Set-up an Offshore Trust

 

Offshore Trust?

The concept of trusts is old and goes back to the Roman times. A trust can be in the form of a simple verbal agreement, which is then confirmed in writing and in that document (known as a “Trust Deed”) are the terms and conditions upon which the trust assets are held and managed by the trustees and the rights that can be exercised by the Beneficiaries.

An offshore trust or any other trust is an agreement entered into when assets are transferred from a person (known as the “Settlor”) to another individual or corporate body (known as the “trustee”) to hold property for the benefit of a previously appointed person(s) (known as “The Beneficiary”). The assets of the trust normally include money, property (estates or intellectual rights), stocks and shares, and/or any movable or immovable assets.

Offshore Trusts for Asset Protection:

The main advantage of the offshore trust is the separation of the legal ownership from the beneficial ownership. For legal purposes the trustees of the offshore trust are recognized as the legal owners of the assets and the beneficiaries are protected by a body of legal rules, which require trustees to adhere to strict duties as to how to manage the trust.

That is why an offshore trust is such an irreplaceable tool for asset protection. Assets transferred to offshore trust are no longer part of the property owned by the settler and cannot be claimed by creditors, litigators, etc. The assets could be protected if the settler is experiencing financial difficulties due to bankruptcy, divorce or a professional negligence claim. In case the settler was found to be insolvent, a portion of his assets may have been safely placed in the trust structure offshore, prior to his being declared insolvent.

Asset protection should be taken as a preventative measure. You should consider setting up an offshore trust before you have a lawsuit filed against you. It works like insurance. It is too late to buy insurance when your house is on fire. Under certain circumstances the claimant can be successful in getting money out of the offshore trust if it can be proven that the settler moved the assets into trusts, knowing about the pending litigation. To avoid this, it is important to transfer all necessary assets to a trust as part of an asset protection strategy that is planned in advance once you become aware of the potential threats against your wealth. Planning ahead is essential to safeguard transfers into an offshore trust against future attacks of creditors if there are no claims pending at the time of setting up the offshore trust.

Offshore Trusts for Tax Planning:

Offshore trust can be an exceptional tax planning tool and if correctly structured it will produce substantial savings in income tax, capital gains tax, inheritance tax, and stamp duty.

Because the beneficiary of the offshore trust is not a legal owner of it, the income and capital gains are taxed in accordance with the rules of the residence of the legal owners — the trustees.

Offshore Trust for Inheritance Planning:

A lot of people these days do not want their assets to be passed to heirs as prescribed by law. If you require more complex arrangements, like providing a source of income to somebody for life or putting money aside for children’s education, an offshore trust is an ideal tax planning tool for these purposes.

Trusts help to avoid forced heirship, but you must choose carefully the jurisdiction where you want to establish the offshore trust.

On death the estate of the person goes through the probate procedure, which is lengthy, expensive and is open to public eyes. Establishing an offshore trust can avoid all these problems.

Offshore Trust Confidentiality:

On asset transfer during the probate procedure, the tax authorities need to see the list of all assets owned in order to assess it for estate duty. The details of the assets therefore are open to the public. It is not wise to disclose the offshore structure which was set up during ones’ lifetime on death, as it would have negative tax consequences. An offshore trust is an alternative legal method to a Will for transferring the assets which do not have to be included in the Will, hence disclosed to the tax authorities.

You can also derive benefits from setting up an offshore trust if you want to protect the welfare of infant children, the aged or disabled people; or just want to preserve the family wealth with possible payments to members of the family as they are needed and to gain planning flexibility. This list is not exhaustive and is for illustration purposes only.