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Dear Penny: How can I hide my fortune in the Cayman Islands?

Sept. 21, 2012
Personal Finance
Dear Penny: How Do I Hide My Fortune in the Cayman Islands?
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Dear Penny,

I just got a call from a lawyer who told me I’m about to inherit my estranged great-great-uncle’s fortune of over $60 million dollars. Then she told me about the taxes I’ll have to pay on it! I don’t understand why I should have to give away the money I earned through the hard work of being related to a rich person who had no close family or friends. I’ve heard a lot of talk lately about wealthy people hiding money in “tax havens” like the Cayman Islands. What is a “tax haven”? Is it even legal to do that? And how can I get my money there?


Caymankin’ Me Crazy


Dear Crazy,

As you noted, you’re far from the first multi-millionaire to have this idea—in fact, the super-wealthy have over $21 trillion hidden in “tax havens” like the Cayman Islands. Half of that sum belongs to only 92,000 people (and after you, 92,001). For those of us who couldn’t even afford a plane ticket to paradise, what exactly is a “tax haven”? Well, it’s a country that offers a low tax rate along with legislation that encourages a lack of transparency in order to prevent information exchange between foreign countries. The Cayman Islands charges an income tax of exactly 0%, making it very popular with both foreign banks and billionaires.

So, is it legal to hide your money in the Cayman Islands? That’s a good question—and a complicated one. U.S. citizens are required to pay U.S. taxes on their money, whether it’s in Belleville, Alabama or in sunny Belize. So moving your money to the islands where you pay 0% should be illegal, right? Wrong. It’s perfectly legal, for instance, to reinvest earned money overseas—to the tune of no taxation. But be careful: there’s a thin line between legal tax avoidance and illegal tax evasion. On the right side of the law you’ve got yourself a nice fat wallet filled with Uncle Merle’s money; on the wrong side you’ve got fraud, money laundering, and imprisonment.

As long as you’re only using your account in the Caymans to avoid taxes and not evade them, it’s all perfectly legal—you’re only required to pay the absolute legal minimum of taxes. As noted in the 1934 case Helving v. Gregory, federal judge (and noted judicial philosopher) Learned Hand wrote: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” With so many gray areas of U.S. tax codes, you and your financial advisors can choose to use the Cayman Islands to…massage your taxes down using technically legal but ethically questionable choices.

Now you know Miss Penny’s not here to pass judgment, so if you’re still not willing to part with that new money, you’ll probably want to know how to set up an account in the Caymans. You’ll have to get an accountant and a lawyer to help you set up an offshore account. It won’t be hard to find real estate, as all you’ll need is a mailbox (lucky you!). Ugland House, a five-story office building in the Cayman Islands, is currently home to as many as 19,000—presumably very, very, tiny—companies. Or maybe they’re not so tiny: President Obama recently called Ugland House “either the biggest building or the biggest tax scam on record.”

So do with your great-great-uncle’s money as you please, as long as it’s within the law. But remember, if you’re generous to your community now, you’ll find that your inheritance might one day go to someone who loves you—instead of your estranged great-great-nephew.

Fiscally Yours,

Miss Penny