Setting up a Trust has been a recognised form of asset management and protection for many centuries, with origins in 11th Century England, when they were used as a way of holding property.Over time, Trust have evolved into a way of minimising tax, protecting assets and transfering wealth to beneficiaries without tax consequences. 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 Trusts are especially important in countries which adopt the Civil Law, where Trusts are often not recognised as legitimate. To residents of such countries, setting up a Trust is a useful method of protecting assets.

On the other hand, in countries which use the Common Law, Trusts are often established onshore, although offshore Trusts can still play an important role in avoiding tax. Offshore jurisdictions are ideal places for setting up a Trust due to the relatively liberal tax laws. Some offshore jurisdictions allow nominee Trustees, and enable assets to be settled into the Trust after it is formed to protect the identity of the settler and the type and value of the assets placed in Trust. An offshore Trust also allows unnamed beneficiaries. Also, setting up a Trust in an offshore jurisdiction means the Trust has an indefinite lifespan. Setting up a Trust is particularly valuable in countries where businesses and professional individuals are exposed to lawsuits such as malpractice, professional liability, business creditors and judgement creditors, as they help to protect assets.

The popularity of setting up a Trust has come under the spotlight in recent years. Judgements in the US and UK, as well as in some offshore jurisdictions, have ruled that for a Trust to be considered valid, there must be a genuine transfer of legal ownership of the assets in the Trust to the Trustee by the Settlor. Reports suggest that, in the UK alone, 90% of all offshore Trusts are deemed invalid because the Settlor is making key decisions. Across the Atlantic, in one high profile case a US court ruled that a Trust was not a real Trust and that the donors should pay creditors for monies owed.

In New Zealand, the issue of Trusts has been stimulating debate. The government is proposing to initiate new legislation so that New Zealanders who have invested in overseas Trusts, such as those in the UK, would be liable for capital gains tax. Finance Minister Michael Cullen said in mid-2006 that overseas Trusts ‘are deliberately set up as avoidance mechanisms’. However, industry experts have countered that by setting up a Trust, a small number of investors have a sensible way of investing outside New Zealand and diversifying their savings risk. The Trusts paid tax in Britain, and New Zealand investors were taxed in New Zealand on dividends they received. The Trusts must distribute at least 85% of taxable surplus income to investors each year, and have to comply with strict rules on the level of buying and selling investments they undertake - and hence on the opportunity for making capital gains.

The debate over the pros and cons of setting up a Trust is likely to continue, and the future of such an entity could depend on the viable, secure alternatives provided by stable offshore jurisdictions.