to develop. This is shown by yet another huge project, The World, which includes plans to build 300 artificial islands in the shape of the worlds countries. Recently Dubai signed a deal with the Louvre Museum in Paris to establish a branch of the museum there a claim no other nation can make.

Endless Ambitions with No Inhibitions

Dubai also has one of the worlds largest free-trade zones and first-class Internet, media and communications infrastructure, and much of it is brand new. All this, and zero taxes, too. And Dubai has no Mutual Legal Assistance Treaties (MLATs) or tax information exchange agreements with the United States. Dubai also stoutly resisted the Organization for Economic and Community Developments phony harmful tax competition initiative, preferring to keep its attractive zero-tax regime. Dubai is a good choice for companies setting up distribution channels in Europe, the Middle East, Africa and Asia. Its worth considering for a bank account, although the banks tend to cater to rich Arabs and Dubais large expat community. Residence permits are easy to acquire, especially if youre hired by a local company. Dubai seems to have no end to its ambition. Nor does Dubai have any inhibitions, with new plans such as those for the Middle Easts largest shopping mall, the new airport at Jebel Ali and the worlds tallest tower in Burj Dubai on the drawing board. So why bash Dubai, indeed? It is one free market Arab country that is friendly to America and the West. Not to mention, its one Mideast location that offers real possibilities for offshore investment, banking and commerce of all kinds. And it 68

Offshore Havens could very well offer you a firm basis for investment in real estate, stocks and bonds as a base for your business in the Mideast and worldwide. For more information about Dubai, please visit www.dubai.com or www.dubai.ae.

Obscure Tax Havens of the World

September 2006 by Robert E. Bauman, JD At The Sovereign Society, we constantly refer to our top four financial havens Switzerland, Panama, Liechtenstein and Hong Kong (with Austria as honorable mention for its banking secrecy). But there are several other tax and asset protection havens out there. Each of these lesser-known havens has its own specialties that may be worth considering. Take the Isle of Man its a leader in annuities and life insurance as inve s tment vehicles. Nevis is great for asset protection trusts and is one of only two nations that might arrange for immediate economic citizenship and a second passport . So heres my readers digest version of somewhat unknown offshore financial centers. Republic of Andorra: Nestled between Spain and France high in the Pyrenees, this is a residential tax haven for ve ry wealthly foreigners who enjoy winter sports. You must live here 20 years to become a privileged citizen, who has all rights of citizenship except voting, but establishing immediate residency is fairly easy. Just move in and apply for a residents card. There is no income or estate taxes for anyone and banking privacy is ve ry strict. With political and economic stability, no labor problems, virtually no unemployment, and the lowest crime rate in Eu rope, remote Andorra could be your safe haven away from the modern worlds problems. But plan on driving because the only access is by road. Campione dItalia: This little bit of northern Italy is completely surrounded by Switzerland, and its one of the least known residential tax havens in the world. But you have to buy a very expensive home to become a resident. Foreigners who can afford to live here pay no taxes, and can run their foreign-owned businesses tax-free. It may be Italy, but everything here is Swiss, including license plates, currency, postage and banking. The residence permit allows the holder free movement within Switzerland and Liechtenstein, making Campione a valuable European executive base. Principality of Monaco: Monaco is a tax haven for the ultra wealthy and great wealth is what it takes to afford living here. There are no taxes on resident foreigners (unless youre French). Its home to millionaires and billionaires from around the world, many retired and enjoying the very good life. Monaco is for those who already have made their money people who want to spend time and money by day on the Riviera and by night in the Monte Carlo. Gibraltar: The Rock, as it is known worldwide, is the United Kingdoms only continental European possession, although it is claimed by Spain. It has fashioned itself into a dual-purpose residential tax haven for high net-worth individuals and as a professional base for tax-free international business corporations and trusts. Because of Spanish claims, its future is in some small doubt, but locals have voted nearly 100% in favor of staying British. Its likely to remain so. United Kingdom Offshore Havens: Even though the U.K. government under the Labour Party has tried to curb tax havens worldwide, some of the worlds major tax haven jurisdictions have been British Crown dependencies, including the Islands of Jersey and Guernsey in the English Channel off the coast of France, and the Isle of Man to the west of the U.K. in the Irish Sea. There are many possibilities here for investment profits and tax deferrals, including life insurance and annuities as investment vehicles. These islands offer even 69

Offshore Havens more sophisticated financial services than those found in the fabled City of London. Thousands of investors and business persons worldwide use these islands investment houses, accountants, lawyers, insurance brokers and trust and corporation services. Zero corporate tax is now the law in each of the islands. However, pressure from London has weakened financial privacy, and the islands now have tax information exchange agreements (TIEAs) with the United States. Grand Duchy of Luxembourg: Luxembourg is primarily a business and banking haven, rather than a personal tax haven. It is also a haven for international holding companies and investment funds. Luxembourg has a long history of strong financial privacy laws, enhanced by the fact that it is one of three EU nations that are exempted from tax information sharing with other EU member states under the EU tax directive. Bermuda: This British overseas territory off the coast of North Carolina used to be dubbed the Cadillac of offshore banking. It catered to lots of high-dollar Yanks and Brits with a high degree of financial privacy. Its three respected banks have worldwide branches and investment services, especially since the Bank of Bermuda was taken over by HSBC. But Bermuda has greatly diminished its haven status by signing a TIEA with the U.S., by making foreign income tax evasion a local crime and by curbing its former financial privacy laws. Of equal concern, as a U.K. colony, it takes orders from London. However, this mid-Atlantic island still is the worlds leading place for captive self-insurance companies used by businesses and for reinsurance. It offers excellent asset protection trusts as well as IBCs. The Cayman Islands: A few years ago, the Caymans (located just south of Cuba) claimed that its financial institutions held one-fifth of the entire worlds assets under its management. It was the premier jurisdiction for tax-free international banking and business that wanted (and got) iron-clad secrecy guaranteed by law. But a series of highly publicized cases involving drug and other criminal money laundering contributed to ending this havens secrecy and some of that cash has fled elsewhere. This U.K. colony, under extreme pressure from London and Washington, has eased its financial and banking secrecy laws. But the Caymans is still a tax-free haven for offshore bank accounts, trusts and international business corporations, as well as a leader in hedge funds, mutual funds, insurance and annuities. British Virgin Islands: The BVI has only 21,000 people, but more than 400,000 registered IBCs second only to Hong Kong in total number. Thats because the BVI specializes in creating, servicing and promoting offshore corporations for every purpose. The BVI can truthfully say, IBCs R Us. And dont overlook their asset protection trusts, international limited partnerships and insurance. But London is ultimate boss of this U.K. colony.

