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I have gotten several PM's and emails from forum members asking questions about offshore trusts (or domestic) so I thought I would start a topic and answer some questions.
First of all, a trust is a private contract between 2 parties:
Additionally, the settlor can add a 3rd person to the trust deed called a protector. This protector is the "check and balance" for the trustee and has the legal authority to change trustees at any given moment. The protector can also redomicile (move to another country or state) the trust.
There are 2 main categories of trusts
Living trusts are used purely for estate planning to keep family assets private and out of probate at time of settlor's death. They ARE NOT effective for minimizing estate taxes or asset protection. For example, you may place your home and other real estate in a living trust so they do not go through probate or become public record when you die.
Land trusts are used for keeping ownership of real estate assets private and allow much more flexibility in asset transfers. Alone, they are not effective asset protection tools.
Examples of irrevocable trusts are pre-inheritance trusts or offshore asset protection trusts.
Pre-inheritance trusts are designed for you to gift your assets to the trustee so he/she can manage them for your beneficiaries. By doing this, you can retain lifetime rights to the assets, but for legal purposes they are no longer your assets and thus no longer attachable in any judgements that may befall you in the future. This can also minimize or eliminate your estate tax burden.
Offshore asset protection trusts can have basically the same impact of a pre-inheritance trust, but with the added benefit of being in another legal jurisdiction. This gives you additional buffer for asset protection purposes and there are significant tax benefits both for estate tax planning and also income tax planning for your heirs.
Some typical questions:
Q. If I set up a trust, can I be the trustee and manage my own assets?
A. Short answer - no. If you are the settlor and trustee, you eliminate any asset protection benefits as the courts would invalidate your trust since you effectively still manage your own assets.
Q. Who can I have as trustee?
A. That depends on the type of trust. If you are talking about a living trust, most people name a close friend or family member. This is doable with a revocable trust. With an irrevocable trust, this is not so easy. With offshore asset protection trusts, you CANNOT be the trustee, nor can you name your own trustee. Offshore jurisdictions and specific legislation that requires trustees to be licensed with the local FSC (financial services commission) in order to manage trust assets. Of course this costs you some money, but you also gain access to foreign investments and more qualified asset managers.
Q. How can I be sure the trustee will not run off with my money?
A. Short answer - you can't. That's why it is critically important to have "trust" in your trustee. If you are talking about a revocable trust like a living trust, hopefully you would chose someone close to you that you can trust. If you are talking about an offshore asset protection trust you need to get to know the company and understand their business practices. In the offshore world, most trust companies are required to keep a certain amount of capital reserves, but again this is no guarantee you trustee cannot run off with your money. However, the reason most trustees won't is a matter of self-interest. If the trustee earns $10,000 per year in fees on a trust and has 1000 clients, that is $10,000,000 in annual fees that come in year after year. It is much more lucrative (and safe) for your trustee to keep this annuity going than steal your assets and vanish. He/she will never be able to work in this business again and will likely be running from angry clients and law enforcement.
Q. What can I do with my money and assets held in a trust?
A. Anything. Literally anything. Some people just hold cash in multiple currencies, precious metals, US and foreign real estate, private businesses, stock and bond portfolios and more. You can literally hold any asset in a trust.
Q. If I put assets in a trust, do I pay tax on the income from them?
A. As settlor, the income from these assets are taxable to you. However there are some ways to defer income tax on certain types of investments.
This should be a good start for answering questions about trusts. Please feel free to ask questions and I will respond directly.
First of all, a trust is a private contract between 2 parties:
- Settlor (or Grantor) - person(s) who place assets into the trust
- Trustee - person (or company) who manages the assets
Additionally, the settlor can add a 3rd person to the trust deed called a protector. This protector is the "check and balance" for the trustee and has the legal authority to change trustees at any given moment. The protector can also redomicile (move to another country or state) the trust.
There are 2 main categories of trusts
- Revocable
- Irrevocable
Living trusts are used purely for estate planning to keep family assets private and out of probate at time of settlor's death. They ARE NOT effective for minimizing estate taxes or asset protection. For example, you may place your home and other real estate in a living trust so they do not go through probate or become public record when you die.
Land trusts are used for keeping ownership of real estate assets private and allow much more flexibility in asset transfers. Alone, they are not effective asset protection tools.
Examples of irrevocable trusts are pre-inheritance trusts or offshore asset protection trusts.
Pre-inheritance trusts are designed for you to gift your assets to the trustee so he/she can manage them for your beneficiaries. By doing this, you can retain lifetime rights to the assets, but for legal purposes they are no longer your assets and thus no longer attachable in any judgements that may befall you in the future. This can also minimize or eliminate your estate tax burden.
Offshore asset protection trusts can have basically the same impact of a pre-inheritance trust, but with the added benefit of being in another legal jurisdiction. This gives you additional buffer for asset protection purposes and there are significant tax benefits both for estate tax planning and also income tax planning for your heirs.
Some typical questions:
Q. If I set up a trust, can I be the trustee and manage my own assets?
A. Short answer - no. If you are the settlor and trustee, you eliminate any asset protection benefits as the courts would invalidate your trust since you effectively still manage your own assets.
Q. Who can I have as trustee?
A. That depends on the type of trust. If you are talking about a living trust, most people name a close friend or family member. This is doable with a revocable trust. With an irrevocable trust, this is not so easy. With offshore asset protection trusts, you CANNOT be the trustee, nor can you name your own trustee. Offshore jurisdictions and specific legislation that requires trustees to be licensed with the local FSC (financial services commission) in order to manage trust assets. Of course this costs you some money, but you also gain access to foreign investments and more qualified asset managers.
Q. How can I be sure the trustee will not run off with my money?
A. Short answer - you can't. That's why it is critically important to have "trust" in your trustee. If you are talking about a revocable trust like a living trust, hopefully you would chose someone close to you that you can trust. If you are talking about an offshore asset protection trust you need to get to know the company and understand their business practices. In the offshore world, most trust companies are required to keep a certain amount of capital reserves, but again this is no guarantee you trustee cannot run off with your money. However, the reason most trustees won't is a matter of self-interest. If the trustee earns $10,000 per year in fees on a trust and has 1000 clients, that is $10,000,000 in annual fees that come in year after year. It is much more lucrative (and safe) for your trustee to keep this annuity going than steal your assets and vanish. He/she will never be able to work in this business again and will likely be running from angry clients and law enforcement.
Q. What can I do with my money and assets held in a trust?
A. Anything. Literally anything. Some people just hold cash in multiple currencies, precious metals, US and foreign real estate, private businesses, stock and bond portfolios and more. You can literally hold any asset in a trust.
Q. If I put assets in a trust, do I pay tax on the income from them?
A. As settlor, the income from these assets are taxable to you. However there are some ways to defer income tax on certain types of investments.
This should be a good start for answering questions about trusts. Please feel free to ask questions and I will respond directly.
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