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Trusts
Corinthian Trust Company Limited provides Trustee Services based in Gibraltar.
Offshore Trusts have become an indispensible weapon in the financial and tax planning armoury of the international client.
What is a Trust?
The foundation of Trusts dates back to the time of the Crusades.
There is no precise statutory definition of a trust, but, in very simple terms, a Trust is the relationship that exists when a person or body of persons, called a Trustee, holds property for the benefit of others, called the Beneficiaries. Their relationship is normally governed by a written Trust Deed or Settlement.
The person who creates the relationship is usually called the Settlor or Grantor.
The property which is held is referred to as the Trust Property.
The relationship between the Trustees and the Beneficiaries is a fiduciary relationship.
What is an Offshore Trust?
It is very much like a traditional onshore Trust, except that it has the benefit of being held at an offshore financial centre.
The following is a summary of some of the most common reasons for creating an offshore Trust:
| Taxation Planning | Offshore Trusts can offer taxation benefits in certain circumstances. This is because control of the Trust property is being transferred from the Settlor to Trustees resident in a low or nil tax jurisdiction. |
|---|---|
| Succession Planning | An offshore Trust can be used to hold assets of the Settlor or their family for the benefit of future generations. |
| Avoidance of Estate problems | Once assets have been transferred into the Trust they no longer belong to the Settlor and therefore should not form part of their "estate" on death. As a result, the assets are not subject to complicated probate formalities and can be dealt with regardless of the death of the Settlor. Certain countries (e.g. UK) however, seek to tax the placement of assets into a Trust where Inheritance Tax is an issue. |
| Protection of Assets | An offshore Trust can be used to hold assets to protect them from , for example, spendthrift or avaricious members of the Settlor's family. |
| Protection from Creditors | Offshore Trusts created in certain jurisdictions can be used to protect the assets of the settler from claims by future and unknown creditors including creditors in bankruptcy. |
| Protection from Forced Heirs | Offshore centres have implemented laws designed to give Settlors the opportunity to protect assets from the claims of heirs who would have an entitlement to the assets on the death of the Settlor. Forced heirship provisions exist in a number of civil law countries and the possibility of defeating the claims of forced heirs is attractive to those who may be subject to such rules. |
| To provide Confidentiality | An offshore Trust, particularly a Discretionary Trust, can be a very confidential arrangement. Some offshore jurisdictions have statutory confidentiality provisions making it a criminal offence for a Trustee or employee of a Trust company to release information to third parties. |
| Protection from Foreign Governments | In certain circumstances it is possible for an offshore Trust to provide protection from expropriation claims made by foreign governments |
The Hague Convention of the Law Applicable to Trusts and on their Recognition
Fiduciary
A fiduciary relationship is a legal or ethical relationship of confidence or Trust.
"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of Trust and confidence."
A fiduciary duty is the highest standard of care at either equity or law.
A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "Principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the Principal consents.
Other parties, such as a Trust Protector, may also be involved in the relationship.
The Duties of the Trustee
The Trustee is responsible for managing the Trust Property and owes a fiduciary duty to the Beneficiaries.
The Trustee must:
- Carry out the terms of the Trust
- Control the Trust Property
- Invest Trust funds prudently
- Keep accounts
- Act impartially between Beneficiaries
- Advise the Beneficiaries of their interests
- Provide information to the Beneficiaries when required to do so
- Take advice and comply with the directions of a Court in the event of a dispute
- Account to the Beneficiaries from the correct part of the Trust Property
- Keep Trust Property entirely separate from their own property and
- Not profit from their office as Trustee
The Hague Convention of the Law Applicable to Trusts and on their Recognition
Article 2
For the purposes of this Convention, the term "trust" refers to the legal relationships created - inter vivos or on death - by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.
A trust has the following characteristics:
- the assets constitute a separate fund and are not a part of the trustee's own estate;
- title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;
- the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.
The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.
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