Trusts – and more particularly Offshore Trusts – have become an integral part of wealth and tax planning worldwide.
What started as an uncomplicated understanding between a wealthy land owner (the Settlor), a Trusted friend or relative (the Trustee) and the land owner’s dependents (the Beneficiaries) has now become a refined planning tool administered by modern laws tailored to meet the needs of Settlors and Beneficiaries employing professional Trustees to protect their family or corporate wealth.
Apart from the Trust itself, the Letter of Wishes is perhaps the most important document connected with a discretionary Trust. Although not a legally binding contract between Settlor and Trustee, a Letter of Wishes enables Settlors to indicate, in writing, how they wish the Trustee to manage the Trust and its assets.
The Trustee must always act in agreement with the Trust for the benefit of the Beneficiaries.
A concern often expressed by Settlors and Beneficiaries is that by passing legal title of family assets such as properties, investments or other items to Trustees, they will be excluded from benefiting from them. This is not the case. Provided the Trust instrument is worded appropriately, the Trustee may permit the Beneficiaries (which can include the Settlor) to use assets held on Trust as well as receive income or capital from the Trust. All such matters can be dealt with as part of the Letter of Wishes.
Why set up a Trust?
You should seriously consider the use of a Trust if you are concerned about the protection of your assets from financial, fiscal or political risk.
A Trust is one of the most secure and flexible financial planning vehicles available, particularly when established offshore and in a reputable, well-regulated jurisdiction, such as the Isle of Man or any of the Channel Islands.
A Trust may also be an effective tax-planning tool, for example in respect of estate or inheritance taxes on assets situated outside the country of the Settlor’s nationality. It may also provide complete confidentiality and protect assets from the imposition of exchange controls or similar political measures. A Trust may also be used as a means of protecting assets from the risk of unforeseen financial difficulty.
Trusts avoid the often protracted and expensive probate process on death, are also useful in avoiding issues relating to spendthrift children, and can allow for the staggered distribution of wealth to the next generations and to those most in need.
All types of assets, from personal properties – such as the family home – to more complicated investments, may be included in a Trust structure and the use of Trusts is not confined to individuals. International corporations also use Trusts as an important part of their asset management strategy.
By establishing certain types of Trusts, individuals may remove assets from their estate, thus reducing their taxable wealth, limiting exposure to income tax, capital gains tax, wealth tax, gift tax and inheritance tax.
When using Trusts for tax purposes, Settlors must consider the tax rules that apply to themselves, the Beneficiaries and also the assets. Care must also be taken to consider the implications of transferring assets into the Trust and how payments to the Beneficiaries will ultimately be treated.
Having worked so hard to build a valuable business or asset base, it is everyone’s right to try to preserve that wealth for themselves and their family.
One of the most devastating and stressful events that can happen to a family is the death of a member. This is equally stressful when the person that dies owns all the family’s assets and does not have a will. This would mean freezing of bank accounts and the family estate would be divided according to the law of the land and not according to the deceased’s wishes.
Why make a Will?
Making a will saves a great deal of time, trouble and expense in the event of death. It is also an easy and economical method of protecting capital by reducing or avoiding Inheritance Tax.
There are however many other reasons to make a will. These include the following:
- To give legal effect to one’s wishes to ensure they are carried out.
- To avoid the application of the intestacy rules.
- To appoint Executors to have responsibility for your affairs.
- To benefit persons who have no automatic entitlement or rights, e.g. unmarried partners.
- To specify funeral preferences.
- To appoint guardians to care for minor children.
- To provide for children and/or grandchildren and to safeguard such entitlements (especially in the case of mental / physical handicap).
- To exclude persons who would be entitled if a will is not made.
- To avoid uncertainty and delay.
- To provide fully for a spouse.
- To safeguard business interests.
- To avoid or reduce Inheritance Tax and/or Capital Gains Tax.
- To give peace of mind that you affairs are in order.
- To avoid the application of outdated legal rules, which may apply to the administration of your estate.
- To maximise the entitlement of beneficiaries.
- To identify other useful legal matters which may be relevant,
e.g. Powers of Attorney, Lifetime gifts.
- To state formally why someone has been excluded from the Will, e.g. and ex-spouse who has not re-married.
- To avoid disputes, particularly those concerning personal effects.
- To preserve and protect the family inheritance from lifetime payments, e.g. nursing home fees for elderly beneficiaries.
The complexity of the law, and particular family circumstances mean that the cost of making a will is an excellent investment in respect of both time and money. A professionally prepared will also avoids the dangers that can arise from an incorrectly prepared home will.