- What is a trust?
- What conditions need to be met when creating a trust?
- Advantages of a trust as an asset protection instrument
- Who is the legal owner of the assets kept in trust?
- Asset ownership in revocable and irrevocable trusts
- Who controls the assets kept in trust?
- When should you think of creating a trust?
If you are a well-to-do person, you naturally want to preserve your wealth for the well-being of your children. Creating a trust can help protect your assets of all sorts – money, business companies, real estate, and so on.
You may be wondering, however: who is going to be the legal owner of the assets that you put in trust? How well are the assets going to be protected? Let’s clarify some details concerning trust establishment and asset ownership.
If you would like to set up a trust to protect your assets, the first thing that you have to do is choose the jurisdiction where the trust is going to be registered. Please apply for our assistance in creating an offshore or a domestic trust, drawing up a Trust Deed, and finding a reliable trustee.
We would also be delighted to assist you in opening a foreign bank account. This is an efficient method of diversifying your personal and corporate assets.
What is a trust?
To create a trust means to make an agreement between the Trustor (Settlor, Grantor) and the Trustee. The Trustee is going to manage the assets granted to him/ her by the Trustor. The Trustee shall manage the assets for the benefit of the trust Beneficiary (or Beneficiaries). Trusts come in various types but they are most often created to plan inheritance and/ or protect the assets.
Please find out about the reasons why you should consider creating an offshore trust.
What conditions need to be met when creating a trust?
For the trust to be a legal instrument of asset protection, certain conditions need to be satisfied when the trust is created. This applied both to onshore and offshore jurisdictions. Below we list the main requirements to trusts and if one of these requirements is not satisfied, the trust may be considered illegal and the agreement void. If this is the case, the assets that the Trustor intended to put in trust will continue to be considered the Trustor’s property.
- Legal capability. The person putting his/ her assets in trust has to be in his/ her right mind, first of all. The prospective Trustor needs to be legally capable to make reasonable decisions. He or she has to understand how trusts work, what the legal consequences of putting assets in trust are, and what rights and obligations all the parties to the agreement have.
- Purpose(s) of the trust. The purposes for which the trust is established have to be clear and reasonable. The trust may be created for investment purposes, for business purposes (corporate trust), for inheritance planning purposes, for asset protection purposes, and so on. In any case, the trust’s purposes have to be clearly stated.
- Beneficiaries of the trust. The Trustee has to be able to identify the trust beneficiaries without any trouble. The trust agreement can be considered void if it’s not clear who exactly the trust beneficiaries are.
- Asset management instructions for the Trustee. In case a discretionary trust is created, the Trustee can manage the assets put in trust at his/ her discretion on the condition that he/ she does so in the interest of the trust beneficiaries. In case a non-discretionary trust is created, the asset management instructions issue can become rather intricate. To avoid possible ambiguities that might arise in the course of court proceedings, the scope of the Trustee’s authorities over asset management and profit distribution need to be clearly defined in the Trust Deed.
- The asset management instructions (if applicable) have to be formulated as clearly as possible.
- The assets kept in trust shall be managed in the interest of the trust beneficiaries in any case.
- List of assets put in trust. Whatever assets the Trustor puts in trust (money, real property, works of art, etc.), their list has to be clear and specific. In addition to that, the Trustee has to have an understanding what trust beneficiary can benefit from a certain asset put in trust. Besides, it has to be clear how exactly the trust beneficiary should benefit from the asset (for example, how often the profits will be distributed to him/ her).
Please contact our experts to set up a trust that will suit your purposes in the most efficient way. We will gladly help you create an offshore trust in the most suitable jurisdiction.
Advantages of a trust as an asset protection instrument
Before we pass on to the issue of asset ownership, we would like to point out the main advantages of trusts as asset protection mechanisms. These include the following ones:
- As far as inheritance planning is concerned, creating a trust is a more reliable way of handing down property to your heirs in comparison to making a will. The conditions set out in a last will can be challenged in court. The trust, on the contrary, will have clearly specified beneficiaries and no issues may arise as to who gets what after the trust settlor dies.
- The list of (inheritable) assets put in trust can be unambiguous.
- The conditions on which the beneficiaries can benefit from the assets kept in trust can be clearly defined.
- Assets kept in trust are not taxable until they (or the profits that they generate) are distributed to the trust beneficiaries. The assets are also free from inheritance tax that can be rather large in some countries.
- A trust is an efficient instrument of providing support to people with special needs.
- Trusts are good for protecting the assets from wasteful relatives and heirs who like spending money with both hands.
- Creating a trust is a reliable way of protecting your assets from creditors and court decisions. As the Trustor surrenders ownership of the assets to the trust, the assets do not legally belong to him/ her any longer, which means they cannot be taken away. The trust beneficiaries, in their turn, become the owners of the assets kept in trust only when the assets are distributed to them.
- Trusts are often used to pass assets from one generation to another and then another. Wealthy European families in particular have been using trusts for centuries to ‘optimize’ their inheritance taxes.
Please request a free personal consultation from us if you would like to learn more about the advantages that trusts bring.
