Offshore Trusts

Offshore trusts and offshore company structures have been all over the news this year in light of the Panama Papers. But, there are many valid reasons to set up trusts for financial and estate planning to protect assets from court litigation, seizure, malpractice, protect your business from embittered business partners or rivals, divorce proccedings and to set up a sensible inheritance plan for succession.

“The main purpose of a trust is to get your assets out of your name and into a professional trustees’ name to protect you from being sued and your assets from being frozen or seized.

You will still be the beneficiary of your trust whilst alive and you will decide who gets what upon death.

What is a Trust?

what is a trust

A trust is a fiduciary arrangement that allows a third party, known as a trustee, to hold assets on behalf of a beneficiary or beneficiaries that you nominate. Trusts can be arranged in many ways and can specify exactly how and when your assets gets passed on to the beneficiaries, such as your partner(s) and children.

Since trusts usually avoid probate (court), your beneficiaries may gain access to your assets more quickly on death than they might through using a will. Additionally, if it is an irrevocable trust, it may not be considered part of the taxable estate, so fewer taxes may be due upon your death.

What is the Purpose of a Trust?

  • Avoids Court: The primary purpose of a trust is to avoid the expense and delay of the probate process, i.e. so that on death, your named partner(s) and beneficiaries receive what they want without going through years of court battles
  • Privacy: After your death, your will is likely to be probated. In this case, your will becomes a public document, along with the value of the assets that formed your estate. Further, certain people may be entitled by law to receive a copy of your will. A trust agreement, however, is a private document and can keeps information confidential. Some people replace their wills with a trust
  • Avoids Compulsory Succession: in some countries, a will automatically gives your assets away to particular family members (many former French colonies do this)
  • Controls Distributions: you control who gets what on death, when and how those assets are delivered
  • Protects Your Legacy: A trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be adept at money management
  • Tax Reduction or Avoidance: the right type of trust can avoid large inheritance / estate taxes on death
  • Protects Your Family from Themselves: by putting your assets into a trust, you can decide when and where beneficiaries can access the wealth in a trust. Often this means children not being able to access a trust until later in life when they have become more responsible
  • Educate Your Heirs: Set up a university trust fund for your children or grandchildren
  • Charities: Set up a “foundation” to give to poor children and those less fortunate than yourself. This can be set up to give a lump sum on death as well as install regular payments

Types of Trust

There are many types of trust, so we won’t go into detail here as it requires lengthy discussions with clients. But, here are the main types…

Revocable Trust (faces tax on death, but you have control): Also known as a living trust, a revocable trust can help move your assets outside of probate (court), whilst allowing you to retain control of your assets during your (the grantor’s) lifetime. It is flexible and can be dissolved at any time should your circumstances or intentions change.

A revocable trust typically becomes irrevocable upon the death of the grantor (you).

You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but you will need to make provisions for a successor trustee to manage them in the event of your incapacity or death.

Although a revocable trust may help avoid probate, it is usually still subject to inheritance or estate taxes. It also means that during your lifetime, it is treated like any other asset you own.

Irrevocable Trust (usually avoids tax on death, but control is relinquished): An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of inheritance or estate taxes and probate (court), but cannot be altered by the grantor (you) after it has been executed.

Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.

An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. Also, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences).

It may also be protected in the event of a legal judgment against you.

Example of Famous Trusts

Here are examples of what happens if you are wealthy and you die without a will or a trust. Hint: it goes horribly wrong and can end up in decade-long court battles.

jimi hendrix no will

The battle for famous rock guitarist Jimi Hendrix’s estate,for example, who died in 1970, raged on for more than 30 years in court for one simple reason: Hendrix left no will regarding distribution of his estate.

To complicate matters, the estates of musicians and other artists often continue to generate money long after their deaths.

Here are 10 famous celebrities who died with no will or trust in place and the wake they left behind.

Here are some famous trusts and foundations that give worldwide:

  • The Princes’ Trust is a youth charity that helps young people aged 13 to 30 get into jobs, education and training.
  • The BBC Trust exists to serve the public, and its mission is to inform, educate and entertain.
  • The National Trust takes care of the greatest collection of historic gardens in Europe.
  • Bill & Melinda Gates Foundation has an annual healthcare budget bigger than the World Health Organization. The Foundation supports innovative projects around the world that are working to solve some of the worlds most pressing healthcare problems such as HIV / AIDS, Polio and Malaria.
  • The Wellcome Trust is an independent global charitable foundation dedicated to improving health through science, research and engagement with society.
  • The Howard Hughes Medical Institute advances science through research and science education.
  • Open Society Foundations fund a range of programs around the world, from public health to education to business development. Their stated mission is to “build vibrant and tolerant democracies where governments are accountable to citizens”.
  • The Ford Foundation delivers three major programs in “World Peace and the establishment of law and justice”, “Freedom and democracy” and “Advancing the economic well-being for people everywhere”.

Talk to a Trust Planning Expert

Whatever your goals for protecting your wealth, we can help you achieve them.

Talk to an Expert

... to find out more

Talk to an Expert