Why Estblish an Offshore Trust?
(Uses and Benefits of an Offshore Trust)

There are many reasons for using an offshore trust. Like a domestic trust, the reasons for setting up an offshore trust are similar. The major reasons are as follows:

Estate and Tax Planning
Avoiding Disruption on Death
Protecting Certain Beneficiaries
Protection from Potential Creditors / Asset Protection
Preserving the Family Fortune
Continuing the Family Business
Flexibility
Confidentiality

These reasons are outlines in more detail on the website using the links above and in 'Uses and benefits of an offshore trust' link in the related links table.

With a properly drafted trust deed and with the trust cited in an appropriate jurisdiction and administered by a reliable professional trustee, a trust structure can achieve the wealth preservation and protection sought by many high net worth individuals.

ESTATE AND TAX PLANNING (Back to the top)

Most wealthy people prefer to decide for themselves how their assets are to pass on death. For example, a wealthy individual will normally wish to provide income for his spouse, education for his children and perhaps to provide for the protection of any children or other relatives who suffer from disabilities. The individual will probably wish to make gifts not only to relatives but also to charities and perhaps for other public purposes. Arrangements of this kind are best made before death although they will continue to have effect after death. While a will can achieve some of these objectives, a trust involving the legal transfer of ownership of assets to trustees with defined objectives as to how and for whose benefit the assets are to be held and administered is probably the ideal medium.

There may also be special problems for certain individuals governed by laws which dictate how assets are to pass to relatives at death. This is usually referred to as 'forced heirship'. Forced heirship occurs in most civil law countries and in moslem countries where the concept of a trust is not recognised. Forced heirship also occurs in other major countries such as Canada and Japan. For example, in Canada the law provides that if certain heirs, such as a spouse or dependant child, are not adequately compensated pursuant to the terms of the deceased's will, the law will ensure that certain benefits are bestowed on these individuals irrespective of the deceased's wishes. A trust can be a useful way of overcoming forced heirship rules although, as recent litigation in the Cayman Islands (Lemos v. Coutts Co. (Cayman) Ltd.) has shown, reliance on the provisions of local trust laws providing that forced heirship rights are not to invalidate a trust may be illusory if the assets are in the forced heirship jurisdiction or in a jurisdiction which is sympathetic to the forced heirship jurisdiction of the deceased' domicile.

Trusts can also be a useful way of mitigating taxes, either entirely or by way of deferral. While in some jurisdictions the scope for tax planning may be limited, in other jurisdictions opportunities remain. It is always wise for a potential settlor to take tax advice in his home jurisdiction if tax planning is the motivating factor for the establishment of the trust.

AVOIDING DISRUPTION ON DEATH (Back to the top)

The death of the head of a family, particularly if a wealthy individual, can and very often does, cause major disruption. In the absence of a trust, it will be necessary to obtain probate of any will, or wills, or in the case of intestacy a grant, or grants, of letters of administration. This is a bureaucratic process which normally involves considerable delay, expense and publicity. Where an individual owns assets in several jurisdictions any will has to be proved for probate purposes in each jurisdiction. Alternatively, the individual may have left separate wills dealing with assets in each jurisdiction when probate in each jurisdiction will be necessary.

The problems of obtaining a grant, or several grants, of either probate or letters of administration can be overcome by the use of a trust. If properly drafted, the trust can provide for the enjoyment of income or other assets during lifetime and then the passing on of the enjoyment of the assets to other members of the family following the death of the settlor. The trust can therefore achieve continuity without the public process of obtaining a grant and also without the delay, bureaucracy and expense which so often occurs following death. Care is, however, necessary when setting up a trust designated to circumvent the need for a grant of probate because it has been held that if the 'trust' creates a mere agency or nominee relationship until death after which the 'trust' assets are to be sold, the trust deed can be set aside as an inadequately executed, and therefore invalid, will. Re Pfrimmer Estate (1936).

PROTECTING CERTAIN BENEFICIARIES (Back to the top)

Trusts are also frequently used to protect members of the family who are below the age of majority, suffer from mental or other disabilities or are thought to be irresponsible and not to be relied upon to look after assets given to them outright. Again a trust can provide a useful way of providing for the needs of such individuals.

PROTECTION FROM POTENTIAL CREDITORS / ASSET PROTECTION (Back to the top)

Every Trust, including a domestic trust, has asset protection features. In recent years, trusts have been used to protect an individual from the claims of future creditors. The offshore trust has emerged as the most effective modern solution to the asset protection problem. The need for a solution has to a large extent been driven because of the huge awards of damages handed down by juries in civil cases in the United States.

Nevis has enacted specific trust legislation which creates an environment which discourages creditors from litigating. These asset protection features are principally set out in section 24 of the Nevis International Exempt Trust Ordinance, 1994.

Section 24 sets out specific time limits, after which any settlement or disposition to the Trust is protected from creditors except where the creditor can prove in a Nevis court, beyond reasonable doubt, that a particular settlement or disposition was made with intent to defraud that creditor. Dispositions made before a cause of action arose are absolutely protected from attack by creditors.

British Virgin Islands trust legislation does not contain similar provisions.

PRESERVING THE FAMILY FORTUNE (Back to the top)

A trust can help to preserve a family fortune by preventing later generations from dissipating it. It is, however, essential to ensure that the trust is properly set up and that the assets have passed into the ownership of the trustees and are under their direct control. Failure to achieve this can result in the trust being set aside as a sham following proceedings by the second or third generations. There are many trusts where a similar situation exists and therefore these trusts are at risk not only from other members of the family who wish to obtain control of the assets but also from tax authorities or creditors who may wish to have the trust set aside for tax reasons or because it was set up to defeat the claims of creditors.

CONTINUING THE FAMILY BUSINESS (Back to the top)

A successful entrepreneur who has built up a business may well wish to ensure that the business continues through future generations. In contrast, it may well be that the second or third generation will wish to liquidate the company, distribute the assets and then squander the proceeds. By transferring a controlling shareholding in a family business to trustees and restricting the circumstances in which the shares may be sold by the trustees, it will often be possible to ensure that a family business will continue on through several generations. The wishes of the settlor can be indicated in a non-binding letter of wishes and further controls can be imposed on the trustees by the use of a protector who the trustees must consult before taking any major decision, such as a significant change in the nature of the business, sale of the business to a take over bidder or liquidation.

FLEXIBILITY (Back to the top)

Plans made today can easily become obsolete as social, political and taxation changes occur. It can often be the case that a well drafted trust appropriate for today’s circumstances is not appropriate for those of tomorrow. However, there are ways of building flexibility into a trust so that it is possible for the trust to be adapted as times change. To some extent, this can be achieved by a non-binding letter of wishes or by giving power to review and modify the trust to a protector.

CONFIDENTIALITY (Back to the top)

One of the major advantages of a trust is confidentiality. While the legal ownership is in the trustee and this may appear on various public records, the beneficial ownership and the varying rights of the beneficiaries will not be a matter of public record because there is no public register of trusts or beneficial interests. Indeed, most records of ownership such as those at a land registry or contained in a register of members maintained by a company, are usually prevented from recording details of beneficial ownership.

In Nevis the Confidential Relationships Act applies to every trust registered under the trust ordinance. In addition all judicial proceedings, other than criminal proceedings relating to international trusts, are heard in camera with no details of the proceedings published by any person without leave of the Court. This adds an additional level of statutory confidentiality.