Trusts are a powerful tax-planning tool but they also have many other uses that are of equal if not greater importance. A properly drafted and managed trust can be advantageous for any or all of the following:
Asset Protection
Trusts can be one of the most effective ways to protect assets, as assets transferred to a trust no longer form part of the Settlor’s property. This means the assets cannot normally be seized if the Settlor gets into financial difficulties, for example, as a result of bankruptcy or divorce.
The rules of many onshore jurisdictions may, in certain circumstances, order the trust assets to be transferred back to the Settlor. This could arise if a creditor is able to prove that the Settlor transferred assets into trust with the intention of avoiding a current or future liability, or if the liability arose within a statutory period after the transfer into trust.
To overcome this problem many offshore jurisdictions have enacted legislation creating the 'Asset Protection Trust'. This protects assets transferred into trust as long as the Settlor is solvent at the time of the transfer and does not become insolvent as a result of it. For maximum security it is important to set up a trust in an offshore jurisdiction that has enacted this type of legislation.
Tax Planning
A correctly structured and administered trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate duty.
Avoiding the Expense and Delays of Probate
In most common law jurisdictions an individual’s estate must go through the probate procedure. This can cause delay, expense, publicity and upheaval. By establishing a trust, probate can be avoided. Death has no effect on the trust property, which will continue to be held and managed in confidence by the Trustee.
Confidentiality
Proving a will is a public procedure and therefore entirely unsuitable for those wishing to keep details of their assets confidential. The only legal alternative form of asset transfer is via a trust. This would generally save estate duty and keep the trust assets confidential.
Avoiding Forced Heirship
Forced heirship is a particular problem in continental Europe and other civil law jurisdictions, as well as in countries of Islamic tradition. A trust can be used to overcome this problem if care is taken to select a jurisdiction for the trust that has an appropriate trust law.
Estate Planning
Many people prefer to make more complex arrangements for the distribution of their assets. These might include providing a source of income for a widow or making provision for the education of children. A trust is probably the most satisfactory and flexible way to make arrangements of this kind.
Protecting the weak
A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged, or persons suffering from certain illnesses.
Preserving Family Assets
Preserving family assets, or increasing them, is often a motive for setting up a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not divided up amongst the heirs, but retained as one fund. The fund can then accumulate further with provision for payments to members of the family as necessary, while preserving some assets for later generations.
Continuing a Family Business
A person who has built up a business will often want to ensure that it continues after their death. If the company shares are transferred into a trust prior to death, the unnecessary liquidation of the family business can be prevented.
In a situation where family members have little business experience, the Trustees could be instructed to retain the shares, keep the company running, and provide payment to members of the family from dividend income. The terms of the trust will ensure that the individual’s wishes are observed.
Gaining flexibility
A discretionary trust can provide a structure that is capable of rapid change as circumstances demand.
lan Le Breton, Gibraltar Magazine, January 2012
The advantage of a Trust owning your property
John Hanafin, CEO MIDDLE EAST, November 2011
QNUPS: the secret to escaping inheritance tax?
Howard Bilton, The Telegraph, October 2011