Offshore Trusts

What is a Trust?

Trusts are a separate legal entity created when an individual transfers his or her assets to another individual or company who holds and manages these assets for the benefit of others named by the settlor. The trustees are required to act within the rules within the trust deed. A protector may also be appointed to oversee the work of the trustees and has the power to replace them if necessary.

A trust can be established during the settlors lifetime “inter vivos trust”or upon your death under the terms of your will testamentary trust.

Trusts have different characteristics depending on the provisions included in the trust deed. For example, trusts may be revocable or irrevocable; discretionary or specific. To allow for maximum flexibility, a discretionary trust is the most common, which gives the trustee discretionary power to react swiftly to changed circumstances.

What can transfer to a trust?

You may transfer cash, securities, real properties, shareholdings in a trading or investment holding company and virtually any asset located anywhere in the world.

Transferring assets to a trust can trigger an inheritance tax (IHT) charge, even while the Settlor is still alive. Depending on the characteristics of the trust an IHT charge may also arise if the Settlor dies within 7 years of making the transfer.

What are the benefits of trusts?

Trusts are confidential, tax-efficient and highly flexible financial planning instruments to provide for specified beneficiaries, during and after your lifetime.

The major advantages are:

Privacy

Trusts can also be used for those seeking some privacy for their families when they die – the contents of a will are on public record, but the contents of a trust are not.

Tax Planning

A trust may be used to reduce tax liabilities. Assets owned by a trust will not be dealt with in the estate of a deceased person. Hence, estate or inheritance tax may be minimised or eliminated.

A typical trust holding structure offering tax efficient ways of income and capital extraction. For further flexibility an offshore insurance bond may be incorporated within the structure.

Asset Protection

A trust may protect assets from claims of future creditors to the extent permitted by law.

Succession Planning

Trusts are effective tools for succession tax planning. They enable you to make provisions for your family members, relatives and friends, charities and other organisations in the way you desire. Hence, they allow flexibility in situations where domestic inheritance rules may otherwise be imposed. They also enable efficient distribution of trust assets to beneficiaries, without consuming the time and money associated with lengthy and complicated procedures and formalities required for probate.

A very common use for trusts is to ensure that children who are left or given large sums of money do not have full access to it before they are mature enough to use it wisely. Trusts can also be set up to ensure that the donor retains more say in how their assets can be used after their death or to prevent a family business from becoming fragmented if its legal ownership is split between too many beneficiaries.

Asset Consolidation and Management

Trusts are a convenient means of placing your worldwide assets in one holding vehicle, simplifying both asset management and centralised financial reporting.

On-going Changes in Legislation

Legislation may change at any time and often without warning so it is important to constantly review a trust structure to ensure it remains effective. Depending on the nature of the trust and underlying structure, ongoing costs can be significant therefore limiting its effectiveness to sizeable transfers.

If you plan to leave the UK in the future it is worth checking whether the tax legislation in the destination country to ensure that the structure remains effective or at least be mindful that restructuring may be required prior to your departure.

WITHOUT