Reasons to Consider Setting up an Offshore Trust

Why may it be the case that you should consider the opportunity to set up an offshore trust? There are many reasons why you may want to put your assets in a trust because a trust can serve many different purposes. A trust is one of the most efficient instruments that you can use to protect your personal as well as your corporate assets.

To avoid mistakes in business planning and trust registration, please apply for our professional advice. Our experts will offer you the following services:

• Assistance in choosing the offshore jurisdiction where you can set up a trust depending on your main goals;
• Administrative support in establishing a trust;
• Assistance in opening a foreign bank account (personal and/ or corporate);
• Business planning via the trust (inheritance, family office, offshore business, taxes, and so on).

What can a trust be used for?

Some twenty years ago, setting up a trust was an option to consider if you had at least a million dollars or euros. Today, establishing an offshore trust would make economic sense if you have 100,000 dollars or more. The choice of the jurisdiction where you would like to have a trust will depend on the main goals that you pursue.

Reasons why you may need a trust in 2023

What can be the purpose of an offshore trust? Below please find an extensive but not an exhaustive list of purposes that a trust can be used for:

1. A trust to manage your family assets:
   • To buy real property abroad;
   • To pay your children’s tuition;
   • To cover your everyday expenses in a foreign country;
   • To secure your pension;
   • To provide custody for your elderly parents or handicapped dependents.
2. A trust to safeguard you from overspending:
   • To make sure your young children do not overspend;
   • To make sure you do not overspend yourself;
   • To create a mechanism of economically justified expenditures.
3. A trust to protect your assets from unfavorable economic and political events:
   • To protect you from government raids;
   • To protect you from subsidiary liability;
   • To protect you from creditors and foreign law courts;
   • To protect you from bankruptcy.
4. A trust to have a passive income that is neither taxed not controlled.
5. A trust to purchase any kind of property without making the information available to the public.
6. A trust to participate in investment projects while being protected from possible disputable situations with co-investors.
7. A special (purpose) trust to launch a charitable project and attract other philanthropists who share your goals and values.
8. A trust to let your products reach foreign markets in case certain sanctions are in place or there is a trade war going on.
9. A trust to minimize the effects of the domestic currency control of CFC-related regulations.
10. A trust to hand down property to your heirs. A trust serves this purpose better than a will does.

Whatever purpose you have when creating a trust, your overarching goal is to save on taxes. In all jurisdictions where we recommend establishing trusts, the trusted capital, real estate, and any other property are tax-exempt. Please mind, however, that the trust beneficiaries (see below) are not tax-exempt. We suggest that you should seek our professional advice on tax-related matters when choosing the country where you would like to set up a trust.

What is a trust essentially?

A trust is a legal entity involving three parties. The trust founder (the trustor) surrenders his or her property to the trust and appoints the property manager (the trustee). The trustee manages the property for the benefit of the trust beneficiaries. The trustor can be simultaneously the trust beneficiary but the property does not legally belong to him or her: the property is owned by the trust.

Depending on the type of the trust (whether it is revocable or irrevocable), the list of assets that the trust holds as well as the principles of the property management can or cannot be changed without the consent of the trust beneficiaries.

Some people may hesitate to create a trust because they think that they may lose control over their property and the trustee gets too much power in managing it. You might think so only if you know very little about how a trust works.

When a trust is established, a trust deed is made. This is the document that specifies all the terms and conditions of the trust management. The trustor gives the trustee as many powers and as much authority as he/ she wishes. In reality, the trustor remains the factual possessor of the property that the trust holds. From the legal point of view, however, he/ she is not the owner of the property, which can bring some substantial tax benefits. The trust serves as a ‘protective’ cover for your family and corporate assets.

The main reason why most people create trusts is to lower their taxes. Have you ever wondered how luxurious mansions whose walls are covered with insanely expensive paintings are handed down from one generation to another? Through trusts. This is a way to avoid paying the inheritance tax and affluent families like to make full use of it.

There are other advantages, however, that a trust can bring you. For example, a trust ensures confidentiality of the (factual) property owner’s information. Besides, creating a trust is an efficient method of protecting your property from creditors, planning inheritance, and expanding your business opportunities.

Issues that can be solved with the help of a trust

Issue №1 – tax benefits

As we have noted above, one of the main reasons why you should consider creating a trust is the tax benefits that this legal entity can bring. Please mind, however, that we are not suggesting that you can pay nothing in taxes if you establish a trust. The trust beneficiaries’ income is taxed anyway. On the other hand, some jurisdictions do not tax incomes derived from foreign countries. Please contact us to find out where you can set up a trust to use this opportunity. 

One more option that may be of interest to you is the possibility to set up an offshore trust in a combination with an LLC. This can be an even more efficient method of saving on taxes. Another important purpose that such a combination can serve is asset protection.

Issue №2 – inheritance planning  

Handing your property down to your heirs via a trust is one more reason to create it. You can create a trust before you die and make your heirs the beneficiaries of the trust. Otherwise, a trust can be created after your death if you express the desire in your Last Will but the inherited assets will have to go through probate in this case. If you set up a ‘living trust’, no probate is required. 

Issue №3 – incapable relatives

A trust can help with providing custody to your disabled or legally incapable relatives. You can set up a trust to provide comfortable retirement for you parents, for example, or medical care for a handicapped relative.

Understandably, your family situation as well as your preferences may change over time but a revocable trust allows making amendments to the trust deed with ease. On the other hand, an irrevocable trust brings more tax advantages.  

Issue №4 – excessive spending

If you create a trust, you can shield your assets from your overspending children and other relatives as well as from your own self! There can be several different reasons to set up a trust with this goal in mind:

• If you leave minor children behind when you pass away, their inherited assets will be safe under the trustee’s guardianship. When they come of age, they can gain full access to the inherited property (you can explicitly state that they should in the trust deed).
• You can use the trust to give a certain person (or certain people) gifts on a regular basis.  
• Life is full of temptations and you or one of your relatives can become an irresponsible money spender one day for a reason. The reasons include drug addiction, gambling addiction, alcoholism, and the like.

The trustee will serve as a guardian for your property and this will protect you and your relatives from overspending. 

Issue №5 – foreign creditors 

Another reason why you may want to create a trust is to protect your corporate assets from foreign creditors. This is especially relevant if you have an international business company registered in a foreign country. If the corporate property is owned by the trust rather than by the company founder, your creditors are going to have a hard time trying to take it away from you. You should also bear in mind that judges in some jurisdictions have no regard for court decisions made in foreign countries.

Issue №6 – divorce settlement

If you are a wealthy person and you are married, you might also want to think about creating a trust. Signing a marriage contract cannot bring you ironclad protection of your assets. In many countries, for instance, the divorce-related legislation required that the each of the separating spouses gets half of the total family assets. A trust can protect your property in a more efficient way than a marriage agreement.

Issue №7 – international sanctions

Depending on the country of your residence, you and your business company can be affected by international sanctions including those imposed by such organizations as OECD and FATF. If you have a trust registered in an offshore jurisdiction, you may feel little effect of these sanctions. 

Create an offshore trust with professional assistance

A trust can bring a number of advantages and serve a number of different purposes, tax burden reduction probably being the most important one. However, if you would like to set up a trust in a foreign country, you certainly need professional advice.

Trust legislations can be quite dissimilar in different countries. Besides, in addition to the revocable trust and the irrevocable trusts, there are other trust types too. Each type of trust will serve a different purpose and you need help in choosing the type of trust than will fit you best. International Wealth experts will be happy to provide assistance to you in setting up a trust in the country of your choice.