Trusts

Trusts are an important instrument for wealth management. At Portcullis TrustNet we work with you and your clients to identify the particular type of trust and its proper law and place of administration most appropriate to the needs, circumstances and ultimate objectives of the client.

• Some clients are concerned with ensuring that future generations of their family will be properly and securely provided for from a pool of assets to be administered with or without input from family members and advisers.
• Others are focused on properly ring fencing their personal estate from risks and liabilities that may arise from business and commercial activities.
• Some wish to separate the legal and beneficial ownership of assets for legitimate and transparent tax planning reasons.
• Others wish to put company shares or other investment assets into trust for accounting purposes.

In some countries issues of security and risk make it important to place assets in trusted hands to be managed with discretion and in confidence on their behalf.

We are able to provide the full range of services required to establish and maintain a trust in a variety of jurisdictions around the world. These services include:

• assistance in selecting the most appropriate type of trust
  • fixed trust
  • discretionary trust
  • purpose trust
  • VISTA trust
  • asset protection trust
  • pre-migration trust
• arrangements for drafting trust deeds
• appointments of and acting as trustee and co-trustee
• protector and enforcers
• provision of trustee services
• preparation of accounts
• opening bank accounts
• custody of letter of wishes
• making distributions
• liaison with beneficiaries, investment managers and advisers
• convening of meetings and preparation of minutes

We encourage our clients and their professional advisors (tax, accounting, investment or legal) to approach us to develop long-term relationships that reflect the sensitivity and importance of the client's objectives.

Our full ranges of services are offered at competitive rates, which are clearly established at the outset of our engagement.

Mechanics of the Trust
A trust is best understood as a relationship where property is transferred from one person (the Settlor) to another person or corporate body (the Trustee) to hold for the benefit of a specified list or class of persons (the Beneficiaries).

An offshore trust is not an entity, but a relationship where property is transferred from one person (the Settlor) to another person or corporate body (the Trustee) to hold for the benefit of a specified list or class of persons (the Beneficiaries).

Many trusts are evidenced and the trust property administered pursuant to the terms and conditions of a written instrument commonly referred to as a settlement or deed. The instrument often contains a provision setting out the law that will govern the trust and the place of administration. Trusts may vary quite substantially depending on the terms of the written instrument.

Those unfamiliar with the concept of a trust usually express concern at the idea of transferring ownership of their property to a trustee. However, this concern can be alleviated if the trust concept and the distinction between legal ownership and beneficial ownership is properly understood and the trust is governed by sound trust law which can be enforced in a reputable jurisdiction.

Legal and beneficial ownership
The advantages of a trust flow primarily from the fact that there is a division of ownership of the trust assets. The "legal" owner of property is the Trustee and the Trustee holds the legal title to the trust assets on the terms and conditions set out in the Trust Deed. The "beneficial" owners of the property are the Beneficiaries and they have the use and enjoyment of the trust assets. A body of legal rules that impose very strict duties on the Trustees and the way in which they administer the trust property protects the Beneficiaries. It is this division of ownership that makes a trust such a useful arrangement and accordingly the division must be observed.

Before organisations can act as professional trustees most jurisdictions require a Trustee to be licensed. The licensing process generally requires that the Trustee be of high moral fiber, responsible, capable and financially stable. Along with these requirements are certain financial and insurance requirements. In addition to the licensing process, the law places a number of other obligations on a Trustee.

Some of these are:

• An obligation not to benefit personally from the trust assets
  A Trustee is not permitted to use or deal with trust property for the Trustee's private direct or indirect advantage. If necessary the court will hold the Trustee personally liable to account for any profits made in breach of this obligation.
• An obligation to act in the best interests of the Beneficiaries
  This obligation is a corollary of the above, in that the Trustee must exercise all its powers in the best interests of the Beneficiaries and without concern for other extraneous facts.

Why A Trust?
Trusts are a powerful planning tool. While the circumstances of any person considering setting up a trust will vary and should therefore be evaluated accordingly, some of the more common trust uses are described below. The examples below are provided simply for guidance and sound professional advice must be sought before a person sets up a trust for to achieve any planning goal.

