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
The assets which are placed into a trust are called Trust Properties and can
include anything which can be legally transferred such as:-
- 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.
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'.
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
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
Trust Structure &
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:
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
- 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.
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:
Against Capital Gains and Inheritance Taxes
- Protection of Assets against Bankruptcy and
- In the U.S.A. Particularly, Protection
Against Civil Asset Seizure
- Protection Against Alimony and Maintenance
- Protection Against Law Suits for Negligence
and Claims for Damages
Setting Up Your Trust
We usually employ Panama and
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
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.