High-tax countries like the United States aren't the only ones experiencing a budget crisis. Dozens of low-tax jurisdictions are, too. Like the USA, they're scrambling to raise revenues, any way they can. And in some of them, your wealth is in the crosshairs.
Case in point: the Cayman Islands. Faced with a large budget deficit, the legislature has now enacted a law to confiscate what it calls "dormant accounts." These are supposedly unclaimed funds in bank accounts, trusts. If there's no activity in your account for six years or more, the Cayman government can take it. What's more, they can even seize whatever property you have stored in your safety deposit box.
Before the government seizes your account, the bank must take all "reasonable steps" to find you. One such reasonable step is to publish details of your account in an official gazette. So much for bank secrecy! And, I suspect, most account-holders don't read this publication.
Naturally, the Cayman government doesn't present the law as a revenue-raising measure. Instead, it's supposedly designed to provide guidance to banks as to how to deal with unclaimed accounts.
No doubt there are many such accounts. One way an account might become dormant is if the owner dies, and fails to leave beneficiary instructions. It could also occur if the owner failed to report the account to his domestic tax authorities. The owner might decide it's better to have the Cayman government seize the proceeds than to deal with the potential criminal consequences of failing to report the account.
There's no word yet on how much revenue this measure will raise for the Cayman government. However, there are reportedly millions of dollars of unclaimed funds in Cayman accounts. No doubt the valuables stored in safety deposit boxes will also be a rich source of income.
Best of all (at least from the standpoint of revenue hungry governments), if the takings from the law prove to be large enough count on other offshore jurisdictions to pass similar measures.
How can you protect yourself from such confiscatory legislation? First, if you have an offshore account, you can't ignore it. Check in with the bank at least once annually to insure it's in good standing. Second, have a clear beneficiary designation for the account. If that's not possible, one alternative is to have the individual you intend to inherit the account become a co-signer on it. Third, if you "forgot" to report the account to your domestic tax authorities, contact a qualified tax attorney for advice on how to proceed.
Copyright © 2010 by Mark Nestmann
