Offshore Trust

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Offshore Trust

The notion of a trust has it’s origins in medieval England when they were associated with knights making provision for their families when they went away to fight in the Crusades. The underlying concept is of ‘dual ownership’ – namely, that the legal title to property is vested in one person (the Trustee) with beneficial ownership of the same property being vested in another.

In many cases, settling assets on a trust better serves a person’s purpose than placing them in a company. If a person were to use a company structure, any assets transferred would be done so in return for shares in the company. As a consequence, he / she would retain an indirect proprietary interest in those assets through the shares held in the company. When the same assets are transferred to a Trustee, the true owner is able to divest themselves of direct or indirect ownership of those assets, yet retain control through the terms of the agreement. Because of this basic difference in ownership, a trust can be a useful financial and tax planning instrument.

As trusts are a creation of English common law, the most suitable location for an offshore trust is a jurisdiction which has English common law and equity as the foundation of its legal system.

  • 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’
  • Most other types of asset

Terminology and Types of Trust

An offshore trust enables an individual (the “settlor”) to donate assets to a neutral third party or guardian (the “trustee”), who holds the assets and administers them for the benefit of other individuals nominated by the settlor and in many cases the settlor himself (the “beneficiaries”). An offshore trust arrangement is normally recorded in a binding, written legal document (the “trust deed”). The trustee and/or the trust company charged with the management of the trust are bound by a fiduciary duty to uphold the agreement. By signing the document they agree to the rules and requirements set out by the trust deed.
Once the decision to form the trust is reached, the settlor must then select the type of trust he wishes to form, its duration, and make important decisions on defining details. These details include deciding whether the trust is revocable or not, whether the trust will be discretionary or not, and to specify the rights, duties, obligations, and expectations of the trustee.
An offshore trust may be established as either revocable or irrevocable. A revocable trust may be terminated or varied by the settlor either at the end of a specified period or at any time. An irrevocable trust cannot be terminated by the Settlor nor can the settlor vary the terms of the trust. Whether a trust is established as revocable or irrevocable will depend upon the objectives and circumstances of the settlor.
Both revocable and irrevocable offshore trusts may be either discretionary or fixed interest trusts:-

Fixed Interest Trust

Under a fixed interest trust the interests of the beneficiaries are specifically fixed in the terms of the trust deed and the trustee has no power to vary those interests

Discretionary Trust

This is the most flexible form of offshore trust. A discretionary trust gives the trustee the power to determine the allocation of income and capital amongst the members of the beneficiary class and to vary the membership of the beneficiary class. The flexibility provided by the discretionary form of trust is often necessary to satisfy tax planning objectives.
In the case of a discretionary trust, the trustees will have wide discretionary powers (although they may sometimes be constrained by the requirement for the consent of a third party or the protector), the trust deed will often be supplemented by an informal and confidential ‘Letter of Wishes’ from the settlor or grantor to the trustees setting out his wishes on such matters as the amount and timing of distributions, investments, employment of advisers, those who should be regarded as primary beneficiaries and so forth. While this letter is non-binding and intended for the trustees’ guidance only, the trustees will generally respect the settlor or grantor’s wishes and strive to act in accordance with them.
This does, however, highlight the importance of the careful selection of a competent, well-reputed trustee or trust holding company with good references, a worthy reputation, and the experience necessary to successfully and faithfully fulfill and honor the terms of the trust.

If you are considering the establishment of the trust………..

..then it is important to consider that a realistic assessment of your ultimate goals and intent will be required in order to establish the correct structure, and ongoing involvement required to make sure that all goals are met, and that this will require effort and resources. Dealing with the right trust service provider is absolutely essential , one that has a proven track record in this space and demonstrates the necessary experience and knowledge to provide you with the expertise required.

Fees

If done correctly, forming an offshore trust provides you with substantial protection for assets from untoward scrutiny, litigation, and civil strife. It should be apparent that while the cost of formation and maintenance may be more expensive than forming a regular offshore corporation, the establishment of an offshore trust will provide for sound peace of mind for those looking to protect their substantial assets or provide for their children in the long term.
Base fees for the establishment of a trust start from £1500 with annual maintenance from £1750 (total Year 1 fees – £3250). Additional charges will apply based on any extra work required and are normally charged on an hourly rate basis. Each trust will therefore need to be quoted for on an individual basis.