Tax planning - Because offshore trust assets
are no longer considered property of the settlor, the
income and capital gains generated by those assets are
in certain circumstances taxed according to the rules in the country of residence
of the legal owners - the trustees.
So long as the legal separation between assets, original
owner and potential beneficiaries remains intact, any
income derived from the trust assets may be taxed at the offshore rate, likely 0%.
Of course, once the assets and income from them are
repatriated to an onshore domestic jurisdiction, they would be subject
to tax, but people who might one day collect the trust
property will have the luxury of being able to plan
for this eventuality in many ways. For instance, they
could elect to repatriate funds in years where their
own domestic income is very low, thus minimizing their
tax rate in jurisdictions that operate on a higher income-higher
tax rate system. Alternatively, a beneficiary might
elect to give up their residence onshore and move to
a low or no tax jurisdiction before collecting any trust
Transfer of the family estate and/or business -
The death of the head of the family will usually result
in major disruption of the family estate whether or
not there is a will. In most common law jurisdictions
the estate must go through the probate procedure with
much consequential delay, expense, publicity and upheaval.
By establishing a trust, probate can be avoided because
the fact of death will have no effect on the trust property
which will continue to be held and managed in confidence
by the trustees in accordance with the terms of the
In non-common law jurisdictions there will often be
questions of forced heirship to consider i.e. the deceased
will not be permitted to leave his property to anyone
he wishes on his death. This is a particular problem
in continental European countries and other civil law
jurisdictions as well as in countries of Islamic tradition.
A trust can be used to overcome the problem of forced
heirship but care is needed in selecting a jurisdiction
for the trust which has an appropriate trust law.
Many people do not want their assets to pass outright
to their heirs, whether chosen by them or as prescribed
by law, and prefer to make more complicated arrangements.
These might involve providing a source of income for
a widow for life, making provision for the education
of children or providing a fund to protect members of
the family in the event of sudden illness or other disasters.
A trust is probably the most satisfactory and flexible
way of making arrangements of this kind.
Preserving the family assets or increasing them is
often a motive for setting up a trust. Thus, an individual
may wish to ensure that wealth accumulated over a lifetime
is not divided up amongst the heirs but retained as
one fund to accumulate further, with provision for payments
to members of the family as the need arises while preserving
some assets for later generations. A trust also provides
a vehicle by which a person can provide for those who
may be unable to manage their own affairs such as infant
children, the aged, the disabled and persons suffering
from certain illnesses.
A person who has built up a business during a lifetime
will often be concerned to ensure that it continues
after death. If the shares in the company are transferred
to trustees prior to death a trust can be used to prevent
the unnecessary liquidation of a family company. The
terms of the trust will ensure that the individual's
wishes are observed. These might include provision for
payments to be made to members of the family from dividend
income received by the trustees but that the trustees
retain the shares and keep the company running as
intended in special circumstances justifying the sale of control
or liquidation. This may be particularly advantageous
where the family members have little business experience
of their own or where they are unlikely to agree on
the correct way to manage the business.
Please note: tax benefits vary considerably
from country to country. IFG Trust does not offer
legal, tax, or financial advice. Please consult a local
tax advisor for specific information on offshore
tax benefits as they apply to your country's tax