Offshore Havens
Nevis: While this Caribbean island is not well known outside offshore financial circles, Nevis is one of the best tax-free asset haven jurisdictions in the world. Thats because it has had in place, for over two decades, asset protection friendly laws allowing trusts, IBCs and limited liability companies. Its courts have assembled an enviable record of support for offshore business and its government is a strong offshore supporter, too. And any entity you need can be set up in a matter of a few days at minimal cost. If there is any one offshore haven country that has all the things you need, this may be it. And its a great place for beach resorts, too. Belize: This is the only English-speaking nation in Central America and it has had in place, for a decade, a series of offshore laws allowing asset protection trusts, IBCs, maritime registration, insurance plus maximum financial privacy. Its parliament, courts and government are very pro-offshore and regularly cultivate foreign business. An unusual feature is a special, tax-free retirement residency program for foreigners. But having said all that, Belize is still definitely a Third World country, with all the problems that entails. United States Virgin Islands: Its not generally known, but under a unique special federal income tax arrangement applying only to the U.S. Territory of the Virgin Islands, it is possible for American nationals and others who make the islands their main residence to enjoy substantial personal and business tax benefits. These lower taxes make the islands an offshore tax haven option for very wealthy U.S. citizens, entrepreneurs and 70

Offshore Havens foreign nationals seeking U.S. citizenship, but only if they are willing to make their principal home here and live here most of the year. The VI Industrial Development Commission grants generous tax relief packages, including a 90% exemption on corporate federal income taxes for investors who create jobs. Commonwealth of The Bahamas: Unfortunately, because so many Americans used The Bahamas as an offshore haven in the 20th century, the islands came under heavy pressure from the U.S. government and the IRS because of suspected tax evasion. Since then, The Bahamas has adopted a series of U.S.-demanded laws that largely disrupted past cozy arrangements, and seriously diminished the islands role as an offshore haven. These changes were topped off with a TIEA with the U.S. Its still a nice place to retire or have a second home, but more secure financial havens can be found elsewhere. Cook Islands: These tiny specs far out in the South Pacific, in the middle of nowhere, are home to a very modern set of offshore financial laws including: ironclad asset protection trusts, IBCs, limited liability partnerships and a very strict financial privacy law that prevents revealing your personal business. While independent, the islands look to New Zealand, their former protector, for continued assistance. But some people dont like too much distance between themselves and their assets, and these islands are very far out. Dubai: A relative newcomer to the offshore haven list, this is one of seven emirates of the United Arab Emirates on the Arabian Peninsula. Its becoming a banking and financial center promoted by the Dubai International Financial Center (DIFC). Aside from good supervision and regulation, the DIFC offers an attractive business environment including: zero taxes on income and profits from foreign-owned businesses; a network of double taxation treaties; no restrictions on foreign exchange or capital/profit repatriation; a dollardenominated environment; enforcement of money laundering laws; ultra-modern office accommodations; state-of-the-art technology, sophisticated infrastructure, data protection security, operational support and business facilities of high standards. If your interests lie in the Middle East or Islamic banking, this is your place.

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Personal Privacy and Security CHAPTER NINE

Personal Privacy and Security

Asset ProtectionAsset ProtectionData Brokers Admit Truthful Testimony Would Expose Criminal Acts................................................................... 73 Privacy is Under Attack as Never Before: 7 MustDo Strategies to Reclaim it.............................. 75 How to Fight Back Against Americas FastestGrowing Crime................................................. 78

Your Financial Life Is An Open Book... Heres How to Slam It Shut

August 2006 by Mark Nestmann We had the impression that there were no secrets any more. Now we know that for sure. Congressman Ed Whitfield (R-KY), June 2006 Its about time. Congress is finally waking up to the fact that just about everything Americans want to keep private-bank account details, phone records, credit records, medical records, driving record, bankruptcies, criminal records, civil suits and property records and much more - is available if you have the money to purchase it. That was the lesson Congressman Whitfield and the members of his House Energy and Commerce Committee Oversight Subcommittee learned during a series of hearings in June. The hearings featured testimony from data brokers, from whom banks, car dealers, jealous lovers and even some law enforcement officers have covertly purchased information. They learned of a multi-million dollar industry in which, by illegally impersonating your target, you can purchase someones phone records for US$200, Social Security Number for US$60 and the location of a cell phone for US$300. They also learned how law enforcement, including the Department of Homeland Security and the FBI, uses data broker services to evade legal protections guaranteed in 1970s-era laws prohibiting law enforcement agencies from assembling such records. These privacy-stealing issues are so grave that data brokers that appeared on Capitol Hill in June, 2006 couldnt describe their own involvement for fear of criminal prosecution.

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Personal Privacy and Security

