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An offshore trust is a conventional trust that is formed under the
law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...
s of an offshore jurisdiction. Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring (or 'settling') assets (the 'trust property') on the
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...
s to manage for the benefit of a person, class or persons (the ' beneficiaries') or, occasionally, an abstract purpose. However, a number of offshore jurisdictions have modified their laws to make their jurisdictions more attractive to settlors forming offshore structures as trusts.
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, a civil jurisdiction which is sometimes considered to be offshore, has artificially imported the trust concept from
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
jurisdictions by
statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by ...
.


Uses of offshore trusts

Official statistics on trusts are difficult to come by as in most offshore jurisdictions (and in most onshore jurisdictions), trusts are not required to be registered, however, it is thought that the most common use of offshore trusts is as part of the tax and financial planning of wealthy individuals and their families. For instance, the founder of
Wonga.com Wonga.com, also known as Wonga, was a British payday loan firm that was founded in 2006. The company focused on offering short-term, high-cost loans to customers via online applications, and began processing its first loans in 2007. The firm op ...
,
Errol Damelin Errol Damelin (born 23 August 1969) is a South African entrepreneur and early-stage technology investor. In 2007 he co-founded Wonga, an internet payday loan company that gained notoriety for charging extremely high interest on short-term loa ...
holds his shares through Castle Bridge Ventures, a trust based in the British Virgin Islands. While the family behind the
Nando's Nando's (; ) is a South African multinational fast casual chain that specialises in flame-grilled peri-peri style chicken. Founded in Johannesburg in 1987, Nando's operates over 1,200 outlets in 30 countries. Their logo (also seen as a sort ...
restaurant chain, the Enthovens, reportedly use trusts in the Channel Islands as part of their financial planning. Other users of offshore trusts include Sir Ken Morrison, the British supermarket magnate, the Rothermere family who own the
Daily Mail The ''Daily Mail'' is a British daily middle-market tabloid newspaper and news websitePeter Wilb"Paul Dacre of the Daily Mail: The man who hates liberal Britain", ''New Statesman'', 19 December 2013 (online version: 2 January 2014) publish ...
group and the late Bruce Gyngell who founded TV-am. However, offshore trusts have other uses too: * Offshore trusts are also sometimes formed as
unit trusts A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending ...
to operate as a
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...
. * Offshore trusts are often used as part of an orphan structure in
capital markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
or trade finance transactions. * Pan-national non-governmental bodies are sometimes established as offshore trusts. For example, the
International Cricket Council The International Cricket Council (ICC) is the world governing body of cricket. Headquartered in Dubai, United Arab Emirates, its members are 108 national associations, with 12 Full Members and 96 Associate Members. Founded in 1909 as the '' ...
is formed in the
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.


Types of offshore trusts

Below are the most common types of trusts: A Revocable Offshore Trust is a trust which can be liquidated or altered by the settlor according to the terms, that are set out in the Trust Deed. In an Irrevocable Offshore Trust may not be changed or liquidated by the settlor. A Discretionary Offshore Trust enables the trustee to decide on the distribution of profits for different classes of beneficiaries. In a Fixed trust, the distribution of income to the beneficiaries is fixed and can not be changed by trustee. A Hybrid Trust includes elements of discretionary and fixed trust.


The benefits of an offshore trustGorbunov A.R. Offshornyy biznes i sozdanie kompaniy za rubezhom. 2-e izd., pererab. i dop. M.:Ankil: INFRA-M, 1995. 160 s.

* Confidentiality and anonymity: Despite the fact that an offshore trust is officially registered in the government, the parties of the trust, assets, and the conditions of the trust are not recorded in the register . * Tax-exempt status: Assets that are transferred to an offshore trust (in a tax-exempt offshore zone) are not taxed either when transferred to the trust, or when transferred or redistributed to the beneficiaries. * The ability to transfer assets in a short time and without high costs: The transfer of property inherited through an offshore trust does not require the approval of a judge or the high cost of a lawyer. * Asset protection: The Trust protects assets from forced transfer by inheritance, from seizure in divorce and bankruptcy. * Accumulation of capital: The trust can own commercial enterprises, open bank accounts, participate in international investment projects, and its revenues will accumulate in one of the tax-free offshore zones. * Reliability: The capital will be safe from a financially, politically and economically unstable world. * Versatility: In the trust, you can transfer any assets - cash, real estate, business, stocks, intellectual property rights, etc.


