A TRUST IS AN EFFECTIVE VEHICLE FOR MANAGING YOUR WEALTH
Wealthy individuals, families as well as corporations and non-profit organisations will find trusts a versatile solution for their varied objectives. Traditionally used in common law countries, a trust is ideal for individuals who wish to assume control over their assets and businesses while being accorded premium legal protection.
The separation of the legal and beneficial ownership of Trust properties offer special advantages and benefits such as:
ORDERLY DISTRIBUTION OF ASSETS
Since the assets of the Settlor have already been passed onto the Trustee and do not form part of the Settlor’s estate, they can be distributed to the Beneficiaries orderly and speedily, avoiding possible family disputes or time consuming probate. Asset distribution can usually start at any time, both before and after the death of the Settlor. Once gifted into trust a particular asset no longer forms part of the Settlor’s estate and so title to it is unaffected by his death.
The Trust Deed is a private agreement between the Settlor and the Trustee. There is no registration or reporting requirements for Trusts in most offshore jurisdictions. Confidentiality is thus assured.
FAMILY PROTECTION & FLEXIBILITY
Some Settlors may feel that their ability in future to enjoy their assets may be subject to challenges by various parties or situations. This may be because of political unrest in their place of residence, a fear of being contested in matrimonial proceedings or even bankruptcy. It is perfectly acceptable for a Settlor to be a beneficiary of a trust created by him. In this way, Settlors can remove assets from their estate without having to cease benefiting from them altogether. The Settlor can, in the Deed or through the ‘Letter of Wishes’, advise who is to benefit from the assets placed in the Trust and in what proportions. A Trust can help to protect the family wealth against dissipation by extravagant family members or by spouses marrying into the family. A Trust can also ensure that the wealth is distributed to the Beneficiaries in a regulated and orderly manner, in accordance with the Settlor’s wishes. These wishes can be changed from time to time while the Settlor is living.
SUCCESSION & ESTATE PLANNING
Probate can be a lengthy and expensive process. When assets are properly placed in a Trust, these assets no longer form part of the Settlor’s estate. Therefore, the distribution of the assets is smooth; avoiding disputes and delays. Many jurisdictions impose restrictions upon an individual’s freedom to divide his property after his death, as he would choose. For rich parents, the prospect of a child’s entitlement at an early age to significant wealth can be a source of great concern. It may undermine their determination to complete their education or expose them to the attention of bounty hunters. Transfer of assets to Labuan trusts specifically protects them against the claims of a Settlor’s forced heirs. This in particular allows Settlors from civil law jurisdictions freedom to manoeuvre in the disposal of their estate. Trusts also allow provision to be made with the utmost discretion for the welfare of an individual towards whom a Settlor may feel a moral responsibility.
PROTECTION FROM TAXATION
In general, a Trust can be used to mitigate the following types of taxation. These include: Wealth Tax, Income Tax, Capital Gains Tax, Gift Tax and Estate Duties. The Settlor is recommended to seek professional tax advice on the applicable tax laws before the Trust is established.
PROTECTION AGAINST POLITICAL AND ECONOMIC INSTABILITIES
A Trust normally holds its assets in a politically stable jurisdiction. This helps to avert risks in connection with political upheavals or economic instabilities such as exchange controls or moratorium.
PRE-EMIGRATION FINANCIAL ARRANGEMENT
When considering migrating to high tax jurisdictions, a properly structured Trust may assist in mitigating tax liabilities, by leaving assets ‘Offshore’. Treatment will differ widely depending on the circumstances and professional advice should always be sought.
PLANNING FOR ESTATE DUTIES AND CAPITAL TAXES
Although a transfer into trust of an asset will in certain legal systems become a taxable event, thereafter assets held by a corporate trustee can remain in the same ownership for a period not exceeding 100 years; the maximum permitted duration of a Labuan trust, unless otherwise stated in the Trust Deed, which effectively permits the Trust to be in perpetuity. This offers an unrivalled opportunity to plan for and reduce the frequency of capital and estate taxes.
Registration of Trust is NOT mandatory in Labuan thus its CONFIDENTIALITY is guaranteed.
GENERALLY A TRUST CAN PROVIDE
Protection of a trust’s assets against any creditor claims, insolvency, divorce and customary inheritance claims
The flexibility to be set up as a Shariah-compliant trust for Islamic wealth management and estate planning purposes
Wide reserved powers to a Settlor
SITITRUST RECOMMENDS THAT CLIENTS TAKE PROFESSIONAL ADVICE FOR TAX AND OTHER FINANCIAL CONSIDERATIONS
WHAT SHOULD I DO NEXT?
Persons wishing to establish a trust or offshore company must consider and if need be obtain advice in Labuan and their jurisdiction of residence regarding :
Their capacity to make a transfer of the settled fund to the trustees
The tax consequences of this transfer
The degree if any of influence they wish to retain over the settled funds and the best way to secure it
The identity of the beneficiaries
The likelihood and source of any possible challenge to the position of the trustees
The level of information to be given to beneficiaries
The appropriate arrangements regarding the investment and distribution of the trust assets
Which sort of trust instrument best meets these requirements
The most appropriate jurisdiction to establish an offshore company taking into account of the intended activities and objectives