Offshore Trusts for Expatriates

The flexibility and tax saving advantages of an offshore trust could be just the ticket for the international executive or expatriate with wealth, assets and property to manage in a number of different countries worldwide.

The flexibility and tax saving advantages of an offshore trust could be just the ticket for the international executive or expatriate with wealth, assets and property to manage in a number of different countries worldwide.

Dividing finances not only between asset class but between country is of course the ultimate in terms of portfolio diversification - but in reality it can be a headache for the expatriate when it comes to tax efficiency, estate planning and even the day to day management of their financial affairs.  This is why offshore trusts for expatriates are proving ever more popular…

If you’re an expat or an international executive and you divide your time and assets between countries, one of the most trying issues you will have to deal with each year is your tax planning.  Working in more than one country, having residence in more than one country and/or having money, investments, assets or property in more than one country can create an increasingly difficult taxation situation to manage.  Initially knowing which tax authority you’re liable to is one thing - then understanding how you can legally offset your overall taxation burden is the next hurdle to overcome.

As an international tax planning solution an offshore trust is one of the most attractive and flexible vehicles for many expatriates.

An offshore trust is an entity in its own right - it is a legally binding arrangement whereby the settlor places assets such as cash, property or investments into the hands of the trustees to manage.  The trustees then manage and assign the assets within the trust for the direct benefit of the trust’s beneficiaries. 

When a settlor places assets into trust he is giving up his legal right to those assets but he can retain a certain amount of say over the ongoing management of the assets through a ‘letter of wishes.’ In the letter the settlor can state which types of investment vehicles he favours for example, which beneficiaries should receive which assets and when etc., and of course the settlor states who the beneficiaries of the trust are going to be when the trust is first established.

The flexibility of allocation is another great benefit of an offshore trust - a settlor can list many beneficiaries of the trust and can control when they will each receive assets or income on a case by case basis.  This means that a trust can be used for school fee payment, it can be used to grow a lump sum for payment to a beneficiary on a given birthday or it can even be used to benefit an unborn grandchild or the settlor’s children after his death.

Furthermore a growing number of early retiring expatriates are finding that the establishment of an offshore trust can assist them with their international estate planning.  Across the world the rules of inheritance differ on a country by country basis and where a retiring expatriate has property and assets in more than one country they are required to establish complicated will structures which have to recognised by the jurisdiction in which the property is held and also by the ‘master’ jurisdiction of domicile through which the expatriate’s estate will ultimately be handled upon death.

Because an offshore trust is a legal entity in its own right, as long as the trust arrangement is legally accepted in each country in which the settlor has assets it can negate the need for complicated multi-jurisdictional wills because the assets within the trust will be handled according to the laws of the trust and not the inheritance laws per country.

Finally, when it comes to the suitability and applicability of offshore trust for expatriates there are two very important points of caution to highlight: -

1) Whether an offshore trust is applicable for an expatriate will ultimately depend on their country of domicile.

2) Seeking professional cross border taxation and estate planning advice is the very first step to take when you hold assets, work, earn income or reside between two or more countries.  There are legal ways for many expatriates and international executives to legally reduce their overall taxation burden throughout life and after death, but professional advice and assistance is essential as getting wrong can be costly.