Data Brokers Admit Truthful Testimony Would Expose Criminal Acts

Congressman Whitfields subcommittee focused on the technique of pretexting, in which a data broker contacts a phone company, bank, mortgage company, utility or government agency pretending to be someone else. In many cases, the data broker pretends to be the investigative target calling for information about his or her account. The subcommittee subpoenaed representatives from 11 companies who obtain, market and sell personal databut every one of them refused to testify about how they earn a living. One by one, each of them raised their right hand and swore an oath to tell the truth. But when asked whether they sold personal, non-public information that had been obtained by lying or impersonating someone, all 11 representatives invoked their constitutional right not to incriminate themselves. The subcommittee learned how drug dealers use data brokers to obtain information so they can track down and murder undercover narcotics agents and how stalkers use data brokers to find, harass and sometimes even kill their victims. For instance, in 1999, a man obsessed with a high-school classmate tracked down and killed her after using the services of a data broker called Docusearch, Inc. The killer paid Docusearch US$204 to learn Amy Boyers birthday, her Social Security number and her employer. Using this information, he ambushed and murdered Boyer as she left work. He then shot himself to death. And Congress heard first and how numerous federal and local law enforcement agencies use data brokers to sweep up telephone, bank and other records, bypassing the legal framework set up 30 years ago designed to protect civil liberties. This disclosure occurs on an enormous scale. ChoicePoint, one of the largest data broker services, runs between 14,000 and 40,000 searches per month for just one federal agency, the United States Marshalls Service. Former data broker James Rapp testified that he could obtain their bank passwords or credit card records with just a few telephone calls. By providing customer service representatives a few pieces of information, he could trick them into revealing this data. After a few inquiries, he said he could obtain their Social Security numbers: the key to stealing someones identity. There was nowhere you could run or hide that I couldnt track you down, Rapp told the subcommittee members. Rapps exaggerating, but only a little. Its true there is no way to eliminate the potential exposure of your data without ending all relationships with U.S. banks, brokerages, utility companies, etc. But there are steps you can take to greatly limit the data flow. Here are my top suggestions: 1. Guard your data. If a data broker or identity thief knows your name, date of birth, SSN and residential address, they have enough information to steal your identity. Dont give out this information unless you have no choice. For instance, when I fill out a form that asks for my SSN, I usually leave the entry blank. If its really needed, whoever processes the form contacts me. This rarely happens, but when it does, in almost every case Ive been able to avoid disclosing this information, or Ive been assigned a substitute number. I also dont list my SSN on my checks or my drivers license and neither should you. 1. Contact banks, brokers, utility service providers, etc. and ask them not to answer inquiries about your account without a code word or phrase that you designate. Make sure the word or phrase wouldnt be easy for an imposter to guess, such as your birthday or the last four digits of your SSN. 1. If youre involved in litigation, ask that the records be sealed. If thats not possible, you may have the right to request personal information such as your SSN, bank account numbers, etc. to be placed in a confidential addendum that cant be retrieved without legal authorization. 1. Guard your residential address. Dont list it on your drivers license, stationary or anywhere else. Instead, rent a mailbox at a mail receiving service (e.g., The UPS Store, www. upsstore . c o m) and imprint this address on the license. 74

Personal Privacy and Security 1. Use business entities to hold leases, own vehicles, take out utility services, etc. If you rent your residence ( recommended because it will make it more difficult for stalkers or other undesirables to find you), consider forming a simple business entity, such as a domestic limited liability company (LLC), to hold the lease. You can use the same (or, ideally, different) LLCs to own your vehicle, obtain utility services, etc. You may need to identify yourself as the owner of the business entity, but dont have yourself recorded as the account holder. If your name must appear at all on account records, it should merely be as a person to contact in an emergency. 1. Consider a land trust to cloak your ownership of real estate. This is a specific type of re vocable trust created by state statute. Illinois and Florida land trusts, for instance, provide anonymity for the beneficial owners of the trust. In addition, the trustee can be a business entity, further shielding your identity. There is generally no requirement to register the trust, although its name as owner of the real estate will appear in public land records. 1. Move nest egg assets outside the U.S. into offshore jurisdictions that are serious about pre s e rving privacy. The egregious violations of privacy we accept in the U.S. for the sake of convenience simply arent tolerated in countries like Switzerland and many other offshore centers.

How Vulnerable are You?

1. Are you a U.S. citizen or permanent resident? __Yes __No 2. Have you been assigned a Social Security number? __Yes __No 3. Do you maintain U.S. bank or brokerage accounts without password access? __Yes __No 4. Do you routinely use credit cards issued by U.S. financial institutions? Do you own U.S. real estate in your own name? __Yes __No 5. Have you ever been involved in a divorce or a lawsuit, or received money through a probate court? __Yes __No 6. Are you licensed by any state (e.g., as an attorney, physician, etc.)? __Yes __No 7. Do you own one or more motor vehicles in your own name? __Yes __No 8. Does your drivers license list your residential address? __Yes __No 9. Is your Social Security number imprinted on your drivers license or on your checks? __Yes __No 10. Do you have utility or telephone service in your name? __Yes __No 11. Do you receive mail at your residence in your name? __Yes __No 12. Are 90% or more of your assets located within the United States? __Yes __No 13. Assign yourself one point for each yes answer. Your score: ____ 0-3 points: Virtually unexposed. You have successfully closed the open book data brokers use to buy and sell personal data. 4-6 points: Somewhat exposed. You have shut down more pathways to privacy invasion than most Americans. But you can lower your profile even more. 7-9 points: Exposed. Your life is more open than you might wish. You should take steps to lower your profile. 10-13 points: Highly exposed. Your life is an open book. You are an easy target for identity theft scams, lawsuits and/or asset forfeitures. 75

Personal Privacy and Security

Privacy is Under Attack as Never Before: 7 Must-Do Strategies to Reclaim it

January 2007 by Mark Nestmann it. You have zero privacy, Sun Microsystems CEO Scott McNealy once told a group of reporters. Get over

Well, getting over it is one way to react to the massive privacy breaches conducted by governments and big businesses worldwide. But were not ready to give upand theres no reason you should, either.Todays privacy invasions, serious as they are, can be dealt with successfully. You just need to understand the threats and take proactive measures to fight back. Heres a rundown of some of the most important threats you face as we enter 2007: #1: Warrantless telephone wiretapping. In December 2005, press reports surfaced that the U.S. National Security Agency (NSA) was wiretapping domestic phone conversations without a warrant. This is illegal under the terms of a 1978 law, but a secret executive order signed by President Bush supposedly overruled that statute. The NSA wont say who they wiretap, but its safe to assume they wiretap the same suspects the FBI considers as terror threats. And you dont need to shout Jihad to be considered a suspect. Indeed, the individuals the FBI has investigated as possible terrorists include peace activists, civil liberties advocates and even militant vegetarians. Counter-surveillance strategies: Encrypting your telephone conversations probably wont protect you from the sophisticated wiretapping efforts of the NSA. Federal wiretap reports indicate that authorities have never encountered an encrypted phone conversation they couldnt unscramble. A better way to protect yourself is to anonymize your telephone service as Ill describe in a moment. A new program called Zfone, created by Phil Zimmermann, promises to greatly improve telephone encryption technology. Zfone creates an end-to-end encrypted circuit for telephone calls made over the Internet. Unfortunately, Zfone is difficult to use in its current form. You can check it out at www.zfoneproject.com. #2: Warrantless inspection of phone records, email records and web browsing records. Under the USA PATRIOT Act, the FBI has the authority to obtain telecommunications records without going to court for a warrant. This information can be incredibly revealing. They can obtain a complete record of who you call and how long you talk to them. They can also find out who youre emailing, whos emailing you and what websites you visit on the Internet. Outside the government, theres a burgeoning trade in telephone records on the Internet. For less than US$100, anyone who can point and click can purchase a record of whom you called, when youve called them and how long you talked. Counter-surveillance strategies: Prepaid long-distance telephone cards and cellular service, particularly when purchased with cash, effectively anonymize your calling records. Protect your Internet browsing records by connecting to the Internet through a proxy server so that all connections are made through an intermediary service. Your ISPs records show only the web address of the intermediary, not the actual sites youve visited. A non-U.S. proxy service that is not subject to the USA PATRIOT Act is Armorware (209.29.148.41/armorware/sov/index.html). Protect your email records by setting up email service through a website such as Hushmail (www.hushmail. 76

