The Experts Have Got This All Wrong
My first work assignment overseas was more than 23 years ago in Chad. I was sent to the country on assignment by the oil-drilling company I was working for to fill in for their permanent administrative manager while she took her six weeks annual vacation.
Before the trip, the drilling company’s doctors gave me all of the required shots and preventive malaria pills to start taking prior to traveling. I followed all of the instructions.
About two weeks after I arrived in the country, I started feeling lethargic and under the weather. We had a camp doctor, so I went to see him. I asked him to check me for malaria. He laughed and said no need. I hadn’t been in the country long enough for malaria to take hold and show symptoms yet.
“It’s just the heat and humidity getting to you,” he told me.
“No,” I argued. “It’s more than that.”
Finally, I insisted that he take a blood sample.
“You’ve got all the equipment to run the test right here in your office,” I told him. “Run the test.”
He did, and, indeed, I had malaria. I took the pills he gave me and recovered quickly.
The doctor was sure he was right because he was the doctor… or maybe he was too lazy to do the test… or probably both things were true.
Bottom line, because he had those letters after his name—M.D.—he felt that I should have accepted his opinion without question. He was sure I didn’t have malaria… so I didn’t have malaria.
But I did have malaria.
Why Experts Keep Failing Us?
While it gets in the way with my wife sometimes, I rarely do what I’m told without question, even if the one telling me what to do is a so-called expert with the letters after his or her name to prove it.
Having CPA, CFP, ChFC, or CFA after your name simply means you passed a basic knowledge test. In the United States, being an attorney means you passed the bar; however, in other countries it can mean simply that you graduated college with a law degree. I’ve even seen some people add MBA to their business cards to add credibility to their name.
This isn’t random ranting. I have a point.
LLC Investment Offshore
In my Monday dispatch this week I suggested that it’s not necessary to use an offshore LLC for IRA investments offshore. In fact, I recommended against it, pointing out that, while there are exceptions, most of the time a U.S. LLC does the job at less cost.
As I predicted it would, that suggestion generated a great volume of hate mail, all from folks with letters after their names telling me that the advice was all wet, misinformed, even dangerous.
A CFP (Chartered Financial Planner) wrote:
“Perhaps your blanket statement should have been qualified by something like, ‘it depends on the country in which you choose to purchase the real estate’ or ‘having an entity in a location like Nevis (just a suggestion, not always the best choice) or other friendly jurisdiction to U.S. investors may be a consideration to simplify the transactions/annual maintenance of the properties, regardless of where they are geographically located…'”
I’m thinking this CFP wasn’t liking my suggestion because it cuts into his offshore LLC business, because his assertion that using an offshore LLC in a “friendly” jurisdiction simplifies transactions or annual maintenance is just silly. It’s nonsense.
That said, the “friendliness” of the country where the property is located toward the LLC jurisdiction can be a factor. This was the case for me when I purchased an apartment last year in Portugal. Turns out, Portugal doesn’t like Nevis. As a result, my standard LLC real estate holding structure (non-IRA investments) in Nevis created a tax issue in Portugal. I had to set up a new structure in the Dominican Republic to serve as an intermediary structure.
Portugal is perfectly friendly to me as a U.S. investor… and Nevis is perfectly friendly to me as a U.S. person with an LLC in that country. However, Nevis is on Portugal’s offshore tax haven black list.
The CFP who wrote to me in response to my remarks on Monday went on to state:
“I have had good experiences with clients when advising them on having real estate owned by offshore entities in their IRAs for various countries.”
I’m sure he has had good experiences.
An offshore LLC works as well as an onshore LLC, and, if you’re happy advising clients to spend more money on entities than they need to, you can have many good and profitable experiences making that recommendation.
Then there was this, from an IRA custodian:
“You cannot take title in your own name. Nor can you take title in the name of your U.S. LLC, as it is not a legal entity outside the United States.”
While the first part of that statement is obviously true when speaking about investing through your IRA, the second part is frighteningly not true. What kind of IRA custodian advises clients that a U.S. LLC isn’t legal outside the United States?
A U.S. LLC’s legality doesn’t disappear outside the United States, just as a Nevis LLC’s legality doesn’t disappear outside Nevis.
You may have to register your LLC, whether it is from the United States, Nevis, or another jurisdiction, if you want to use it to hold property in another country (though this is not always necessary, despite what your local country attorney may insist… remember, he makes money registering the entity for you). However, that’s irrelevant. The point is: Your U.S. LLC is a legal entity outside the United States.
Reading the mail I’ve received since Monday from all the professionals with all the letters after their names… all insisting on or suggesting various inaccuracies, I’ve been reminded why I chose to train myself on offshore structures and taxes.
P.S. I work with lots of competent and knowledgeable CPAs, CFPs, attorneys, and even MBAs. Heck, I have an MBA myself, but you won’t see it on my business cards… even if I used business cards.
However, I don’t work with these guys because of the letters behind their names. I interview them, get to know them, and ask for references before working with them to make sure they have the experience to do what I need help doing.
And getting a second opinion is always a good idea.