Trusts

A Trust is a concept that developed in medieval times, out of English common law, which has many uses in today's modern environment. A Trust enables individuals with wealth to dispose of their proprietary interest in assets in order to provide enhanced inheritance and estate planning and financial advantage.

Decorative Image

A Trust is not a separate legal entity like a company or a private foundation. It is essentially an equitable arrangement whereby assets are transferred from one party to another, for them to hold on trust for the benefit of another party or parties.

To establish a Trust, a person known as the 'Settlor' transfers ownership of assets to a third party, know as the 'Trustee', who then holds legal title to the assets in the confidence that the benefits arising will be applied for the benefit of one or more persons know as the 'Beneficiaries'. The common law aspect allows the recognition of an equitable interest of Beneficiaries in an asset that has been transferred from the Settlor to the Trustee. Therefore Trust assets cannot be declared as part of the personal assets of the Trustee or Settlor, and thus are ring-fenced from any potential creditors.

A Trust imposes strict fiduciary obligations on Trustees to manage and deal with the assets in accordance with the terms of the Trust, and in accordance with legislation. The Settlor will specify the Trust terms, while he may be completely distanced from the assets in Trust once it is established.

To create a Trust, assets have to be transferred to the Trustees along with a written document called a 'Deed of Settlement', 'Trust Deed' or 'Declaration of Trust', that sets out the Trust terms.

Uses of Trusts

A Trust can be a highly appropriate medium for arranging personal, family and business affairs, and have a wide range of applications and advantages which include;

  • Estate Planning and Mitigation of Forced Heirship Rules

    The use of Trusts for estate planning provides more flexibility than the use of a Last Will and Testament. This is achieved by appointing Trustees who are empowered within the Trust Deed. In addition, for residents of civil law jurisdictions (certain European and Latin American countries) a Trust can be a useful vehicle for avoiding problems such as forced heirship.

    Protection of Family Members

    Trusts provide a useful mechanism for ensuring that the rights of the young and the infirm are catered for. For example, a Trust created for the benefit of a disabled person provides for their ultimate protection in later life, particularly if that person is an only child. A Trust also ensures that surviving members of the family do not neglect that person's rights in the future.

    Tax Planning

    One of the many advantages of a Trust is that it may be used as a means of mitigating income and inheritance taxes such as estate duties. The assets held in a Trust would not constitute a part of the Settlor's estate by way of residence or domicile. A Trust is a very personal matter. It can be used to good effect

    Employee Benefits

    An employer can set up a Trust for the benefit of employees (including directors), former employees, their spouses and dependants. These are often used for the provision of lump sum payments, discetionary and deferred discretionary bonuses and loans. These tax-efficient instruments are used to "incentivise" employees.

    Continuing the Family Business

    A successful entrepreneur can ensure that the business he or she has built up continues for future generations by transferring a majority shareholder in that business to a Trust. This prevents the liquidation of the business by any descendants, and the Trustees can offer professional guidance to members of the family in the continuation of the business.

    Structured Financing

    It is common to use an offshore Trust as part of a structured financing arrangement, especially in regard to syndicated loans. For instance a lender may arrange financing of a building development via a syndicate of other lenders. The syndicate will lend to an offshore Trust which will in turn channel the loan through to the development company. The primary lender of the syndicate will wish to have priority over the other syndicate members and so the Trust will be structured to subordinate the different tranches of loan to the different loan syndicate members. As the development is completed the proceeds are channelled back through the Trust to repay the syndicate lenders in accordance with priority.

    Protection from Potential Creditors ("Asset Protection Trusts")

    Trusts may also be used to protect an individual from the claims of potential creditors. "Asset Protection Trusts" have become popular within litigious societies (such as the United States), where professionals can often face damaging law-suits. By transferring assets into a Trust, potential damage from seizure is limited as long as the primary reason for the Trust is not to frustrate existing creditors.

    Asset Protection Trusts need to be carefully tailored to fit not only the special needs of the family concerned, but also the tax and legal requirements. Competent legal and tax advice is essential.

    The Settlor establishing such a Trust must have complete confidence in the Trustees chosen. Such Trustees must demonstrate technical competence in the handling of business for clients whose country of residence may be highly litigious, as well as financial soundness.

    The jurisdiction chosen for the Governing Law of the Trust must be certain and appropriate. The jurisdiction should have enacted modern Offshore Trust Legislation with appropriate asset protection provisions, and there should be stability in the regulatory framework governing the activities of Trustees. Amber's Trust Practitioners can advise clients on the different legislative provisions adopted by various common offshore jurisdictions and the features that provide enhanced protection for Asset Protection Trusts.

    Asset Protection structures should, under normal conditions, be inactive. However, should such a Trust come under attack for any reason, it is essential that the Trustees can call on the services of appropriate advisors with particular expertise in this area. The operation of the Trust and any underlying entity must be carefully and continuously monitored.

    It is an absolute prerequisite that, at the time of establishing the Trust, the Settlor is solvent, by any definition, and that there is no question of any fraudulent behaviour.

    Amber works closely with clients to provide a bespoke solution to individual asset protection requirements.

There are wide powers to hold almost any type of asset. Including:

  • Shares and stocks in both quoted and unquoted companies
  • Investment portfolios
  • Real and intellectual property
  • Bank deposits
  • Life assurance policies issued on the life of the Settlor
  • Most other types of asset