For many years, the Internal Revenue Service changed the amount of exemptions each person can have in order to avoid estate taxes. This figure is sometimes adjusted due to inflation.
In 2013, the taxable estate exemption is $5 million. Individuals who have this amount or more in assets may strongly consider using an offshore account as part of their investment strategy. The reason for taking this step is to potentially avoid estate taxes that could be incurred on the investor's gross estate.
Some individuals may have less than the $5-million exemption, but they may still benefit from using an offshore account. For example, they may expect to amass at least $5 million due to their investments, an expected inheritance, a sale of a business or an expectation of lifetime earnings in excess of $5 million.
When an estate passes through the probate administration, the process is public information. However, using international trusts can protect the disclosure of financial information to the public because trust agreements are private matters and are not subject to a court hearing to get them working. Some individuals who have between $3 million to $5 million in assets may choose to use an offshore account for their asset protection and privacy needs.
Individuals in the $3-million to $5-million range may also wish to use an offshore account for more investment options. They may want to do business on a small basis in another country besides the United States. Using a foreign account can help investors to diversify their portfolios.
Costs and Fees
Offshore accounts can be established, but a substantial amount of fees and costs may be necessary to get the accounts started and managed properly. These costs and fees may make an offshore account a cost-prohibitive option for individuals with less than $2 million in assets. The potential payoff would likely not be significant enough to justify the cost that an investor in this asset range would likely incur to establish and maintain the account.