Personal Privacy and Security com) that you log onto only through a proxy service. Also, be sure to encrypt sensitive email messages using a program like PGP Desktop (www.pgp.com). Contact your telephone carrier (both land lines and cell phones) and request that call details be removed from your bills. Place a password on your account to prevent access by someone impersonating you. Finally, instruct the telephone companies to deactivate online access to your account. Information brokers often obtain cell phone records by setting up online account access that customers have not themselves activated. #3: Banks and brokerages trolling your account records for suspicious transactions. Numerous laws require U.S. banks, brokerages, casinos and other financial institutions (even the U.S. Postal Service!) to spy on your financial accounts. They also have to report any suspicious transactions to the U.S. Treasurys financial intelligence unit, the Financial Crimes Enforcement Network (FinCEN). Counter-surveillance strategies: The best strategy is to avoid suspicious transactions. These include paying off a large debt, making larger than ordinary cash transactions and using money orders or cash to conduct transactions ordinarily handled by check or wire transfer. I havent found a published list of potentially suspicious transactions from FinCEN, but you can read what FinTRAC (the Canadian version of FinCEN) considers suspicious at www.fintrac.gc.ca/publications/brochure/may-2003/pamphlet2_e.asp. If you anticipate conducting an unusual transaction, call your financial institution and let a manager know. Tell them its okay to file any required paperwork. If the manager doesnt think you are trying to hide a financial transaction, than its less likely a suspicious transaction alert will be triggered. #4: Your personal and financial data for sale. For less than US$50, you can log into many online services to Find Anyone and Find Out About Them. Such information brokers can find details about any property you own including your home or vehicle. They can find out about your bank accounts, investments and safety deposits. They can find out who you live with and your residential address. Most of this information is compiled from public records, otherwise known as governmental databases that anyone can access. Information brokers also collect data from banks, credit card companies, credit bureaus, utility companies and publishers, among other private businesses. Counter-surveillance strategies: Its generally impossible to have your personal data removed from public records. Therefore, the best strategy is to limit the information that can be compiled about you. The basic strategy is to hold assets in the name of one or more entities that arent tied to you. One of the best entities for this purpose is a limited liability company. In some U.S. states, LLCs can be set up without re vealing your identity in any public record. An offshore LLC is even better. As for non-public records, ask companies you do business with not to rent your name, address or information about your account. Unfortunately, these requests arent always legally binding. #5: Personal and financial data mining. Data compiled by information brokers can be manipulated by data mining software to construct detailed personal and financial profiles. The results compiled by companies like ChoicePoint can be used for just about any purpose imaginable, from deciding whom to target in a direct-mail campaign, to identifying potential terrorists. Counter-surveillance strategies: The same strategies for dealing with information brokers apply to data mining. The less information about you circulating in public records or company databases, the less information data miners have at their disposal. #6: Warrantless searches of your laptop at border crossings. Thanks to a decision from the 4th Circuit Court of Appeals, U.S. Customs officials can now seize and copy the contents of any laptop carried across a U.S. border. Theres no arrest, warrant or probable cause required. Counter-surveillance strategies: Copy the data from your laptop to a USB stick and send it via a courier service to your international destination. Encrypt all data using a program like PGP Desktop 9.5 (www.pgp. com). If you must take the USB stick with you, pack it in your checked luggage. Dont carry it in your laptop. Another, albeit risky, strategy is to wear your data in a hidden USB stick (www.usbwatches.com). 77

Personal Privacy and Security Sanitize your laptop before you carry it through customs. After backing up your data, use a utility like Killdisk (www.killdisk.com) to wipe your hard drive and reinstall the operating system. There are other less time-consuming sanitation solutions, but none as good as this one. If customs asks you to inspect your laptop, they wont find anything but the operating system and standard system files. #7: PC viruses, spam, pfishing, and pfarming. Most computer users have anti-virus software and spam filters to strip out bogus emails. But pfishing and more recently pfarming are more serious threats. In a pfishing scam, you receive a bogus email, allegedly from a bank or online merchant. The message contains a link routing you to an authentic looking, but phony website where youre asked to enter sensitive information such as your password, your Social Security number, etc. If you enter this data, the fraudster has enough information available to steal your identity, or drain your account. In a pfarming scam, an online crook plants malicious software in the servers that direct Internet traffic. Even if you type in the correct address, the software sends you to a bogus one, where thieves can steal your personal information. Counter-surveillance strategies: NEVER respond to an unsolicited email by entering personal information into an online form. If youre not sure, call the company sending you the email. Dont call any number listed in the email, either. Its a fake listing. Instead, call the number on any statement the company has sent you, or look it up. Pfarming scams are more difficult to detect, but its difficult even for the best hackers to duplicate the look and feel of a commercial website. Also, be alert to misspellings. Another tip-off is if the website doesnt display the lock icon at the bottom of your screen. If you have any suspicion the website isnt real, call the company.