Creating a revocable trust in Nevis is a healthy alternative to making a will. Why Nevis? The assets kept in trust are well-protected in the jurisdiction. Any creditor who wants to sue a Nevis-based trust has to make an upfront payment of US$ 100,000 before the legal proceedings can start.
Who is the legal owner of the assets kept in trust?
The answer to the question depends on the trust type (see below). Generally speaking, the trustee is considered the owner of the assets held in the trust. However, he/ she has to manage the assets following the Trustor’s instructions and for the benefit of the trust beneficiaries.
In any case, the legal documents defining the owner of the assets are going to say that the Trustee owns the assets acting in the interest of the trust beneficiaries.
Example: Mister A puts his house in trust and appoints Mister B the trustee. Now the house ownership certificate is going to say that ‘Mister B is the owner of the house as the Trustee of the family trust XYZ’. If Mister A appoints a legal firm the Trustee (which is a common practice), then the firm is going to be listed as the house owner.
Asset ownership in revocable and irrevocable trusts
Trusts come in two types: they can be revocable and irrevocable. The trust type has a direct bearing on the asset ownership issue.
- Revocable trust. A trust is revocable if the Trustor has the freedom of making changes to the list of assets kept in trust (in particular, he/ she can ‘revoke’ the assets from the trust). Besides, the Trustor is free to ‘close’ the trust at any time. Moreover, he or she can change the list of trust beneficiaries. He/ she can list him/ herself among the trust beneficiaries. The Trustor can even be the only beneficiary of his/ her own trust! The amount of freedom that the settlor of a revocable trust enjoys may sound alluring but there are legal and tax consequences that make the option of setting up a revocable trust not so attractive. For legal and tax purposes, the Trustor remains the owner of the assets that he/ she has put in trust. Thus, he/ she has to pay taxes on the assets and they are accessible by creditors if the Trustor make debts and has to pay them back on a court decision.
- Irrevocable trust. A trust is irrevocable if the Trustor has no opportunity to make changes to the list of assets kept in trust. Besides, he/ she cannot change the list of trust beneficiaries. Such lack of freedom may sound intimidating but there are legal and tax consequences that make the option of setting up an irrevocable trust very attractive. If the trust is irrevocable, the Trustor is legally detached from his/ her property. That means that the property cannot be possibly expropriated from him/ her even on a court decision. An irrevocable trust is the most secure asset protection instrument.
Please contact our experts who can help you decide what type of trust you need.
Who controls the assets kept in trust?
The Trustee controls all the assets kept in trust but the issue is not so simple again. The matter is that the Trustor or the (a) trust beneficiary can act as the Trustee. The taxes to pay as well as the level of the asset protection directly depend on who the Trustee is – the Trustor, the Beneficiary, or a third party.
Often, a revocable trust will have the Trustor as the Trustee. This is only natural because the Trustor wants to retain control over the assets that he/ she has put in trust. An irrevocable trust will always have a Trustee who is different from the Trustor. In this case, the Trustee exercises control over the asset while the Trustor does not. At the same time, the Trustee can be bound by certain restrictions set out in the Trust Deed.
Please note that even though the Trustee is the legal owner of the assets in trust, he or she shall manage the assets in the interest of the trust beneficiaries. Even though the Trustor surrenders his/ her property rights, the Trustee does not come into possession of the assets in the full sense of the word. The Trustee cannot do with the assets whatever he/ she pleases: the assets shall be handled in the interests of the trust beneficiaries.
When should you think of creating a trust?
Creating a trust can be a good idea in a number of situations. If you have valuable assets or a considerable amount of money in the bank and there is a chance that you might lose access to some of your assets, you should certainly consider creating a trust. The reasons why you may lose access to your assets can be different. At the current moment, for instance, national states are exchanging sanctions and counter-sanctions. Quite a lot of people have already suffered from the unfavorable international situation that we are facing today.
Besides, there can be more specific reasons why you may want to create a trust and appoint a trustee. These include the following ones:
- You may want to distribute your assets among your heirs while you are still alive and protect them (the heirs) from disagreements, fights, and legal actions.
- You may want to relinquish your property rights in order to relieve yourself from the legal obligations associated with owning the property. This may be related to ownership of real property, a business company, or having a bank account, for example. If this is the case, you can transfer the rights to a third party by creating a trust. An offshore trust can protect your assets from foreign law courts, creditors, and sanctions. If you are interested in setting up an offshore trust, we suggest that you should consider the jurisdictions of Nevis, Belize, and Cook Islands in the first place. These are the most attractive jurisdictions for creating an offshore trust in 2023.
- You can also reduce your tax burden by creating a trust. Assets kept in trust are not taxable until they are distributed to the trust beneficiaries. You can use this advantage for inheritance planning as well as for managing an offshore company via a trust.
- You can establish a trust in a combination with a family office to protect the assets that belong to your family. Our experts will be happy to consult you on this opportunity.
Protect your assets with the help of a trust. Please contact us at any time and we will assist you in creating an offshore trust. We provide complex asset protection services to our clients and give free consultations on various questions related to the issue.