Offshore Banking and Offshore Trading Resources

Offshore Banking and Trading Glossary

Cited from Glossary Excerpts: 1998, NTC/Contemporary Book, all rights reserved. “From The Offshore Money Book”, Arnold L. Cornez, J.D., ISBN: 08-09228807.

Adverse trustee. One who has a substantial, beneficial interest in the trust assets as well as the income or benefits derived from the trust. A trustee that is related to the creator by birth, marriage or in an employer/employee relationship.

Annuitant. The beneficiary or beneficiaries (in a last-to-die arrangement) of an annuity who receives a stream of payments pursuant to the terms of the annuity contract.

Annuity. A tax sheltering vehicle. An unsecured contract between the company and the annuitant(s) that grows deferred-free and is used to provide for one’s later years. All income taxes are deferred until maturing of the annuity. Capital gains and income accumulate tax deferred. Results in a stream of payments made to the annuitant during his or her lifetime under the annuity agreement. Taxes are paid on the income, interest earned and the capital gains but only to the extent as and when they are received. Currently, there is no annual limit on purchases, but there is no tax credit for purchases. An annuity is not an insurance policy.

Asset manager. A person appointed by a written contract between the IBC (or the exempt company) or the APT and that person to direct the investment program. It can be a fully discretionary account or limitations can be imposed by the contract under the terms of the APT or by the officers of the IBC. Fees to the asset manager can be based on performance achieved, trading commissions or a percentage of the valuation of the estate under his or her management.

Asset Protection Trust (APT). A special form of irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting part of one’s wealth offshore against creditors. Title to the asset is transferred to a person named the trustee. Generally used for asset protection and usually tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.

Badges of Fraud. Conduct that raises a strong presumption that it was undertaken with the intent to delay, hinder or defraud a creditor.

Bank of International Settlements (BIS). Structured like America’s Federal Reserve Bank, controlled by the Basel Committee of the G-10 nations’ Central Banks, it sets standards for capital adequacy among the member central banks.

Beneficiary. The person(s), company, trust or estate named by the grantor, settlor or creator to receive the benefits of a trust in due course upon conditions which the grantor established by way of a trust deed. An exception would be the fully discretionary trust. The beneficiary could be a charity, foundation and/or person(s) which or who are characterized by classes in terms of their order of entitlement or their hierarchy.

Board of Trustees. A board acting as a trustee of a trust or as advisors to the trustee depending upon the language of the trust indenture. Also see Committee of Advisors.

British West Indies (BWI). In the Caribbean, including the UK-dependent territories of Anguilla, the British Virgin Islands (BVI), the Cayman Islands, Montserrat and the Turks and Caicos Islands.

Business trust. A trust created for the primary purpose of operating or engaging in a business. It is a person under the Internal Revenue Code (IRC). It must have a business purpose and actually function as a business.

CARICOM. Caribbean Common Market. Consists of 14 sister-member countries of the Caribbean community. Members include: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. They have set as a goal that in 1997 there will be a single market allowing for the free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, two major players in international banking and finance.

Committee of Advisors. Provides nonbinding advice to the trustee and trust protector. Friendly towards settlor but must still maintain independence.

Committee of Trust Protectors. An alternative to utilizing merely one trust protector. Friendly towards settlor, but must remain independent.

Companies Act or Ordinance. Legislation enacted by a tax haven to provide for the incorporation, registration and operation of international business companies (IBCs). More commonly found in the Caribbean tax havens. For a typical example, read the Bahamas’ International Business Company Act of 1989.

Controlled Foreign Corporation (CFC). An offshore company which, because of ownership or voting control of U.S. persons, is treated by the IRS as a U.S. tax reporting entity. IRC 951 and 957 collectively define the CFC as one in which a U.S. person owns 10 percent or more of a foreign corporation or in which 50 percent or more of the total voting stock is owned by U.S. shareholders collectively or 10 percent or more of the voting control is owned by U.S. persons.

Creator. A person who creates a trust. Also see settlor and grantor.

Current Account. An offshore, personal savings or checking account.

Custodian. A bank, financial institution or other entity that has the responsibility to manage or administer the custody or other safekeeping of assets for other persons or institutions.

Custodian Trustee. A trustee that holds the trust assets in his or her name.

Declaration of Trust. A document creating a trust; a trust deed.

Discretionary Trust. A grantor trust in which the trustee has complete discretion as to who among the class of beneficiaries receives income and/or principal distributions. There are no limits upon the trustee or it would cease to be a discretionary trust. The letter of wishes could provide some guidance to the trustee without having any legal and binding effects. Provides flexibility to the trustee and the utmost privacy.

Donor. A transferor. One who transfers title to an asset by gifting.

EC. The European Commission of the European Union (EU).

ECU. European Currency Unit.

EEC. European Economic Community.

Estate. Interests in real and/or personal property.

