A trust is a structure that becomes the legal owner of the funds or other assets you transfer to it instead of you. However, if you appoint yourself a trust beneficiary in accordance with the Trust Deed, you can still freely dispose of your property. In other words, you have all the benefits that the property can give you, but you do not legally own it in the eyes of the creditors or the court of law. As a result, they cannot take it away from you even if they intend to.
Where to set up a trust?
A trust established in the UK, for instance, will be absolutely different from the one formed in Nevis. Every country offers different conditions and degrees of protection. While the laws in some countries are more benevolent to trust formation or even create all conditions to stimulate this process, other jurisdictions frown on these structures. That’s why the choice of a jurisdiction with a suitable legal framework is of utmost importance.
You can read our article on the best jurisdictions to set up a trust and find advisors on our portal who will help you choose a suitable option at a free session.
Here are some aspects to think about when you choose a country where your trust will be formed:
- Think of the main purposes of establishing a trust and study the laws of the jurisdiction you want to choose to see whether they match your purposes.
- What are the assets you are going to put under the trust management? If this is real estate, for example, it will be subject to the laws of the country where it is located – and at the same time treated as the property owned by the trust. It is better to discuss all the implications with a specialist.
- What is the overall cost of the assets that will be transferred to your offshore trust?
- If you need strong protection from creditors, you definitely need to tell the advisor about it. The choice may depend on your country of residence: for example, US citizens are recommended to set up trusts in the Cook Islands or Belize as the laws in these jurisdictions are adapted to the US legislation.
- The banks where you keep your funds may also have an impact on the choice of jurisdiction.
Sometimes you are unsure of your priorities, and this is where a consultant can help you by offering universal solutions. For example, Belize and Nevis will provide the strongest protection imaginable from the outside creditors due to the peculiarities of their legal framework: they do not recognize the decisions made by foreign courts, demand that the proceedings be started all over again – this time in a local court, and want the creditor to pay a considerable sum in advance. Creditors rarely go so far as to overcome these barriers, which leaves your property intact.
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How does trust work?
Most people want to know the trust structure in detail before they venture into entrusting their capital. How does it happen that you dispose of your wealth without being its actual owner?
A trust is a game with three players. The trust founder (also called the trustor or settlor) transfers its capital to the trust and appoints the person that will manage it (the trustee, usually an attorney or a legal firm). The wealth is managed to bring the most benefit to the trust beneficiaries appointed according to the Trust Deed. The trust settlor and the trust beneficiary can be one person, but not in all jurisdictions.
A trust can be revocable or irrevocable, and it means that the guidelines according to which the assets are managed can or cannot be modified without the consent of trust beneficiaries.
The main thing is that the trustee cannot have more authority than is set out in the Trust Deed, that’s why you remain in full control of your assets without being mentioned as their legal owner.
Risks
Setting up a trust can be associated with risks if you choose the wrong jurisdiction or an unreliable trustee. We help our customers avoid these mistakes, though. Read our article on the pros and cons of setting an offshore trust and book a session with an expert to get qualified help.
Meanwhile, let’s talk about the obvious risks realized when you choose the wrong jurisdiction. If you decide to set up a trust in a country where common law is practiced, like the UK or the USA, you may encounter the following problems:
- There is no protection against a court decision: if it is made against the trust settlor (or if the trust settlor is declared bankrupt), the assets will be confiscated despite the fact they are held by the trust.
- You are no longer the legal owner of the assets transferred to an irrevocable trust. If something happens in your life later on, you may regret this decision.
- These are the countries where the trust settlor and the trust beneficiary should be different persons. If this is one and the same person, he or she is considered the legal owner of the funds, and there is no point in setting up such a trust as it gives absolutely no protection.
Benefits
While the risks can be easily avoided by making an informed decision with the consultant’s help, the trust really brings a lot of benefits that are hard to overestimate:
- A trust is a much more flexible structure for inheritance planning than an ordinary will.
- You can save on taxes (especially if you combine a trust with an LLC).
- The funds kept in the trust can be used to support your incapable relatives.
- A trust is an excellent structure if you want to limit excessive spending.
- If you choose the right jurisdiction, your capital will enjoy almost absolute protection from creditors.
- A divorce may happen in each person’s life. The wealth you put in the trust will be protected from your ex-spouse.
- A trust will protect you from international sanctions.
If you have any questions regarding the benefits of the trust, do not hesitate to use the above links and read much more on trusts on our portal. If you have no time to look for answers, just book a session with our consultant to get all the information you need.
Save your time – set up a trust with professional help!