The Power of Offshore Trusts
The Power of Offshore Trusts
Who Do You Trust?
One of the easiest traps to fall into - when deciding how to structure yourself offshore - is to
want to own and control the entities so set up.
It's natural really. If you set up a domestic company you would likely give it a "zippy" name -
and proudly call yourself the Company Director. A bit like showing off your new car!
However, offshore things are different. If you want to gain any tax advantages from an
offshore structure, then you'll need to make sure you are NOT the legal owner - or perceived
to be in control.
Why? Because any offshore entity which has you at the "helm" is easily targeted for tax
purposes. Even if you hide your ownership in some way, but still retain obvious control, then
your IRS/revenue people will simply treat the structure as a "mirror image" of yourself - and tax
you accordingly! This applies to both IBCs and trusts.
Then there's the reporting requirements. If you have a certain interest (varies in different
jurisdictions) in a trust or IBC, then your tax laws may require that you report such an interest -
if it is above a certain percentage.
It's much better to be in a position where you have no legal obligation to even declare such
One such way is to use a discretionary trust as part of an IBC structure. With a discretionary
trust - the trustee is able to use his "discretion" as to who the beneficiaries are. You do not
need to be a named beneficiary of this type of trust - or named in any other way. The trustee,
the settlor and the protector would all be residents of a country other than your own.
The discretionary trust can own the IBC. The IBC can have a nominee director and secretary -
with bearer shares being issued and retained by the same trust.
In this way, you don't legally own the IBC. It's owned by the trust.
The relationship you develop with it is one of "consultant" - where you are contracted to
provide certain services - like investigating investment opportunities.
In this role, you can claim expenses, loan money to the IBC, take out a loan from the IBC;
and purchase assets for the IBC - all as an independent contractor (a relationship set out in a
legal contract duly signed by you and the IBC).
So in this example - you have created an offshore presence which is not legally owned or
controlled by you.
To many people this seems somewhat "worrisome", in that they expect to be in control of such
things. And anyway, how can you trust someone else to look after your affairs properly.
This, of course, is the responsibility of the trustee, who is obliged by the law of the particular
jurisdiction to safeguard the trust's assets and adhere to the stated objectives. You also have
recourse to the trust's protector - who has the authority to replace the trustee - should the
This type of structure is ideal for sheltering offshore investments as well as creating a
contractor/IBC relationship for creative employment opportunities!
Trusts in Detail
What Is A Trust?
Trusts are complex "beasts" - hard to get a handle on. And they are increasingly under attack,
both domestic and offshore.
Here's an overview, which may help you understand the possibilities.
Trusts are an old invention, dating back to medieval courts in England. The Trust has its
roots in Common Law - the law that developed by common usage in England. Common Law is
quite different to Civil Law - as originated with the Romans - and as such, Trusts are usually to
be found only in Common Law jurisdictions. This explains why most offshore tax havens
offer trust services - they are outgrowths of the original British Empire, and their legal systems
are based on Common Law.
In its simplest form the Trust was originally used by a cautious parent who was concerned
about their spendthrift offspring! A trust would be set up to protect the family assets from
being prematurely wasted. The trust was a contract (deed) between the parent and the
Trustee - the person assigned to ensure that the terms of the trust were carried out.
The Trustee, in the above example, would then have authority and responsibility for the
parent's granted assets, and would be able to invest them for the benefit of the trust, and the
beneficiaries - the spendthrift children - who may then receive annual entitlements or perhaps
part of the assets after the parent's death.
In this example the Trust performs a similar function as a will.
In order for a Trust to be set up you need three "participants".
1.Settlor - the person with the original money or assets.
2.Trustee - the person who administers the Trust
3.Beneficiaries - those persons who benefit from such assets.
The essence of the tax advantages of a Trust lies in the fact that with this structure it is not
immediately apparent who should be taxed. Not the Settlor - as he has given up legal
ownership of said assets. Not the Trustee - as he is simply the legal guardian. And not the
beneficiaries - at least not while the assets are held by the Trust - as they would not at this
stage have gained any financial benefit from the Trust.
And when the Trust is an offshore one - in a jurisdiction which demands no tax, then the
assets can grow at a much faster rate.
A "living" trust is often superior to a "testamentary" one. The living trust is set up when the
settlor is still alive - and in this way the trust avoids the usual estate taxes and probate.
However, depending upon the jurisdiction, there may be gift tax involved in the original
settlement of the trust. This would normally be significantly less than future estate taxes.
In this way, trusts are used to accumulate assets, as well as protect them from legal
The core of the trust itself is the Trust Deed. This is a binding agreement for a nominated
person (Trustee) to oversee stated assets for the benefit of stated persons (Beneficiaries).
Trusts are in many ways quite different from corporations. Usually, they don't need to be
publicly recorded - and thus afford a greater degree of privacy. And they can be used to good
effect in conjunction with IBCs - as part of a structuring strategy.
Instead of owning a holding company that owns stock and other investments, one can be a
beneficiary of a trust established by a foreign holding company to hold its own stock.
There are many possibilities for structuring trusts and IBCs - the purpose of which is to
minimize one's tax liabilities in a completely legal way.
