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 â€“ Because the settler 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 â€“ The risks of holding assets in highly volatile and politically unstable areas of the world (including the introduction of exchange control regulations and the â€œfreezingâ€ 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 settler this would enable you to protect personal assets from creditors, professional negligence, divorce settlement, product liability and similar claims legally.
Substitutes for a will â€“ 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 heir ship rules of those countries can be avoided by the transfer assets into an offshore trust.
Make a secret provision â€“ 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 â€œunitsâ€ or shares in the trust fund.
Preservation of family wealth â€“ Assets can be set aside for the future benefit of family members while restricting the beneficiariesâ€™ 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 â€“ 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 â€“ If you are from a civil law country with forced heir ship 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.
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 settler 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.
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 worldâ€™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 (â€œGBCâ€) are the term used for offshore companies that are set up in Mauritius. Two types of GBCsâ€™ 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)