• What is a Trust?
• Why use a Trust
• The Tax Position of a Trust
• The Choice of Jurisdiction
• The Elements of The Structure

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What is a Trust?
A Trust , also called a Settlement, has formed a key element in personal financial planning under Common Law for hundreds of years and can rely on legal precedents (decisions) handed down by the courts of all Common Law countries, jurisdictions and states. Other countries and jurisdictions have passed statutory laws to permit Trusts under their legal systems.

A Trust is not a company but can form often a more important role in financial planning than a company.

A Trust is created by one or more persons (the Settlor or Grantor ) asking one or more persons (the Trustees ) to hold assets for the benefit of a third group, (the beneficiaries) for the purpose of this Explanation, “Persons” may be individuals, companies, charities or other legal entities. The Settlor (grantor is the American English term) transfers the assets to the Trustees for their safe keeping in accordance with a Trust Deed for the benefit of the Beneficiaries . The Trust Deed is like the articles and by-laws of a company and grants the Trustees powers over the assets for a prescribed period of time.

To understand a Trust, it is important to realise it is not a contractual relationship, in Law once assets are transferred (“settled”) to the Trustee, they are no longer the property of the Settlor and do not show on his balance sheet. In law, the assets are owned by the Trustee but “in Trust” for the Beneficiaries the assets are not available to creditors of the Trustees and the Trustees are restricted by law as to how they can only ultimately be used/applied in the interests of the Beneficiaries but the Beneficiaries do not actually own the assets until such time as the Trustee transfers the assets to them. This unusual relationship gives rise to a lot of very interesting possibilities. The Trust Deed often has a named beneficiary, probably a charity of the Settlor s choice. The Settlor writes a Letter of Wishes , which can be compared to a will, to set forth their wishes about what should happen with the assets and their income. The Letter of Wishes is always written as a request to the Trustees but there is a strong obligation and liability on the Trustees to follow the stated wishes of the Settlor.

The Trustees are appointed and dismissed in accordance with the Trust Deed . That Trust Deed may stipulate that a Protector is appointed and that Protector , person holds the power to appoint and dismiss the Trustees . The protector mechanism can give added assurance to the Settlor. The Protector may also be appointed and dismissed by a person or company that holds the Power to Appoint the Protector . Since the Protector is stated in the Trust Deed , Mutual Trust can provide a Protector and the Settlor chooses the person/company to hold the Power to Appoint the Protector.

The Trust will probably hold its assets through companies that it owns. For example, the Trust may own real estate that is held by a specially created company for each property. The Trust may have an investment portfolio of cash, bonds, shares and precious metals and may appoint various managers to advise or manage these assets that are physically held by one or more custodian banks. The structure of those underlying holding companies is dictated by tax considerations. The Trust may also own trading companies and many other types of assets including fine art and jewelry.

In summary, the Trust is a master holding vehicle that can provide considerable financial benefits and much flexibility.

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Why a Trust?
A trust can be a key instrument for personal planning purposes provided it is used correctly and fine-tuned to each client by a trust professional with full knowledge of the circumstances of the client.

There are many different types of trusts and the choice depends on your nationality, your country of residence, your domicile, as well as other factors. We cannot emphasize too strongly the need for qualified advice.

The largest banks have targeted high net worth individuals with private banking services and market trust services that are often pre-packaged and may not involve a professional that has the detailed knowledge of your personal position and plans. We urge you to choose your trust company carefully.

A website allows us to provide some basic information to assist in your understanding of a trust. We recommend that you contact us to discuss how a trust might fit with your own planning. We hold over $20 billion in trust assets for clients ranging in size from $500,000 to multi-billions and our clients are from over 100 countries.

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The tax position of a Trust
The liability of the assets of a Trust to taxation is dictated by the residence of the majority of the Trustees as well as the circumstances of the Settlor and/or Beneficiaries. A Trust settled in an offshore jurisdiction that does not tax trusts will not pay any tax in that jurisdiction. Income arising from assets held by the Trust may be taxed at source depending on where those assets are located and how they are held by the Trust . Similarly, trust assets may be liable to capital gains in the country where the assets are located.

Many trusts are established in offshore jurisdictions with an offshore trust company acting as trustee so that the assets and income are free from inheritance and gift taxes, capital gains tax, income tax and wealth tax. The Trust will hold its assets through efficient mechanisms, such as companies and funds, to minimize taxation at source on those assets including income and capital gains. Generally, capital gains on liquid assets such as shares, bonds and gold can be avoided. The choice of the right income producing assets such as bank deposits and bonds is important to avoid tax arising at source

Active assets, such as trading companies and businesses, need to be structured efficiently at the operational and holding company levels to minimize taxation on their profits. Once those profits pass up to the offshore trust, they should not suffer any further taxes.

Distributions from an offshore Trust to a beneficiary will be free of tax from the Trust but the beneficiary may be subject to tax depending on their personal circumstances, in particular their country of residence and their nationality. Planning distributions may be an important element to achieve tax efficiency for the beneficiary.

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The Choice of Jurisdiction
It is advisable to establish a trust in a Common Law jurisdiction because one can rely on hundreds of years of precedents (legal judgments) rather than just on a statute (law) which is only as good as the statute.

Common Law jurisdictions that have no tax on trusts include New Zealand, Brunei Darussalam, Mauritius, Cyprus, Gibraltar, the Isle of Man, Bermuda, British Virgin Islands (BVI), the Cayman Islands, the Bahamas, the Turks & Caicos Islands and the Cook Islands. Statutory jurisdictions include Jersey, Guernsey, Panama and Liechtenstein.

Mutual Trust favours Brunei Darussalam for several reasons:

Brunei Darussalam has a regulator but licensed trust companies are not required to divulge any information to the regulator.

 

Most other jurisdictions previously popular for the establishment of trusts listed above suffer from excessive interference by the regulators requiring licensed trust companies to hold unnecessary and useless information such as utility bills on file.

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The Elements of the Structure
In certain countries, the establishment of a company outside their jurisdiction by one of their nationals is illegal unless approval is obtained. However, most of those countries have not legislated against the establishment of trusts.

 

Anglo-Saxons have used trusts for centuries to protect and preserve wealth from taxation of all types. In the United States and the United Kingdom, legislation has been passed to reduce the effectiveness of such planning. However, the fortunate families to have created such structures previously continue to enjoy the benefits from the foresight of their ancestors. High net worth individuals from other countries are using trusts to achieve the similar benefits today.

The trust itself is absolutely confidential including the identity of the settlor and the beneficiaries. The trust would normally hold its assets through companies and never expose itself.

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