Offshore trusts are normally created for the protection of assets, deferment or mitigation of tax, creation/maintaining anonymity and inheritance planning.
A Trust is a legal relationship created by means of a Trust Settlement or Agreement, which is evidenced by a written document and established under the Laws of the relevant jurisdiction.
The settlor of the trust would transfer ownership of assets to the trustees. Trustees are appointed in terms of the Trust Settlement to administer the assets of the trust for and on behalf of beneficiaries.
A Trust protector may be appointed to represent the beneficiaries and to guide the trustees in the exercise of their discretion and in accordance with the Trust Settlement.
There is no legal requirement in certain jurisdictions to register Trusts. Thus the identity of the Trust, its settlor and beneficiaries remain intact.
In most circumstances, a Trust is not liable to any form of taxation provided all the beneficiaries are not resident where the Trust is located.
Advantages in forming a foundation
- The Founder can transfer assets into the foundation and legally declare he does not own them
- No assets that belong to the foundation can be seized
- Potential inheritors can not make claims against the foundation
- Foundations are free from taxation
- Foundations are not required to be charitable or non-profit making organizations
The foundation – a perfect instrument for asset protection.
The word foundation is generally automatically perceived as a charitable or non-profit making organization. In fact only a small percentage of all foundations are charitable. Most foundations are set up for the protection of the founders’ assets and as a tax benefit.
The actual legalities of a foundation determine that there is no obligation to be a charitable organisation. The speciality of a foundation is that it has no actual owners but only a board of officers. This fact seems to be a minor juridical issue but actually it is of utmost importance. Once assets have been placed into the foundation the founder does not legally own them or have a requirement to declare them. Neither does he own the foundation. This is of particular interest in cases of bankruptcy, divorce or third party claims. All types of assets can be owned by a foundation such as bonds, stocks, real estate and even patents or rights. Using a regular company structure there would always be a beneficial owner in the background and relatives or third parties could be informed about this. With a foundation there is legally no owner and even if somebody should be aware of a connection between the founder and the foundation , they can not access the property of the foundation. Due to the fact that a foundation is a corporate body it allows for easy controlling. The term of the foundation is unlimited and certain requirements or specifications may be fixed in the articles. These specifications can not be altered or revoked at any time, even after the death of the founder. This ensures that the founders funds are only ever granted to whom he states.
A foundation is not formed in order to conduct business. It is made to manage and protect it’s own assets. However it is a very common and useful structure to have a foundation as owner of an offshore corporation. The profit of the corporation is regularly transferred to the foundation but should a bankruptcy of the corporation occur, it would not affect the foundation at all.
What assets may be transferred into a trust?
Stocks and shares in quoted and unquoted companies
Real anintellectual proper
Life assurance policies
Offshore trusts offer many advantages, and some of their more common uses are:
Trusts are very efficient in reducing taxes arising on the assets placed in the Trust and provide an effective shield between the settlor, the beneficiaries and the Trust assets.
The legal ownership of the assets are vested in the trustee and not the settlor and/or beneficiaries. This is particularly useful where the social and political climate can easily become unstable in the home country of the settlor and he or she wishes to place the ownership of his or her assets in a safe and stable jurisdiction.
Trusts are useful for preserving wealth and passing it intact through generations whilst at the same time allowing nominated beneficiaries to enjoy the benefits of that wealth. This is particularly important with assets that may not be easily divided between beneficiaries without losing some of their value, such as farming land.
Some countries have punitive legislation dictating the manner of wealth distribution on the death of the owner. If the legal requirements conflict with the wishes of the owner of those assets, most assets could be transferred into a Trust to protect those assets.
Offshore trusts are extensively used by high net worth individuals to take advantage of tax and financial planning opportunities and are also used by individuals to protect and preserve family assets and wealth.
Typically a settlor would set up an Trust to benefit certain members of his family, charity, or for other specific purposes. The settlor may also be one of the beneficiaries and in certain circumstances also be one of the trustees. A Trust is established by the completion of a Trust Settlement, and the transfer of assets into the name of the Trust. Thereafter the Trust becomes the legal owner of the assets and the trustee is empowered to administer the Trust in accordance with the Trust Settlement.
trust, n., confidence response in person by making him nominal owner of property to be used for another’s benefit; right of the latter to benefit by such property so held; legal relationship between holder and property so held. trustee, n., person to whom another’s property or the management of another’s property is entrusted settlor, n., in law, the person who makes a settlement of property. beneficiary, n., person who may benefit from the asset held within a trust.