Offshore Trusts: Definition and Application

What is an offshore trust, how can I use one and would I benefit from the establishment of a trust?

Trusts are an ancient legal entity which have evolved and become more sophisticated and widely used over time - and yet trusts, and offshore trusts in particular, remain little understood and their potential application lesser explored by the vast majority of us.

This is largely because there is a commonly held misconception that such an entity or structure is complicated and costly to establish.  In this article we look at offshore trusts, their definition and application - so that you can personally determine whether such an entity could benefit you.

The most clear and straightforward definition and explanation of an offshore trust is as follows: -

The offshore trust is an entity in legal terms but in practicality it is an arrangement whereby the owner of particular assets, (who is referred to as the settlor), passes complete legal ownership of the assets in question to a trustee.

The trustee, (which can be a company or an individual), then becomes the administrator for the assets.  The assets within the trust are administered according to the clearly defined terms of a key document known as a ‘Trust Deed’ as well as according to the governing law of the jurisdiction in which the trust is established.

Offshore trusts are usually established in a tax haven so that this ‘governing law’ is tax friendly.

The trustee administering the assets within the trust does so on behalf of the beneficiaries of the trust – these beneficiaries can include the settlor who established the trust in the first place although this usually reduces or negates any specific tax benefits of establishing a trust.

Generally speaking, the vast majority of people who decide that an offshore trust could be of benefit to them choose to establish what’s called a Discretionary Trust.  Such a structure enables the assets within it to be potentially used for the direct benefit of any or all beneficiaries at the discretion of the trustee whilst taking into account the wishes of the settlor which are laid out in a document called a ‘letter of wishes’ when the trust is established - letters of wishes can be cancelled or modified at any time

A Discretionary Offshore Trust is usually highly flexible.  But please note - none of the beneficiaries has a right to benefit but a right to be considered for benefit at the discretion of the trustees.

Offshore trusts are often used by those wishing to protect their assets, simplify the management of their assets and their overall estate, save, defer, minimize or legally avoid taxation or protect beneficiaries’ interests.

If you feel you could be in a position to benefit from the establishment of an offshore trust please used our offshore advice service page to get in touch with a professional adviser who can take you through the process relative to your personal circumstances.