F.A.Q. - Trusts

Topics
'Asset Protection' Trusts
Reasons and Uses of Asset Protection via a Foreign Trust
Functionality and Structure of a Foreign Trust
Belize Asset Protection Trusts
Laws Surrounding Foreign Trusts

'Asset Protection' Trusts

What is a Trust?
A legal device that allows title to, and possession of, property to be held, used, and/or managed by one person, the trustee, for the benefit of another different person or group, the beneficiaries.

A trust is one of the most flexible existing financial mechanisms, able to handle almost any purpose. Its concept is based on the separation of legal ownership of the Trust assets (which rests with the Trustees) from the beneficial ownership (which rests with the beneficiaries). It has been specially designed to achieve the best asset protection.

It is common knowledge that the wealthy have been using Trusts for many years. A Trust was the best way to maintain that wealth, and to secure their families' future, free from excessive taxation and security against frivolous lawsuits. Since the onset of this regrettable explosion in the litigation arena, many people have tried to secure their assets by using a Trust. Today, due to the information superhighway, more and more people are finding out that an Offshore Trust can be established by professionals without the inherent high cost.
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What are the main uses of a Trust?
A trust can avoid probate and inheritance taxes; invest in all kinds of securities, real estate, cash, futures, bonds, and stocks; hold title of any real or personal property, business interests, insurance policies, home, boat, and car; pay support in marriage, to elderly, children, medical, toward educational expenses, etc.
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What types of Trusts are there?
There are several types of trusts, but the most familiar are:
1. Family Trust - used to maintain a families' wealth via investments
2. Charitable Trust - used for donation purposes
3. Testamentary Trust - used to distribute assets after ones passing
These are still all viable uses and have their tax benefits.
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Reasons and Uses of Asset Protection via a Foreign Trust

What Reasons are there that individuals would want to place their assets in Foreign Jurisdiction based Trusts?
1. Economic diversification;
2. Achievement of a "Low Profile" of anonymity with respect to wealth;
3. Avoidance of forced dispositions;
4. Premarital planning;
5. Preservation of entitlements (e.g., Medicare and Medicaid);
6. Marital property planning (e.g., establishing a vehicle for partitioning community property, spousal gifts);
7. Tax Planning (e.g., establishing a vehicle for exemption equivalent trusts and generation-skipping transfer tax exemption trusts);
8. Planning for the contingency of changing one's domicile or citizenship;
9. Participation in investments not otherwise available to U.S. investors;
10. Preplanning in anticipation of currency controls or restrictions on ownership of bullion; and
11. Liability protection, tax planning, or strategic advantage in the context of an active trade or business offshore.
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What Key Benefits come from the use of Foreign Trusts?

1 . To hold and/or manage an offshore corporation engaged in international activities.

2. Holding assets obtained by international corporations engaged in multinational trading. Stocks, bonds, and cash investment products gained during international operations may be held in offshore trusts without being subject to taxes.

3. Protection of property and other assets from personal and corporate gain. In general, having property and assets transferred to a Trust can protect such assets from legal and political actions that may be taken against the owner. Transferring legal ownership to the Trustee(s) is the most direct form of asset protection and essentially transfers ownership of the assets to the Trustee(s).

4. Protection of wealth when living in unstable areas. Expatriates who settle in a region that is politically unstable or where there is a risk that a government will expropriate assets or impose exchange controls can protect their wealth by placing it in a more stable jurisdiction.

5. Preserving family wealth. Trusts can be used like a Will to arrange for business ownership, investments, or other wealth to be passed on and distributed to one's inheritors without inheritance taxes. Trusts may avoid complicated court procedures relating to probate and inheritance laws in the Settlor's country of domicile. They can also be easier to administrate than wills; are less vulnerable and less likely to be challenged through legal contests than wills (especially if operative for several years); can beat the charge of mental incompetance so often used against wills written late in life; and assure the assets will be used by the beneficiaries in the way intended.

6. Facilitation of tax planning. A Discretionary Trust can be useful in reducing taxation of gifts or bequests. The Trust is under the control of a legal ownership of the Trustees and neither the Settlor nor the Beneficiaries can be said to have any taxable ownership of the trust. The Trust Deed need not show the names of Beneficiaries. These may only be specified in a Letter of Wishes that is private. The Trustees have absolute discretion as to whom the Beneficiaries are, how much is appointed to each, and when and how any distribution may take place.

This can be useful for...
...those who cannot hold assets themselves (eg, minors and those bankrupt); and
...those wanting to minimize taxation by means of divesting themselves of income or assets in favor of the Trustee, who may be located in a low or no tax jurisdiction.

7. Trusts are confidential and flexible. Since assets are held in the Trustees' name, Settlors enjoy complete privacy as to the nature of hteir investments and to whom they are giving benefits. The Trust Document is not a public document and is handled with absolute confidentialtiy. Trusts can be created or changed quickly at any time.

