Trust synopsis
The concept of a Trust originated under Anglo-Saxon law but its usage has now spread worldwide. A Trust exists when a person (the Settlor) transfers assets to another person (the Trustee) who holds the legal title to assets (the Trust Fund) not for himself, but for the benefit of others (the Beneficiaries) in accordance with terms and conditions usually set down in writing in the form of a Trust Deed and the relevant law where the Trust is based.
The principal uses of an Offshore Trust are as a means of protecting assets or minimising taxation.
Other common reasons for its use by an individual are:
Estate Planning - To enable property of all kinds, including land, to be held for persons who cannot themselves hold it, for example infants. To minimise the prospect of family property passing to those who may dissipate it. The Trust can enable such persons to benefit from the Trust property, but only under the control and direction of the Trustee. In some circumstances, to make provisions for purposes, usually, but not necessarily, of a charitable nature.
Flexibility – Subject to public policy, wide scope is available in the drafting of the Trust Deed to enable it to meet the specific intentions of the Settlor and the ongoing needs of the Beneficiaries.
Continuity – Continuity is assured as the Trust property is able to remain within the Trust for the life of the Trust, which may be unlimited and span several generations, irrespective of the death of the Settlor.
Security – Subject to the relevant law and the terms of the Trust Deed, a Trust can be mobile and allow for changes in the jurisdiction in which it is administered and the laws to which it is to be subject.
Taxation – A properly structured Trust put in place with appropriate legal and tax advice can legitimately reduce or completely avoid tax in appropriate circumstances.
Purpose Trusts – Purpose Trusts can be used for a variety of transactions, including ownership of private Trust companies, securitization structures and special purpose vehicles.
The most common type of Trust is the Irrevocable Discretionary Trust. Other forms include Fixed or Strict Trusts such as Accumulation and Maintenance Trusts for the benefit of minors and to provide specific tax mitigation.
SEQUENCE OF EVENTS
Anyone who is legally competent and not an undischarged bankrupt may create a Trust, subject to any restrictions that may be imposed by a country of residence or domicile. The tax implications of establishing a Trust vary with individual circumstances and it is important for each individual to seek professional advice in order to clarify their own tax and legal position before proceeding.
After discussion or correspondence, a Trust Deed will be prepared which may contain the following information:
(a) The name of the Settlor and Beneficiaries.
(b) A description of the initial assets settled by the Settlor.
(c) A statement of the Trusts upon which the assets settled are held.
It is preferable for a Trust Deed to be drafted to give the Trustees the greatest degree of flexibility and powers in the administration of the Trust Fund. The duration of a Guernsey Trust may be unlimited and specific Trust legislation has been enacted which provides, amongst other provisions, that a Trustee must exercise diligence and integrity and act in the best interests of the Beneficiaries.
Non Resident Guernsey Trusts are generally free of local taxation and there is no requirement to register or record the relevant Trust Deeds with any authority. FirstRand Trustees Limited will arrange for the drafting of Trust documentation.
A Trust becomes effective once the documents have been signed by the Trustee (and the Settlor where he is a named party to the document) and the initial property to be settled has been conveyed to the Trustees. In making the transfer of assets to the Trustees, the Settlor is effectively making a gift of those assets and, as a consequence, ceases to have any proprietary interest in them (subject to the laws to which the Settlor is subject). Accordingly, they no longer form part of the Settlor’s estate. On the death of the Settlor, they continue to be held in the Trust.
When a Settlor creates a Trust, he relies to a very high degree on the integrity of the Trustee. In some cases the Settlor may wish to have the additional comfort of appointing a Protector who has the Settlor’s confidence and invariably has knowledge of the Beneficiaries.
In a Discretionary Trust, it is possible to appoint such a Protector. This in effect means that the Trustees refer to the Protector before they exercise particular discretionary powers. The Protector can be a family member, friend or lawyer, for instance.