• Asset protection
  Trusts can be used very effectively to protect assets. In simple terms, this feature of a trust is based on the division of ownership described above. Generally, assets transferred to a trust no longer form part of the property owned by the Settlor. Should the Settlor subsequently experience financial problems the trust assets cannot be used to satisfy the creditors of the Settlor. Those assets would be sheltered from creditors. It is vital that trusts for this purpose are established when the Settlor is financially secure and does not anticipate future creditors. It is important to note that these trusts are ineffective in defeating creditors of the Settlor who are known or anticipated at the time the assets are transferred and have strict financial requirements of the Settlor.
  
• Tax planning
  Assets transferred into a trust structure are, in simple terms, no longer considered as belonging to the Settlor. In theory, the income and capital gains generated by those assets should be taxed according to the rules in the country of residence of the legal owners - the Trustees. As the Trustees are often resident in an offshore jurisdiction that imposes no tax, the income and capital gains should be tax-free offshore. However, the advice of a professional tax adviser in the Settlor's and Beneficiaries' home jurisdiction should be sought to ensure that anti-tax avoidance legislation in the country of residence or domicile of the Settlor does not operate to reduce or eliminate the effectiveness of a trust for tax planning purposes.
  
• Avoiding probate
  In most common law jurisdictions the estate of a deceased must go through a probate procedure often entailing much delay, expense and publicity in the distribution of the estate. By establishing a trust, probate can be avoided as ownership to the trust assets has been transferred during the life of the Settlor rather than on death.
  
• Confidentiality
  Generally, offshore trusts, their establishment and the assets they own are a private matter between the Trustee, the Settlor and the Beneficiaries. There are no public records or reporting of details of offshore trusts and they are often the subject of strict confidentiality rules in the relevant jurisdiction.
  
• Avoiding forced heirship
  In some jurisdictions there will often be questions of forced heirship to consider. This means the deceased will not be permitted to leave property to anyone he wishes on his death and the law will deem the deceased to have made certain mandated dispositions. This issue is of particular concern in continental European countries and other civil law jurisdictions as well as in countries of Islamic tradition. A trust can be used to overcome the issue of forced heirship but care is needed in selecting a jurisdiction for the trust that has an appropriate trust law.
  
• Estate planning
  Many people do not wish their assets to pass outright to their heirs, whether chosen by them or as prescribed by law, and prefer to make what they feel are more suitable arrangements. These arrangements might involve providing a source of income for a widow for life, making provision for the education of children or providing a fund to protect members of the family in the event of sudden illness or other disasters. A trust is probably the most satisfactory and flexible way of making arrangements of this kind.
  
• Long term care
  A trust provides a vehicle by which a person can provide for those who may be unable to manage their own affairs such as infant children, the aged, the disabled and 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 among the heirs but retained as one fund to accumulate further, with provision for payments to members of the immediate family as the need arises while also preserving assets for later generations.
  
• Business succession
  A person who has built a business during a lifetime will often be concerned to ensure that it continues after death. If the shares in the company are transferred to the Trustees prior to death a trust can be used to prevent the unnecessary liquidation of a family company. The terms of the trust will ensure that the individual's wishes are observed. These might include provision for payments to be made to members of the family from dividend income received by the Trustees but that the Trustees retain the shares and keep the company running save in special circumstances justifying sale of control or liquidation. This approach may be particularly advantageous where the family members have little business experience of their own or where they are unlikely to agree on the way to manage the business.

Where?
There are many jurisdictions in which it is possible to establish a trust. When choosing a jurisdiction it is important to select one which has a strong tradition of enforcing trusts, an English Common Law system, an established reputation for trust business, modern legislation which embraces the newer concepts of trusts and imposes low or no tax on the trust assets and income.

While there exists a very wide choice of jurisdictions, certain high tax jurisdictions are unsuitable, while other jurisdictions are not recommended because of political uncertainties. Only a small number of jurisdictions are able to offer all the important elements mentioned above and can therefore be said to be the best available.

What Are The Costs?
Many believe that the costs of establishing and administering a trust are prohibitive. It is true that many of the major banks and other financial institutions make sizeable charges for setting up a trust and receive a percentage of the trust assets in annual administration fees. It is also true that the level of fees charged by boutique trust companies are generally much more reasonable and provide access to trusts to those with relatively modest estates. Independent boutique trust companies offer a more personalised service and benefit from the fact that they are independent. As all cases are different, fees will be different, but they are probably a lot less than you thought.

The above examples are just a few uses and benefits that can be achieved by utilizing an offshore trust as part of a well-advised plan. In each case however, it is important that appropriate advice is sought, as often the laws of the place of residence or domicile of the person or entity establishing the structure are critical to the success or failure of the plan.