Offshore trust formation services
Setting up a trust is a popular structure for wealth management. Wealthy families, in particular, have traditionally used trusts to protect assets and minimize taxation on inheritance. More recently, setting up a trust has become more popular among less wealthy businessmen, thanks to more flexible laws over the use of trusts by non-resident settlors and lower trust registration costs and trustee fees. The following information will assist you to determine whether registration of a trust will fulfil your objectives.
Common characteristics of a trust
- Rather than a business vehicle, a trust is a contract signed between three parties: i) the settlor, planning to transfer his assets ii) the trustee, who will be in charge of the management of the assets as per the terms including in the trust agreement and iii) the beneficiaries, who will receive the benefits of the assets put under trust (for instance, the dividends paid by a company);
- The necessity to register the trust will vary from one country to another. In the most reputable countries for trust registration, local laws require the appointment of a licensed trustee. That’s for instance the case in New Zealand and in Jersey;
- In some countries, local laws simply do not provide for the existence of trusts. This is notably the case in France and many other countries which regulations are based on civil law. While assets and residents of these countries can still be legally included in the contract, the trust will provide much less protection against claims by creditors, other family members and tax authorities than a trust registered in accordance with local regulations.
Best uses for an offshore trust
Trusts are usually used to meet the following goals:
- Confidentiality – in most countries, there is no public registrar including the details of the settlors and beneficiaries of a trust;
- Tax planning – an offshore trust can be a way to legally avoid asset transfer tax or inheritance tax. However, some jurisdictions will “claw back” trust assets into the settlor’s estate upon their death. For example, UK assets divested in the seven years preceding the settlor’s death are still to be included in the estate for tax purposes;
- Asset protection – An offshore trust is an ideal way for expatriates living in unstable countries to protect their assets. It is also a good way for politically exposed persons to protect their wealth against illegitimate claims by their Government;
- Tax deferral – putting the assets under a trust allow the beneficiaries to be liable for personal/corporate income tax only upon distribution of the income. No income tax is usually payable as long as the income is retained by the trustee.
Other important legal considerations 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. Some jurisdictions in which the offshore trust is set up allow a trust to be subject to the laws of a third jurisdiction;
- Many countries have legislation mandating for the reporting of transfer of assets to a trust. For example, the US now has strict reporting rules on assets transferred into offshore trusts which also include a requirement to disclose the beneficiaries of the assets;
- In many jurisdictions, a trust deed does not need to be 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;
- 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;
- Transferring assets across national boundaries 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 before registering a trust. Our Clients should also be aware that, as settlors, they must completely renounce control or benefit from the trust. 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.