Offshore trust formation services in 2023
Setting up a trust is a popular structure for wealth management. High net worth families, in particular, have traditionally used trusts to protect assets and minimize taxation on inheritance. More recently, setting up a trust is increasingly 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 most countries providing 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 -where only foreign trusts are recognized but subject to cumbersome requirements -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.
Recommended reputable jurisdictions for trust registration
- Our preferred jurisdictions for the registration of a trust provide both confidentiality, a stable and well-defined regulatory requirements and high standards re protection of the settlors & beneficiaries against wrongdoing by the trustee(s);
- Please refer to the table below for more information and fees to register a trust in our five preferred jurisdictions:
Country New Zealand trust Singapore trust Hong Kong trust Jersey trust Australia trading trust Confidentially? Excellent Excellent Excellent Excellent Good Seen by Government and banks as? Excellent Good Good Average Unusual Time to register a trust? 2 weeks 6 weeks 4 weeks 4 weeks 3 weeks Invoice? View invoice PDF Contact us View invoice PDF View invoice PDF View invoice PDF
- If requested and after completion of our due diligence checks, Healy Consultants will assist our Clients to register a trust in a global tax haven like the British Virgin Islands or the Bahamas. However, we believe tax havens are not long term solutions for our Clients, because they are negatively perceived by international banks, Governments, investors and customers.
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 registered still 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 United States now have strict reporting rules on assets transferred into offshore trusts which also include a requirement to disclose the beneficiaries of the assets to the Internal Revenue Services;
- 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.