Family Holding Trust. A trust that is created specifically to hold the family’s assets consisting of real and/or personal property.

Family lLimited Partnership (FLP). A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 to 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.

Flight Capital. Money that flows offshore and likely never returns. Flight is exacerbated by a lack of confidence as government grows without bounds.

Foreign. May be utilized in a geographic, legal or tax sense. When used geographically, it is that which is situated outside of the U.S. or is characteristic of a country other than the U.S.

Foreign Investor in Real Property Tax Act of 1980 (FIRPTA). Under FIRPTA and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.

Foreign Person. Any person, including a U.S. citizen, who resides outside the U.S. or is subject to the jurisdiction and laws of a country other than the U.S.

Foreign Personal Holding Company (FPHC). Different than a controlled foreign corporation. Discuss with your CPA.

Fraudulent Conveyance. A transfer of an asset that violates the fraudulent conveyance statutes of the affected jurisdictions.

GmbH. A German form of a limited liability corporation.

Grantor. A person who creates a trust or transfers real property to another entity. In a U.S. grantor trust, the person responsible for U.S. income taxes on the trust. May have a reversionary interest in a trust.

Grantor Trust. A trust created by a grantor and taxed to that grantor (settlor).

High Net Worth (HNW) Person. An individual with more than $1,000,000 in liquid assets to manage.

Homestead Exemption. State or federal bankruptcy laws that protect one’s residence from confiscation by a judgment creditor or loss in a personal bankruptcy.

IBC. A corporation. See international business company or exempt company.

Inbound. Coming into the U.S.; onshore; such as funds being paid to a U.S. person from an offshore entity.

Incomplete Gift. Where the settlor has reserved the right to add or delete beneficiaries to the trust, it is construed as an incomplete gift.

Independent Trustee. A trustee who is independent of the settlor. Independence is generally defined as not being related to the settlor by blood, through marriage, by adoption or in an employer/employee relationship.

INTERFIPOL. International Fiscal Police. The tax crime counterpart to INTERPOL.

International Business Company (IBC). A corporation formed (incorporated) under a Company Act of a tax haven, but not authorized to do business within that country of incorporation; intended to be used for global operations. Owned by member(s)/shareholder(s). Has the usual corporate attributes.

International Financial and Banking Centre (IFC). A country identified as being a tax haven.

International Trust. A Cook Islands term for a special type of an Asset Protection Trust (APT). Governed by the laws of the Cook Islands.

INTERPOL. International Criminal Police Organization. The net-work of multinational law enforcement authorities established to exchange information regarding money laundering and other criminal activities. More than 125 member nations.

Layered Trusts. Trusts placed in series where the beneficiary of the first trust is the second trust; used for privacy.

Layering. May be achieved with numerous combinations of entities. For example, 100 percent of the shares of an IBC being owned by the first trust, which has as its sole beneficiary a second trust.

Letter of Wishes. Guidance and a request to the trustee having no binding powers over the trustee. There may be multiple letters. They must be carefully drafted to avoid creating problems with the settlor or true settlor in the case of a grantor trust becoming a co-trustee. The trustee cannot be a pawn of the settlor or there is basis for the argument that there never was a complete renouncement of the assets. Sometimes referred to as a side letter.

Limited Company. Not an international business company. May be a resident of the tax haven and is set up under a special company act with a simpler body of administrative laws.

Limited Liability Company (LLC). Consists of member owners and a manager, at a minimum. Similar to a corporation that is taxed as a partnership or as an S-corporation. More specifically, it combines the more favorable characteristics of a corporation and a partnership. The LLC structure permits the complete pass-through of tax advantages and operational flexibility found in a partnership, operating in a corporate-style structure, with limited liability as provided by the state’s laws.

Living Trust. Revocable trust, for reduction of probate costs and to expedite sale of assets upon death of grantor. Provides no asset protection.

LLP. Limited liability partnership. A form of the LLC favored and used for professional associations, such as accountants and attorneys.

LLLP. Limited liability limited partnership. Intended to protect the general partners from liability. Previously, the general partner was a corporation to protect the principals from personal liability. Under the LLLP, an individual could be a general partner and have limited personal liability.

Mavera Injunction. A court injunction preventing the trustee for a trust from transferring trust assets pending the outcome of a law suit.

Member. An equity owner of a limited liability company ((LLC), limited liability partnership (LLP), limited liability limited partnership (LLLP) or a shareholder in an IBC.

Memorandum. The Memorandum of Association of an IBC, equivalent to articles of incorporation.

Mutual Legal Assistance Treaty (MLAT). An agreement among the U.S. and many Caribbean countries for the exchange of information for the enforcement of criminal laws. U.S. tax evasion is excluded as not being a crime to the offshore countries. The British Virgin Islands have not executed the Treaty.

Non-grantor Trust. Usually an APT created by a NRA person on behalf of the U.S. beneficiaries.

