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Offshore Trusts

 

Before reading this material, We should advise that trusts, although still in use, are not that much in use anymore as are the Private Interest Foundations.
T
his a better tool since it is a hybrid between the corporation and
the trust, meaning that has the best of both worlds and the founder can remain in total control of the foundations assets in anonymity, no needing to transfer the property of the assets to a trustee.

A "disadvantage" (although not always a disadvantage) is that the Private Foundation has to be registered, but the only information that goes Public is the name of the foundation council members and the name of the founder (which can be nominee, to overcome this disadvantage).

Why use a foundation instead of a Trust? 
Before the new trust laws established in 1996, we used a foreign trust as the entity which held the shares of the IBC. The new trust laws required that any assets held in foreign trusts be reported and taxed. The solution is the Private Interest Foundation. Today, we use this foundation regularly in virtually all of our clients offshore structuring.

We offer our clients Offshore Asset Protection Trusts in the following Jurisdictions

Belize Offshore Asset protection TrustBelize Offshore Asset Protection Trust

Panama Offshore Asset protection TrustPanama Offshore Asset Protection Trust

Now the trusts:

What Is A Trust?

A Trust is a legally acknowledged and binding arrangement whereby a person (or a number of people), known as the Trustee or Trustees, become the legal owner(s) of assets transferred to them by a Settlor or Settlors but only in as much as they are holding those assets for the benefit of another person or people, known as the Beneficiary or Beneficiaries.

The assets which are placed into a trust are called Trust Properties and can include anything which can be legally transferred such as:-

  • Cash
  • Securities
  • Property
  • Boats
  • Cars
  • Antiques
  • Copyrights
  • Land
  • Pension Funds
  • Complete Companies

In our experience, cash (bank accounts), property and trading companies are the three most common assets to be placed in offshore trusts, for obvious reasons.

Although a trust can be a verbal agreement and implied by law, i.e., your words and actions are legally acknowledged by previous, similar precedents, it is far more common for a trust to be established by way of a written document called either a Deed of Trust or Declaration of Trust. This document describes the trust and details how it is to be administered and for who's benefit.

The person giving assets to a trust is known as the Settlor and is commonly named in the Trust Deed, but, depending upon the jurisdiction where the trust was established, not necessarily so. It is therefore quite possible to give assets to a trust anonymously (in the sense that you don't want to be linked as having given your assets to 'your' trust). This feature of certain trusts is regarded by many as one of the most valuable, if implemented correctly it can enable someone to appear to be of only modest means, yet live a luxurious lifestyle, the 'trappings of wealth' all belonging (ultimately) to a trust with no legal connection to that person. Great care must be taken in such instances since otherwise tax authorities tend to 'see through' the trust and tax you accordingly - it can be mighty hard to disprove such a 'connection' with a trust!

When either periodic or terminal payments are made from a trust to either a person or people named in the Trust Deed, the recipient(s) are known as Beneficiaries, i.e., they benefit from the trust.

Types of Trusts

Beneficial Trusts

A Beneficial Trust is one in which the Beneficiaries are specifically named in the trust document, i.e., 'John Smith will receive the sum of US$100,000 on his 25th birthday'. Whilst beneficial trusts can be of value for asset protection and perhaps inheritance tax purposes, because there is a specifically named beneficiary (or several), they are all but useless for tax planning and privacy purposes, the Revenue Authorities in the country of residence of the beneficiary will soon become aware of the 'inheritance'.


Discretionary Trusts

If a beneficiary is named in a trust document, or if the beneficiary is clearly also the settlor, Revenue Authorities tend to 'look through' such trust arrangements and regard the beneficiaries as the owners of the trust assets and income. Thus it is quite feasible that beneficiaries can be taxed on assets or income which they never own or receive - simply on the basis that they could be the owner!

To get around this problem, what are called Discretionary Trusts were established. These are arrangements where the actual beneficiaries of the trust are at the absolute discretion of the trustees. Since no specific beneficiaries are named in the trust document, revenue authorities cannot tax any potential beneficiaries since there is no way of knowing when, or even if, they will benefit from the trust, although tax is (in theory) payable on the receipt of the proceeds of the trust by a specific beneficiary. But you wouldn't be so foolish as to have any distributions from the trust made over directly to you anyway would you? Do so via an offshore account or via an offshore company linked to the trust. We will advise fully on such structures, including ideas such as using credit/debit cards for drawing cash 'onshore' from an offshore trust.


Offshore Asset Protection Trusts

An Asset Protection Trust is little more than a specific type of Discretionary Trust and, as its name implies, is generally used by either private individuals or corporations to hold their assets in a form which makes them untouchable under any court order imposed against them. Very common in the U.S.A., correctly formulated and held, Asset Protection Trusts are showing signs of resisting attacks by creditors far better than Family Limited Partnerships which are widely promoted and frequently far more expensive.


