HOW TO SET UP A TRUST
Introduction
We usually employ Panama for the majority of our Trust work, the
legislation there being amongst the most comprehensive in the world.
Panama Trusts are totally private, the Trust document does not have
to be registered and there is no public inspection, there is no
taxation of Trust income and assets can be settled after a Trust
is formed and Trusts established within Panama jurisdiction are
governed by Panama laws, one of which is that it can over-ride that
of other countries, i.e., a 'foreign' court order that a
Trust (or Trustee) should be liable for payment of damages will
be overturned by a Panama Court.
Offshore Trusts are very personal arrangements and we must have
detailed information on the purpose of the trust, its Settlor, assets
being transferred and the beneficiaries (if any) before we can form
one. Rest assured however that any details provided will be TOTALLY
CONFIDENTIAL and all details of you and your trust are held offshore
themselves.
Please e-mail us if you would like further details on Trusts, or
of Panamanian Foundations, a similar type of legal structure but
based on Panamanian Civil Law.
Costs for Offshore Trusts
Because of the very individual nature of trusts, we are unable
to give specific Trust Formation costs at this stage, but Kaizen's
'standard' Offshore Asset Protection Trust starts at under
US$1,350. We would point out that the vast majority of Trusts we
execute are 'standard'.
In addition, an annual Trust Maintenance Fee is payable to Trustees,
which starts at around US$1000 for a standard trust, however there
are ways of reducing this substantially (down to US$500) by the
Settlor acting, under a Power of Attorney, as a Trust Manager on
behalf of the Trustees - an option we find utilized by over 50%
of our Trust Clients. If the Settlor appoints his own Trustees,
there is of course no annual Trustee Fee payable to Kaizen.
We also have a number of 'standard' Offshore Asset Protection
Trust / Offshore Company / Offshore Bank Account packages available.
These packages are formulated to meet the requirements of the vast
majority of clients and, as an illustration, would typically cost
US$3,000 for an Offshore Asset Protection Trust with the Settlor
acting as Trust Manager (under a PoA), a BVI Company with a Corporate
Nominee Director and its shares owned 100% by the Trust with the
Settlor acting as Company Manager (under a PoA), a reference-free
Offshore Bank Account with Internet banking for account management
from any PC and an International ATM Debit Card. This package price
includes all formation and incorporation costs together with all
the first year company and trust management fees and represents
a saving of over US$500 on the individual item prices. Please e-mail
us for further information.
Please bear in mind the privacy, financial security and freedom
from taxes that a trust can bring - those are worth many times the
cost!
Offshore Trusts - Asset Protection Trusts
'Offshore' Trust Answers
We have already mentioned some of the major problem areas relating
to the use of Asset Protection Trusts (APT) created within the home
jurisdiction. To re-cap, these are the high risk of compromising
and penetration of both home country (domestic) Asset Protection
Trusts, Family Limited Partnerships and Limited Liability Companies
by the courts, especially in the U.S.A.
The main problem with a domestic APT is that in order for a Settlor
to enjoy the full benefit and security of the Trust, he must renounce
control or benefit from the Trust absolutely. If you are both Settlor
and Beneficiary, you are leaving yourself wide open to claims by
your creditors that the Trust is a sham and you are willfully seeking
to defraud them.
The courts will rapidly see through such a situation and the Trust
will be declared a sham and nullified. With a domestic APT you cannot
safely have your cake and eat it!
'Offshore' Trust Answers
The answer to these problems can be solved by the careful use of
an Offshore Asset Protection Trust (OAPT). We say 'careful'
however since it is still of vital importance that two major criteria
are met. These are:
(1) Jurisdiction
(2) Comity
In this context, jurisdiction means the authority to administer
justice in a specific geographical area. A correctly structured
OAPT in the correct jurisdiction will be totally beyond the reach
of the US courts.
Comity means that the courts in one jurisdiction, even if unconnected
politically with another country, will recognize and accede to a
ruling made in the courts of another country. It is therefore vital
that the OAPT is located in a jurisdiction where this does not apply.
The offshore jurisdiction must both be able to (and do) turn round
to the US courts and say "this is not our concern, there is
no jurisdiction here, we do not recognize and will not implement
your ruling".
Advantages
There are therefore many advantages to placing assets in a correctly
structured Offshore Asset Protection Trust.
The very fact that your assets are legally held in an offshore
jurisdiction outside the control of the courts makes them an unattractive
target to creditors. Just imagine the hurdles that face a creditor
in commencing a legal action in a jurisdiction perhaps thousands
of miles from home against an entity that according to the laws
of that jurisdiction has done no wrong.
It may be relatively easy for the creditor to get the Settlor into
a court and have a satisfactory judgment pronounced, but being able
to action and enforce that judgment in a foreign court and pursue
the assets is a very different matter.
From experience, the more 'modern' offshore jurisdictions
have state-of-the-art Trust legislation which has been designed
knowing what may face it yet at the same time be 'Settlor friendly'.
There are a number of such jurisdictions scattered about the globe,
but it does pay to examine each in turn.
Jurisdictions?
Having made the decision to establish an OAPT, you must search for
a suitable jurisdiction that meets your criteria.
By asking the right questions now you can, no, you will, save major
difficulties later on. These questions include:
What is the relationship with my home country?
A Settlor might decide to use a suitable offshore jurisdiction as
physically far away as possible to place yet another barrier, albeit
psychological, between himself and his creditors. Others might decide
that for convenience, one 'just down the road' would suffice.
