Whether you live in the US or abroad, diversification is an important component of a comprehensive asset protection strategy. By “asset protection,” we mean not only planning your estate and cautiously saving for retirement, but ensuring that all of the assets that you have accumulated during your lifetime are not susceptible to being wiped out in the event of a downturn or single catastrophic economic event.
When most people think of diversification, they think of diversity within their stock portfolio. Investing in companies in different market sectors, looking into mutual funds and exchange-traded funds, shifting some money into corporate or treasury bonds – these are all classic examples of diversification. But, it is possible to diversify your assets even further, and one method that has withstood the test of time is investing in physical gold.
Why Do People Invest in Gold?
As the foregoing discussion suggests, one of the primary reasons why people invest in gold is broad diversification of their personal assets. Even if you hold stocks, mutual funds, and corporate bonds in the US market, while this may seem like diversification (and to a certain extent, it is), your entire portfolio is still potentially at risk if there is a sudden crash in the US market.
While you may be able to survive a major drop in your portfolio’s value if you are still relatively young and only saving for retirement, (i) there is always the possibility that your portfolio will not fully bounce back; and, (ii) if you were investing non-retirement assets, what happens when you need access to funds in the short term? Investing in gold, which has to date proven to be a fairly stable long-term and short-term investment, reduces this risk of a catastrophic loss.
Why Do Gold Investors Store Their Gold Offshore?
If you have spent any time reading about gold investing online, you likely have come across a number of articles that talk about storing gold offshore. So, why store gold offshore as opposed to domestically in the US? There are two primary reasons:
- To hedge against cash inflation
- To legally avoid US taxes
1. Hedging Against Cash Inflation.
Storing gold overseas can lead to further diversification by hedging against cash inflation. What does this mean? Let’s look at an example:
Imagine that you own gold that you have stored in the US that is currently worth $10,000. Over time, the value of the US dollar drops due to inflation. The dollar isn’t worth what it used to be, so your cash (and other currency-based investments) have lost value. If you try to sell your gold in the US (effectively turning your gold into US currency), the same principles will apply. Simply by holding your gold in the US, you have caused it to lose value. This is what is known as cash inflation risk, and it is one of the primary reasons why people choose to store their gold in reliable economic environments overseas (which we will touch on in more detail below).
2. Legally Avoiding US Taxes.
The second primary reason for storing your gold in another country is that offshore precious metals are not reportable to the US Internal Revenue Service (IRS). However, there are caveats here (for example, holding gold in a safe deposit box as opposed to a private vault may be considered an “account” that needs to be reported), so you will want to make sure that you structure your offshore holding appropriately in order to secure the available tax benefits.
What Happens to Your Offshore Gold When You Die?
This, obviously, is a question of critical importance. While you may be holding gold as a relatively liquid asset that you can access during your lifetime; ultimately, if you own offshore gold when you die, you will need to make sure that it gets into the right hands.
There are a number of countries that are particularly popular for offshore gold storage (generally for privacy and tax-related reasons). These include:
- Cayman Islands
If you choose one of these countries (or any other country) to store your gold offshore, it is important to understand how the local laws where you store your gold may affect transfers at death. For example, in addition to having laws that are favorable for offshore gold storage, each of the countries listed above also has laws that will come into play when you die. As a result, to make sure you are certain what will happen to your gold after you die, it is necessary to make sure that you understand all of the implications involved.
What are Some Estate Planning Strategies for Offshore Gold Investors?
With these considerations in mind, revisiting your estate plan should go hand-in-hand with developing a plan to store your gold offshore. When it comes to addressing offshore gold holdings in your estate plan, you potentially have a number of different options available. These may include the following:
1. Domestic and Cross-Border Wills
Using a will is almost always an option when it comes to planning your estate, and deciding who will have the right to take possession of your gold is no different. However, each country’s laws governing estate succession (transfers upon death through a will) are unique, and you will need to make sure that your will (or wills) are enforceable in the necessary jurisdictions. For example, while Panama law recognizes the validity of US wills subject to certain conditions, in other countries, it may be necessary to have two separate wills. Even if you store your gold in Panama, it may make sense to have multiple wills, as well.
Trusts, including the revocable living trust in the US, are preferred estate planning tools in many countries around the globe. Trusts offer simplicity, flexibility, privacy, and the ability to avoid the probate process. Depending on the specific reason why you are holding offshore gold (to protect assets you will need during your lifetime or to preserve your estate for your loved ones), there are various trust options that can be used for planning an estate that includes offshore gold.
3. Offshore Estate Planning Tools
As a third option, you should also consider any estate planning tools that are available in the country where your gold is stored. For example, Panama law recognizes a special type of entity known as a personal interest foundation (PIF), and the PIF is recognized locally as a flexible and favorable tool a variety of estate planning purposes.
Regardless of the estate planning tool that you use to transfer your offshore gold, it is important not to consider your gold in a vacuum. You most likely have numerous other assets that will be part of your estate, and you do not want one part of your estate plan to overlap with (or potentially void) another. By taking a comprehensive approach to your estate plan and choosing flexible estate planning tools that allow you to make changes and updates over time, you can provide even greater protection for your offshore gold investment.
Jiah Kim & Associates | An International Estate Planning Law Firm
At Jiah Kim & Associates, we assist clients in the US and worldwide with all aspects of cross-border estate planning. If you have questions about the legal implications of storing gold offshore, or if you would like to speak with an attorney about preparing or updating your estate plan, call us at (646) 389-5065 or schedule a consultation online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.