Protect Your Assets with an Offshore Trust

There are a variety of types of trust but generally the two most important types are fixed trusts and discretionary trusts.

Fixed Trusts

A fixed trust will set out in the trust deed precisely who will benefit from the settled assets and at what stage in the future. Such trusts have the advantage of certainty. However, they are normally unchangeable and can create real problems where, for example, the beneficiaries designated become unsuitable or taxation law changes adversely. On the other hand, here the risk of legal attack is great, especially for doctors and other professionals the asset protection aspect is greatest when the trust is irrevocable.

Discretionary Trusts

The second main category of trusts are discretionary trusts, which define in the trust deed a class of beneficiaries who can benefit in the future but whose exact interest is not currently specified. Most modern trust deeds also have the power to add new beneficiaries into the deed in the future should this be desirable. Where a discretionary trust is set up, it is important that the trustee understands the settlor’s situation and can advise him on the best course of action that he should follow from time to time.

When making a discretionary settlement, most professional trust companies ask the settlor to write a Letter of Wishes which sets out what he would like to happen to the trust fund in the future. This Letter is not legally binding, but in practice the trustee always follows it. The Letter can be changed during the settlor’s lifetime but after his death it would be regarded as his final wishes. However, it is worth mentioning that the settlor can designate someone else to give a Letter of Wishes in the future if necessary.

It is also possible to name in the trust deed a person called a protector. The protector is an individual known personally to the settlor and indeed the settlor can himself be the first protector. Where a protector is utilized, the trustees have to obtain his approval before any distributions of funds from the trust can be made. Often times the protector has the power to remove trustees if he believes the trustees have not acted properly.

Reasons for Making a Trust

Settlors make trusts for a wide range of reasons. Three of the most usual reasons are as follows:

  • Protection of Beneficiaries  - Wealth is a great force for good if used wisely. It is often not prudent for beneficiaries, particularly children and young adults, to have funds at an early age. They need to be introduced to their family’s wealth gradually. A trust fund is therefore often set up for the benefit of children. The settled funds will not be affected if the settlor should subsequently die. Their estate will be dealt with under their will but the trust fund, being a separate legal entity, will continue to exist quite separately.

  • Taxation – There are wide ranging taxation issues which can be advantageously resolved by utilizing a trust. Often the settlor’s accountants will assist the lawyer structuring the trust with the tax planning necessary to set up the trust.

  • Asset Protection - This is an increasingly important area for the use of trusts. It is advantageous for a client who lives in a politically sensitive jurisdiction or where exchange controls are likely to be introduced in the future and where state action could be brought against him to bring his assets under the control of a government or government agency. The creation of a trust in another jurisdiction with a separate legal entity can give substantial protection against such risks.

There are many other reasons where a trust fund may be prudent, for example, where a client fears that at some stage in the future he could be attacked by creditors bringing an unjustified law suit against him. Providing the trust fund was set up before any such possibility arose, the funds will normally be outside the scope of such an attack.

Foreign Attractions

 A trust's location can make a world of difference. Foreign trusts, for example, offer a number of advantages over domestic trusts. First, they have an extra layer of privacy by the sheer fact that they are located in the United States. More importantly, however, foreign trust laws are generally designed to attract foreign investors and so are particularly favorable for the settler and the beneficiaries.

Professionally managed trusts can be established in a wide range of jurisdictions, but the most useful ones for international clients tend to be those in suitable tax havens, like Belize, Bermuda, the Bahamas, the Channel Islands, Liechtenstein, the Cayman Islands, and the British Virgin Islands. In these places, the assets owned by the trust do not have to be located within the trust's legal jurisdiction. For example, you can have a Belize trust holding assets that are located in the Cayman Islands.

Benefits of an Offshore Trust in Belize

Belize has achieved notoriety because it has taken the strongest legislative measures to protect the interests of a trust beneficiary over those of the settler's judgment creditor.

For example, in most of the U.S. states, if litigation arises within one year (often longer) of a trust structure being set up, the courts will "look back" to the trust-creation date and disallow the trust, so that the creditors are able to reach the assets.

By contrast, under Belizian law, once a trust is established, even if litigation begins within one week, the trust assets are protected and beyond the reach of any creditors.

Furthermore, a trustee cannot comply with a settler's demands if those demands are made under duress. Under Belizian law, a settler's demand is deemed to be made under duress if it is made pursuant to a court order. A settler thus can comply with a court order, to reveal assets and know that, in fact, no disclosure will be made.

To Learn About International Trusts, Contact Nagel & Associates For More Information.