At its simplest, a trust is an arrangement whereby property or assets are transferred from one person (the ‘settlor’) to another person (the ‘trustee’) to hold the property for the benefit of a specified list or class of persons (the ‘beneficiaries’). A trust can be created solely by verbal agreement but it is usual for a written document (the ‘trust deed’) to be prepared. This evidences the creation of the trust, sets out the terms and conditions upon which the trustees hold the trust assets and outlines the rights of the beneficiaries.
The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the property, the beneficiaries.
It is vital that the trustee remains independent and exercises proper control over the trust property. A trust may be deemed to be invalid if the settlor continues to exercise power over the trust assets by retaining benefit or control, or by giving directions to the trustees.
Trusts in Mauritius are governed by the Trusts Act 2001. A trust can only be created by an instrument in writing, which should set out its object, subject, intention and the duties and powers of the trustees. A trust can be formed by a resident or non-resident of Mauritius.
Confidentiality – There is no register of trusts in Mauritius. Anti-money laundering regulations require trustees to know the identities of the settlor and the ultimate beneficiaries of a trust, but disclosure to third parties is only required in very particular circumstances and must always be accompanied by a court order.
Taxation – As a general rule, the income of Mauritius trusts would be subject to Mauritius income tax at the flat rate of 15%. However, if the trust has been settled by a non-resident settlor and has only non-resident beneficiaries or the purpose of the trust is carried on outside of Mauritius, the trustee can elect to file a declaration of non-residence with the Mauritius Revenue Authority during an income year, in order for the trust to be exempt from income tax in respect of that income year. Distributions from Mauritius trusts are in all instances exempt from Mauritius tax in the hands of the beneficiaries.
To be tax resident in Mauritius, a trust has to apply for a Tax Residence Certificate with the Commissioner of Income Tax. A resident trust may benefit from Mauritius double tax treaties.
Asset Protection – Section 11 (4) of the Trusts Act provides that the court shall not invalidate a trust after a period of two years from the date of the transfer or disposal of the assets to the trust. Even though it is not mandatory for trusts to be registered in Mauritius, it is possible for the trust deed to be registered with the Registrar General, in order to have a “date certaine”.
Section 11 (5) of the Act also provides that the Court shall not, where the proper law of a trust is Mauritius, recognise the validity of any claim against the trust property under the law of
another jurisdiction or the order of a court of another jurisdiction in respect of the personal and proprietary consequences of marriage or the dissolution of marriage, succession rights or the claim of creditors in an insolvency.
Protector – The Trusts Act permits the appointment of a ‘protector’, who owes fiduciary duty to the beneficial owners. Unless otherwise provided in the trust deed, a protector can remove the trustee and appoint new or additional trustees.
Trusts are inherently flexible and can provide the following advantages:
- Tax Planning – A properly established trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate duty.
- Avoiding Probate – In common law jurisdictions the need to obtain a grant of representation (probate or letters of administration) before a deceased’s estate can be wound up and distributed can cause delay, expense, unwanted publicity and upheaval.
- Avoiding Forced Heirship – Many jurisdictions have incorporated ‘forced heirship’ provisions into their succession laws, which restrict an individual’s freedom to choose how their property is divided on their death and confer an automatic entitlement on certain individuals to a portion of the deceased’s estate. These individuals are known as ‘protected heirs’ and typically include the surviving spouse, children and / or other relations of the deceased. It is a particular feature of civil law jurisdictions, as well as in countries of Islamic tradition. A trust can be used to overcome forced heirship claims.
- Estate Planning – Many settlors prefer to make complex arrangements for the distribution of their assets. They may wish to provide a source of income for a spouse or make provision for the education of children. A trust is a very convenient and flexible method of making such arrangements.
- 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 against mismanagement or spendthrifts is a common motivation for establishing a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not dissipated or divided up but is preserved as one fund. The fund can then accumulate further with provision for payments to members of the family as necessary, preserving some assets for later generations.
- Continuing a Family Business – A settlor may wish to ensure that a business will continue after their death. Transferring the company shares into a trust prior to death can prevent an unnecessary liquidation. If family members have little business experience, the trustees can be instructed to retain the shares, oversee the running of the company running and provide payment to members of the family from dividend income.
- Flexibility – Under the provisions of a discretionary trust, the trustees are given powers to determine the beneficiaries of both the capital and income of the trust, and the amounts that they are to receive. The settlor will generally given the trustees guidance as to how they should administer the trust, both during the settlor’s lifetime and after death, through a ‘letter of wishes’. This letter can be varied from time to time during the settlor’s lifetime to meet changing circumstances. A discretionary trust can also include extensive investment powers to meet the requirements of international clients and it can hold all manner of assets. A discretionary trust can therefore provide a structure that is capable of rapid change as circumstances demand.
Sovereign Trust (Mauritius) Limited is fully licensed by the FSC to act as professional trustee in Mauritius.