Offshore trusts are complicated legal entities that take away control of a persons assets. They are expensive and, unless you want a hostile lawyer or tax authority challenging them, they have to be set up in such a way that even you cannot challenge them if you change your mind afterwards.

Do not even think about them without a full understanding of what they involve.

The key features of an offshore trust are:
It is a distinct legal entity capable of owning assets
A trust is not capable of being owned
The ownership of trust assets will be sited in an offshore centre rather than in a hazardous or tax-unfriendly jurisdiction that you may be planning to move your interests.

Offshore trusts are commonly used for succession planning, asset administration and protection, and the achievement of tax-efficiency.

The settlor is the person who sets up the trust and transfers assets into it. Trustees are the individuals appointed to manage the trust assets with reference to the trust deed- the legal document establishing the trust and stating its purpose-for the benefit of one or more beneficiaries.

There may be a letter of wishes in which the settlor explains what he wanted to achieve by setting up the trust, but this will not be binding on the trustees. The settlor can be a beneficiary of the trust, but we get into very difficult territory if the settlor wants to be a trustee of his own trust. This is because transferring assets into a trust must involve giving up control as well as ownership of those assets. If you control assets, they remain attached to you for such purposes as alimony, tax and or legal attack.

Trust law began in the UK and it is advisable to use an offshore trust centre that has historical links to the British legal system. The big trust centres such as Jersey, Guernsey and the Isle of Man each regulate their trust and company formation sectors.

If you are thinking of using offshore trusts to achieve tax-efficiency, bear in mind that some onshore jurisdictions apply "look through" provisions whereby a trust or other structure can be disregarded if it achieves an inappropriate tax advantage.

But despite the complications, there are still numerous individuals for whom the potential benefits of offshore trusts vastly outweigh any downside.

These tend to be individuals for whom ongoing trustee and management fees of around £5,000 per annum would not be a lot of money.

While basic trust structures are widely used-for example by life companies putting a wrapper around the assets in a policy and thus separating them from the policy-holder - such individuals tend to be better suited by personally tailored offshore trusts written to achieve specific purposes.

WHO NEEDS OFFSHORE TRUSTS?

For wealth management purposes any individual who needs to break the link of ownership between him and an asset or assets. For example, someone moving to a jurisdiction where the tax regime is unfavourable might seek to protect his assets by first transferring them to an offshore trust prior to making the move.

Where a jurisdiction imposes "forced heirship" rules dictating that a deceased person's estate is distributed in set proportions rather than in accordance with their wishes then a trust will overcome this problem.

"A trust is almost a living will. The great thing about a trust is that you can put in place the arrangements for after your death during your lifetime."

The requirement to give up ownership and control can be problematic for many people. Given that the settlor cannot become a trustee of his own assets in a trust, one possible solution might be to find friendly trustees. Family members may be trustees and in that way the family retains influence without raising issues of control.

Offshore trusts are very useful in situations where taking control from the family and giving it to professional trustees is regarded as a good thing. A person leaving his assets to a next generation of spendthrifts might favour having his assets administered by trustees.

Having professional trustees who have discretion to interpret the trust deed can be very important where assets are left for the benefit of numerous difficult and opinionated family members with varying needs and demands.

Trusts can be anonymous. Unlike a company, trust records are not publicly disclosed. If an individual is intent on meeting his worldwide tax obligations, it is quite possible to use a trust for its flexibility, anonymity, possible tax advantages and yet be in a position to disclose everything to the tax authorities and sleep easy at night.

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