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Offshore Trusts

• Find out more about the typical Uses of Trusts
• Find out more about the Types of Trust
   

Introduction to trusts

The trust is a creation of the English common law. One of its earliest known uses was in medieval times when a knight departing for battle might leave his property with a trusted third party to be used for the benefit of the family he left behind. Its terms are generally set out in writing but it can be expressed verbally.
 

For a trust to exist there are three requirements, all of which must be satisfied:

• There must be a Settlor, being a person wishing to confer a benefit on others, the exact nature of this benefit will be set out in the trust
   
• There must be a Trustee and the assets, which will be used to provide the above benefit, must be transferred under the control of the trustee. Trust assets must be segregated from those of the trustee and cash, for example, will be deposited in an offshore banking account.
   
• There must be beneficiaries. If more than one it must be possible to ascertain at any time who these persons may be and when they will receive their benefits

In more recent times countries with different legal systems, e.g. Liechtenstein, have enacted legislation permitting the formation of trusts and there have been international conventions which provide for the recognition of trusts in countries where, otherwise, they do not exist. Most trusts are, however still found in countries, which derive their law from association with English law.

Although the original purpose of a trust may have been, generally speaking, estate planning, permitting assets to be held for the benefit of persons who were not themselves capable of managing assets and enabling a simple transfer to successors, trusts have in more recent times also become instruments of tax planning. The ability to separate the legal and beneficial interests in property and the rights to income from the rights to the capital has assisted in the growth of the entire financial planning industry.

Offshore Foundations

The Foundation is probably best viewed as the civil law alternative to the trust and exists in the legal systems of Liechtenstein and Panama. It is created by a founder who transfers assets to the Foundation Council, or Board, to be administered for the benefit of and ultimately distributed to the beneficiaries of the Foundation in accordance with the constitution. It can be used for the same purposes as a trust. (See What are Offshore trusts used for)

Once the Foundation is established it constitutes a separate legal estate from that of the Founder and its assets are protected from future claims against him. Whilst the assets are retained within the Foundation they can be protected also from claims, which may be made against the beneficiaries.

In Panama a Foundation is registered in the Public Registry, but in Liechtenstein it is normally only required to register if it engages in commercial activities. Even without registration it acquires a separate legal identity and only the assets of the Foundation are available to meet its debts. This is in fact the major difference between the Foundation and the Trust as trustees may become liable for the debts of a trust they administer. Bye-laws need not be filed in the Public Registry however. No information concerning a registered Foundation is publicly available and the constituent documents can be drawn up in any event in a form, which does not disclose the identity of the beneficiaries.

To learn more about Offshore Trusts please call +353 1 431 9663 or Click Here to contact us.