 

Trust Structure & Administration

A Trust, whether onshore or offshore, and of any type, has a number of component parts, several of which have already been mentioned, but for the sake of completeness, we'll summarize them again here. In essence these are very simple and straightforward, although the Deed itself is a complex legal document and must only be written and modified by someone with detailed, in depth, understanding of the trust laws of the chosen jurisdiction. The major components of a trust (of any type) are:

 

  • The Settlor (Grantor). This is the person or entity who formulates the trust and who settles his assets into the trust.
  • Deed of Trust (Trust Document). This is the legal trust document itself and contains all the permutations and combinations of what the trust and its controlling Trustees can and cannot do according to both the wishes of the Settlor and the laws of the jurisdiction where the trust is written.
  • Trust Property (Assets). The assets which the Settlor places into the trust from time to time. Depending on the type of trust, settled assets do not need to be specified in the initial Deed of Trust but may be added later.
  • Trustee(s). The named individual, individuals or company appointed by the Settlor to administer his wishes according to the Deed of Trust. Frequently a professional Trust Agent within the jurisdiction of the trust, the Trustee has absolute control over the trust assets.
  • Beneficiary. The person or persons to whom the Settlor wishes the trust assets or income thereof to be paid to according to circumstances dictated in the Deed of Trust. Depending on the type of trust, Beneficiaries do not need to be specified in the Deed of Trust, but can be made known to the Trustees privately.
  • Protector. A Settlor can name a third-party individual to 'oversee' a trust to ensure that the Trustee is administering the trust according to his wishes.
  • Letter of Wishes. A Settlor can write a Letter of Wishes alongside a Deed of Trust which spells out exactly what actions he wishes the Trustees to take under differing sets of circumstances. This Letter is totally private between Settlor and Trustee and whilst not legally binding, is an excellent guide for a Trustee to follow, especially if the Settlor is no longer in contact with the Trustee for any extended period.


Obviously for any form of trust to work efficiently and effectively and be secure, the Settlor must have absolute faith in the Trustees, otherwise a Trustee could simply run off with the trust assets, name friends and relatives as beneficiaries or invest trust assets in a totally reckless way. There are a number of safeguards in this respect and trustees worldwide will observe both written and unwritten rules:

  • Firstly, in all the offshore jurisdictions were we have handled trust work, Trustees have to be licensed by the government to carry out trust work, and these licenses are usually only given out to highly reputable and established organizations such as lawyers or accountants - if a Trustee was ever even suspected of misconduct it would be the end of his business career. To our knowledge there has not been a case of misappropriation of funds by a Trustee in over 20 years.
  • Secondly, when a trust is established, the Settlor can prepare a 'Memorandum of Wishes' ('Letter of Wishes'). This document, which may be changed at any time, expresses the Settlor's wishes concerning the management and distribution of the trust. Whilst not legally binding, a Memorandum of Wishes is usually the major guide a Trustee has, and is usually observed to the letter, unless there are over-riding considerations which prevent a Trustee of doing so. In this event, and offhand we can't think of one, the Trustee would return to the Settlor for instructions.
  • Thirdly, it is also possible to appoint a Protector or Guardian to oversee a trust and control the powers exercised by the Trustees, however there are potential problems with tax authorities here, since the appointment of a protector could be construed as a thinly veiled attempt by a settlor to influence the Trustees to his advantage.
  • Finally, Panama Trust laws make specific provision to allow the Settlor, under the written authority of a Power of Attorney given by the Trustees, to act effectively as a Trust Manager. This can have major advantages for a Settlor who wishes to have tight control over a Trust and is reluctant to let any Trustee have total control..... But, and it is an important but, whilst legal under Panama law, this provision is regarded by most major tax authorities as making the trust a sham and thus giving them full legal rights (in their eyes anyway) to disregard it and over-ride its provisions and protection. Having said that, this Power of Attorney is a totally private document between the Settlor and the Trustees and if used wisely and carefully can be a very valuable tool in offshore asset management.

 

General Summary

Offshore Trusts can be valuable vehicles for tax avoidance, (not evasion) either in a personal or a corporate role, as offshore companies can be. There are many cases where a combination of the two can be used for both tax avoidance on worldwide company income, plus a means of ensuring that all those profits are centralized and can be inherited, again free of tax, by your heirs or other named people. To recap:

  • Protection Against Capital Gains and Inheritance Taxes
  • Protection of Assets against Bankruptcy and Creditors Generally
  • In the U.S.A. Particularly, Protection Against Civil Asset Seizure
  • Protection Against Alimony and Maintenance Claims
  • Protection Against Law Suits for Negligence and Claims for Damages


Setting Up Your Trust

We usually employ Panama and Belize for the majority of our Trust work, the legislation there being amongst the most comprehensive in the world. Panama Trusts are totally private, the Trust document does not have to be registered and there is no public inspection, there is no taxation of Trust income and assets can be settled after a Trust is formed and Trusts established within Panama jurisdiction are governed by Panama laws, one of which is that it can over-ride that of other countries, i.e., a 'foreign' court order that a Trust (or Trustee) should be liable for payment of damages will be overturned by a Panama Court.

Offshore Trusts are very personal arrangements and we must have detailed information on the purpose of the trust, its Settlor, assets being transferred and the beneficiaries (if any) before we can form one. Rest assured however that any details provided will be TOTALLY CONFIDENTIAL and all details of you and your trust are held offshore themselves.

Please contact us if you would like further details on Trusts, or of Panamanian Foundations, a similar type of legal structure but based on Panamanian Civil Law.


Offshore Trusts - Costs

Because of the very individual nature of trusts, we are unable to give specific Trust Formation costs at this stage, but OffshoreSimple Inc's 'standard' Offshore Asset Protection Trust starts at under US$1,200. We would point out that the vast majority of Trusts we execute are 'standard'.

 


 


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Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any errors or omissions.


Please go to our Uses of offshore Companies Page where you will find interesting information on the benefits of using offshore companies and trusts for business and personal use, links to information on other locations and details of our products and services.

 

 

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