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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