Trusts as financial vehicles are exceptionally flexible. They are one of the most useful devices you can employ to effectively manage your asset & wealth. Whether you are looking for asset and wealth protection or simply looking for a more efficient way to manage your taxes, the formation of a trust fund may just be the resolution you are looking for.
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The owner of a property (the Settlor) transfers the said property to a trusted person (the Trustee). The Trustee acts as the owner of the entrusted property and holds, protects, and uses it solely to administer the trust. The purpose of a trust can be to protect the interests of a loved one of the original owner (the Beneficiary) or a specific purpose that is close to the heart of the original owner (in the case of charitable trusts).
The basic mechanism of forming trust is similar in most countries. A Trust Deed needs to be executed between the owner of the property and the Trustee. However, in some countries, especially the ones that are preferred destinations for setting up offshore trusts, the formation of a trust may differ slightly – for example, some countries require that trust administrators be made a party to the trust deed, while some others allow the Settlor and the Beneficiary to be the same person.
The best part, though, is the fact that once a trust is formed in a country, the assets entrusted to the trust become subject to the laws of the country in which the trust has been formed, irrespective of which country the assets are located in. This is especially helpful if bypassing inheritance laws of the domicile country is a key concern.
This brings us to our next point.
Trusts create an extra layer of protection around your assets and wealth and shield them from a variety of assaults. Whether used for together in family office planning, risk minimisation from lawsuits, or tax planning, trusts help you achieve better asset security, tax savings, and increased foreign investment capacity.
Several countries around the world have specifically designed their asset protection laws so as to protect the privacy and privilege of these entities. Oftentimes these safe havens are used to form offshore entities, tax-saving vehicles, and asset protection trusts.
Some of the most popular and well-regarded trust locations are:
It will depend primarily upon what you seek to achieve through your trust, and some other basic, but key, considerations, like:
Based on the above, you would need to consider some crucial parameters, like:
Approximately 10% of the Cook Islands’ GDP comes from forming trusts. The government, therefore, is very committed to guaranteeing confidentiality and ease of business. Nevis has a similar structure.
Belize’s Trust Laws have been the industry standard for a long time. The Trust Act of Belize, which was first introduced in 1992, has since been revised in 2007.
The Cayman Islands has a sophisticated, well-developed trust infrastructure comprising modern legislation and effective judicial systems. The Financial Services Division of the Grand Court handles trust matters, and ultimate appeals go to the Privy Council in the UK.
One of the reasons why many prefer the Cayman Islands is the “STAR Trust”. An alternative trust regime, the STAR Trust is exceptionally flexible and allows the formation of:
STAR Trusts must:
Other features of a Cayman Trust include:
Trusts are used as a way so that a grantor can give money to a person with conditions such that there is an element of control that can be used to distribute the funds to the intended beneficiary. This allows for the assets to be used in a specific way according to how the grantor intended
Trust funds payout in a number of different ways. There are really no set rules as each can be made according to the stipulations of the trust itself
There is no one fixed price, but can cost anywhere from 1,000 USD to 30,000 USD and up. The cost will be dependant upon where the trust is located and the type of trust that you form. Domestic trusts are much cheaper, whereas offshore trusts can get quite expensive.
Anyone is allowed to start a trust fund. Though everyone may not need one. Trusts are used in many different ways but are primarily used as a legal means to give assets to another under certain conditions. They are also often used as a means of privacy and protection for those involved.
Once you have decided why you need to trust you can figure out who the parties of the trust are to be and under what conditions is the trust to be used. The legal process of starting a trust is usually done by a law firm or lawyer as they often can involve complicated arrangements that otherwise might be established wrongly. Once the trust deed is made and signed funds can be transferred.
Revocable Trust - The trust can be easily changed while the grantor is still alive. Assets are transferred at the time of death to beneficiaries. These types of trusts are also called living trusts and are held privately.
Irrevocable Trust - These are inflexible trusts that are hard to change or amend once they have been made and are used for tax and inheritance benefits
Asset Protection Trust (APT) - They have strong privacy and protection mechanisms that make it hard for outside forces to break into it.
Charitable Trust - These are created for a specific purpose usually involving a social or charitable cause and have tax benefits
Individual Retirement Account (IRA) Trust - An account that is usually opened for retirement planning and are used in such a way to help minimize the tax burden of the one holding it.
Land Trust - This type of trust is best suited to hold physical property where one party holds the title for another party
Medicaid Trust - A Trust that is irrevocable that is often used for elderly individuals to avoid tax and probate
Marital Trust - A trust that is irrevocable that is used to transfer assets to a surviving spouse after death which can be used to shield and protect assets.
Spendthrift Trust - A trust that has specific instructions that indicate how the trust assets are to be used and prevent beneficiaries from misusing the assets.
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Whether or not you need a trust fund will depend on what you are looking for. What works for others may not work for you. Get in touch to find out.
For more information on Asset Protection and Trusts
Why You Need A Plan B
Threats to Your Assets
Global Diversification Planning