How to Fight Back Against Americas Fastest-Growing Crime

April 2006 by Mark Nestmann Identity theft isnt a new story and its easy to tune out. But its hard to tune out if you become a victim. A 2005 re p o rt from Javelin Strategy & Research found that while about 20% of identity theft cases are cleared up in one hour or less, an equal number can take 80 hours or more to re s o l ve. Beth Givens, who heads up the Privacy Rights Clearinghouse, says she has spoken to victims who have spent more than 500 hours trying to recover their identity. If I had to take 80 hours or more out of my schedule to deal with a situation like this, it would be more than a mere inconvenience. It would re p resent a serious financial loss, beyond any direct loss from the theft of my personal data. To deal with this threat, numerous services exist, that, in exchange for fees of US$5/month and up, purport to provide identity theft protection. If you become a victim of this crime, these services will assist you in dealing with the consequences. Most of these services are offered by credit bureaus. This is a natural fit because credit bureaus are the epicenter of credit granting decisions and thus of identity theft concerns. The services provided generally include two levels of assistance recovery and reimbursement: 1. Protection: Copy of your current credit re p o rt, credit monitoring and, in some cases, additional services. 1. Recove ry: Fraud alert placed on credit re p o rt and, in some cases, additional services. Some services offer a third level of assistance: reimbursement for lost income and expenses associated with the identity theft up to a contractual maximum typically, US$5,000-US$20,000. Often, losses must exceed a preset deductible before theyre covered. 78

Personal Privacy and Security Until very recently, I hesitated to recommend any particular service. This was mainly because when I tried to sign up for one such service several years ago, TRW Credentials, it informed me that I had to complete a 24-page application (asking for an enormous amount of detail about my financial affairs) for it to go into effect. No thanks! Later, I tried signing up for Experians Credit Manager service (www.experian.com). Unfortunately, you cant find out how much the service actually costs until after you sign up for it and give them with authorization to charge your credit card number. Again no thanks! One of Experians competitors, Equifax, does a better job of communicating the terms and conditions of its anti-identity theft product (www.equifax.com). For US$12.95/month, the Equifax Credit Watch Gold with 3-in- 1 monitoring service gives you access to your credit report anytime, notifies you of key changes to your credit files, provides access to live customer support (rather than a list of online FAQs), and provides up to US$20,000 of identity fraud expense coverage with no deductible. However, I was unable to find out if there is reimbursement if a family member or friend commits the fraud. This is an important exclusion, because, according to the FBI, about half the people whose identities are stolen know the thief as family, friend or acquaintance. Equifax told me that I would have to contact the underwriting company to obtain this information, and when I did, they informed me that I would have to contact Equifax. I never did find out whether this exclusion exists, or not. Again no thanks! Recently, I discovered another service that provides crucial advantages over Equifax. Its called Identity Safeguards and costs about the same as the Equifax product (US$12.50 /month for individuals, US$17.50 for families). Identity Safeguards not only provides a credit monitoring service, but also gives you a personalized risk assessment and protection plan to lower your risk. And if you become a victim of identity theft, Identity Safeguards assigns you a personal recovery advocate a specialist who devises a personalized recovery plan. Your advocate places a fraud alert on your credit report at all three major credit bureaus and provides guidance on your rights in any credit dispute, counseling and case support until the case is concluded. Thats much better than waiting in a phone queue for the next customer service agent who may know next-to-nothing about your case. But its in the third phase-fraud reimbursement-where Identity Safeguards really shines. It offers a maximum of US$20,000 with up to US$5,000 per week in lost wage reimbursement (US$30,000 and US$7,500, respectively, for the family plan). By comparison, Equifax offers a maximum of US$500/week. Finally, Identity Safeguards will provide reimbursement even if a friend or family member steals your identity. For more information on Identity Safeguards, or to sign up for their services, visit www.theidentityprotectioncompany. com/thesovereignsociety.com. Or to order by phone call 800-939-4170 and mention you are a Sovereign Society member. Whether or not you decide to purchase identity theft insurance, there are precautions you can take to reduce the likelihood of becoming a victim. They include: Minimizing disclosure of your Social Security number Receiving your mail at a post office box or mail receiving service, rather than an unlocked residential mail box Checking your credit report at least annually for anomalies (a free service from www.annualcreditreport. com). For more information on protecting yourself from identity theft, see www.privacyrights.org/identity.htm.

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Retirement CHAPTER TEN

Retirement
The Baby Boomer Emergency Retirement Repair Plan.................................................................. 81 The Estate Retirement Plan .............................. 83 Tap Into Your Retirement Plan Earlyand Dont Pay the IRS a Dime in Penalties ............................. 85 The NEW Offshore IRA: A Cheaper, Easier Way to Take Your Retirement Plan Abroad................... 87

The Baby Boomer Emergency Retirement Repair Plan

July 2006 by Larry Grossman The first of the Baby Boomers turned 60 this year. I happen to fall right into the middle of this group (those born between 1946 and 1964), so Im pretty familiar with the financial challenges facing many of my peers. For many, right at the top of the list IS the fact theyre grossly unprepared for retirement. Survey after survey shows that many graying boomers still have no idea how much money theyll need to retire comfortably.Worse, in a country with a negative personal savings rate, millions are far behind on their wealth accumulation goals. If you or someone you know is headed for a severely under-funded retirement, fear not. Ill show you how you can create the retirement you want, even if youve fallen far behind on building your nest egg.

What Do You Mean Im Broke?

The standard rule is you need 60% to 90% of your pre-retirement income to maintain a similar standard of living post-retirement. Now that is a pretty wide spread, and it depends on whether you include things like radically increasing health care costs, energy prices and other necessary items. For the sake of argument, well use a number somewhere in between, say 75%. And well run though some examples. Lets assume you are 50 years old earning US$150,000. You want to retire at age 65 with 75% of your current income. Now without too many mental calculations, we are also going to assume youre making a 10% rate of return and youre putting away 10% of your income into a retirement plan. And, finally, we are going to actually assume Uncle Sam will still be around to take care of you so you can draw Social Security. Oh, and one last thing, lets assume you have already accumulated US$100,000 in a retirement plan along the way. 81

