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COMMON LAW TRUSTS
.What
is a Trust? Is this the best choice for asset protection and tax
benefits? A brief history of the common law trust and formation
of a trust.
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COMMON LAW TRUSTS
.What
is a Trust? Is this the best choice for asset protection and tax
benefits? A brief history of the common law trust and formation
of a trust.
|
|
You may have often have heard the term ~ Asset Protection Trust or Offshore Trust ~
but what does having an any kind of "Trust" vehicle really mean?
Is an Offshore Trust something
I need or should consider as part of an overall plan to protect my assets
and reduce my tax liabilities? .
What
exactly is a Trust?
.. The concept of a Trust is one
that has it's modern day roots in English Common Law. As such, the
Trust vehicle can be found as a recognized entity
in almost all English speaking countries. The concept or origin of
a Trust actually dates back to early English history, when concerns about
inheritance rights were an issue. The trust concept is most apparent,
when you consider the period of time when noblemen and knights were sent
off to war, or to fight in the crusades. Land holdings or property
was given to a faithful friend or third party, to be held "in trust" for
the intended beneficiary or recipient. If the original owner died
in battle, or was somehow incapacitated, the trustee ( the friend now holding
or managing the property) could make sure that the owner's wishes were
carried out as he would have wanted them to be. This is the basic
premise behind that trust arrangement.
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In today's more modern world,
a Trust is basically a private agreement between parties. Trust structures
are created and used to place assets under the ownership of a separate
legal entity, thus distancing the former owner and permitting certain types
of protection and tax advantages. In short, if someone gives their
property to another party to hold, safeguard or manage for them ~ that
is the essence of a trust arrangement in today's definition.
If you live in the US, you
can certainly form a domestic Trust, but for maximum protection and tax
benefits, a structure that is created in a tax haven ~ is preferable.
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. Quite simply, if one is concerned about
tax issues, or protection from legal attack (creditors or lawsuit), the
formation of a common law trust might be one possibility to consider.
In truth, it is not our favorite structure, or one that we suggest to most
clients (read our article About
Tax Haven Jurisidcitons).
The purpose of this article, is to highlight some of the benefits that
may be available to someone considering such a structure. You may
also wish to read our other article, a Civil
Law Alternative to the "Asset Protection" or "Common Law"
trust.
. Another key advantage to the trust structure is the benefits achieved when planning for estate taxes or transfer of assets to heirs. By maintaining a trust structure in an offshore tax haven, one has the opportunity to pass along trust assets free from inheritance taxes. In addition, if one is concerned that a child may squander the inheritance, the trust vehicle provides a mechanism where not only there are tax benefits, but also controls as to how the beneficiaries are to obtain funds. . Trusts also provide another advantage. Should you become injured or incapacitated to such a point that you have difficulties physically or mentally, you have some security knowing that a trust third party is capable of assessing you with your affairs (specifically assets or property management) . . A
Settler or Grantor: Most
likely, this would be you. That is to say, the person or entity placing
property or assets inside the trust. .. A
Trustee: The person, persons, company, bank, attorney or
whom-ever has been assigned with the task of managing and safeguarding
trust assets. In reality, the trustee could be either a natural person
or a company. Regardless of who is named as the trustee, it is that
entities responsibility to manage the trust assets sensibly and to make
sure that the wishes of the grantor are carried out. . The Trust Deed: The document you use to establish a trust entity is usually referred to as a deed. This trust deed or agreement normally indicates the beneficiaries, the trustee, the role of the trustee and what assets are included in the trust itself. . ..
The Beneficiary: This is the person, persons, or entity that are entitled to receive any income generated from trust assets and, if so stipulated, the individuals who may receive assets upon the settlers or grantors death. . There are a number of Trusts
that carry a variety of confusing names, such as Grantor Trust, Discretionary
Trust, Asset protection Trust ~ and the list goes on. Rather than attempting
to memorize the names or terms, the following are some key points you should
be aware of when deciding to form a trust structure.
. Most countries, such as the US, which honor trusts ~ have some specific litmus tests or guidelines in order to determine if a trust can be treated as a tax free vehicle or offers true protection from creditors. Point # 1 - In order for a trust to gain certain types of tax or creditor protection, it must be irrevocable. This simply means once you place your assets in a trust, you cannot ask that those assets be returned. Point # 2 - Many tax
authorities and courts will look at a trust to determine if you, the grantor
or settler, have any control of the trust assets, or are receiving the
trust income. If that is the case, they certainly may decide to assess
tax liabilities because your are still benefiting or controlling
the assets. This has been the case, in the past, with US domestic
trusts ~ whereby courts have invaded trust assets or whereby the Internal
Revenue has claimed the right to assess taxes even though assets are physically
domiciled within a trust entity.
. . . Trust assets should also
be physically moved or domiciled someplace other than where you live.
If one establishes a trust in Belize, for example, but all of the trust
assets are readily available for seizure in your home country or place
of residence, in reality ~ you would have accomplished very little in the
way of asset protection.
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. Consider the use of another
offshore structure as the beneficiary or recipient of trust income.
Ideally, one may even want to use a separate jurisdiction for this purpose.
This further separates the grantor or settler as being a named participant
that is benefiting directly from trust income.
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