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 assets.

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 trust.

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 legislation.