An offshore trust can be as simple or as complex as you intend to make it. In principle it is a private arrangement where the legal ownership of a particular asset (which can be real estate, shares, and/or cash etc.) is transferred to someone else to look after, for the benefit of a third party.
In practice, the formation of an offshore trust will frequently involve three characters:
The Settlor- This is the person or company making the transfer, often referred to as settling the assets, which will eventually become the property of the trust.
The Trustee- The assets of the trust or the trust property are held, managed and administered by the trustee however the trustee only ever looks after the assets for the benefit of the third party, referred to as the beneficiary. When exercising their powers in relation to the trust assets the trustees must always put the interests of the beneficiaries above their own.
The Beneficiaries- They are the equitable owners of the assets in the trust so the beneficiaries could collectively bring the trust to an end.
It is often the case that the same individual performs multiple roles. For example it is quite common for the settlor to be one of the trustees (this way he can retain a measure of control over the assets) and it may be that he is also one of the beneficiaries.
- Confidentiality– The way in which the offshore trust is structured the assets of the trust are held in the name of the appointed trustees thereby keeping the identity and interests of the beneficiaries confidential. Additionally, the majority of offshore jurisdictions, permitting the use of the trust structure do not require details of the trust to be registered and/or made publicly available.
- Tax Planning– The assets settled in the trust do not form part of the settlor’s estate therefore inheritance, wealth and capital gains taxes will not be levied.
- Asset Protection– An offshore trust keeps assets out of reach of creditors and foreign judgments.
- Ease of Administration– Through the formation of the trust structure, the settlor is able to consolidate his worldwide assets and ensure continuity of management.
Offshore Trusts are most commonly associated with the Cook Islands and Nevis and frequently used for asset protection and tax planning purposes however we are able to create trusts in a range of jurisdictions, tailored to the client’s individual needs.
Some of the jurisdictions to permit the formation of offshore trusts are listed below:
For specific guidance with the formation formalities for each separate jurisdiction, please consult one of the specialist formation consultants at Offshore Universe.
Example of an Offshore Trust
Mr Smith considers purchasing shares in a Dubai based oil exploration company for £100,000. Mr Smith hopes that the oil company will discover a new oil field and the shares will rocket in value.
Before entering into the transaction to purchase the shares in his own name Mr Smith contacts his offshore consultants who subsequently advise him to set up an offshore investment trust into which he settles or invests £100,000 in cash.
This cash is subsequently managed by appointed (nominated) trustees who in turn take the decision to invest in the shares of the Dubai based oil company.
As a result of using the offshore trust structure any increase in value of the company would be tax free for Mr Smith as the offshore trust would be outside the scope of capital gains and wealth taxes.
Unlike offshore companies, the details of the legal relationship between all of the parties are contained in a legal document, called a trust deed, which is private arrangement between the settlor, the trustees and the beneficiaries of the trust.
The trust itself cannot own or hold assets, which again makes it very different from a company. It is in fact the trustees of the offshore trust that are the legal owners of the assets however they are only ever responsible for managing the assets for the beneficiaries.
This separation between legal and beneficial ownership makes the trust concept a very useful vehicle because the beneficiaries are able to hold assets confidentially and anonymously and the only reference to their interests in the asset or the trust arrangement is contained within the private trust deed.
Why establish an offshore trust?
The two major advantages of an offshore trust are asset protection and privacy.
In terms of privacy, the trust deeds for offshore trusts do not need to be publicly registered and/or kept in a given location. This is where offshore trusts have a significant advantage over offshore companies; the latter frequently have to keep their Articles of Incorporation, either with a Government Registrar or at the registered office for the company. Furthermore, all the jurisdictions selected by our offshore consultants have enhanced privacy and confidentiality regulations, which ultimately favour offshore trust beneficiaries.
Subject to the jurisdiction, local judges cannot force offshore trustees to release any funds to judgment creditors. The Cook Islands, the Isle of Man and Nevis do not, as a matter of law recognise foreign judgments therefore to start a claim, the creditor must bring the litigation in the offshore jurisdiction in order to reach the assets of the trust.
In Nevis, for example a creditor must pay a $25,000 cash deposit or bond to commence litigation against a Nevis trust.
In the Cook Islands, a creditor must prove beyond a reasonable doubt (a higher burden of proof) that the assets were transferred into offshore trust in order to defraud the said creditor. The Cook Islands also has the additional hurdle that their statute of limitations prevents overseas creditors from bringing any claims regarding the fraudulent transfer of assets were the transfer of assets took place two years after the underlying cause of action.
Can I further protect my offshore trust?
There are various trust structures, which could be formed by our offshore consultants one of the most secure and confidential structures is to use a Cayman Islands’ STAR trust in conjunction with a Panamanian company with issued bearer shares which in turn holds an offshore bank account in the Isle of Man. The ultimate beneficiary owner of the trust will remain completely anonymous and yet will be able to retain absolute control of the entire structure.
Why Choose Offshore Universe?
At Offshore Universe our specialist consultants can advise on all aspects of offshore trust law. We can work with you and your clients in designing a corporate structure to suit your every requirement.