Always remembering the situation as regards comity between the
chosen jurisdiction and 'home', there is no real 'better'
here, but each Settlor must reach a decision based on the balance
of convenience against psychological difficulty.
How much is privacy and confidentiality respected?
Many Settlors will face their creditors and relying on the legal
strength of their Trust say: "This is where my assets are held,
and these are the laws protecting them. You cannot touch them".
Others will be as unhelpful and as secretive as possible.
Whichever, you must be certain that the jurisdiction your Trust
is executed in will not reveal any detail about your Trust arrangements
to anyone.
What if I move or need to change the jurisdiction
of my Trust for any reason?
Although it may be unlikely that you will ever need to change the
jurisdiction of your Trust, you must ensure that should the need
ever arise, you can do so. Such eventualities could be beyond your
direct control such as a change of government in the Trust jurisdiction,
which then shows signs of becoming 'friendly' with your
home country and there being comity with your local courts.
There are also a number of smaller but never the less equally important
questions to ask:-
Is the jurisdiction stable?
Is there a language problem?
What are communications like?
What are the legal and financial support services like (important
if you link your Trust with an offshore company)?
Can I make use of other offshore services in the jurisdiction?
As good as they may be in many instances, domestic APTs, Family
Limited Partnerships and Limited Liability Companies all have major
drawbacks when it comes to the ultimate security of assets in a
(especially US) court case.
The establishment of a correctly structured OAPT, whilst at first
a daunting thought due perhaps to a different language and certainly
due to an unfamiliarity with a foreign legal system, can bring major
advantages.
There is such a mystique surrounding OAPTs that it can come as
a surprise to many to find that whilst a 'do it yourself'
approach is fraught with potential problems, there are a number
of organizations, usually offshore based themselves, who are only
too willing to help.
What Next?
Once you have decided to adopt the OAPT route, it is necessary
to make the decision about which jurisdiction to write your Trust
in, who to appoint as Trustees and who to write and execute the
Deed of Trust. There is also the cost factor to consider, for although
many Trusts shelter funds running into millions of dollars, there
is a perception that Offshore Trust formation and management costs
can also be sky high - a perception unfortunately propagated by
many companies within the Trust business as justification for their
high profits.
Through their experience in handling a considerable number of OAPTs
for clients, we have evolved a virtually standard Deed of Trust.
This document, suitable for over 95% of all OAPTs, is easily customized
to individual Settlor's needs.
Experience in establishing Trusts in many offshore jurisdictions
has resulted in much comparison between those jurisdictions, and
Panama come close to the top of the league in the majority of cases.
How Much?
1. Basic OAPT Fee.
A Trust can be an expensive thing to write and manage, however KCSL
Inc' Standard OAPT, which is suitable in over 95% of Client's
cases, costs a fixed sum of just $1,600. For this, the Client will
get a customized Deed of Trust written and executed in strict compliance
with the latest Trust Ordinance of Panama. There is obviously a
limit to the amount of customizing we can undertake within a fixed
price trust, but standard variations of names, beneficiaries, trust
assets etc., are all accommodated. What is not included are any
variations to the legal terms and conditions, since any changes
here will need to be verified for legality under Panama Trust Law
by our Trust Lawyer. Such work is at a standard rate of US$150 per
hour.
The Trust will be named, assets will be scheduled, Beneficiaries
detailed and local Trustees appointed, although the Settlor may,
if he so wishes, appoint his own in a different jurisdiction.
2. Annual Trustee Fee.
Totally dependent on the amount of Trust Management required, there
will be an annual Trustee Fee, which starts at $900 for a simple
Trust. This fee is not payable should the Settlor provide his own
Trustees and may be substantially reduced to around $500 should
the Settlor opt for the Trustees entering into a Power of Attorney
appointing the Settlor himself as Trust Manager. As previously mentioned,
this option, whilst generally legally valid in principal, has potential
dangers which would be discussed with Clients on an individual basis.
3. Trust Bank Account - optional but highly recommended.
As an additional but optional extra, KCSL will also open an offshore
bank account for the Trust. These accounts, which can include a
secured credit or ATM debit card where required, will cost US$600
and full advice is given to Clients.
4. Associated Offshore Companies - optional but highly recommended.
KCSL will also discuss with Clients the possibility of linking their
Trust to an Offshore Company should the Client so wish - most Clients
who request us to execute either a Discretionary or Asset Protection
Trust do so in conjunction with a BVI company. This would be discussed
on an individual Client basis but the costs would start at around
$800. Please see our 'BVI
Companies' section for further details of the benefits of
BVI companies.
Summary
There are several forms of domestic Trust and other legal entities
that have been tried over time in order to protect the assets of
those liable to court action. None has proved totally reliable,
but the use of an Offshore Asset Protection Trust comes closest
by far.
Correctly formulated, written and executed, an OAPT can enable
a Settlor to have the best of both worlds. To divest himself of
his assets to a Trust which is unlikely to be attacked through the
US courts and to be able to still enjoy the benefit of those assets
during his and his heir's lifetimes.
An OAPT is a highly specialized entity, which requires a first
class knowledge and experience of both the legal framework and the
specific Trust Laws of the jurisdiction involved. As such, the writing
of OAPTs is best left to experts, and none come more recommended
than KCSL as is working closely with a prestigious law firm in Panama.
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