Retirement With this plan, you will run out of money when you hit age 72. Thats right. You lasted a whopping 7 years before you exhausted your savings! To meet your goal you have a couple of options. You can increase your rate of return from 10% to 18.5%. We know thats not going to happen! You can reduce your required income at retirement to 40% of your final years income. Hmmm, reducing your income by 40% probably doesnt sound like an appealing retirement after you worked your whole life. Or you can always delay retirement until age 76. Ouch! I dont think any of us want to work that long. And lastly, you can increase contributions to 31% of your income. So clearly, most of us do not contribute enough for retirement. Please, max out on your IRA, SEP and or 401(k) contributions if at all possible. But now lets talk about the greatest savings plan available called a Defined Benefit Plan. I mentioned Defined Benefit (DB) Plans recently and was surprised to learn how few people know about them. I was even more shocked how little these life saving plans are actually discussed. A DB plan is a plan designed to pay a target level of benefits at retirement age. These benefits can be based upon a fixed percentage of your average salary, a flat monthly dollar amount or a formula based on years of service in a business. Most DB plans I have seen simply state the maximum allowable contribution limit based upon the participants age. Going back to the example we were using, a 50-year-old who wants to retire at age 60 can contribute approximately US$168,000 per year. Compare this US$168,000 to the garden variety retirement plans contributions. With a 401(k), you can only contribute up to US$15,000 (and if youre over 50, you can add an extra US$5,000 a year to catch-up). SEP retirement plans are far more generous. You can contribute US$44,000 or 25% of your income up to US$220,000 to your SEP. But that still only leaves you with a maximum of only US$55,000 a year. Lets take a look at some real life examples.

Contribute Even More Than US$168,000 a Year with a DB Plan

Recently, I met S.W. at a Sovereign Society conference. S.W. is a retirement planners dream client. Hes a 51- year-old, self-employed physician with no other employees. S.W. makes a nice living with just over US$350,000 per year. And S.W. was shocked when I told him he could be contributing approximately US$177,000 into a DB plan. Most of us wont be quite as lucky as S.W. Well either have other employees to deal with or we wont make his high income. But, amazingly, a DB plan can work nearly as well for most business owners. Here is another example:

Example: Owner Grabs 90% of the Businesss Retirement Funds

Yes, the owner still has to pay out-of-pocket to cover his employees, but the owner still ends up with over 90% of the total contributions. Employee Owner Emp 1 Emp 2 Emp 3 Emp 4 Age 60 40 35 30 25 Comp. $205,000 $40,000 $35,000 $30,000 $25,000 Contributions $144,034 $7,074 $4,371 $2,707 $1,656 $159,842 % of Total 90.1% 4.4% 2.7% 1.7% 1.1% 100.0%

Total

And these are very simple examples. Far more complex plans allow you to target highly compensated 82

Retirement employees while excluding others. These plans, called Tiered Defined Benefit Plans, let you assume different benefit levels for each participant. That means you can make greater contributions for some employees while minimizing contributions for others. This factor alone was once one of the biggest deterrents to DB plans. What does this mean to you? This means if you own your own business or can influence your retirement plan in any way, then it may not be too late to save for retirement with a defined benefit plan. Now that I have scared the heck out of you, lets talk about a DB plans other benefits.

Tax Savings & Global Investments

A DB plan is the number one legal way to reduce your taxes. Thats right I said the number one way to reduce your taxes. Just like any other retirement plan, the contributions you make to a DB plan are all pre-tax. So if the 50-year-old doctor S.W. contributes the full US$177,000 to his defined benefit plan, he only pays taxes on his remaining income. That means out of a US$350,000 income, he only pays tax on US$173,000. These defined benefit assets can also be invested virtually anywhere in almost any kind of investment. Were not just talking about the traditional mutual funds you see in a 401k were talking about a world of investments available at your finger tips. You can invest in real estate, both domestic and foreign, precious metals, foreign bank accounts, non-U.S. currencies and many, many other investments you have read about in The Sovereign Individual. If properly structured, its actually quite easy to allocate and invest your retirement plan assets anywhere in the world. Plus, these assets grow on a tax-deferred basis until you start to withdraw them at retirement. That means the law of compounding work is working in your favor as you continue to save assets you would normally have to pay taxes on. A Defined Benefit plan allows you to maximize your retirement savings in a way no other retirement plan does. This plan reduces your income tax and gives you the freedom to invest your retirement plan anywhere in the world. If you are one of the fortunate ones who are in a position to implement a DB plan, I would urge you to consider it today. For more information on DB plans, including a custom-designed plan for you, please contact my office for additional information. Authors Note: The development and implementation of a custom designed retirement plan can be a complex task, as it is with all areas of financial planning, requiring a high degree of technical expertise. For the sake of simplicity in trying to explain a highly complex subject, I have made certain assumptions and have rounded numbers. A full explanation of this topic or any assumptions made is available upon request.

The Estate Retirement Plan

August 2006 By Larry Grossman Stretch IRAs have been all over the news lately from USA Today to MSN Money. And with all this nice publicity, it might seem like some brilliant financial planner invented a brand new kind of retirement plan. But actually, there is no such thing as a stretch IRA. But there is a way to make your IRA last for generations and grow tax deferred for many, many years. You see the term stretch IRA really refers to a wealth generation transfer strategy instead of a kind of retirement plan. But with IRAs, Roth IRAs, 401(k)s, Roth 401(k)s, 403bs, Roth 403bs, Defined Benefit Plans and Defined Contribution Plans, who needs a new kind of retirement plan anyway? Thats one of the best aspects about stretching your IRA. You can defer taxes, invest globally and make your IRA last for generations and you dont even have to switch retirement plans. 83

