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What is actually an offshore trust?
If a trust is to be described in formal language, then a trust is: .....a contract on the basis of which a natural person or legal entity (trustee) becomes proprietor of the assets which he, she or it administers in favour of one or more persons (beneficiaries)....
A trust is a specific contract on the basis of which the trust settlors transfer a part of their private or company assets (possibly all their assets) to a third person referred to as trustee. The trustee may be a person appointed by the settlor or a professional licensed trustee holding a license for the carrying on of these activities (usually a bank or a special company holding a license for trust administration). The assets transferred to a trust are handled on the basis of the Last Will or Letter of Wishes in such a manner which corresponds to the wished of the settlor. The settlor can also appoint a Protector, who can supervise over the activities of the trustee, whether the trustee acts in the best will and according to instructions or wishes of the settlor and persons who should have benefits from the trust (beneficiaries). A protector can be any person, such as a family friend, lawyer or any person who has the confidence of the trustee.
The clients from the Anglo-Saxon law countries or jurisdictions, which recognise trusts, in an overwhelming majority know what a trust is because trusts are very often used by a majority of citizens of these countries. The clients coming from the countries whose legislation does not recognise the legal form of trust tend to have difficulties understanding the features or statute of a trust. It is especially countries of Central and Eastern Europe, the Far East, some African and Asian countries that do not know the legal form of trust, but only certain simplified forms, such as the last Will or inheritance. This does, however, not mean that it would be impossible for these clients to make use of all advantages offered by trusts. On the other hand, where any international activities are intended (business, investments, purchase of real property, administration of bank accounts, etc.), it is very suitable to consider the possibility of establishing a trust.
The advantages of trusts result especially from the fact that settlors transfer a part of their personal or company assets (or all these assets) to a third person (trustee) and thus they avoid any execution, forfeiture, confiscation or nationalisation of the assets of the settlor by heirs at law (spouse, children, relatives) or creditors (banks, financial institutions, state, creditors, etc.), because the ownership of the assets owned in this manner will be separated from the original owner by way of transfer to a third person, in this case to a trust.
If the trust settlor dies, the trustee continues to handle the assets of the settlor as the settlor wished according to the Letter of Wishes and distributes the trust benefits (payments, shares, yields, compensations, various financial or material advantages, etc.) among beneficiaries, which can be legal entities and natural persons (for example children, spouse, parents, foundation, various groups, schools, etc.). The fact that the settlor's assets have been transferred to a trust still during the settlor's life, it was possible to eliminate worries about the execution of the Will, inheritance taxes, transfers of bank accounts to heirs at law and other heirs, etc. Especially in the cases where the settlor's assets are situated in several countries (for example a yacht in the Bahamas, a house in Spain, a cottage in Canada, shares in companies in the U.S.A., Germany, bank accounts in Grenada, Switzerland, etc.), the several years long waiting for the transfer of these assets to the heirs at law and other heirs is avoided. Legal services connected with the proving of the claims of heirs, fees and taxes are in these cases so huge that they often consume a significant part of the assets which the deceased have left. It may also happen that the assets which were not treated through a trust will be taxed by using the inheritance tax in the country where they are physically situated, and then by another tax in the country of the heir at law, unless such a fact is solved in the double taxation treaty between the two countries.
A well established and managed trust can help you in general terms in the following fields:
- 1.protection of personal and company assets
- 1.financial privacy
- avoiding the necessity of paying taxes on transfer of assets or inheritance or estate taxes
- 1.distribution of assets, or benefits among the persons or entities at your discretion and not necessarily according to the law specifying legal inheritance
- 1.administration of assets through a professional trustee
- flexibility with transfer of benefits to the persons selected at your discretion
- 1.tax planning
- 1.diversification of assets and property
Asset Protection Trust is one of the best means of Anglo-Saxon law enabling the trust settlor to protect assets from a number of unforeseeable events, such as divorce, bankruptcy, insolvency, creditor claims, actions or from other stressing situations when it is necessary to protect personal or company assets from attacks of legal creditors or persons who claim assets of the trust settlor. It is also one of the most modern tools in the tax planning area because an overwhelming majority of financial centres does not impose any form of taxation on the assets which are deposited in a trust or transferred from a trust or on remuneration and payments paid from the trust to individual beneficiaries.
Current research shows that three fifths of great legal firms from the countries of Anglo-Saxon law refer their clients to the formation of an Asset Protection Trust, as the best means for future protection from such unforeseeable events as negligence actions, bankruptcy, insolvency, fraudulent conduct and other claims of creditors. By far not all professional experts, however, prefer using just (Asset Protection Trusts) as a means for protecting their assets. The supporters of Asset Protection Trusts are convinced that it is an non-understandable negligence not to protect their own assets against requirements of potential creditors, and they place the same emphasis on such a protection from various types of risks as is placed on life insurance at some commercial insurance companies.
Trust objectors on the other hand justify their position by a statement that trust is a hidden agenda to which the people transfer financial means and other assets in order to hide them from fraudulent conduct of their settlors and from legal pressure on the part of the existing or future creditors - through which the Asset Protection Trust is allegedly immoral.
A Charitable Trust is an excellent tool for tax planning or for administration of the assets which are to be used for humanitarian purposes. A number of countries of the world allow to include a part of the means which are remitted by a company to humanitarian purposes (into a trust or foundation) into the costs of the company where they can be treated as a tax-deductible item. Charitable trusts are established for example for the support of culture, humanitarian projects, literature, cultural heritage, religious matters, school system, hospitals, churches, museums and a number of similar purposes when the trust settlors transfer a part or all of their assets to these trusts and the trust benefits are distributed according to the wishes of the settlors or according to their Wills (Letters of Wishes).
As it is quite common, this type of trust can be established for purposes beneficial to the entire community, such as fighting poverty, support of education or religion, fostering, keeping and protection of human rights, protection of nature or cultural heritage. Nevertheless, this type of trust can also be established for the support of specific particular individuals or persons, including persons relative with the trust settlor. Classical trusts established for public purposes include trusts established in favour of museums, galleries, poorhouses and other not-for-profit and public-benefit organisations, foundations and other community formations or groups.
A trust can be established for a limited term (existence) according to the country where the trust is established, i.e. it can be established for a definite or indefinite time period. A number of countries make it possible to establish a trust for a period not exceeding 99 years, nevertheless there are countries where the maximum duration of the trust is not specified by the law. The settlors can decide at their discretion for how long a trust will exist and who will administer it and in what circumstances it can be cancelled. They can also decide what type of trust they will establish, for what purposes and who will have benefits resulting from the trust (heirs, family, friends, humanitarian societies or general public, etc.). Furthermore they can decide whether the trust will be revocable or irrevocable, i.e. whether the trust can be cancelled, modified or not during the life of the trust settlor.