Offshore Trust | The Best Vehicle For Beneficiary Planning
Offshore trust: What is it, basics, deed, assets, advantages, uses, forms, offshore company, revocable trusts
Offshore trust: What is it
An offshore Trust is created when assets are transferred to a Trustee.
The Trustee becomes the legal owner and is responsible for managing the assets and distributing them to the beneficiaries of the offshore Trust.
This can be a person or company which transferred the assets to the Trustees in accordance with the terms of the Trust deed.
Many Common Law jurisdictions offer Trust legislation to govern Trust. The Trustees must manage the assets exactly as per the detailed terms of the Trust.
Offshore trust: Basics
An offshore Trust is one that is created outside the country of residence of the person who promotes it. This person or company is called the Settlor.
As it is located in a tax haven, it enjoys favorable security, legal protection and privacy.
However its features and characteristics are the same as those of common Trusts.
An offshore Trust is similar to a traditional Trust in that it has a relationship or arrangement among Trustees, Settlors and Beneficiaries.
Offshore trust: Deed
How to manage the assets and how to pass them on to Beneficiaries is made in a binding, written legal document known as the Trust Deed.
This legal tool can hold title to assets and property. It also forms the basis of how to manage them.
These guidelines help in providing benefits and distribution of income and assets to a person or group of persons designated as Beneficiaries.
Offshore trust: Assets
The following assets can be held by an offshore Trust:
- Real and intellectual property
- Investment portfolios
- Bank deposits
- Shares and stocks
- Life insurance policies issued on the life of the Settlor
- Other types of assets
Often offshore companies owned by the Trust are formed which become the operating companies and the face of the Trust.
Offshore trust: Advantages
It is a separation of the legal ownership and beneficial ownership of the assets
- For legal purposes the Trustees of the offshore Trust are recognized as the legalowners of the assets
- The Beneficiaries are protected by a body of legal rules which require the Trustees to adhere to strict duties as to how to manage the Trust
- Assets transferred to the offshore Trust are no longer part of the property owned by the Settlor and cannot be claimed by creditors and litigators
- The assets would also be protected if the Settlor is experiencing financial difficulties due to bankruptcy, divorce or professional negligence claims
- It avoids the cost and delay of probate. Probate refers to the process of legally establishing the validity of a Will before a judicial authority. The assets in a Trust are distributed in accordance with the terms of the Trust.
Offshore trust: Uses
Tax Planning Tool
As the Settlor gives up legal ownership of his or her assets it may be possible to avoid capital or gift taxes, death duties and high income tax rates.
The risk of holding assets in highly volatile and politically unstable areas of the world can be avoided.
It is better that the Trust is set up when there are no claims in the Settlor’s knowledge.
This would enable the Settlor to protect personnel assets from creditors, professional negligence, divorce settlement, product liability and similar legal claims.
Inheritance and Succession planning
Trusts are a convenient alternative to the Will as they offer greater flexibility in planning the division of the deceased among relatives and friends.
It also serves to avoid the enforcement of laws that prevent free choice of heirs.
Preservation of family wealth
Assets can be set aside for the future benefit of family members while restricting their access to the Trust.
Of course until such a time that it is appropriate to distribute those assets.
Offshore trusts: Forms
- Private Trusts to administer family property
- Corporate Trusts are made for business purposes, to administer employee pension schemes or investments
- Charitable Trusts are made to organize and fund social purposes
- Purpose Trust have no beneficiaries, and can be established for any clear, reasonable and possible purpose
Offshore trust: Differences with offshore companies
For banking purposes there is very little difference.
Both entities come with the documentation you need to open bank accounts.
However there is difference in how you use them.
Mostly offshore companies are used for profit ventures involving business activity such as security trading, banking, international trade and ownership of assets.
Offshore companies are considered to be the most common and popular solution. Offshore Trusts are generally used for holding purposes, such as owning corporations, or holding assets such as real estate.
Offshore trust: Advantages of revocable trusts
Continuity of management during disability
Creating a revocable Trust ensures that your property remains available to be used for your benefit in case you should become physically or mentally incapable of managing your own affairs.
Remain in control
A revocable Trust gives you full use of your assets while you are alive and then passes this authority onto a successor Trustee after your death. The successor Trustee then distributes the assets to the named beneficiaries.
Using a funded revocable Trust may allow you to name unrelated, out-of-state individuals and out-of-state Trust companies to act as the primary administrator of your property at death.
No interruption in investment management
Assuming the assets were previously transferred into the Trust’s name, there is no need to re-register securities after death.
Depending on the cash needs and investment objectives of the Settlor’s estate, there may be no need to develop a new investment strategy.
Offshore trust: Disadvantages of revocable Trusts
Re-registration of property
In order to be included in a revocable Trust, property must be re-registered in the name of the Trust.
This may be burdensome and may involve other costs such as filing fees and selling taxes.
If any property has not been re-registered in the name of the Trust at the time of death its likely the estate will have to go through the probate process even though a revocable trust was in place.
Creditors have access to assets
A revocable Trust may not protect you from creditors. Your debts may be applied to the Trust.
Costly to establish
A revocable Trust costs more to establish than a Will because you must fund the Trust at the time you form it.
In many jurisdictions, Wills change automatically upon divorce, marriage or the birth of a child. Most jurisdictions do not provide similar flexibility for revocable Trusts.
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