Retirement

Tax Deferral Can Continue Long After Your Death

Most people name their spouse, or partner, as the beneficiary for their retirement plans. And normally thats as far as the planning for IRA transfer ever goes. Now in most, (but not all) cases, the spouse or partner is relatively close in age to the deceased IRA holder. If we assume both individuals live to their normal life expectancy and start taking minimum distributions when they are required, then the IRA wont last more than a few years beyond the first IRA holders death. And then usually the rest of the IRA funds go to the estate or the children. But then the entire IRA is full taxable upon distribution. Remember, one of the advantages of an IRA is it continues to grow tax deferred. That means a smart investor can get an IRA to last as long as possible while letting their nest egg grow tax deferred. Thats really the idea behind a so-called stretch IRA. Over the last 20 years, Ive learned that most people initially plan on taking the money out of their retirement plan as soon as they can, but then change their minds later. Once they get to retirement age they discover they dont really need the money and dont want to pay the taxes until they have to. They would rather let their retirement fund continue to compound assets as long as they can. Most of the clients Ive handled dont touch their retirement plan until they absolutely must start taking distributions (usually at age 70). Here is the idea of how this particular wealth transfer would work. And I need to put a little disclaimer in here: there are many different ways to illustrate this type of wealth transfer strategy. This is just one realistic example. The US$300,000 IRA that Kept Giving for Three Generations JJ is 70. He has a US$300,000 IRA and names his wife Betty as his sole beneficiary. JJ starts taking his Required Minimum Distribution (RMD) and over the next 2 years withdraws US$22,649. JJ dies at 71. Betty, who is 66, elects to treat JJs IRA as her own and names their son Reginald as the beneficiary. Betty doesnt take her RMD until she turns 70 and is lucky enough to live another eight years. She withdraws US$156,123 during her remaining lifetime. Betty dies at 77. Reginald is 53 and takes over the account. He names his daughter Wilma as the ultimate beneficiary. Reginald MUST begin to take distributions. (Once the IRA passes beyond the spouses, distributions must continue or start based upon the beneficiarys age and RMD.) Reginald lives to age 75 and withdraws US$933,576 during his lifetime. At his death the IRA now passes to his daughter Wilma who MUST continue to take the distributions based upon her Dads original RMD table. She takes distributions for another nine years and is fortunate enough to receive a total of US$1,026,841 during that time frame. The IRA has now been depleted. Over three generations a US$300,000 IRA was able to pass on more than US$2 million in income. Not bad, and all it took was a little proper planning. The rules governing distributions are not as complex as they sound. Distributions cant extend beyond the first non-spouse beneficiaries life expectancy. In our example above, Reginald is the first non-spouse beneficiary. His life expectancy at age 53 when he inherited the IRA from his mother, Betty, was 31.4 years. When Reginald died at age 75, his 45-year-old daughter, Wilma, was able to stretch her IRA distributions for another nine years, which equaled Reginalds original life expectancy. You should consider stretching your IRA to keep it from being included in the estate of someone who passes away. If a beneficiary was not named, any remaining assets would be treated as a lump-sum distribution subject to both estate and income taxes. This is by far the least favorable way to distribute your IRA assets and should be avoided at all cost.

How Do You Stretch Your IRA?

All you have to do to utilize this stretch IRA technique is fill out the beneficiary election form that comes 84

Retirement with ALL IRA applications. And you can change your beneficiary election as often as you want. For example, when JJ sets up his IRA, he names his wife Betty as the spousal beneficiary by using the beneficiary election form. When Betty inherits the IRA, she names her son Reginald as the beneficiary, and Reginald in turn names his daughter Wilma. In some cases, an IRA beneficiary form may allow for the original IRA holder to name successor beneficiaries to his or her primary beneficiary in advance. I should point out this is not an all or none proposition. There are no prohibitions against splitting your IRA into multiple accounts and naming a different beneficiary for each one. However, if you name a beneficiary other than your spouse, he or she has to sign a document acknowledging and allowing someone else be named as the beneficiary. Once again I want to mention that a properly structured IRA or retirement plan can not only invest in the U.S. but can invest overseas in virtually any kind of investment, including non-U.S. real estate. My motto is Liberate Your IRAand that often means taking your IRA or stretch IRA offshore. Financial planning and tax planning are complicated subjects. As always you should consult your own advisor for tax or legal advice.

Tap Into Your Retirement Plan Early and Dont Pay the IRS a Dime in Penalties
September 2006 by Larry Grossman Yes, its possible to retire early and skip the penalties. In fact, you can retire anytime before you turn 59-1/2 and never pay the IRS the 10% fee for early distributions. If youve built up your assets to the point that you can afford to retire, Ill show you how you can do it starting tomorrowincluding tapping the assets in your tax-sheltered retirement planand not pay the IRS a single dollar in penalties. And you can do it whether youre 35, 45 or 55, or any age in between. In fact, Ill show you where to get the IRS form to file for early retirement and skip the 10% early retirement penalty. Sadly, even most financial planners dont have a clue the IRS will allow you to take your retirement distributions early without any penalty. But I have been helping a small number of clients quietly do this for years. And now Im going to let you in on the secret. But first a little background...

IRS: Pain in the ARS

The IRS says that if you want to pull money out of your retirement plan before the age of 59 1/2, then youre responsible for the income taxes on the amount and a 10% penalty. Now this may not sound like a lot. But those lucky individuals ready to retire early are already likely to be in or near the highest tax bracket of 35%. That means the 10% penalty could easily push their total government bill to as high as 45%. Thats usually enough to keep any sensible individual from taking early retirement. But thats where the relatively unknown 72(t) distribution comes into play. This obscure provision in the tax code is an election and allows you to partially or entirely skip this onerous penalty. I like to call it the Hey, I have done a good job and now I am going to retire early election.

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The Logistics of Retiring Early

Basically, all you need to do is tell the IRS you want to retire early, and you want to start taking funds out of your retirement plan. And to use this get out of penalty free card, you need to tell them you want to take early retirement under section 72(t). Its important to structure a 72(t) distribution the right way or it ends up triggering the 10% penalty anyway. But the good news is its not that complicated. Basically, 72(t) says that you must take substantially equal periodic payments throughout the course of your retirement and gives you three separate methods for calculating these payments. These three methods of payment are just complicated enough to reinforce the idea that the IRS thought them up. But these different pay-out options are just that-options. They give you different ways to calculate your retirement distributions. And you choose the distribution method that matches your financial situation, depending on whether you want to maximize or minimize your distributions.

