Increase Your Flexibility%2C Decrease Your Taxes: The Benefits of an Offshore Trust

Reprinted from International Living

Holding an asset in trust simply means that a person who has legal ownership of an asset is not necessarily the person who is currently enjoying or will in the future enjoy the benefits of the property. This duality of ownership may sound complex, but in reality it is straightforward. 

How it Works

The first and most important person is the settler (or grantor). This is the person who intends to gift his property into trust so that he no longer owns it. The second party is the trustee, who holds the property and has the legal title to it but no beneficial interest. The third party is the individual or group of people who are known as beneficiaries, for whom the trustee holds the property and to whom the property will pass at some stage in the future.

You can put all sorts of assets in trusts, including bonds, cash, shares, real estate, private companies, intangible assets, intellectual property, and even racehorses and yachts. A trust can last for a fixed term of months or years or can even last for several generations, depending upon the needs of you and your family. 

Worthy of Trusts

Why create a trust? The top three reasons: tax benefits, asset protection, and professional asset management for minors or others not ready to manage the assets by themselves.

On tax matters, a trust can generally serve to shift income from higher-bracket taxpayers to lower bracket ones within a family. As an asset-protection vehicle, a trust can be used to divest you of legal title-making the assets unreachable by a creditor. 

Finally, as a professional asset management tool, a trust can be used to ensure that a young child does not squander his inheritance; it does this requiring third-party consent before he can spend the money. This may also allow a widow to place her assets in the hands of a trusted professional money manager. 

Under Belizean law, trust assets are protected and beyond the reach of any creditors

Better Equipped to Make Financial Decisions

Your trustee must be either a close family friend; an advisor, such as your lawyer; or a professional trust company of high reputation. Many large banks provide reliable trustee services.

In addition to naming a trustee, it is you may also name in the trust deed a person called a protector. The protector is an individual known personally to the settler, and indeed the settler can himself be the first protector. Where a protector is used, the trustees have to obtain his approval before any of the trust fund's can be distributed. Often, the protector has the power to remove trustees if he believes they have not acted properly. 

Foreign Attractions

A trust's location can make a world of difference. Foreign trusts, for example, offer a number of advantages over domestic trusts. First, they have an extra layer of privacy by the sheer fact that they are located in the United States. More importantly, however, foreign trust laws are generally designed to attract foreign investors and so are particularly favorable for the settler and the beneficiaries.

Professionally managed trusts can be established in a wide range of jurisdictions, but the most useful ones for international clients tend to be those in suitable tax havens, like Belize, Bermuda, the Bahamas, the Channel Islands, Liechtenstein, the Cayman Islands, and the British Virgin Islands. In these places, the assets owned by the trust do not have to be located within the trust's legal jurisdiction. For example, you can have a Belize trust holding assets that are located in the Cayman Islands.

Next week in Part 2 of this article, I will talk more in-depth about what makes Belize a prime location for establishing an offshore trust.

Copyright 2002 Nagel & Associates, LLC