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Trust have existed for more
than 500 years and the last
century has seen the emergence
of different forms of trusts
ranging from charitable trusts,
to asset protection trust to
discretionary trust. Trusts
are set up for different reasons
but the most common ones are
for assets protection and privacy
goals.
A popular planning option to
avoid concerns over litigation
is to set up an asset protection
or discretionary Trust. In this
event, assets are settled into
the discretionary trust by the
settlor. These assets are then
legally regarded as the assets
held in Trust and owned by the
Trustee (which is normally a
professional trust company).
In the event the settlor faces
legal proceedings by creditors,
the assets held in the Trust
cannot be used to settle his
debts as they are not legally
his assets.
THE USES OF OFFSHORE
TRUSTS
The wealthy have used the trust
approach for many years. There
are numerous ways to use an
offshore trust seriously and
effectively. It depends on your
individual needs and your situations.
Some of the uses are:
· As a tax-planning
tool - Because the
settlor gives up legal ownership
of the assets it may be possible
to avoid or defer capital or
gift taxes, death duties, high
income tax rates, etc.
· Asset protection
- The risks of holding
assets in highly volatile and
politically unstable areas of
the world (including the introduction
of exchange control regulations
and the "freezing"
of assets held in those areas)
can be avoided. It is essential
that the trust is set up when
there were no claims or potential
claims known to the settlor
this would enable you to protect
personal assets from creditors,
professional negligence, divorce
settlement, product liability
and similar claims legally.
· Substitutes
for a will - Some countries
have punitive legislation dictating
the manner of wealth distribution
on the death of the owner. If
the legal requirements conflict
with the wishes of the owner
of those assets fixed succession
or forced heirship rules of
those countries can be avoided
by the transfer assets into
an offshore trust.
· Make a secret
provision - Provision
can be made, for example, for
an out-of-wedlock child, for
charitable causes or even a
lover.
· To establish
a mutual (or Unit Trust) fund
-The trustee can buy holdings
in several companies and invite
the public to buy "units"
or shares in the trust fund.
· Preservation
of family wealth -
Assets can be set aside for
the future benefit of family
members while restricting the
beneficiaries' access, until
such a time that it is appropriate
that those assets be distributed.
For example, when a child becomes
of age to hold title to property
or to protect the assets from
being dissipated by a young
wayward family member.
· Confidentiality
of financial affairs
- There is no requirement to
register or record Trust Deeds
with any authorities in many
offshore jurisdictions. Avoiding
any entry in the public records.
· Avoiding Probate
- If you are from a civil law
country with forced heirship
requirements, a trust can keep
assets out of the local probate
system, since the trust and
its assets are governed by the
laws of the country in which
the trust is located. Trusts
especially if established for
several years, is less likely
to be challenged legally compared
to a will, which may be more
easily contested during probate.
The trust is an obvious defense
to the charge of mental incompetence
often used to attack the validity
of a will, especially ones written
late in life.
Discretionary Trusts
As the name suggests, the trustee
is given certain discretionary
powers regarding the distribution
and/or allocation of the income
(and ultimately the capital)
to the beneficiaries. When establishing
a discretionary trust, the settlor
decides exactly how wide the
powers of the trustee will be.
These powers are set out in
the trust deed. The trustee
can be given absolute discretion
as to which beneficiaries will
benefit, to what extent and
on what occasions. This absolute
discretion to appoint, at some
future time, beneficiaries not
even named in the trust deed
can be very useful when establishing
a trust structure providing
extra confidentiality.
Once you have established
your offshore trust it can be
used to:
· Conduct a business;
· Hold title to and
invest in real estate, cash,
stocks, bonds, negotiable instruments
and all sorts of personal property;
· Take care of minors
or the elderly;
· Pay medical, educational
or other expenses;
· Provide financial
support in retirement, marriage
or divorce;
· Assist in the execution
of a premarital agreement; and
· Serve as a major avenue
of avoidance for the muddle
of probate and the burden of
inheritance taxes.
In addition your trust can
also be used for your international
investment activities. Your
offshore trustee would take
care of the investments and
paper work, while you make the
recommendations. In this way,
you benefit from the world's
best investment opportunities,
without worrying about boundaries
or conflicting laws. With the
use of a foreign trust in an
offshore jurisdiction you are
able to diversify your investments
and assets international.
Trust and GBC 1 in
Mauritius
Global Business Companies ("GBC")
are the term used for offshore
companies that are set up in
Mauritius. Two types of GBCs’
can be set up namely GBC 1 and
GBC 2. GBC 1 benefits from the
double taxation avoidance treaty
network of Mauritius. Setting
up a GBC allows the shareholder
to retain control of his assets
as opposed to a Trust whereby
the assets are settled into
Trust and legal control lost.
To add another layer of safety,
the GBC can be set up as a limited
liability company (LLC), which
can be used either independently
or in conjunction with an offshore
trust. The GBC will have minimum
assets and will be responsible
for the operational side of
the investor affairs. Profits
realized by the LLC are distributed
as dividends to the shareholder
which can be a Trust. In the
event of legal action by creditors,
the liability of the investor
is limited to the assets held
in the LLC.
The LLC is able to provide
what many clients need in an
offshore structure: corporate
personality, limited liability,
minimal administrative requirements,
asset protection, no loss of
control and minimal disclosure
(depending on the type of GBC
that is set up)
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