His clients who broach the subject usually have more than $20 million in assets, and they see sticking their cash in, say, the Cayman Islands as a smart way to protect their estates from creditors and lawsuits.
"When they're socializing or networking, these sorts of conversations will start to come up," said Mr. Smith, a wealth manager at Balasa Dinverno Foltz LLC, an advisory firm in Itasca, Ill., with about $2.1 billion under management.
For advisers like Mr. Smith, there's nothing wrong with their clients having offshore accounts, as long as they properly report their holdings to the Internal Revenue Service. But he and other advisers tend to discourage it.
Such accounts may cost more to establish and maintain. And they may not offer as many investment choices. In contrast, a domestic trust can accomplish the same goals, with fewer hassles, advisers say.
"It still comes down to complexity and cost; they weigh it all out and say, 'why bother,'" Mr. Smith said.
Americans now have to do more reporting on offshore assets, adding to the administrative headaches of owning them. By the end of this month, for example, those with accounts worth more than $10,000 must make an important tax filing that repeats some information they already reported this year. And foreign banks are under pressure to report on their American clients to the IRS.
Joan K. Crain, a senior director for BNY Mellon Wealth Management, said she has a ready answer when clients ask about offshore accounts.
"I very quickly say you need to talk to an attorney who is experienced in the area of international tax planning," said Ms. Crain, who typically doesn't bring up the subject with U.S. citizens or permanent residents. BNY Mellon has a subsidiary trust company in the Cayman Islands that does not accept U.S. citizens as customers.
Recently, a client who owns a growing business asked Ms. Crain if he should set up an offshore trust to hold the business itself. She told him such a move would have meant giving up some control, the thought of which prompted the client to reject the idea.
When a client is contemplating creating an offshore account in order to keep his or her assets out of the reach of creditors or lawsuits, Mr. Smith said he will point out that domestic trust works just as well.
A doctor, for example, may want to use a domestic trust to shield his home and other personal assets from malpractice suits. Delaware and a number of other states allow domestic asset protection trusts, or DAPTs, a strong alternative to offshore creditor protection trusts. Creditors cannot claim someone's assets in a lawsuit because the assets don't actually belong to the person being sued.
And liability insurance also can be a better line of defense against creditors than an offshore trust, advisers say.
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