NRA. Nonresident (of the U.S.) alien. Not a U.S. person as defined under the Internal Revenue Code (IRC).

Offshore (OS). Offshore is an international term meaning not only out of your country (jurisdiction) but out of the tax reach of your country of residence or citizenship; synonymous with foreign, transnational, global, international, transworld and multi-national, though foreign is used more in reference to the IRS.

Ownership. Ownership constitutes the holding or possession of limited liability company legal claim or title to an offshore asset.

PLC. A UK public limited company.

Preferential Transfer. A disposition of an asset that is unfair to other creditors of the transferor.

Pre-filing Notice. Mailed by the IRS to parties (tax payers) who are believed to be participating in fraudulent trust programs. The notice requests that the receiver seek professional counsel before filing their next tax return.

Probate. The legal process for the distribution of the estate of a decedent.

Pure Equity Trust. A special type of irrevocable trust marketed by promoters. The trust assets are obtained by an exchange of a certificate of beneficial interest in return for the assets, as opposed to traditional means, such as by gifting.

Pure Trust. A contractual trust as opposed to a statutory trust, created under the Common Law. A pure trust is one in which there must be a minimum of three parties(the creator or settlor (never grantor), the trustee and the beneficiary(and each is a separate entity. A pure trust is claimed to be a lawful, irrevocable, separate legal entity.

Register. The register of international business companies (IBCs) and exempt companies maintained by the Registrar of a tax haven.

Registrar. The Registrar of Companies, a governmental body controlling the formation and renewal of companies created under their company act.

Revenue Reconciliation Act of 1995. Proposed changes to the Internal Revenue Code affecting foreign trust reporting, among other changes.

Securities. Shares and debt obligations of every kind, including options, warrants, and rights to acquire shares and debt obligations.

Settle. To create or establish an offshore trust. Done by the settlor (offshore term) or the grantor (U.S. and IRS term).

Settlor. One (the entity) who (which) creates or settles an offshore trust.

SIPC. The Securities Industry Protection Corporation. Provides up to $500,000 insurance protection for your U.S. stock brokerage account.

Situs or Site. The situs is the domicile or dominating or controlling jurisdiction of the trust. It may be changed to another jurisdiction, to be sited in another country or U.S. state.

Societe Anonyme (SA). A limited liability corporation established under French Law. Requires a minimum of seven shareholders. In Spanish speaking countries, it is known as the Sociedad Anonima. Important characteristic of both is that the liability of the shareholder is limited up to the amount of their capital contribution.

Sparbuch. An Austrian numbered savings account.

Special Custodian. An appointee of the trustee in an APT.

Special Investment Advisor. An appointee of the trustee in an APT.

Statute of Limitations. The deadline after which a party claiming to be injured by the settlor may (should) no longer file an action to recover his or her damages.

Statutory. That which is fixed by statutes, as opposed to Common Law.

Stiftung. A Liechtenstein form of private foundation.

Tax Haven. An international banking and financial centre providing privacy and tax benefits.

Tax Regimen. The local tax treatment of income tax, foreign source income, nonresident treatment and special tax concessions which, when combined, form complex issues.

TCI. Turks and Caicos Islands.

Tranch. A bond series issued for sale in a foreign country.

Transmogrifying. Conversion of nonexempt assets to exempt assets.

True Settlor. The true grantor is not the true settlor, and his or her identity is kept quite private by the trustee. See grantor trust.

Trust. An entity created for the purpose of protecting and conserving assets for the benefit of a third party, the beneficiary. A contract affecting three parties, the settlor, the trustee and the beneficiary. A trust protector is optional but recommended, as well. In the trust, the settlor transfers asset ownership to the trustee on behalf of the beneficiaries.

Trust Deed. An asset protection trust document or instrument.

Trust Indenture. A trust instrument such as a trust deed creating an offshore trust.

Trust Protector. A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. Has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee’s alone. Has the power to remove the trustee and appoint trustees. Consults with the settlor, but the final decisions must be the protector’s.

Trustee. A person totally independent of the settlor who has the fiduciary responsibility to the beneficiaries to manage the assets of the trust as a reasonable prudent business person would do in the same circumstances. Shall defer to the trust protector when required in the best interest of the trust. The trustee reporting requirements shall be defined at the onset and should include how often, to whom, how to respond to instructions or inquiries, global investment strategies, fees (flat and/or percentage of the valuation of the trust estate), anticipated future increases in fees, hourly rates for consulting services, seminars and client educational materials, etc. The trustee may have full discretionary powers of distributions to beneficiaries.

Uniform Partnership Act (UPA). One of the uniform type of laws adopted by some states or used as a baseline for other states.

Vetting. It is the process used by the offshore consultant for qualifying the prospective client to determine if he or she is a good candidate for offshore asset protection; as in to vet the prospective client.

World Bank. Formed to be the bank lender and technical advisor to the developing countries, utilizing funds and technical resources from the member nations.

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