	Beth Anne Gray J., LL.B. (Hons.) & Victoria Tejada LL.B. P.O. Box 832-0816 - World Trade Centre - Panama City - Republic of Panama International Legal Services

[Gray & Co] [About Us] [Contact] [Services] [Service Guidelines] [Resources] [Staff] [Search] [Español]

[search]

[Up]
[Offshore Trusts]
[BVI Trusts]
[BVI VISTA Trusts]
[BVI Yacht Registration]
[Panama Yacht Reg]

Offshore Trusts - a General Introduction to Trusts and their uses in Asset Protection

The purpose of this section is to give a brief explanation of what offshore trusts are. We provide details regarding VISTA Trusts and British Virgin Islands offshore trusts legislation separately.

You may understand that a trust is "property given to another person (the trustee) to manage for the benefit of a third person (the beneficiary)." The trust is an agreement under which one person transfers title to specific property to another who agrees to hold or manage it for the benefit of a third person. http://www.thefreedictionary.com/trust defines a trust as “Something (as property) held by one party (the trustee) for the benefit of another (the beneficiary)”. Trust law is based in equity in the common law system and is a complex area of law to understand.

The creator of the trust is called the grantor or the settlor. Any person who makes a contribution to the trust may be considered the grantor of the trust as to that contribution.

There are many kinds of trusts, such as:

	Active trust: a trust in which the trustee must perform certain duties
	Blind trust: a trust that enables a person to avoid possible conflict of interest by transferring assets to a fiduciary; the person establishing the trust gives up the right to information about the assets
	Charitable trust: a trust created for charitable or religious or educational or scientific purposes
	Discretionary Trust: a trust that gives the trustee discretion to pay the beneficiary as much of the trust income as the trustee believes appropriate
	Express Trust: a trust created by the free and deliberate act of the parties involved (usually on the basis of written documentation). Express trusts are those which are created in express terms in the deed, writing or will. The terms to create an express trust will be sufficient, if it can be fairly collected upon the face of the instrument that a trust was intended. Express trusts are usually found in preliminary sealed agreements, such as marriage articles, or articles for the purchase of land; in formal conveyances, such as marriage settlements, terms for years, mortgages, assignments for the payment of debts, raising portions or other purposes; and in wills and testaments, when the bequests involve fiduciary interests for private benefit or public charity, they may be created even by parol.
	Grantor trust: a trust established to shift the income to someone who is taxed at a lower rate than the grantor for a period of 10 years or more
	Implied Trust: Implied trusts are those which without being expressed, are deducible from the nature of the transaction, as matters of intent; or which are super-induced upon the transaction by operation of law, as matters of equity, independently of the particular intention of the parties. The most common form of an implied trust is where property or money is delivered by one person to another, to be by the latter delivered to a third person.
	Inter Vivos Trust: a trust created and operating during the grantor's lifetime
	Passive trust: a trust in which the trustee performs no active duties
	Spendthrift Trust: a trust created to maintain a beneficiary but to be secure against the beneficiary's improvidence
	Testamentary Trust: a trust that is created under a will and that becomes active after the grantor dies
	Voting Trust: an agreement whereby persons owning stock with voting powers retain ownership while transferring the voting rights to the trustees

It is said that in England trusts came into existence during the early 1500's, when British landowners found it advantageous to convey the legal title of their land to third parties while retaining the benefits of ownership. In part, this was due to the Holy Wars, where some landowners wished to protect their estates from spendthrift children or other family members while they were away on the crusades. However, it also had its benefits with respect to the amount of levies they had to contribute to the Holy Wars. Because they were not the real "owners" of the land, and wealth was primarily measured by the amount of land owned, they were immune from creditors and may have absolved themselves of some feudal obligations.

While feudal concerns no longer exist and wealth is held in many forms other than land (i.e., stocks, bonds, and bank accounts), the idea of placing property in third party hands for the benefit of another has survived and prospered. Generally, a trust is a right in property (real or personal) which is held in a fiduciary relationship by one party for the benefit of another. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust. Many trusts are created as an alternative to or in conjunction with a will and other elements of estate planning or asset protection. Although many offshore providers will tout the use of offshore trusts for tax planning and avoidance purposes, we recommend that you seek legal or accounting advice in your country of citizenship or residence regarding the usefulness of an offshore trust in tax planning.

Asset protection planning involves figuring out and applying a lawful series of techniques that protect your assets from claims of future creditors. These techniques are designed to deter potential creditors from going after you, generally by making it difficult or impossible for future creditors to grab hold of your assets or collect judgments against you. There is a very sharp dividing line between "legal" asset protection planning on the one hand, and actions to defraud creditors, which are criminal, on the other.

For people who have larger estates, and thus larger potential creditor exposures, offshore trusts can be used to provide a high degree of asset protection. Common destinations for these trusts, such as the British Virgin Islands, have laws which tend to insulate and protect grantors as well as the beneficiaries.

When you establish a trust, the assets are transferred to the trustee - who may be another person (such as a family member), an IBC or a professional trustee (such as a licensed trust company, lawyer or accountant). Although these assets are held in the name of the trustee, they usually include the proviso that the assets are held in trust. In establishing an offshore trust, you transfer ownership of your assets to a trust that has only foreign trustees, who manage and administer the trust property from offshore. Although creditors may discover the offshore trust, they will have to deal with the foreign trustee and issues of conflict of laws. They may find that there is no available remedy obtainable against an uncooperative foreign trustee. Further, the actual geographic distance between the creditor and the trustee poses significant real barriers to creditors.

Because the trust assets are held in the name of the trustee, some clients are more comfortable establishing Panamanian Private Interest Foundations where the assets are held directly in the name of the Foundation, rather than in the name of the Trustee.

Care must be taken prior to establishing and funding an offshore trust. The grantor (i.e. the person who transfers assets to the trust) should execute a statement of solvency with a balance sheet (or other appropriate financial statement) showing a positive net worth. This statement of solvency is essential in order to demonstrate that you are not entering into this transaction for the purpose of defrauding creditors.

Whenever you employ an asset protection technique, you must be careful not to trigger the prohibitions against fraudulent transfers. A fraudulent transfer occurs whenever you transfer your property in an effort to stop a legitimate creditor from taking the asset, in order to satisfy a legitimate debt. If you transfer your property away while you know of the existence of a creditor, or have reason to know that a potential creditor exists, such a transfer may be considered fraudulent. The transfer could be undone, and you could be charged with a crime and face fines, restitution orders, probation or incarceration. Asset protection planning can be likened to purchasing insurance - it needs to be done well before there is a potential problem, so that you obtain full coverage. Once you are in a potential dispute, it is not advisable to transfer assets to an offshore trust.

Further, your local counsel will probably advise you that not all of your property should be placed into the offshore trust. It is advisable to retain locally assets sufficient to sustain your lifestyle, and transfer the remaining bulk of the estate to the offshore trust for protection. Remember it may be nearly as difficult for your family to recover your money from a foreign trust as it would be for your creditors to do so. Therefore, an offshore trust is useful to protect your estate from spendthrift children.

For more information regarding establishing an offshore trust, please email me.

[ Up ] [ Offshore Trusts ] [ BVI Trusts ] [ BVI VISTA Trusts ] [ BVI Yacht Registration ] [ Panama Yacht Reg ]

Last modified 26-Sep-2007 17:37 -0400

For questions or comments, please write to the webmaster

Last modified 26-Sep-2007 17:37 -0400