An offshore trust is an asset protection tool which is set up outside the country of residence of the settlor. It is a legal contract which is formed by individuals or companies in order to protect their personal or corporate wealth. An offshore trust can be an effective form of asset protection that enables the individuals or companies to manage and preserve their wealth in a way that benefits them the most.
Asset protection is a strategy employed by individuals and companies to safeguard their wealth against tax laws or economic and financial instability of their country of domicile. It is a risk-reducing technique that enables effective wealth management and business strategizing. There are various techniques that can be utilized to achieve asset protection, opening an offshore trust being one of them.
Why form an Offshore Trust
There are many reasons to form a trust but ultimately it is to protect an individual or company against creditor claims and unfavorable taxation in their country of domicile. It essentially safeguards valuable assets for the future i.e. in the form of inheritance, assuring that they are protected in a safe and secure environment.
In addition, a trust provides privacy to the parties involved which is often a main factor in forming a trust as some high net worth individuals want to keep their wealth away from the public and media eye. Along with confidentiality and anonymity, an offshore trust also helps in avoiding forced heirship rules and protecting wealth from third party claims.
Benefits of an Offshore Trust
In addition to the reasons of forming a trust, the benefits of forming an offshore trust are outlined below;
- Asset Protection – safeguarding valuable assets in a secure and stable jurisdiction.
- Flexible Application – can be formed for many purposes; employee benefit schemes, insurance plans, retirement schemes etc.
- Flexible Terms – can be fast forming, cost free and tailored to your specific purpose.
- Financial Security – risk free from the instability of the country of domicile’s economy.
- Privacy – complete anonymity of the parties involved in the trust formation.
- Tax planning and exemption – some jurisdictions have exemption from exchange controls, capital gains tax, income tax and inheritance tax.
The advantages of offshore trusts vary from one jurisdiction to another so it is advised to seek the assistance of a professional firm in order to find a jurisdiction which caters to your specific needs.
Forming a Trust
After a jurisdiction for the trust formation has been determined, it is essential to nominate and form the parties which are involved in the formation of a trust. Trusts are created under the laws of its jurisdiction, so it is important that you use the assistance of a professional consultancy firm or a legal firm to guide you through this process.
A trust comprises of four main parties which are a settlor, a trustee, a beneficiary/beneficiaries and a protector;
Settlor: person/entity which requests the trust to come into existence.
Trustee: responsible for the administration of the trust and ensures that all parties involved comply with the trust deed.
Beneficiary: ultimately benefits from the trust.
Protector: overlooks and monitors activities in the trust.
After you have located a suitable jurisdiction to form the offshore trust in, and you have allocated each of the parties above to the trust you can begin with its formation. When creating an offshore trust it may have the option to be formed in either the form of an oral or written instrument. It is however deemed a far safer method to do so in the form of a written document.