By: BILL BLEVINS
Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.
TRUSTS ARE an increasingly vital legal instrument for British expatriates for wealth management, including asset protection, tax mitigation and estate planning.
Indeed, if you place your assets into an offshore trust, you can enjoy favourable tax concessions while being able to leave your assets to whomever you choose rather than let succession law override your wishes.
No wonder an offshore trust is often referred to as an international will.
A trust is a private legal agreement that involves transferring your assets to ownership by a trustee for the good of the trust’s beneficiaries, which can include you and your family.
To set up a trust you need a settlor (yourself), who is the person who sets up the trust and transfers property into the trust.
You also need a beneficiary or beneficiaries, who is the person or people, company, or charity who benefit from the trust.
This could include you.
You need a trust agreement, a written contract that expresses the understanding between the settlor and trustee, names the beneficiaries, lists the assets placed in the trust and indicates to the trustee where those assets are to be invested.
The trustee is, in effect, the legal custodian of the assets while you select from the outset who is to benefit from the assets passed into their custodianship and in what amounts, as well as at what times.
Most often, a letter of wishes is provided to the trustees to help them understand how you wish the assets distributed at various times and in various circumstances, so that even after your death they are able to make judgements based on your wishes.
A letter of wishes can be changed at any time to vary the previous wishes.
The trustee is guided by the letter of wishes and adheres to it as far as possible, while responsibly acting on behalf of the beneficiaries.
A discretionary trust can provide even greater benefits.
A discretionary trust allows the trustees to appoint additional beneficiaries or to remove existing ones, as well as to distribute the trust’s income and capital to the beneficiaries.
This is normally in accordance with the stated wishes of the settlor but in every case, the trustees must act in the best interests of the beneficiaries.
If you have lived outside of the UK for three tax years and relinquished the UK as your ‘centre of vital interests’ then you may be a UK non-domicile and able to avoid UK inheritance tax (IHT) by placing your assets into an offshore discretionary trust.
Assets held in a discretionary trust will remain free of IHT for the lifetime of the trust and can ‘tumble down’ generations of beneficiaries, giving them no UK IHT liability.
This type of trust is also known as a golden trust for obvious reasons.
Many types of assets can be held in a trust, usually equities and bonds, bank deposits, life assurance policies and investment portfolios.
If you placed a personal portfolio bond (single premium insurance bond designed to hold your own choice of investment assets), for example, in a discretionary trust there would be no tax to pay on the accumulation of income or gains during lifetime, a large reduction in tax on withdrawals for income purposes and even more tax savings at death.
Asset Protection: Your assets are protected from political and economic changes, exchange control restrictions, divorce, bankruptcy, long term health care expenses and unexpected creditors.
Confidentiality: As a trust is a private agreement, the settlor can maintain anonymity.
This also means that the beneficiaries’ names can be kept confidential and that no individual or tax authority can obtain their names.
Succession law avoidance: Assets in a trust are removed from the succession laws in countries where they exist.
Tax advantages: Trusts are very favourable tax instruments, often invaluable in avoiding inheritance tax, income tax, capital gains, and wealth tax.
As the assets belong to the trustee and outside the estate of the settlor, they may not be taxable.
Probate avoidance: As your assets are held in the ownership of the trustee, probate is not required.
On the death of the settlor, assets can be held or distributed to the beneficiaries according to the trust deed and letter of wishes without further delay.
Ensuring beneficiaries: The settlor can leave assets to whomever he wishes without the named beneficiaries being contested by family members, as is possible with a standard UK will.
Consolidation: If you hold assets in more than one country, they can be consolidated into the trust.
Tailor-made: Each trust can be set up to meet you and your family’s specific requirements.
Today, more and more people are finding that trusts are easily available to them and invaluable in managing their wealth.
Trusts can be set up relatively quickly and it is surprisingly inexpensive to do so.
When choosing your trustees, it is advisable to
employ a professional company that has a reputable history of operating trusts.
Do your research, ask the usual questions and be sure that the company has full trustee indemnity insurance.
The trust company should be based in a country other than the one where you are living, preferably one which recognises trusts, is well regulated and has a politically stable environment.