We often have heard the term ~ Trust or Offshore Trust ~ but what does having an offshore trust really mean?
Is an Offshore Trust something I need or should consider as part of an overall plan to protect my assets and reduce my tax liabilities?
The
concept of a Trust is one that has it's modern day roots in
English Common Law. As
such, the Trust vehicle can be found as
a recognized entity in almost
all English speaking countries.
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What exactly is a Trust?
A
Trust is basically a private agreement between parties.
Trust structures are created
and used to place assets under the
ownership of a separate
legal entity, thus distancing the former owner
and permitting certain types of protection and tax advantages.
In short, if someone gives
their property to another party to hold, safeguard or
manage for them ~ that is the essence of a trust arrangement.
If you live in theUS, you
can certainly form a domestic Trust, but for maximum protection
and tax benefits, a structure that is created
in a tax haven ~ such
as the Bahamas ~ is preferable.
Why
do People Form Trusts?
Quite
simply, if one is concerned about tax issues, or protection from legal
attack (creditors or lawsuit), the
formation of a
common law trust might be one possibility
to consider.
Another key advantage to
the trust sctructure is the benefits achieved when planning
for estate taxes or transfer
of assets to heirs.
By maintaining a trust structure
in an offshore
tax haven, one has the opportunity to pass along trust assets free from
inheritance taxes.
In addition, if one is concerned that a child may squander the inheritance,
the trust vehicle provides a
mechanism where not only
there are tax benefits, but also controls as
to how the beneficiaries are to obtain funds.
Trusts
also provide another advantage. Should you become injured or incapacitated
to such a point that you have
difficulties
physically or mentally,
you have some security knowing
that a trust third party is capable of assiting you with your affairs
(specifically assets or
property management)
Definition
of Terms Used in a Trust document
A
Settlor or Grantor: Most
likely, this would be you. That is to say, the person or entity placing
property or assets inside the trust.
A
Trustee: The person, persons, company, bank, attorney or
whom-ever has been assigned with the task of managing and
safeguarding trust assets.
In reality, the trustee could be either a natural person or a company.
Regardless of who is named as
the trustee, it is that
entities repsonisibility to manage the trust assets sensibly and to make
sure that the wishes of the grantor
are carried out.
The
Trust Deed: The document you use to establish a trust entity
is usually referred to as a deed. This trust deed or
agreement nornally indicates
the beneficiaries, the trustee, the role of the trustee and what assets
are included in the trust itself.
The
Beneficary: This is the person, persons, or entity
that are entitled to receive any income generated from trust assets and,
if
so stipulated, the individuals
who may receive assets upon the settlors or grantors death.
What
Are the Different Types of Trusts
and
Which one is best for Me?
There
are a number of Trusts that carry a variety of confusing names, such as
Grantor Trust, Discretionary Trust,
Asset protection Trust ~
and the list goes on. Rather than attempting to memorize the names or terms,
the following are
some key points you should
be aware of when deciding to form a trust structure.
Most countries, such as the
US, which honor trusts ~ have some specific litmus tests or guidelines
in order to
determine if a trust can
be treated as a tax free vehicle or offers true protection from creditors.
Key
Point # 1 - In order for a trust to gain certain types of tax
or creditor protection, it must be irrevocable.
This simply means once you
place your assets in a trust, you cannot ask that those assets be returned.
Key
Point # 2 - Many tax authorities and courts will look at a trust
to determine if you, the grantor or settlor, have any
control of the trust assets,
or are receiving the trust income. If that is the case, they certainly
may decide to assess tax
liabilities because your
are still benefiting
or controlling the assets. This has been the case, in the past, with
US
domestic trusts ~ whereby
courts have invaded trust assets or whereby the Internal Revenue has claimed
the right to
assess taxes even though
assets are physically domiciled within a trust entity.
What
then is the Solution?
Anyone
considering the formation of a trust, should only consider using a jurisdiction
outside their home country,
or the country where they
are presently residing. In addition, they should make sure they find
a jurisdiction that stricly
honors the law and provides
protection to the individual or entity that is being used.
Trust
assets should also be physically moved or domiciled someplace other than
where you live. If one establishes a
trust in Belize, for example,
but all of the trust assets are readily available for seizure in your home
country or place
of residence, in reality
~ you would have accomplished very little in the way of asset protection.
All it takes is one
Judge to order seizure or
a freezing of your domestic assets. Of course you can fight the decision,
but without access
to your money in order to
pay the lawyers, you will be stuck with a problem. Remember that
any Judge in your home
country can still issue
this type of order, but if the money is not close by or within the jusidcition
of the Judge, in reality
you win ~ he loses...........and
you still have access to your money. The money is the key to
everything ~ keep it out of
reach.
Consider the use of another
offshore structure as the beneficiary or recipient of trust income.
Ideally, one may even
want to use a separate jurisdiction
for this purpose. This further separates the grantor or settlor as
being a named
participant that is benefitting
directly from trust income.
For
Additional Information Regarding the Use of Trusts and other vehicles for
asset protection, please send us an Email.