And of course, this is why Trusts are under attack. In fact, they have been under attack since
as early as 1535 - when in England a statute was introduced designed to inhibit the use of
trusts to avoid feudal dues! The battle continues today - both against domestic and offshore
Most Common Law countries (ex British Commonwealth) as well as the USA have domestic
trusts also. The most popular being the Family Trust. This structure illustrates the still preferred
use of such structures - to protect one's assets in order to hand them on to one's children,
without the grubby taxman getting his hands on it!
The main point to remember in this regard, is that for a trust to achieve a particular purpose - it
must be written for that purpose. Its strength is in the precise wording - and depending
upon the size and complexity of your asset base and safeguarding requirements, such a trust
can cost anywhere between a thousand dollars to well over ten thousand.
In setting up a Trust in a tax haven, some important things to consider include:
1.The language being used in the jurisdiction.
2.The time difference between you and your trust jurisdiction
3.The political and financial stability of the tax haven
4.The geographical location - in case you need personal contact
5.The degree of confidentiality available
6.The reputation of the Trustee or Trust Company
7.The existence or otherwise of mutual tax treaties
8.The fees associated with maintaining the Trust
You can see that a trust can be almost anything to anyone. It can be a personal vehicle for
ensuring your children receive your assets after you die. Or it can be a vehicle to shield you
from direct involvement with an IBC - or other tax-saving strategies. It can also be as simple as
a vehicle for obtaining a virtually anonymous credit card!
Be clear in your objectives - then you can be clear in your requirements.
What Kind Of Trusts Are Available?
Beneficial Trusts: In a Beneficial Trust the beneficiaries are specifically named in the trust
document, i.e., "John Doe will receive the sum of $500,000 on his 21st birthday." Whilst
beneficial trusts can be of value for asset protection and perhaps inheritance tax purposes,
because there is a specifically named beneficiary (or several), they are all but useless for tax
planning and privacy purposes as the revenue authorities in the country of residence of the
beneficiary will soon become aware of the "inheritance."
Asset Protection Trusts: Just as the name says, Asset Protection Trusts are designed to
protect assets of all kinds from claims made against them. They aren't particularly useful in tax
avoidance matters, but are ideal for people whose lifestyle or profession may leave them
vulnerable to either legal or civil claims. For example, these trusts are widely used to avoid
malpractice suits against doctors and surgeons (especially in the USA), to protect personal
and family assets against claims made by wives/ex-partners in divorce cases, and to protect
businesses against the financial consequences of legal claims.
Discretionary Trusts: As long as a beneficiary is named in a trust document, or if the
beneficiary is clearly also the settlor, revenue authorities tend to "look through" such trust
arrangements and regard the beneficiaries as the owners of the trust assets and income.
Thus it is quite feasible that beneficiaries can be taxed on assets or income which they never
own or receive, simply on the basis that they could be the owner(s)!
To avoid this problem, so-called Discretionary Trusts were established. These are
arrangements where the actual beneficiaries of the trust are at the absolute discretion of the
trustees. No specific beneficiaries are named in the trust document, and revenue authorities
cannot tax any potential beneficiaries since there is no way of knowing when, or even if,
anyone will benefit from the trust, although tax is (in theory) payable on the receipt of the
proceeds of the trust by a specific beneficiary. But you wouldn't have any distributions from
the trust made over directly to you anyway, would you? Do so via an offshore account or via
an offshore company linked to the trust.
Offshore discretionary trusts are, in our opinion, one of the most valuable tax avoidance
Why Would I Want A Trust?
In a world where certain inalienable rights such as privacy, confidentiality, and prosperity are
being diminished, trust accounts have proven to be an inspired manner whereby those rights
may be maintained. It's how the very wealthy remain very wealthy.
Increasingly, laws are being passed that allow personal assets such as cars, homes, and
other personal possessions to be seized to satisfy court judgments (no matter how frivolous)
against you, your businesses, or estates.
This sudden seizure of assets could result from, among other things, neglecting to keep
proper personal or financial records.
If the tax authorities or IRS pierce your corporate veil, deny you tax benefits or present us with
a big tax bill, it can be extremely and unnecessarily traumatic.
If you don't pay, they file a "Notice of Tax Lien" or "Default" which liens all your property, real
and personal. You attempt to borrow money to pay our bill, and discover your credit has
evaporated overnight since there really is no so-called privacy!
Your bank account is attached/frozen, no matter how many checks were written and are
outstanding. They will levy all savings and all investments. Bankruptcy no longer stops them.
Your salary and your spouse's salary will be garnered. They will obtain a writ and seize your
safety deposit box, even your irreplaceable family heirlooms.
They will eventually grab your IRA or other retirement accounts and the cash surrender value
of your life insurance policies. Without notice, your real property and liquid personal property
could be sold with no minimum bid. If that doesn't pay the bill, they will seek to levy your
pensions. When you pass on, they'll come after your estate!
The elderly, in particular, are beginning to realize that what they once considered assets are
now in fact liabilities, especially when it comes time to participate in so-called medical and
The rich have been using offshore trusts for years to shelter their incomes and other
resources. That's how they've managed to pay little or no taxes. Now it's your turn - and now
it's affordable! Simply join the Offshore & Privacy Club and we'll show you how to set up your
own offshore trust for less than $1,000.