July 23: Offshore Trusts That Place Your Money In Safe Hands

by David Jenyns on July 23, 2007

Do you know what an offshore trust can do for you? More than a simple bank, offshore trusts allow you to place your money in safe hands and let somebody else do the job for you – all under your control. It’s the best of both worlds for many investors! We’ll define the two major types of offshore trusts accessible to you as an investor, providing benefits and weaknesses for you to make the most advantageous decisions regarding your capital.

Onshore and offshore trusts are relatively alike. In basic terms, a trust is a legal private agreement (trust deed) between the person who places the assets in the trust (the settlor) and the individual or corporation entrusted with the protection, management and ultimate distribution of the assets (the trustee) for the persons entitled to benefit from the capital, assets and or income held in the agreement (the beneficiaries).

There are a lot of offshore trusts, but most fall into two categories: specific and discretionary. The specific offshore trust is in the form of a legal contract between the trustee and the settlor. In this type of offshore trust, the settlor’s wishes and instructions with regard to the handling and ultimate distribution of assets are clearly set out in the deed. The specific offshore trust has the benefit of eliminating any confusion as to who benefits and by how much. However, it is inflexible and does not cater for any changes of circumstance that may take place during the lifetime of the settlor.

Discretionary offshore trusts are the most flexible offshore trust available and are therefore the most usually used trust for offshore purposes. The predominant feature of a discretionary trust is that the trustees decide which member(s) of a class of beneficiaries are entitled to benefit from the offshore trust’s property. Some of the benefits of discretionary offshore trusts include the following:

a) The trustees are given in the deed very wide discretionary powers to act as they see fit.

b) The assets of offshore trusts are not held for specific beneficiaries or in specific proportions. It is impossible to determine which beneficiary owns what assets or in what proportion. It is almost impossible to use a beneficiary’s assets within the offshore trusts.

c) The assets are held for the benefit of beneficiaries who may be either defined as a group or added in at a later date. The proportion of ultimate distribution to any one or more of these beneficiaries is entirely at the discretion of the trustee.

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