| TYPES OF TRUSTS
Beneficial Trusts
A Beneficial Trust is one in which the Beneficiaries are specifically
named in the trust document, i.e., 'John Smith will receive the
sum of US$100,000 on his 25th birthday'. Whilst beneficial trusts
can be of value for asset protection and perhaps inheritance tax purposes,
because there is a specifically named beneficiary (or several), they
are all but useless for tax planning and privacy purposes, the Revenue
Authorities in the country of residence of the beneficiary will soon
become aware of the 'inheritance'.
Discretionary
Trusts
If a beneficiary is named in a trust document, or if the beneficiary
is clearly also the settlor, Revenue Authorities tend to 'look
through' such trust arrangements and regard the beneficiaries
as the owners of the trust assets and income. Thus it is quite feasible
that beneficiaries can be taxed on assets or income which they never
own or receive - simply on the basis that they could be the owner!
To get around this problem, what are called Discretionary Trusts
were established. These are arrangements where the actual beneficiaries
of the trust are at the absolute discretion of the trustees. Since
no specific beneficiaries are named in the trust document, revenue
authorities cannot tax any potential beneficiaries since there is
no way of knowing when, or even if, they will benefit from the trust,
although tax is (in theory) payable on the receipt of the proceeds
of the trust by a specific beneficiary. But you wouldn't be
so foolish as to have any distributions from the trust made over
directly to you anyway would you? Do so via an offshore account
or via an offshore company linked to the trust. We will advise fully
on such structures, including ideas such as using credit/debit cards
for drawing cash 'onshore' from an offshore trust.
OFFSHORE DISCRETIONARY TRUSTS ARE, IN OUR OPINION, ONE OF THE MOST
VALUABLE TAX AVOIDANCE VEHICLES AVAILABLE.
Offshore Asset Protection Trusts
An Asset Protection Trust is little more than a specific type of
Discretionary Trust and, as its name implies, is generally used
by either private individuals or corporations to hold their assets
in a form which makes them untouchable under any court order imposed
against them. Very common in the U.S.A., correctly formulated and
held, Asset Protection Trusts are showing signs of resisting attacks
by creditors far better than Family Limited Partnerships which are
widely promoted and frequently far more expensive. Kaizen has a
complete section dedicated to Asset Protection Trusts in this page.
TRUST STRUCTURE AND ADMINISTRATION
A Trust, whether onshore or offshore, and of any type, has a number
of component parts, several of which have already been mentioned,
but for the sake of completeness, we'll summarize them again
here. In essence these are very simple and straightforward, although
the Deed itself is a complex legal document and must only be written
and modified by someone with detailed, in depth, understanding of
the trust laws of the chosen jurisdiction. The major components
of a trust (of any type) are:
The Settlor (Grantor)
This is the person or entity who formulates the trust and who settles
his assets into the trust.
Deed of Trust (Trust Document)
This is the legal trust document itself and contains all the permutations
and combinations of what the trust and its controlling Trustees
can and cannot do according to both the wishes of the Settlor and
the laws of the jurisdiction where the trust is written.
Trust Property (Assets)
The assets which the Settlor places into the trust from time to
time. Depending on the type of trust, settled assets do not need
to be specified in the initial Deed of Trust but may be added later.
Trustee(s)
The named individual, individuals or company appointed by the Settlor
to administer his wishes according to the Deed of Trust. Frequently
a professional Trust Agent within the jurisdiction of the trust,
the Trustee has absolute control over the trust assets.
Beneficiary
The person or persons to whom the Settlor wishes the trust assets
or income thereof to be paid to according to circumstances dictated
in the Deed of Trust. Depending on the type of trust, Beneficiaries
do not need to be specified in the Deed of Trust, but can be made
known to the Trustees privately.
Protector
A Settlor can name a third-party individual to 'oversee'
a trust to ensure that the Trustee is administering the trust according
to his wishes.
Letter of Wishes
A Settlor can write a Letter of Wishes alongside a Deed of Trust
which spells out exactly what actions he wishes the Trustees to
take under differing sets of circumstances. This Letter is totally
private between Settlor and Trustee and whilst not legally binding,
is an excellent guide for a Trustee to follow, especially if the
Settlor is no longer in contact with the Trustee for any extended
period.
Obviously for any form of trust to work efficiently and effectively
and be secure, the Settlor must have absolute faith in the Trustees,
otherwise a Trustee could simply run off with the trust assets,
name friends and relatives as beneficiaries or invest trust assets
in a totally reckless way. There are a number of safeguards in this
respect and trustees worldwide will observe both written and unwritten
rules:
Firstly, in all the offshore jurisdictions were we have handled
trust work, Trustees have to be licensed by the government to carry
out trust work, and these licenses are usually only given out to
highly reputable and established organizations such as lawyers or
accountants - if a Trustee was ever even suspected of misconduct
it would be the end of his business career. To our knowledge there
has not been a case of misappropriation of funds by a Trustee in
over 20 years.
Secondly, when a trust is established, the Settlor can prepare
a 'Memorandum of Wishes' ('Letter of Wishes'). This
document, which may be changed at any time, expresses the Settlor's
wishes concerning the management and distribution of the trust.
Whilst not legally binding, a Memorandum of Wishes is usually the
major guide a Trustee has, and is usually observed to the letter,
unless there are over-riding considerations which prevent a Trustee
of doing so. In this event, and offhand we can't think of one,
the Trustee would return to the Settlor for instructions.
Thirdly, it is also possible to appoint a Protector or Guardian
to oversee a trust and control the powers exercised by the Trustees,
however there are potential problems with tax authorities here,
since the appointment of a protector could be construed as a thinly
veiled attempt by a settlor to influence the Trustees to his advantage.
Finally, Panama Trust laws make specific provision to allow the
Settlor, under the written authority of a Power of Attorney given
by the Trustees, to act effectively as a Trust Manager. This can
have major advantages for a Settlor who wishes to have tight control
over a Trust and is reluctant to let any Trustee have total control.....
But, and it is an important but, whilst legal under Panama law,
this provision is regarded by most major tax authorities as making
the trust a sham and thus giving them full legal rights (in their
eyes anyway) to disregard it and over-ride its provisions and protection.
Having said that, this Power of Attorney is a totally private document
between the Settlor and the Trustees and if used wisely and carefully
can be a very valuable tool in offshore asset management.
GENERAL SUMMARY
Offshore Trusts can be valuable vehicles for tax avoidance, (not
evasion) either in a personal or a corporate role, as offshore companies
can be. There are many cases where a combination of the two can
be used for both tax avoidance on worldwide company income, plus
a means of ensuring that all those profits are centralized and can
be inherited, again free of tax, by your heirs or other named people.
To recap:
- Protection Against Capital Gains and Inheritance Taxes
- Protection of Assets against Bankruptcy and Creditors Generally
- In the U.S.A. Particularly, Protection Against Civil Asset Seizure
- Protection Against Alimony and Maintenance Claims
- Protection Against Law Suits for Negligence and Claims for Damages
|
