Offshore Trust
An offshore trust is very much like a traditional trust in that it comprises a relationship or arrangement entered into by a person or group designated to be the “Trustee,” and a distinct person or group of people designated the “Settlor,” by which provisions are made in a binding, written legal form known as the “Trust Deed,” in order to hold title to assets and property, to manage said assets in accordance with the trust deed, in order to provide a series of benefits and distributions to a person or group of persons designated the “Beneficiaries.”
The trustee and/or the trust company charged with the management of the trust are bound by a fiduciary duty o uphold the agreement, and they agree to the rules and requirements set out by the trust deed. A trust is neither fish nor fowl, and though attempts at describing a trust often likens them to a corporation or foundation, they are unlike either; they are a trusting arrangement, supported by a binding written agreement, to provide for the benefit of the beneficiaries.
Once the decision to form the trust is reached, the settlor must then select the type of trust he wishes to form, its duration, and make important decisions on defining details. These details include deciding whether the trust is revocable or not, whether the trust will be discretionary or not, and to specify the rights, duties, obligations, and expectations of the trustee.
With respect to the revocable or irrevocable trusts, much as their names imply, they can either be revoked at any time with the terms for this outlined by the settlor, or they can have a pre-determined lifespan with no provisions for revocability, and only concluding when the terms of its creation as specified in the trust deed are met.
By contrast, a discretionary trust can fall under either category, and is defined as a trust with much built-in flexibility with respect to how the trustee handles distributions to beneficiaries, and even provides, in some instances, the trustee with rights to appoint or add beneficiaries. This relinquishes a lot of authority over the Offshore trust to a trustee, however, and highlights the importance of the careful selection of a competent, well-reputed trustee or trust holding company with good references, a worthy reputation, and the experience necessary to successfully and faithfully fulfill and honor the terms of the trust.
The Benefits of the Offshore Trust
The relinquishing of assets and title to property to the trustee is where the lion’s share of the confidentiality and protection from liability benefits of the Offshore trust are garnered. While the legal title passes to the trustee, the intent of the trust is to provide for the beneficiaries, of which the settlor may be, and often is, a listed participant. These beneficiaries, hold very strong rights with respect to the interests in the trust and most jurisdictions recognize that the intent is to provide the defined benefits for the these beneficiaries and rule favorably in their direction when questions as to the management of the trust arise.
Because these Offshore trusts are almost always found in tax haven or low-regulation jurisdictions with a reputation for the safeguarding of assets and superb confidentiality, the Offshore trust also benefits from these features. Assets managed by Offshore trusts are for the most part free from the sometimes suffocating tax burdens applicable in a settlor’s home country or jurisdiction. If the trust is formed to arrange for the benefit of the children or heirs of the settlor, for example, the Offshore trust may provide a haven from intense inheritance scrutiny and taxation. Further, based on their formation in low-regulation havens, offshore trusts offer unparalleled confidentiality, increased protection from the perils of civil litigation and liability, and even from such things as divorce or business dissolutions. They are also used by many for protection of assets in the event of home jurisdiction political or economic turmoil It is extremely difficult, save in situations of accusations of a severe criminal offense, for an outside entity to pierce the confidentiality shield inherent to an offshore trust in most jurisdictions.
Where to form an Offshore Trust
Offshore trusts are often formed in low-taxation or low-regulation havens that have a proven reputation for the successful management and execution of trusts and trust funds. However, it is not absolutely necessary for a suitable location to be a tax haven or have lax regulations--many of the successful trust formation jurisdictions and countries simply offer renown, experienced trust companies coupled with superb confidentiality and with substantial asset shields. One common denominator is that these jurisdictions base their trust regulations and statutes on the English common law--this because the very idea of trust formation is an old English idea dating back to the time of the Crusades. Other European jurisdictions that offer successful trust administration, such as Luxembourg, Malta, Switzerland, etc., have adapter their statutes and regulations to conform with the proper trust administration models set forth by those based on the English common law.
Other Considerations
The formation of an Offshore trust requires a realistic assessment of the goals and intent of a potential settlor, and will usurp some resources in its establishment and maintenance. Thus, serious, committed research, and advice and assistance from experience and knowledgeable agents is a must.
Forming an offshore trust provides for substantial protection for assets from untoward scrutiny, taxation, and civil strife. It should be apparent that while the cost of formation and maintenance may be considered substantial, the establishment of an offshore trust will provide for sound peace of mind for those looking to protect their substantial assets or provide for their children in the long term.