What is an Offshore Trust?
An offshore trust is an estate planning tool that will grant legal jurisdiction to an individual outside of their place of residence. The individual achieves this by establishing a Trust in another country. The assets are then transferred overseas and placed under the management of Trustees and other types of estate plan administrators. The trustees and managers of the Overseas Trust are not nationals of the host country.
In short, an Offshore Trust is simply a Trust created in a foreign country. The Trust Deed provides instructions on how to use and distribute the assets placed in the Offshore Trust. The person establishing the Overseas Trust may also claim to be the beneficiary.
Individuals who have high-value assets, and are therefore at higher risk, can use offshore asset protection trusts to better protect themselves. This implies that moving your assets abroad may benefit some individuals.
What Are the Benefits of an Offshore Trust?
There are three main benefits of establishing an Offshore Trust.
This is the first important benefit.
Offshore trusts are often referred to as ‘Offshore Asset Protection Trusts.’ It got this name precisely because it can provide an individual with an additional layer of protection. For high net worth individuals, the likelihood of creditor claims and other legal actions increases. This is often because your level of wealth outweighs the cost of litigation against certain entities. By moving your assets abroad, litigation costs will increase significantly. This makes it significantly harder for creditors and other entities to pursue you.
The second benefit involves tax and liability planning. While setting up an Offshore Trust will not completely eliminate tax liability, it can certainly reduce the burden. Reducing your tax burden can create favorable benefits for your overall estate plan.
Last but not least, creating an offshore trust can give you certain freedoms.
To summarize, here are the 3 main benefits of offshore trusts:
Add an extra layer of protection to your property.
Can reduce your overall tax burden.
Provides the freedom to make investments abroad and set up foreign bank accounts.
Deciding to Form an Offshore Asset Protection Trust
First, the settlor has made the decision to form the trust. Then, the settlor must then select the type of trust he wishes to form. This includes its duration, which can be perpetual. The settlor will also (with our help) make important decisions on defining details. These details include deciding whether the trust is revocable or not. They include whether the trust will be discretionary or not. Moreover, it will specify the rights, duties, obligations, and expectations of the trustee.
Now let’s address the revocable or irrevocable trust concept. Much as their names imply, a revocable trust can be revoked at any time with the terms for this outlined by the settlor. Alternatively, they can have a predetermined lifespan (or can last indefinitely) with no provisions for revocability. That is, it may or may not conclude depending on the terms of its creation as specified in the trust deed.
By contrast, a discretionary trust can fall under either category, and is defined as a trust with much built-in flexibility with respect to how the trustee handles distributions to beneficiaries, and even provides, in some instances, the trustee with rights to appoint or add beneficiaries. This relinquishes a lot of authority over the offshore trust to a trustee, however, and highlights the importance of the careful selection of a competent, well-reputed trustee or trust holding company with good references, a worthy reputation, and the experience necessary to successfully and faithfully fulfill and honor the terms of the trust.
How Do I Set Up an Offshore Trust?
The process of setting up an Overseas Trust is not much different from setting up a Domestic Trust. However, you are in for a sometimes challenging process of choosing the right jurisdiction and finding a trustworthy offshore Trustee.
Below are the steps to set up an Offshore Trust. You may find it helpful to work with an experienced Trust attorney who can help you through each of the following steps:
Research and choose a country to establish your Overseas Trust.
Hire a foreign entity as your Trustee. A practical option would be an offshore Trust company based in the country where the Trust would be established. You can also work with a Trust company or asset protection attorney to help you find a trustworthy offshore Trust company and location.
Determine the structure of the Overseas Trust. Working with your domestic estate planning attorney can be helpful during these planning stages.
Cooperate with your chosen Foreign Trust company’s procedures, such as conducting financial background checks.
Draft and finalize your Offshore Trust Agreement.
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