A trust is a trust is a trust…the only thing that makes an offshore trust different from any other domestic trust the average American would create is location.

It is hard to tell just how many offshore trusts there are because even under American law, there is no hard and fast requirement for registering a trust. Registration would be similar to recording a deed, and would make the creation of the trust a matter of public record. Even then, however, most trusts are private and maintain their privacy (though there are limited exceptions). This is generally the key selling point for a trust, because many people prefer to keep their financial affairs private.

While a trust may just be a document, it will never exist without property to hold. The key feature of a trust is that the beneficial title to the property is severed from the legal title. So, if Amanda owns a bank account, she has both legal and beneficial title because the account is in her name and she can draw from it. But, if Amanda transfers the bank account to a trust, the trust’s trustee, Billy, now hold legal title and Amanda makes herself the beneficiary of the trust and holds beneficial title only. Thus, the title has been split and a trust is created because Billy now controls the asset under the terms of the trust for Amanda’s benefit. If the account is located in Missouri, then Missouri’s courts have jurisdiction over the asset.

So why are offshore trusts created? Generally, in countries with advantageous tax and financial laws (such as Panama, the Virgin Islands, and the Caymans) folks with a substantial amount of wealth in a country with less advantageous laws can create a trust within one of those jurisdictions, transfer part of their wealth into the trust (which likely parks those assets in offshore accounts), and then shelter those assets from domestic tax and financial laws…in theory. In the United States, recently passed regulations require American citizens whose names are on offshore accounts to report their holdings to the IRS and to pay taxes on money that is repatriated. But the reporting requirements contain loopholes, and if a person is merely a beneficiary but is not actually named on an account, the rules can be difficult to apply.

That’s where the buzz comes in on enacting more stringent reporting and accounting requirements for these trusts. New Zealand is at the forefront of considering such requirements in the wake of the Panama Papers scandal. Trusts are routinely abused domestically in instances of disinheriting step children; creating pet trusts; attempting to circumvent creditors; and in attempting to safeguard property from a myriad of contingencies. On one hand, privacy is essential to the philosophy of trusts. However, as trusts become evermore sophisticated, the same privacy that can protect families can also breed corruption.