There are many different ways to save and protect your assets both inside and outside your country. Offshore trusts are the best choice for many experienced investors.
If you’re interested in the idea of an offshore trust, you should learn more about them to define whether they can serve as the right financial tool for your successful future.
What is offshore trust?
A foreign trust is a financial instrument, which you fill with assets of your choice. After that, the trust is transferred to the office of a financial advisor.
This advisor (who can be both a natural and legal person) follows your instructions and requests concerning the management of assets, which will no longer be under your name, or under your direct and legal control. If you want to establish a trust that offers more confidentiality, more opportunities, and more safety. In that case, it makes sense to do it in the countries where the trust law is especially developed. For example, these are such offshore countries as Malta, Cayman Islands, or Belize.
There are many reasons why people prefer offshore trust formation.
However, the most important of them are listed below:
- preservation of assets for the close relatives;
- the beginning of planning of the future division of resources in case of a reduction or addition to a family;
- restriction of tax liabilities; prevention of seizure or freezing of assets.
The best type of offshore trust
There are various types of trusts; however, discretionary trusts are usually used for such structures. With this type of trust, attorneys usually decide for themselves which beneficiary will receive how much money; they’re also free to choose the beneficiary. Such trusts are registered to guarantee the veil of privacy. You must not be called a beneficiary of the beneficiary trust. You don’t have to mention your name in the trust documents. To make such a structure work, both the trust founder and the attorney must be the non-residents of your home country and the country where you are a tax resident.
There are two types of offshore trusts: revocable or irrevocable. You need to choose one or the other type of offshore trust based on the goals of the trust. An irrevocable trust is viable if its goal is the security of assets because such trust can’t be revoked or modified. In turn, a revocable trust is used as a will, or if your goal is protection against waste. As the name implies, a revocable offshore trust is simple to modify or revoke. This can be done by both the founder of the offshore trust and its beneficiaries.
The pros and cons of offshore trust
Why do business and many wealthy people choose offshores for money and other assets? There are some reasons for that. Therefore, we will just list some of them:
- Low or zero taxes in the offshores.
- Relatively high level of confidentiality in the offshores.
- Speed of company registration in the offshores.
- Ability to open a foreign currency account in any country.
- Lack of accountability in the offshores.
Disadvantages of offshores
Offshores also have their pitfalls, which should be taken into account so that neither your business nor your personal finances go down the drain.
Differences in legislation. You can’t come to the offshore and work according to the rules applied to your country. Audit of companies. It also depends on a specific offshore, but sometimes you have to use a local audit. Activities only outside the offshore. The point of all offshores is that there is a base in the jurisdiction, but all the intensive activities (services and turnover) are conducted outside the country. This means that you won’t be able to work inside this state. Dislike for offshores. The governments of the large states oppose offshore companies. As a result, it is reflected in the negative attitude towards offshores by the regulators, sanctions, strict laws, and inspections. In some cases, it can complicate the work of your business or impair the safety of your assets.
The best countries for offshore trusts
The British Virgin Islands, Jersey, Nevis, Panama, and other famous offshore areas are often used to form a trust or fund. An unconditional benefit of accepting one of these jurisdictions is the specific legislation, which, in particular, provides creating a controlled offshore trust company (that will act as a trustee) instead of attracting an authorized trustee “from the outside”. Some offshore jurisdictions took the best from the institute of trust property, made some adjustments taking into account the needs of their possible clients, international trends, and competing service market implemented by the offshore jurisdictions.
For example, BVI offers a particular type of trust- so-called “VISTA trust”. The property, due to which the VISTA trust is formed, can be only the assets of the companies, registered on BVI. Besides, unlike the classic trust, where the trustee may dispose of the trust’s property as he wants (within limits provided for in the trust agreement and powers), in the VISTA trust, the rights of the trustee are significantly limited. As a general rule, it has no right to alienate shares, to vote for them, and most importantly, interfere with the activities of companies whose shares have been transferred to VISTA trust and the decisions of their directors. In addition, there is an opportunity for the formation of a private trust company (PTC), controlled by the founder and/or beneficiaries, which will be the control for one specific trust – such a company doesn’t need a license. Compared to the classic trusts, these features of VISTA trust doesn’t make it less reliable; however, they leave greater control to the owner. In this, the trust’s income is not taxed on the BVI, if the owner’s companies didn’t conduct activities on the territory of BVI.
Another important aspect is an offshore trust cost and maintaining an organized structure. Thus, from a financial point of view, the establishment of a trust or fund in the offshore zone is more accessible than the trust company in the UK or a fund in Switzerland.
The management structure of offshore trust
Within the framework of a special arrangement, the founder (who can also be a beneficiary) transfers the values belonging to him/her under the control of the trustee, who is obliged to perform operations with them that bring the beneficiaries maximum profit and/or comply with the instructions of the founder.
The trustee’s services are usually paid as a percentage of profits or a fixed fee.
The object of trust property can be any property (both movable and immovable). Only the property expressly prohibited by the law of the country, where the trust is settled, is excluded from these relations.
The trustee is responsible for the fulfillment of the terms of the trust agreement and, as a rule, receives broad authority for managing the founder’s property; however, he can also receive special instructions on the distribution of trust income and capital between the beneficiaries in the event of certain conditions knowingly provided by the founder. As a rule, such conditions are included by the founder in the so-called “letter of wishes”, addressed to the trustee.
The founder can also provide the conditions of replacement of the trustee, stipulate the issue of transferring this right to another person, etc.
The founder can also limit the powers of the trustee by indicating special instructions in the trust agreement.
An offshore trust is used to carry the accumulated assets to it, and thus protect them from the creditors. When assets are transferred to an offshore trust, they are alienated from the founder of the trust. As the founder legally no longer owns these assets, they can’t be seized in case of bankruptcy/divorce or based on the decision made by the foreign court.Due to the same property of the trust – the alienation of assets when they are transferred to the trust, it can be successfully used to minimize taxes. The beneficiary of an offshore trust is not considered the owner of the assets, and therefore, he cannot be filed the tax claims related to these assets. Only his personal income received from the trust can be taxed.
If you have any questions about the establishment and operation of an offshore trust, send us a consultation request to our email:
[email protected], or contact our experts in any convenient way indicated on this page.