Trusts are an increasingly invaluable legal instrument for British expatriates? wealth management needs, including asset protection, tax mitigation and estate planning. They are successfully used
Trusts are an increasingly invaluable legal instrument for British expatriates? wealth management needs, including asset protection, tax mitigation and estate planning. They are successfully used by many expatriates and could potentially also benefit you and your family.
Trusts have been around for centuries. They were first used in medieval England for knights to circumvent property laws and make provisions for families when away fighting in the crusades. They have evolved into a highly efficient 21st century arrangement which can offer serious benefits in a world of increasingly complex tax law, higher taxation, diminished financial privacy and a greater need to shelter our assets.
A trust is a private legal agreement between the settlor (yourself), the trustees and the beneficiaries. It is treated as a separate and continuing body of persons and different tax treatment is afforded to trusts than to individuals.
A trust is created when a person (the ?settlor?) legally transfers assets to the trustees with instructions that the assets are to be held for the benefit of one or more beneficiaries. A trust deed is prepared which sets out the duties and powers of the various parties.
You can specify how you want your assets to be handled in a ?letter of wishes?. For example, it can cover how you would like your assets to be managed if certain situations arise in the future, such as death, divorce, re-marriage, incapacitation due to mental or physical illness etc.
The trustees are normally professional trustees or a corporate entity managed by a professional firm authorised to act as a trustee. It is essential to only appoint reliable trustees who are located in a well regulated jurisdiction.
Your trust deed will state who the initial beneficiaries are, and this can include yourself, your spouse, children, grandchildren, any future unborn children/grandchildren or anyone else you wish, including charities.
You would choose which of your assets to place in the trust, including investment portfolios, stocks and shares, bank deposits, life assurance policies, jewellery and art, as well as property and, indeed, most other assets.
The advantages that can be provided by a trust depend on where you, the settlor, are going to live and your intentions for the future; the type of trust; the way it is set up and the countries concerned, but often include the following ?
?Favourable tax treatment ? since the assets held within a trust are outside your estate they may not be taxable.
?Avoiding inheritance taxes in many countries, including Spain and Portugal. In certain circumstances, they can also avoid UK inheritance tax.
?Avoiding forced heirship/succession laws, so you can leave your assets to whomever and however you wish.
?Continuity on death. Probate can be both expensive and lengthy and some assets may be frozen until it is obtained, but with a trust the assets are held by the trustees and are not part of your estate so there is no need for probate. The trustees will continue to hold or distribute them according to your wishes.
?Asset protection, for example against divorce, creditors, bankruptcy, lawsuits etc, for your beneficiaries and possibly yourself.
?Looking after family members. For example, after your death your trust can provide for your spouse and children according to your wishes, especially if you are concerned that your beneficiaries may not be able to manage their own financial affairs. A trust can be tailored to meet your family?s specific needs.
?Confidentiality ? a trust does not need to be registered and the settlor does not need to be openly connected with it.
?Consolidation ? trusts are very convenient in that a number of assets can all be centralised, even if they are held in different countries.
While there are various types of trusts available and you would need to establish which would work best for you, discretionary trusts are by far the most popular in offshore tax planning and wealth protection. They provide the ultimate in flexibility in that they allow you to create a trust for a number of beneficiaries without the need to decide who should receive any immediate or future benefit. This type of trust allows you to appoint additional beneficiaries in the future, or to remove existing beneficiaries should the need arise, and the trustees are able to distribute the income and capital of the trust to the beneficiaries as needed.
Trusts are a very specialised field, and as they are varied and wide ranging in their application it is important to seek professional advice from a wealth management firm like Blevins Franks which has a long history of providing trust advice and services to expatriates. You want to make sure the type of trust you use is the most appropriate for your objectives and to understand how it will be treated in your country of residence, in any country where your assets are located and in the UK if any of your beneficiaries live there or if you are a UK domicile or there is any possibility that you or your spouse will return there in the future.
By David Franks, Chief Executive, Blevins Franks
25th February 2011
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.