Trusts
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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.
What assets may be transferred into
a trust?
Stocks and shares in quoted and unquoted companies
Investment portfolios
Real and intellectual property
Bank deposits
Life assurance policies
Offshore trusts offer many advantages, and some
of their more common uses are:
Tax mitigation
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.
Protection of 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.
Preservation of family wealth
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.
Forced heirship
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.
Terms and Definitions
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.
Foundations
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.
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
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