Editor's Note: With many clients concerned about the proposed imposition of Centralized Bank Digital Currency (CBDC) by the Federal Government on the financial industry, many have expressed their desire to diversify their risk and protect their investments - including their retirement funds. Michael G. Chatzky is an attorney-at-law with Chatzky & Associates with valuable insights on how this can be done before CBDC comes to the U.S. For more info on his firm and services, visit www.chatzkyandassociates.com.
Many astute individuals recently contacted us expressing concerns regarding the proposed imposition of Centralized Bank Digital Currency (CBDC) by the Federal Reserve and the United States Federal Government.
There is significant global momentum for CBDC. It was recently reported that 114 countries are currently exploring CBDC, with 20 countries intending to initiate a CBDC pilot program this year, and 11 countries have already implemented CBDC. Furthermore, 18 of the G20 countries are currently in the advanced stage of CBDC development.
Nigeria recently introduced CBDC to ultimately replace the use of cash as a medium of exchange. The program was introduced with incentives to convert cash to CBDC along with restrictions on the amount of cash withdrawals. The maximum amount of cash an individual could withdraw was restricted to merely 20,000 naira (USD $44.97) per day for individuals and 100,000 naira (USD $224.85) per day for corporations, with any amount of cash withdrawn in excess of those amounts incurring a fee of 5% for individuals and 10% for corporations in addition to the imposition of numerous additional severe restrictions!
This should be a cautionary tale to the United States and other countries that the government’s imposition of CBDC may present a substantial risk to financial freedom and to resistance to CBDC by the public.
The proposal to enact a central bank digital currency in the United States emanated from Executive Order 14067 promulgated by President Biden on March 9, 2022. This Executive Order ordered certain key members of the President’s Cabinet and certain other high-level Government officials to issue a report to the President regarding the design, development, and implementation of a CBDC, including an analysis as to how a CBDC would displace our existing currency, among many other issues.
Because of our rapidly expanding innovative technological world, very serious reasonable concerns are being expressed to us about the Government tracking capabilities of such currency.
Concerns over financial freedom is a common theme. When the U.S. Federal Reserve solicited comments on CBDCs, more than two‐thirds of the commenters expressed concern about the risks to financial privacy, financial freedom and the stability of the banking system.
Currently, you can generally engage in a cash transaction relatively anonymously. You can purchase a candy bar with cash in a supermarket, fill your automobile with gasoline, or buy Girl Scout Cookies without disclosing your identity. Your financial privacy remains intact.
However, absent Government prohibitions to the contrary, CBDC could be designed to contain features that enable the Government to omnisciently know how we are spending and investing our currency – with specific detailed information about each transaction being recorded by the Government. This would enable the Government to prepare your tax returns for you as it would already possess the pertinent information from your CBDC records, and of course would enable the Government to automatically deduct your taxes from your transactions!
The Government might also seek to impose a social benefit/detriment system in which it would limit or prohibit what you would be permitted to purchase, what organizations you wished to support, etc., and credit you with benefits for matters the Government unilaterally found to be beneficial.
Because the Government is actively pursuing the CBDC program, and many other nations have taken significant steps to launch a CBDC program or have already done so, the time is now to position yourself for the possible implementation of CBDC in the United States of America.
We generally recommend you consider diversifying your assets, in conjunction with your financial advisor’s advice. The purchase of assets such as precious metals, Perth Mint Certificates, and other assets before the implementation of CBDC will likely provide you with assets to use in the event of banking and ATM restrictions, and will enhance your ability to maintain your financial freedom and financial stability while ameliorating your exposure to CBDC tracking.
We use a variety of planning tools to attempt to counteract a possible forced conversion to CBDC to preserve your wealth and protect your assets. In appropriate situations, the utilization of non-United States trusts and entities in the planning can significantly enhance the asset protection elements of the ownership structure. For example, if the assets of a foreign trust are under the direction and control of a Trustee such as a licensed trust company in the foreign jurisdiction, this minimizes CBDC exposure, and potentially might extricate the assets from the CBDC. Similarly, the assets of a foreign Limited Liability Company managed by a non-United States party minimizes the exposure of the assets to CBDC.
In any event, the planning should be custom-tailored to your personal situation and should be consistent with your financial, estate planning, business planning, tax planning, and wealth protection objectives.
Planning tools we consider, among others, include the following:
• Domestic Revocable Living Trusts primarily for estate planning, probate avoidance, and asset protection for Trust Beneficiaries from their personal creditors, and other purposes.
• Foreign Revocable Living Trusts established in Nevis primarily for estate planning, probate avoidance, and asset protection for YOU and Trust Beneficiaries, and other purposes.
• Domestic Irrevocable Trusts which can be designed to be exempt from United States Estate Taxation as well as probate, and which can be drafted to contain asset protection features.
• International Wealth Protection Trusts primarily for probate avoidance, estate tax avoidance, asset protection, enhanced financial privacy except from certain taxation and anti-money laundering authorities, and access to foreign investments.
• Foreign Grantor Trusts established by a nonresident alien for the benefit of you and your family, which in addition to the advantages for International Wealth Protection Trusts can provide United States income tax advantages such as the receipt of trust distributions that are nontaxable to U.S. parties who must report the distributions to the Internal Revenue Service!
• Domestic Limited Liability Companies which can provide asset protection and permit you to manage the company personally.
• Foreign Limited Liability Companies which if drafted in an appropriate jurisdiction can provide enhanced asset protection features beyond what a Domestic Limited Liability Company can provide.
• Domestic Pension Limited Liability Companies which are owned by a Self-Directed Individual Retirement Account or Sole 401(k) Plan and are required to contain specific terms and provisions to avoid disqualifying your IRA from its tax features, and needs to avoid engaging in disqualifying transactions. They provide enhanced asset protection for your IRA and the assets owned by the Domestic Pension Limited Liability Company. They are especially well-suited to own precious metals, Perth Mint Certificates, real property interests, cryptocurrencies, and certain other asset classes that IRAs traditionally do not own.
• Foreign Pension Limited Liability Companies which in addition to the features of a Domestic Pension Limited Liability Company are well-suited for the ownership of assets by an IRA that wishes to minimize its exposure to CBDC!
Many plans incorporate a combination of techniques such as by using a trust to own a Membership Interest in a Limited Liability Company to use the estate planning benefits of the trust and the asset protection benefits of the limited liability company.
These tools are not only important but can be the difference between your financial freedom and control and self-sovereignty over your financial decisions, and the loss of financial freedom and control. This is not a mere hyperbolic conjecture. CBDC has been and is massively becoming enacted and forced upon the people in many nations, and is rapidly approaching us in the U.S.
Remember you are the author of your personal plan, with your wealth protection attorney advising you on the suitability of your plan for your needs and objectives. Your plan needs to address the tracking and privacy concerns that might soon arise in the proposed new CBDC Era!
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