Offshore trust formation services
Setting up a trust has been a recognised form of wealth management and asset protection for many centuries, with origins in 11th century England, when they were used as a way of holding property for crusaders. Over time, trusts have evolved into a way of legally minimising tax, protecting assets and transferring wealth to beneficiaries. Wealthy families, in particular, have traditionally used Trusts to protect assets. More recently, setting up a trust has become more popular among the less wealthy, as offshore laws have been adapted and the costs of setting up a trust have been reduced.
Offshore trust is a highly effective tax planning and asset protection tool. The following information will help you determine whether offshore trust will fulfill your personal or business objectives.
Key considerations of offshore trust formation
- The Settlor’s investments, as well as those of the Beneficiaries, remain confidential since the assets are held in the Trustees’ name, whose details remain private;
- The Settlor divests asset ownership. Since they are legitimately held offshore, trusts are unattractive for creditors;
- If well planned and managed, an offshore trust is an excellent way to avoid liability for asset transfer tax or inheritance tax. However, our Clients should be wary of rules in their home jurisdictions that may “claw back” trust assets into the settlor’s estate upon their death. For example, this is possible in the UK where the assets divested in the 7 years preceding the settlor’s death are included in the estate for tax purposes;
- Some entrepreneurs use offshore trusts to hold and manage an offshore company which is trading internationally. Stocks, bonds, and cash investment products gained during international operations may legitimately be held in offshore trusts without being taxed in some circumstances;
- An offshore trust is an ideal way for expatriates living in unstable countries to protect their assets;
- Offshore trusts can be used as a succession planning tool like a will to arrange for business ownership, investments, or other wealth to be passed to inheritors. However, they are easier to administrate than wills;
- An offshore trust is an excellent alternative for property ownership than a Limited Partnership, since the home mortgage deduction of interest is retained if property is placed in an offshore trust.
- There are sometimes practical difficulties in transferring assets across national boundaries and this may be illegal depending on the nature of the assets and the country of origin. We encourage Clients to seek professional tax guidance from Healy Consultants prior to offshore trust set up;
- The principal disadvantage of a Trust is that the Settlor must renounce control or benefit from the trust absolutely. If our Client is both a Settlor and Beneficiary, he/she is open to claims by creditors that the trust is a sham and they are wilfully seeking to defraud them.
Legal implications of offshore trust setup
- A trust is not automatically governed by the law of the country in which it has been formed. It is necessary to define the law which should govern the trust in the Trust Deed and in the Letter of Wishes. Some jurisdictions in which the offshore trust is set up allow a trust to be subject to the laws of a third jurisdiction;
- The conditions of the trust can specify that its separable aspects, especially those which concern the administration of the trust, will be governed by a different law than the appropriate law applicable to the trust under which it has been formed;
- The law governing separable aspects of a trust can also be changed from the formation country law. It can be changed to the law of another jurisdiction. If it is not specified in the Trust Deed by which law the trust is governed during the process of setting up an offshore trust, the trust will be governed by the law corresponding to the intent of the trust Settlor, unless it is in contradiction with the local jurisdiction and legislation. If this intent is unclear, then the trust is often governed by the jurisdiction with which the Trust had the closest contact at the time of its establishment (i.e. according to the place of residence or registered office of the Trustee), place of trust administration specified by the Settlor, where the targets and purposes of the trust are to be achieved and the jurisdiction in which the offshore trust has been completed. In the case when it is not clear enough, it can be decided by a competent court;
- Many countries have legislation in relation to trust set up. For example, the US now has strict reporting requirements on assets transferred into offshore trusts, the management and beneficiaries of the assets. Due to new US and Canadian tax rules, taxation authorities are now openly discouraging offshore trusts;
- In many jurisdictions a Trust Deed is not registered with any tax authority or government authority and is therefore a private agreement between the parties during the trust set up process. Normally there is no requirement to file the accounts of a Trust, nor have them audited by an independent auditor.
Popular locations for offshore trust setup
- A Singapore trust is a useful way to protect assets for non-resident beneficiaries. Healy Consultants fees for Singapore trust set up are: Year 1: US$25,600 and Year 2 onwards: US$18,100. However, trust distributions paid to beneficiaries outside of Singapore are subject to a 20% withholding tax. Usually this tax may be offset against the recipient’s tax bill on the corresponding trust income wherever they are resident;
- A Hong Kong trust is an excellent asset protection vehicle for non-resident beneficiaries. Healy Consultants fees for Hong Kong trust set up are: Year 1: US$35,000 and Year 2 onwards: US$15,000. For more information on Hong Kong trust, kindly follow this Hong Kong trust formation link;
- Liechtenstein trust set up is done by drafting a Trust Deed between the Settlor and Trustee(s). The Trust Deed does not need to provide the Beneficiaries’ names, instead including these in a private Deed of Wishes. Liechtenstein trust is therefore an effective way of protecting assets. Healy Consultants fees for Liechtenstein trust setup are €18,000 in Year 1 €15,500 from Year 2 onwards. For more information, kindly follow this Liechtenstein trust formation link.
Other points to note when setting up an offshore trust
- If the trust Settlor dies, the Trustee continues to handle the assets of the Settlor according to the Letter of Wishes and distributes the trust benefits (payments, shares, yields, compensations, various financial, or material advantages, etc.) among beneficiaries;
- A trust is a relationship in which a person or entity holds legal title to certain property, but is bound by fiduciary duty to exercise that legal control for the benefit of one or more individuals or organisations.