An offshore asset protection trust is a safe method of protecting your assets. It can be particularly useful where the client or the assets are located in common law jurisdictions such as UK, USA, Canada etc, due to the vast experience of trusts in these countries. (For civil law jurisdictions, consider also Private Interest Foundations).
Although the cost of forming and maintaining an Offshore Trust may be considered high initially, the establishment of such an asset protection entity will provide for peace of mind for those looking to protect their substantial assets or provide for their chosen heirs in the longer term.
What is a Trust?
A trust is a contract or deed entered into by two parties: a person or company that wants to create a Trust, known as the Settlor, and a separate person or company known as the Trustee.
Under this contract, the Settlor transfers certain property or assets to the Trustee, and the Trustee is legally bound by a fiduciary duty to uphold the terms of the Trust as laid down by the Settlor. The terms provide that the assets should be managed and held for one or more Beneficiaries determined by the Settlor.
It is important to note that a trust is not a legal entity – rather, it is a type of contract. The trustee becomes the legal owner of the trust property, meaning that for example if the trust owns real estate, the title will be in the name of the trustee. However, the contract separates legal and beneficial ownership. Even though the trustee is the legal owner, the law recognizes that beneficial ownership is vested in somebody else.
Why Create a Trust Offshore?
Many offshore jurisdictions have passed laws to encourage clients to register trusts in their countries for a fee. The main advantages are:
• Tax neutrality: all assets and income of the trust are exempted from tax
• Asset Protection: laws are carefully crafted to make it very difficult for someone else to successfully sue the trust or attack the assets within the trust.
• Legal framework and Registration: trusts can be registered with the government and will receive a Certificate of Registration. This protects the interests of the client by ensuring that adequate records exist and only regulated entities may act as trustees. The Certificate of Registration is similar to a company’s Certificate of Incorporation, being an internationally-recognized format that can make it easier for the trust to hold assets in countries where trust legislation might not exist.
• Privacy: No trust documents need to be placed on public file so information about the Settlor and the Beneficiaries is kept extremely confidential. It is not possible for third parties to discover the real beneficial owner of the assets.
What are Offshore Trusts used for?
Because trusts are basically a written contract, they are very flexible and can be drafted to cover an infinite variety of circumstances depending on business and family needs.
Typically, however, offshore trusts are used mainly for asset protection and because of the confidentiality they offer. Asset protection is useful in cases of divorce, death and business disputes. Asset protection trusts are particularly favored by those in professions who are at a high risk of being sued such as doctors, chiropractors, lawyers etc, since if they are hit with a devastating lawsuit they can personally go bankrupt but the trust assets are safe since courts will respect the trust.
Choosing a Trustee
The choice of trustee is paramount, since “without trust you cannot have a trust.” You basically have three options:
A Licensed Professional Trustee: this is a licensed and regulated financial institution. For example many private banks have in-house trust divisions. There are also some excellent independent trust companies to whom we are pleased to make referrals. The advantage of this is professional management services and continuity. The disadvantages are cost, and, importantly, lack of flexibility since Trust Companies are regulated financial entities and you will be giving up control over your assets.
A non-Professional Trustee: Depending on the legislation of the jurisdiction chosen, you may appoint a trusted friend or family member, or even yourself, as trustee. The advantage of this is low cost and privacy. However, the disadvantage is lack of continuity, lack of privacy while carrying out business on behalf of the trust, and the fact that courts in your home country might regard this as a ‘sham’ trust or claim that you are really operating for your own benefit rather than that of the trust.
A Private Trust Company: In most cases our recommended option is the third choice, use of a Private Trust Company or PTC. Use of PTCs has taken off in recent years as they are flexible, private, cheap and non-bureaucratic. Read further information on Nevis Private Trust Companies.
How to Create Your Trust Structure
The first step in creating your Offshore Trust is to contact one of Offshore Pro Group’s experts. Your consultant will guide you through the rest of the procedure.
Please contact us for fee schedules.