Three Ways to Calculate Your Distributions

Required Minimum Distribution (RMD) Method: This is the easiest method to understand because its similar to calculating normal IRA distributions. This method uses your life expectancy as the basis for your distributions. Your life expectancy becomes the dividing factor for your distributions. For example, say youre 40 years old, and according to the IRS life expectancy table, youre supposed to live another 45 years. So you would take 1/45th of your retirement fund as a distribution the first year, then 1/44th the second year, 1/43rd the third yearand so on. With this method, your distributions increase a little each year. But, depending on the size of your retirement plan, the distributions are relatively small. And if youre married, you have added flexibility to increase or decrease your distributions. You can take a distribution based on your life alone if you want to maximize your distributions, or you can take a distribution based on the joint life expectancy of you and your spouse. Assuming your spouse is younger than you, this will minimize your distributions. Fixed Annuitization Method: This is an annuity program. The amount of annual payments you receive is based on the size of your retirement plan. You can find out your annuity factor by visiting the mortality table in Appendix B of Rev. Rul. 2002-62 on the IRS website. Once you have your annuity factor, you divide the entire worth of your retirement plan by the annuity factor that would provide one dollar for every year over your life. The final calculation is your annual distributions over your lifetime. These never change. The annuitization method allows a much larger payout each year than the required minimum distribution method (almost double in some cases). Fixed Amortization Method: This distribution method is based on both your life expectancy and an assumed interest rate. (This interest rate cant be more than 120% of the IRS interest rate assumption or federal mid-term rate.) After the initial distribution, you get to take equal distributions for the rest of your life. And they are more than double the required minimum distributions. And, if for some reason, you need to start taking less out of your retirement fund every year (for example if your stock picks tank), you can make a one-time switch to a smaller distribution plan, like the RMD method. Feel free to visit www.irs.gov for an example of each calculation method.

You Only Have to Take Out Retirement Funds Until You Turn 59-1/2
If you decide to retire early, you only have to take distributions out of your IRA until you turn 59-1/2. Once you hit the magic age of 59-1/2, you can stop taking distributions and start taking them again anytime in the future (up to age 70-1/2). Then once you hit 70-1/2, you have to start taking distributions again, but this still leaves you an entire decade where you can opt out of your retirement plan assets if you wish. Or you can continue taking your normal distributions once you hit 59-1/2-its up to you. This gives you the flexibility to retire early and exercise some control over your distributions. So what does this mean for you? Plain and simple: if youre fortunate enough to have the necessary assets 86

Retirement and youre ready to chuck it all and retire, then this fairly unknown IRS tax form could be your solution. And as always, retirement and tax planning are complex areas and you should always seek professional tax and legal advice. EDITORS NOTE: Interested in using a 72(t) to retire early, but want more information before you make your final decision? You can calculate your personal distributions on the special 72(t) calculator on Sovereign International Pension Services brand new website at www.sovereignpensionservices.com.

The NEW Offshore IRA: A Cheaper, Easier Way to Take Your Retirement Plan Abroad
August 2008 By Larry Grossman If youve been reading The Sovereign Individual for a while, you already know an annuity can be an extremely effective asset protection tool. An annuity shields your assets from creditors, gives you a powerful line of defense against lawsuits, and offers you added financial privacy. Of course, at the same time, an annuity gives you access to practically any investment in the world including the illusive offshore funds that Americans cant access without facing stiff tax consequences. By investing in an annuity, you can access basically any investment on the planet. For years, individuals have also been using annuities to their own personal Get out of Americas Taxes FREE card. Once your assets are safely wrapped in an annuity, you defer taxes until you take a distribution, similar to an IRA. A single annuity gives you asset protection, investment diversification, financial privacy and tax deferral. But I have a way to make these products even more useful, by investing your IRA into an annuity. So you may be asking yourself: Why would I want to invest in a foreign annuity with my IRA? Isnt that like putting a taxdeferred investment inside a tax-deferred account? Absolutely! That is exactly what you are doing. Ill explain why this is useful in just a moment. But first, why should you shop for an annuity abroad?

Why Go Abroad?
Foreign annuities have a number of distinct advantages over most domestic annuities. But the annuities themselves are similar enough that sometimes its difficult to see the distinction. Let me take some of the mystery out of this for you. Foreign annuities are treated just like domestic annuities for tax purposes. Your investments grow tax deferred for as long as you leave them with the insurance company. When you pull assets out, your gains are taxed at ordinary income tax rates. So the pro here is your money compounds faster and grows tax deferred in most cases for many, many years. The con is when you pull your assets out of your annuity then you are taxed at your ordinary income tax rate. For most investors, that can be less than what they normally pay. The other important thing to keep in mind is an annuity is a lot like an IRA. If you pull your money out prior to age 59 1/2, you will pay an additional 10% penalty on top of the already taxable amount. (Of course you arent taxed on your return of principal.)

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A Tax-Deferred Plan Inside a Tax-Deferred Plan

First of all, this retirement-annuity hybrid gives you all the key advantages of an annuity including... Investor protection Asset protection Reputable / strong jurisdiction Investment diversity Tax effectiveness But still: Is a retirement plan wrapped in an offshore annuity better than a regular offshore IRA? Thats for you to decide. Its like asking if a Lexus is better than an Infinity. They are both good cars but you have to decide which one fits your needs. If you are primarily concerned about asset protection, then the annuity wins hands down. An offshore bank account really doesnt offer iron-clad asset protection anymore. It helps, but ultimately, an annuity gives you stronger protection because its an insurance policy rather than just an account. I have found it is getting more and more difficult to deal with foreign banks directly with your IRA. Many banks no longer want to work with Americans or they restrict your investment choices. But banks will accept your annuity.

It is actually easier now to open an annuity with your IRA than it is a bank account. This extends to your investment choices as well.

Where Should You Take Your IRA?

So where can you invest your IRA in an annuity? I would suggest the Isle of Man. They have a new annuity available called a Deferred Variable Annuity (DVA) contract that gives you several more advantages including: Isle of Mans statutory policyholder protection scheme (which basically means youre covered if the insurance company ever goes insolvent). In the Isle of Man, creditors generally cant get their hands on life insurance policies. It does not fall foul of the certain insurance arrangements restriction under the IRSs permitted investment rules for IRAs. 88

Retirement The investments held within the DVA do not suffer any Isle of Man tax. You get the full asset protection benefit of the case law in Isle of Man that protects your structure, known as the Heginbotham case. You get the Isle of Man itself. The Isle of Man is a jurisdiction rated AAA by both Standard & Poors and Moodys for its long-term credit rating. The Insurance & Pensions Authority is also one of the most highly regarded regulators in the world.

Liberate Your IRA!

Could this type of annuity/retirement plan hybrid be for you? You need to speak to a qualified attorney to know for sure. One final thought: Please move your retirement plan offshore while you still can. I have been saying this for years and the window of opportunity continues to narrow. As always, Im ready to assist you any way I can.

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