What are the main reasons for establishing an Offshore Trust?
• The Offshore Trust is one of the most important tools in modern-day asset protection.
An offshore trust for asset protection refers to a legal structure where individuals place their assets in a trust established in a foreign country, with the purpose of protecting those assets from potential legal or financial claims. Offshore trusts can provide a degree of privacy and protection, as the trust is governed by the laws of the country in which it is established, rather than the individual’s home country. This can be especially useful for individuals with high net worth or those who are concerned about potential lawsuits or other legal actions.
• Favourable tax treatment
An offshore trust for tax avoidance refers to a legal structure where individuals place their assets in a trust established in a country with favorable tax laws, in order to minimize the amount of taxes they pay on those assets. This is sometimes referred to as “tax planning” or “tax optimization.”
• Forced heirship laws
• Continuity on death
• Preserve property in the family
Offshore trusts can be useful for estate planning, allowing individuals to ensure that their assets are distributed according to their wishes after they pass away.
• Protection of assets from creditors and divorced spouses
• Confidentiality or discreet asset holding
• The secure deposit of assets.
Offshore trusts can provide a higher degree of privacy compared to other types of financial structures, as the trust’s activities and assets may be subject to less scrutiny.
The concept of the Trust generally
A Trust is created when an individual (the Settlor) transfers his assets or part of his assets to another individual or corporation (the Trustee(s)) to control and manage the assets on behalf of a further specified individual or group of individuals (the Beneficiaries).
Parties to a Trust
The Settlor is the person who creates the Trust. The Trustee is an individual or corporation who holds and manages the assets in accordance with the Deed of Trust and Letter of Wishes on behalf of the Beneficiaries and, in the event of certain circumstances, divides the assets/profits between the Beneficiaries.
Beneficiaries are the persons named by the Settlor to benefit from the assets placed in theTrust.
The Protector is usually a trusted friend, private lawyer or a professional adviser of the Settlor, whose role is to protect the interests of the Beneficiaries.
What assets can be transferred to the Trust?
• Shares and stocks in both quoted and unquoted companies
• Investment portfolios
• Real and intellectual property
• Bank deposits
• Life assurance policies issued on the life of the Settlor
• Other types of asset
The Trust is a legal relationship created by the owner of the assets or other property (Settlor) and the person(s) willing to undertake the office of trustee (Trustee(s)), and take legal ownership of those assets for the benefit of other parties (Beneficiaries) under the terms of the
Deed of Trust.
The trust is not a company: can not be a Controlled Foreign Company. The Automatic Information Exchange treats Trust separately from companies. Although the Trust is not a separate legal entity,
• it can open bank accounts, and
• it can be a shareholder in a company. In this case shares are registered in the name of the Trustee, but it is stated that the Trustee holds the shares for the benefit and on behalf of the Trust.
Establishment of a Trust
When an individual decides to set up a Trust they will arrange for their assets or a part of their assets (the initial settled funds) to be transferred to the Trustee(s). An agreement or deed will be prepared which sets out the duties and powers of the various parties to the Trust.
How does the Trust work?
Once the Deed of Trust has been duly executed and the assets have been placed in the Trust the Settlor ceases to be the owner of the assets, since they will be legally held by the Trustee(s). The Trustee(s) shall control and manage the assets and any income arising from those assets in accordance with the provisions of the Deed of Trust and on behalf of the Beneficiaries.
The most popular jurisdictions in Europe for offshore Trusts
• Isle of Man
Accounts and record keeping
• The Trustee(s) is/are responsible for maintaining the records of the Trust and preparing the accounts.
• The accounts of the Trust are not available to the public.
• The Beneficiaries are entitled to request information about the accounts from the Trustee(s).
Reportable person in case of Trusts
Automatic Information Exchange
Reporting requirement only arises in cases where a distribution from the Trust’s assets is made to the Beneficiaries. When a Beneficiary receives a loan from the Trust there is no reporting requirement.
Conclusion: The purpose of offshore trusts is to provide a legal structure for individuals to protect their assets and potentially reduce their tax liabilities.
Offshore trusts are typically established in countries with favorable tax laws, allowing individuals to place their assets in the trust and potentially minimize the amount of taxes they pay on those assets.
Additionally, offshore trusts can provide a degree of privacy and protection for assets, as the trust is governed by the laws of the country in which it is established, rather than the individual’s home country.