8. Trusts are private arrangements. Trusts need not be registered with any tax authority and are a private agreement between the concerned parties. There is also no legal requirement to file the accounts of a trust or have them audited by an independant auditor.
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Functionality and Structure of a Foreign Trust

What are the main characteristics of a Trust?
Having its origin in English Common Law, a Trust is an agreement that allows separation of legal and beneficial ownership amongst a number of individuals. These individuals are the Settlor who transfer legal ownership (title) of the assets to a Trustee who holds and administers the assets solely for the Beneficiay of the Trust in accordance with instructions from the Settlor as specified in the Written Trust Document.
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Who is the Settlor of a Trust?
Sometimes also referred to as the Creator or Grantor of the Trust, the Settlor is simply the individual or entity who created or settled the Trust by donating property or other assets to be managed and administered by a trustee but from which all benefits and profits would go to a beneficiary.
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Who is the Trust Protector?
In jurisdictions that allow the appointment of such, this person provides general oversight of trust operatins to ensure its objectives are met and the law is followed. Usually the settlor has the right to name the protector and may even assume that position himself, but the majority legal view is that a settlor should not also serve as trust protector.

A protector does not manage the trust but in some cases can veto or require trustee actions, such as the distribution of income and assets. Often the protector also has the right to replace the foreign trustee with another nominee, with or without cause.
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How does one transfer Assets to a Trust?
Depending on the particular assets to be transferred, this can be done in one of the following ways:

1. Funds can be sent by wire transfers, cashier's checks, postal money orders, or can be delivered in cash personally, which is not necessarilty advisable.

2. Securities, Stocks, Bonds, etc. can be transferred with a phone call to your broker.

3. Personal Property can be transferred by a bill of sale.

4. Automobiles can be transferred by adding the name of your trust to the title through the Department of Motor Vehicles' registration. In order to avoid the transfer tax, once you receive your title, you should go back and remove your name. This may vary from state to state.

5. Real Estate is normally conveyed as a "quit claim" deed. This removes you as the owner, but you are still obligated to pay the note or taxes, but this can be paid by the Trustee.

In most cases, it is recommended that assets such as your home be maintained in your name while there is an outstanding debt so that you don't lose the tax benefits. Some people choose to refinance or pull the equity out of their assets so they can transfer the funds to their trust.

6. Personal Income can be transferred a number of ways. Thus, exact methods can be given for the specific transfer on a need to know basis. You can discuss this with your Trustee once your trust is established.
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Belize Asset Protection Trusts

Why should I choose a Belize Trust?
In privacy aware jurisdictions like Belize, there is no requirement to register the trust with the government, and the terms of the trust agreement and the beneficiaries are protected against desclosure. The terms are also not available in public records. Moreover, the Trustees are not allowed to disclose information about the trust unless a local court order requires it.

Belize does not impose taxes of any kind on the Settlor, the Beneficiaries, nor on the income or capital gains earned by the trust.

A Social Security Number is not required and there are no reporting requirements whatsoever. So, there is no requirement for the Trustee to file trust accounts with the local tax authority thus further preserving the confidentiality of the trust's activities. This enables the Settlor to keep his or her financail affairs in complete confidentiality and his or her property safe from claims, judgments, or bankruptcy proceedings. Taxes from any other country cannot be imposed on earnings or assets of non-domestic, irrevocable descretionary Belize trusts.

Depending on the residence for tax purposes of the Settlor and the Beneficiaries, it is often possible to make distributions of capital or income from the Trust completely free of tax. In this case, many reporting requirements would either be eliminated or vested in the Trustees....
Belize trusts are specially designed to effectively protect the Settlor's assets from attack by erstwhile creditors, thereby preserving the Settlor's assets for the enjoyment of the Settlor and his or her selected Beneficiaries.
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What is the main advantage of non-public registration in Belize?
This creates privacy for the Settlor so that the Trust's activities and the identity of the beneficiaries are fully protected.
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Laws Surrounding Foreign Trusts

What if the Settlor or Grantor wants to name him or herself the Protector of the Trust as well?
To protect the trust, when a Settlor serves as trust Protector, the trust must have an anti-duress clause requiring the offshore trustee to ignore any orders from the Protector issued "under duress," as they would be when issued pursuant to a domestic court order.
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What powers and to what degree does U.S. Court have over persons holding foreign trusts?
A U.S. court does have theoretical enforcement powers, including ordering a U.S. person to repatriate any offshore funds or assets under a threat of a finding of civil contempt and possible fines. But even that possibility is negated by a properly established offshore trust with an anti-duress clause in its declaration. The clause permits a U.S. trust settlor to claim truthfully that he or she is legally unable to comply with the U.S. court's demand since the foreign trustee and/or court will not honor the U.S. court's orders or the trust creator's wishes under such circumstances.

As to possible contempt rulings against a domestic settlor of a foreign trust, the U.S. Supreme Court has twice held that a U.S. person cannot be held in contempt by a court for failure or inability to do what is not within his power to do, unless he created that impossibility himself.
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