Offshore trust: pros and cons in 2023
An offshore trust in 2023 is a tool that helps to protect assets from creditors, lawsuits, and bankruptcy. It also assists in increasing confidentiality, reducing taxes, and inheriting assets in the exact proportions that the founder wants. However, like any tool, offshore trust has advantages and disadvantages, of one should be aware of even before creating it.
What is an offshore trust
A trust structure is a type of contract whereby the owner (the settlor of the trust) transfers certain assets to a manager (trustee) to run it for the benefit of a third party (the beneficiary). In this way, the owner loses ownership of the assets, so they cannot be confiscated. The contract usually has an expiration date. Afterward, the property passes to the beneficiary or is returned to the founder.
Important: Study carefully the laws of the country where you plan to register a trust agreement. In some jurisdictions, the beneficiary or family members cannot be the founder.
Also, understand that assets do not necessarily mean money or shares. It can be an apartment, a company, business interests, jewelry, intellectual property, securities, etc. The founder can transfer them on his terms, bypassing the will, the deed of gift, etc.
Benefits of a trust structure
Trusts can help to protect your assets from:
- unwanted inheritors,
- divorce, etc.
The possibilities of the trust agreement depend primarily on the country where the contract was concluded. If it is offshore, such as the Cook Islands or Belize, it can be argued that the assets are well protected. Offshore guarantees complete confidentiality and do not recognize the decisions of foreign courts, while the statute of limitations is very short. Until the creditor finds a debtor and draws up the documents, time will pass, and the claim will not be accepted.
There is no need to be afraid that you will lose control of the property if you transfer the assets to the trustee. You can draw up an agreement under which you will be the beneficiary and receive distributions. After the trust ends, the settlor can regain complete control of the assets. You can also draw up a maximum control trust deed whereby the settlor becomes the manager with full asset access.
Disadvantage of an offshore trust
Wherever a trust structure is set up, it must comply with the country's incorporation laws. Understanding that a trust can protect assets but not hide them is essential. There is a vigorous campaign against money laundering; thus, more and more offshore companies adhere to an agreement to exchange financial information.
Countries that refuse to share information are blacklisted, which makes it difficult to operate in the international market. Therefore, if you register a trust, carefully study the laws of the offshore to find out whether there is an opportunity to legally not pay tax, and how to do it. For example, many offshore jurisdictions exempt foreign businesses that operate out of the country from taxes.
Among other disadvantages are the following:
- A trust will cost more to establish than a regular company, and it has a more complicated structure, management, and maintenance methods.
- Banks are reluctant to meet with trusts, often refusing loans.
- The beneficiary gets only profits. They have no access to the main capital.
- Preservation of assets entirely depends on the trustee, so it is vital to avoid making a mistake in choosing a trustee.
- It is more difficult to attract investors to a trust than to an average company, where there is no difficulty in identifying the actual owner.
Choosing an offshore asset protection trust should be done carefully with your interests and expectations in mind. Therefore, pay special attention to studying the financial and legal laws of the country.
How to protect assets through a trust
To open an offshore trust in 2023, contact IT-OFFSHORE experts.