How Much Should You Pay for a Foreign Structure?

Some questions are common and others are not.

But one that needs to be asked… and answered… is:

“What sort of fees should I expect?”

That is, of course, a difficult question to answer because it depends, first and foremost, on what you’re trying to accomplish. Certain goals can justify a higher fee profile.

But beyond that, a reasonable fee takes the following into consideration:

• where you’re investing,

• what asset classes you’re investing in,

• how you’re holding it,

(It’s one of the reasons we start most of our client engagements by reviewing the options and outlining the pros and cons of each.)

In today’s discussion, I want to talk about that third point – how you hold it.

For our purposes, a holding structure is simply the “thing” that owns an asset. It can be:

• You as an individual

• You and someone else, known collectively as a joint holding

• A company (LLC, partnership, or corporation)

• A trust or trust-like structure (trust, foundation, etc.)

• A retirement account

What should it cost?

When clients engage us for planning, we first look at the details of the case.

We also have a general set of guidelines of what something “should” cost for a wide variety of cases… built up over many years of hard-won experience.

And in general, we don’t like to see an offshore structure cost more than:

• 75% for setup

• 4%-0.6% per year for ongoing maintenance and compliance.

So if you’re looking to deploy, say, a million dollars, we aim for the structure side of things to cost not more than $7,500 for setup and not more than $4,000-$6,000 per year for ongoing maintenance and compliance.

Again, that’s a guideline, not a hard and fast rule. But it gives us something to work with.

So what’s included in a setup?

• Planning to determine the best way to achieve the goal, or whether it’s even possible.

• Implementation of basic structures (US and foreign), together with US and foreign attorneys and other professionals as required.

Ongoing maintenance will include:

• US and foreign tax compliance, which means working with foreign and domestic accountants or equivalent.

• US and foreign investment-related regulatory compliance, which usually means working with foreign and domestic attorneys or similar, as well as foreign service providers depending on the type of investment.

• US and foreign structure-specific regulatory compliance, which usually means working with more foreign and domestic lawyers.

• Coordination of all the professionals involved in a case (a role we serve for clients).

Beyond the strict numbers, though, we also live according to these principles:

• Simpler is better than complicated: All else being equal, owning something personally is better than an offshore trust unless there’s a very specific reason to justify that offshore trust.

• Asset type and jurisdiction lead to the structure, not the other way around: Too many people come to us wanting an offshore trust or LLC without a clue how to best use it. That’s backwards… and expensive.

• If you don’t understand it, don’t do it: A lot of our work with clients is education – helping them understand what’s out there and the balanced case for and against. If you don’t understand the rules and how they specifically apply to your situation, it’s a lot easier to make a mistake that can cost you money.

… And one more that applies to all planning, not just the structure piece…

The “Conservative Investment” Test 

All else being equal—unless there’s a really, really good reason—your ongoing structural costs should be dwarfed by the expected return of the investment.

If you’re paying more than a third of your conservative annual return just to keep the lights on, the structure is likely too expensive for the asset.

It may mean you’re over-engineering the solution. Or it could be that the investment itself isn’t big enough to justify the complexity. Either way, a red flag.

At the end of the day, if the math doesn’t work, the answer isn’t to find a cheaper provider—it’s to rethink the whole approach.

If you’re looking at a specific structure and want to see if it passes our framework test, feel free to reach out. An associate will review the basics of your case to see if it’s a fit for our firm and if so, we’ll let you know how we can help.