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International Offshore Trusts Offshore trusts are fundamental to the workings of tax havens and are an ideal tool for protecting your investments, says Francis Higney Offshore trusts exist for one reason - protection of your estate - and as such they are fundamental to the workings of tax havens. By estate we mean land, property, money and other financial assets. And protection from what or whom? Simple, from those who you do not want to have a claim to them, such as tax authorities. As a great bonus, offshore trusts allow assets to grow tax-free. But the person who is passing on, or protecting the assets, must be seen to have no direct access to or claim over them. The point about trusts is that they can’t be owned. They must be placed in the hands of trustees to administer and execute according to the terms of the trust deed. International Offshore Trusts & Accountants These trustees may include accountants and other professionals. They will act in accordance with the terms of the trust deed, and with reference to a non-binding ‘letter of wishes’ supplied by the person placing his or her affairs in trust, and who is known as the settlor.
However, the trustees may act without reference to the settlor and the trust will not be affected by, for example, the settlor’s death. These types of trusts come particularly into play when deciding how you are to divvy up your worldly possessions in the event of your death. They ensure your assets are passed on exactly as you wish them, to the right people, at the right time, especially across international boundaries. International Offshore Trusts - Tax Neutrality And as well as providing tax neutrality, offshore trusts can be used to tackle the problem of ‘forced heirship’ provisions, which are applied in many jurisdictions. Forced heirship means that the will of an expatriate who died in such a jurisdiction would be set aside and his estate divided, in predetermined proportions, between the members of his surviving family and any others whose relationship to him qualified them to participate. However, assets held in an offshore trust would not be subject to forced heirship because they did not form part of the deceased expatriate’s estate, and because they were outside the jurisdiction in which he had died. International Offshore Trusts - Theory In theory, establishing a trust requires a substantial amount of wealth to justify the effort and expense involved. However, increasingly simpler trust versions are being used in conjunction with offshore investment products in order to maximise tax-planning opportunities. For example, offshore bonds are often written in trust to mitigate inheritance tax. In some instances, the popularity of such trust use has made them a victim of their own success and tax authorities are keen to close down such loopholes. Jurisdictions are becoming more and more unhappy at the thought of taxable assets slipping through their fingers and have adopted forms of ‘look-through’ legislation to offshore trusts, which are designed to defeat attempts to evade legitimate tax liabilities. Jurisdictions that have this kind of legislation may succeed in neutralising the effectiveness of offshore trusts in situations where the settlor is the effective beneficiary of a trust asset that is physically present in the same jurisdiction - this could be a property, for example. 
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