By BILL BLEVINS [email protected]
Bill Blevins is the 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.
It is estimated that approximately half the independent wealth in the world is held in one form of trust structure or another.
Trusts can provide tax efficiency during your lifetime and also when capital and income is transferred to the next generation. However, while tax mitigation is often a key element in setting up a trust, they are also frequently used in financial planning for a variety of other important reasons.
Would a trust be appropriate for you and what are the key elements you should be aware of when considering setting up a trust?
A trust is a legal relationship which exists between the settler, the beneficiaries and the trustees. A trust is treated as a separate and continuing body of persons and different tax treatment is afforded to trusts than to individuals.
A trust is created when a person (the “settler”) transfers assets to two or more people or a company (the “trustees”) with instructions that the assets are to be held for the benefit of one or more individuals (the “beneficiaries”). An agreement (the “trust deed”) is prepared which sets out the duties and powers of the various parties to the trust.
The settler can also specify how they want their assets to be handled in a “letter of wishes”. Though not legally binding upon the trustees, the wishes are almost always followed by the trustees – unless circumstances change and then their duty is to do the very best they can for the beneficiaries. Trustees are obliged by law to administer the trust so as to safeguard the best interests of the beneficiaries.
The trust deed states who the initial beneficiaries are, which may include yourself, your spouse, children, grandchildren, any future unborn children or anyone else you wish, including charities.
The trustees are normally professional trustees or a corporate entity managed by a professional firm authorised to act as a trustee.
You can choose which of your assets to place in the trust, including equities and bonds, investment portfolios, bank deposits, life assurance policies, property and most other assets.
Advantages of having a trust
Protection of capital – Trusts ensure that your assets are only distributed to your intended beneficiaries. The assets are protected from creditors (provided it was not set up to defraud them), bankruptcy, business risk and dissolution of marriage.
Avoiding inheritance taxes – A trust can often help you lower or avoid inheritance taxes.
Favourable tax treatment – Since the assets in a trust are outside your estate, they may not be taxable.
Avoiding forced heirship laws – Many countries have laws which determine how someone’s estate must be distributed on his death, regardless of his wishes. A trust can overcome this problem.
Continuity on death – Probate can be a lengthy process, delaying your estate’s distribution. If it is in trust there are no delays as the trustees already have possession of the assets and can continue to hold them or distribute them to the beneficiaries according to your letter of wishes.
Protecting and helping family members – You can set your trust up to provide for your spouse and other dependents after your death, especially those who may not be able to manage their own financial affairs.
Confidentiality – A trust does not need to be registered and the settler does not have to be openly connected with it.
Tailoring – Trusts can be set up to meet your family’s specific needs.
Consolidation – If you own assets throughout the world, they can be consolidated for eventual distribution in one legal document.
Choosing your trustees
Since the trustees have so much control over your assets, it is essential to only appoint reliable trustees who are located in a well regulated jurisdiction.
Many jurisdictions offer offshore trust services, however you need to ensure that it is secure and offers the right type of trust to suit your circumstances. Ensure that the jurisdiction:
• is politically and economically secure
• Has a well established legal system including codified trust law
• offers confidentiality
• will not charge tax on a properly structured trust
• is easy to contact (eg, has a decent telecommunications system, a similar time zone, no language barriers etc)
When it comes to choosing the trustee company, you should obviously make sure that it is regulated so that you have recourse should something go wrong. You would expect the trustees to have many years experience providing trusts to people in similar circumstances to you. Asking how many trusts they act as corporate trustees for will give you a good idea of their experience.
Modern trust deeds can be tailored to meet your specific requirements, but as they are varied and wide ranging in their application, you must always seek expert advice from a wealth management company like Blevins Franks before establishing a trust, to ensure it is the most appropriate type for your circumstances and objectives.
While trusts can and do provide a range of benefits, it may also be possible that you do not actually need a trust to achieve your objectives and that you will not gain as much as you may think by having one.
Your wealth manager should review your whole financial planning and establish what your aims are and when and where the assets will be used (both during your lifetime and once distributed to your chosen heirs), before advising on whether a trust will be advantageous for you.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com