Story :  Craig Taunton
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Trusts are an ancient legal entity which have evolved and become more sophisticated and widely used over time. Yet trusts and offshore trusts in particular, remain little understood and their potential application lesser explored by the vast majority of us. This is largely because there is a commonly held misconception that such an entity or structure is complicated and costly to establish.

The most clear and straightforward definition and explanation of an offshore trust is as follows:  The offshore trust is an entity in legal terms but in practicality it is an arrangement whereby the owner of particular assets, (who is referred to as the settlor), passes complete legal ownership of the assets in question to a trustee. The trustee, (which can be a company or an individual), then becomes the administrator for the assets.  The assets within the trust are administered according to the clearly defined terms of a key document known as a ‘Trust Deed’ as well as according to the governing law of the jurisdiction in which the trust is established. Offshore trusts are usually established in a tax haven so that this ‘governing law’ is tax friendly.

However, the one underlying factor of a trust that makes them an unattractive solution for so many people is the presumption that by placing your assets in such a structure you effectively revoke control of your assets. This is not entirely true as there are four important methods that you can choose from and use when setting up a trust structure, whether that is as a structure to protect your assets, your estate, your heirs or your beneficiaries for example.  Each of these four methods will allow you, the settlor, to retain significant amounts of control over your assets and how they are managed within the offshore trust structure.

However even before we get into these methods another misconception that abounds is that once established a trust can never be revoked – i.e., once you place your assets within a trust structure that’s it for life. This is simply not true - there are such structures known as revocable trusts which can be dissolved if required.  Whether such a structure is suitable for you and your requirements is of course another matter and one that you need to discuss with a professional trust company who can advise you.

Now for those four methods of retaining control of your assets
I mentioned:

1) Writing a Memorandum of Wishes
A Memorandum of Wishes is an official document written by the settlor to the trustees explaining how, had the assets remained in his direct possession, he would have managed his assets. 

2) Appointing a Protector
A protector is someone who can have certain control over the trustees the level of which is carefully assigned and is usually a trusted advisor or friend appointed by the settlor. 

3) Incorporating an Offshore Company Together with a Trust
It is sometimes deemed advantageous to place assets within a company structure and place the shares of the company within an offshore trust structure.  The settlor
can become an active director of the company and still have day to day hands on management of his assets.

4) Appointing Joint Trustees
The final method is through the appointment of joint trustees.  Each set of trustees would have to agree to anything relating to the management of the trust and a settlor could take on the role of the second trustee.

Offshore trusts and private foundations are structures often used by international taxation and estate planning practices to help their clients with the management of their assets, the protection of their privacy and the ongoing enhancement of their wealth. Using offshore trusts in tax planning strategies requires expertise because trust law is complex, and every individual has a unique set of personal circumstances that have to be taken into account to ensure such a structure is as tax efficient as it can be whilst remaining entirely legal.

When it comes to taxation of a trust it may help to think of the trust as an individual person in its own right. So, when it comes to taxation, the trust as a legal entity has to be deemed ‘non-resident’ in order for it to avoid both income and capital gains taxes being levied against it.  Basically, to achieve this non-resident status the trust’s trustees have to be non-resident and the full administration of the trust has to be carried out abroad.

Most trusts created offshore are formed as inter vivos or ‘living’ trusts. These are generally revocable trusts and they are created while the settlor is still alive.  They are created to hold the assets of the settlor for the benefit of another, i.e., the beneficiary.

There are four general categories of trust, and most offshore trusts come under one of them: -
  • Private: the most common type of trust for
     an individual
  • Corporate: including pension and employee
     benefit trusts
  • Charitable: for the benefit of charitable
     organisations
  • Purpose: trusts with no beneficiaries that are
     established for purposes that are ‘certain,
     reasonable and possible’

An offshore trust can be either ‘revocable’ or ‘irrevocable’ and ‘fixed interest’ or ‘discretionary’.

Offshore Trusts and Taxation are incredibly specialist areas of expertise and careful selection of a trust company, trustees and offshore jurisdiction are essential for the individual to ensure their actions are legal, tax efficient and appropriate for their requirements. Anyone considering establishing an offshore trust would be wise to seek professional advice and assistance. 

Trust law is complex and it is essential that the trust is structured perfectly for the settlor according to his direct wishes and requirements. Those who have specific wealth management needs may find that an offshore trust structure satisfies certain criteria, but such a structure usually forms part of an overall financial strategy that will base its success on diversification and ongoing management.

Questions to the author can be directed to Craig Taunton
at Haswell Pellent    Tel: +66(0)83 292 1793
E-mail: ctaunton@haswellpellent.com