How to Plan an Offshore Trust Fund

Previously, offshore trust funds were synonymous with the super wealthy cream of the British citizenry. The offshore accounts were used for tax evasion on income and capital gains and later pass on their estates to generations after them without parting with a penny of inheritance tax. However, successive clampdowns by HMRC have made these investments unattractive, yet they are among the most lucrative options for, any investors today.

But What Are Offshore Trust Funds?

A trust is a legal entity created when one person (trustor) transfers assets to another or to a company (trustee) to manage and hold it for the benefit of others (beneficiaries) named in the entity. The trust can be established during the lifetime of a settler or upon death based on the will and testament left.

Trust funds have differing characteristics which are based on the specific provisions included in the trust deed. These characteristics are irrevocable or revocable, specific or discretionary. In most cases, the terms of the trust fund are left at discretionary to allow maximum flexibility to changing circumstances.

Are You Planning On an Offshore Trust Fund?

If you are planning on establishing an offshore fund, there are a few considerations you need to put in mind. Let’s look at the basics

Types of Trust Funds

Bare

In this trust, the beneficially is entitles to the capital/original asset together with all the accrued interests as of the time it is transferred.

Interest in Possession

In this trust, the beneficially can only access the earnings but have no rights to the original asset or capital

Discretionary

In this trust, the trustees are entirely responsible for running the fund, and decide how the trust capital and income will be shared.

Accumulation

In this fund, trustees are allowed to use the capital and its income to earn more wealth which will be added to the original asset.

What Can Be Transferred To a Trust Fund?

You can transfer securities, cash, real estate, investments and trading in holding companies, and virtually any other asset anywhere in the world. Once a trust fund is set up and a transfer is attempted, an inheritance tax may be triggered, even if the trustor is alive. The inheritance tax may change depending on the terms of the trust.

When trust funds are repatriated back to UK, the inheritance tax is higher depending on the financial position of the beneficiary. An income tax of up to 50% is payable, although it depends on the income of the beneficiary. Periodic charges are also applicable, as any other legislation on trust funds, which is also subject to change.

Uses of an Offshore Trust Fund

There are several uses and advantages of an offshore trust fund, top among them being tax-effective-giving. When planning to start an offshore fund, it is important to know the preferred terms so that you are abreast with the uses you can take advantage of. Some of the most common uses include:

Tax Planning

Taxes on wealth, inheritance and capital gains can be greatly minimized when assets are held in trust fund. All assets that are in Guernsey Fund cannot be taxed in international jurisdiction.

Succession and Estate Planning

A trust fund and an estate are legally held in separation. An offshore trust fund is structured in a way that allows it to protect assets against forced heirship applicable in specific jurisdictions. The trust fund deed is intentionally worded to ensure that only specific people are beneficiaries of the assets in case of death. It is also possible to channel the fund to a specific purpose such as education. Therefore, make sure you get a professional to help you plan the words.

Flexibility and Confidentiality

Trust deeds are not publicly registered; they are confidential. Trustors who wish to place their assets in a favorable tax environment may move between jurisdictions. This also applies to people who are moving to a high tax area and wish to secure their future thereby settling o an offshore trust fund.

Easy Assets Administration

The trust fund structure allows the trustor to centralize their global assets and make arrangements for management continuity. Be sure to look for professional advice on the structures of the different types of funds.

Corporate Offshore Schemes

Corporate clients, in addition to individuals, can also set up offshore trusts for their employees such as securities and retirement benefits.

Ongoing Legislation Changes

Legislation changes all the time, often without warning. Therefore, it is essential to review your fund’s structure to ensure its effectiveness in the face of changing regulations. The fund structure and nature will also determine the costs to be incurred, which in turn will limit effective sizeable transfers.

It is advisable to check the legalities of your preferred structure in the offshore country you choose to ensure effectiveness of the structure upon death. You can always contact professionals to advice you on how to get your offshore fund up and running.

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