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Offshore trust: pros and cons in 2023

11. 01. 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. Like any tool, offshore trust has both advantages and disadvantages, of which one should be aware 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, after which the property passes to the beneficiary or is returned to the founder.

Important: Study carefully the laws of the country where you are going to register a trust agreement. In some jurisdictions, the beneficiary cannot be the founder or their family members.

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 own terms, bypassing the will, the deed of gift, etc.

Benefits of a trust structure

Trusts can help to protect your assets from:

  • creditors,
  • lawsuits,
  • unwanted inheritors,
  • divorce, etc.

The possibilities of the trust agreement depend largely on the country where the agreement was concluded. If it is offshore, such as the Cook Islands, Belize, it can be argued that the assets are well protected. Offshore guarantees complete confidentiality, do not recognize the decisions of foreign courts, while the statute of limitations is very short. Until the creditor finds a debtor, draws up the documents, time will pass, 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 full control of the assets. You can also draw up a maximum control trust deed whereby the settlor becomes the manager with full access to the assets.

Disadvantage of an offshore trust

Wherever a trust structure is set up, it must comply with the laws of the country of incorporation. It is important to understand that a trust can protect assets, but not hide them. Now there is a strong campaign against money laundering, because of which 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 - is there 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 normal 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 fully depends on the trustee, so it is important not to make 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 real 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

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