OFFSHORE TRUST
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Introduction to trusts
Many readers have no idea what a trust is, much less what a foreign ("offshore") trust is or why they would benefit from the inclusion of such a trust in their overall financial plan. What follows is a brief explanation of trusts and specifically offshore trusts. The reader should understand that what follows is the briefest of introductions. There is not time here to go into the details of how these trusts work together with foreign limited Liability Companies (LLCs) and International Business Companies (IBCs) to absolutely protect your assets and your privacy. We have several Reports available that go into greater detail on these topics.
WHAT IS A TRUST?
There are few terms so widely used and so universally misunderstood than the term "trust" when used as a noun. The concept and use of trusts dates back to Roman times. Although not referred to as a "trust" at the time, the Roman law recognized that when a transfer was made to a person upon the specific understanding that the person accepting the transfer would hold it for the benefit of another person, that such an understanding should be enforceable. The Emperor Augustus Caesar caused the first formal decision to be recorded acknowledging this "trust" concept nearly 2000 years ago. An Egyptian tomb, uncovered within the past century shows that the concept of a "testamentary trust", as part of a last will and testament was recognized as early as 1805 BC, over 3900 years ago. These concepts, from thousands of years ago found their way into the decisional laws of England, where they were tested, refined and codified. It is from this British well spring, known as "the Common Law," that today's modern trust law has emerged.
It might first of all be beneficial to recognize what a "trust" is not. It is not a company of any kind whatsoever. It is not a partnership, limited or general. It is not a business organization and it is not a foundation. A trust cannot be "owned" by anyone. It is not that sort of entity. A trust is also not a "last will and testament." Many wills include provisions for a testamentary trust within the will itself so that you can leave assets to children who are not competent to take possession and handle the assets themselves.
A "trust" is quite simply a set of legal relationships, involving several actors, expressed in a contract typically referred to as a "deed," a "settlement," or "declaration" of trust. In the case of a "grantor trust" it is a contract between the "grantor", sometimes called the "Settlor", and the person appointed as the "Trustee." The Grantor places assets previously owned by him into the possession, ownership and control of the Trustee, subject to the terms and conditions of the deed of trust. The Trustee holds, owns, manages, controls and distributes the assets in the body of the trust (sometimes called the "trust fund") for the eventual benefit of the "Beneficiaries" (who may be named or described as members of an Appointed Class.) The deed or settlement (or declaration) of trust may name a "Protector" who is empowered to place some restraint on the Trustees otherwise unbridled power of discretion. In a grantor trust situation, the Grantor transfers his property to the Trustee, in trust to hold in accord with the terms of the deed. The Trustee abides by the terms of the deed in handling the assets. At the discretion of the trustee, acting with the consent of the Protector, the Trustee can make distributions of the income and capital of the trust fund.
There are many different kinds of trusts. They include inter vivos trusts (made to take effect while the Grantor is still alive,) testamentary trusts (that take effect only after the Grantor dies,) revocable trusts (these are often referred to as "living trusts",) irrevocable trusts (just like it sounds- once the assets are transferred, the Grantor can't demand them back,) charitable remainder trusts (these obviously involve gifting for the benefit of a charity, although often the tax implications are a major motivation,) Q-tip trusts, Crummey Trusts, generation skipping trusts, asset protection trusts, and so on.
Some trusts are totally "tax neutral" during the life of the Grantor. Some are essentially "tax neutral" even after the death of the Grantor. Some trusts are designed to take maximum advantage of various tax exemptions and to defer as long as possible the payment of certain taxes. When using trusts, either domestic or foreign, it is important to determine the primary use and intent for the trust and to confer with an experienced, professional tax consultant. The use of various trusts in Estate Planning and Tax Planning can be a very complicated and technical endeavor, and should only be undertaken with the assistance of credentialed professionals such as attorneys, accountants and others.
The use of irrevocable trusts and/or limited liability companies and International Business Companies (IBCs) in the arena of Asset Protection and Preservation Planning is an essential part of an overall strategy.