Rule against perpetuities

Trusts in general are subject to the
rule against perpetuities The rule against perpetuities is a legal rule in the American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of p ...
which, in practical terms, puts limits on the length of time within which all trust property must be distributed. Because of the strictures of the rule, a number of trusts have been struck down in wildly hypothetical circumstances because of possible infringement of the rule (e.g., the '' fertile octogenarian''). Most offshore jurisdictions which have sophisticated trust laws have modified their laws relating to perpetuity to allow settlor to select lengthy, fixed, perpetuity periods, to avoid the use of "Royal lives" clauses. Many have also adopted "wait and see" laws, which mean that trusts which might potentially infringe the rule against perpetuities are no longer automatically invalid, but instead the trust remains valid unless and until the perpetuity period is breached. In Jersey, the rule against perpetual trusts has actually been abolished entirely. This has also been done in a number of U.S. states.


Management of underlying companies

Trusts in general are subject to the rule in '' Bartlett v Barclays Bank'' which provides (briefly) that where trust property includes the
shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of ...
of a
company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
, then the trustees must take a positive role in the affairs on the company. The rule has been criticised, but remains part of trust law in many common law jurisdictions. A number of offshore jurisdictions (notably the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
, with STAR trusts, and the
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, with VISTA trusts) have created special forms of trust that may be expressly settled without imposing an obligation of the trustees to interfere in management in this way. Paradoxically, these specialised forms of trusts seem to infrequently be used in relation to their original intended uses. STAR trusts seem to be used more frequently by
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as ...
s forming
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...
s as
unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...
s (where the fund managers wish to eliminate any obligation to attend meetings of the companies in whose securities they invest) and VISTA trusts are frequently used as a part of orphan structures in
bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
issues where the trustees wish to divorce themselves from supervising the issuing vehicle. Critics in onshore jurisdictions have suggested that these specialised trusts have provisions that so fundamentally undermine the nature of a trust that they should not be recognised in an onshore jurisdiction, but whatever the view of onshore tax authorities and regulators, it seems unlikely that the courts in onshore jurisdictions would be prepared to derogate from the Hague Convention on the Law Applicable to Trusts and on their Recognition.


Asset protection

Certain jurisdictions (notably the
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, but the
Bahamas The Bahamas (), officially the Commonwealth of The Bahamas, is an island country within the Lucayan Archipelago of the West Indies in the North Atlantic. It takes up 97% of the Lucayan Archipelago's land area and is home to 88% of the a ...
also has a species of asset protection trust) have provided special trusts which are styled as asset protection trusts. While all trusts have an asset protection element, some jurisdictions have enacted laws trying to make life difficult for creditors to press claims against the trust (for example, by providing for particularly short limitation periods). In practice, the effectiveness of such trusts is limited as the
bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...
and/or
divorce Divorce (also known as dissolution of marriage) is the process of terminating a marriage or marital union. Divorce usually entails the canceling or reorganizing of the legal duties and responsibilities of marriage, thus dissolving th ...
laws in the settlor's home jurisdiction will usually operate to set aside transfers to the trusts, and most jurisdictions (including offshore jurisdictions) set aside transactions entered into defraud creditors.


Powers of investment

Most traditional jurisdictions only permit trustees to make very conservative financial
investments Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
. Most offshore jurisdictions give trustees flexibility and permit (or allow the settlor to specify in the
trust instrument A trust instrument (also sometimes called a deed of trust, where executed by way of deed) is an instrument in writing executed by a settlor used to constitute a trust. Trust instruments are generally only used in relation to an ''inter vivos'' tr ...
that they are permitted) a wider range of investments, including higher risk investments such as derivatives and
futures contract In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s and specific investments, such as an investment into a small private company, in any area of the world.


Purpose trusts

Whilst in most common law jurisdictions, trusts must either be formed for the benefit of persons, or charitable purposes, many offshore jurisdictions have also amended their laws to permit trusts to be formed for non-charitable purposes. Such trusts need to enforce a "protector" to be able to enforce the terms of the trust, but doubt remains as to who should be treated as the beneficial owner of the trust funds for tax purposes prior to its distribution. No offshore jurisdiction yet appears to have made a serious effort to expand upon the flexibility of discretionary trusts in relation to certainty of objects, as expounded in '' McPhail v Doulton''. This may be because the common law rules are now considered to be sufficiently flexible to make no widening necessary to attract trust business.


Anachronistic common law rules

Many offshore jurisdictions have also legislated to abolish certain anachronistic common law rules which sometimes cause difficulty for trust planning. These include: * Rule in ''Howe v Earl of Dartmouth'' * Rule in ''Maloney v Alveranga'' * Rule in ''Re Atkinson''


See also

*
Private foundation A private foundation is a tax-exempt organization not relying on broad public support and generally claiming to serve humanitarian purposes. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion i ...


References

{{DEFAULTSORT:Offshore Trust Equity (law) Wills and trusts Offshore finance Legal entities