April 30, 2018 Cornelia Lawrie



As a Trustee in the offshore world, there are many misconceptions that we encounter thanks to a history of misuse and media hype, these misconceptions include, but are not limited, to the following:

Offshore trusts are only for the wealthy:
While it might appear that way it isn’t completely true.  Every person has assets they need to protect to ensure a stable future for themselves and their loved ones, especially when we live in such a highly litigious society.  The media has long stigmatised the offshore world and associated it with the wealthy, however it is not illegal to want to protect your assets and plan for your family’s future.  What it comes down to, is if you have assets, you could lose them, therefore you should protect them. This is why the wealthy plan their estates carefully and sometimes move assets offshore in order better protect them over generations by reducing the chances of attack from potential creditors, government instability, and privacy breaches.

Offshore trusts are for criminals:
In recent times, many countries around the world have come under scrutiny when it comes to criminal activities. There are many jurisdictions that have been blacklisted because of their tendency to provide safe harbour for criminal activities or proceeds.  There has been much legislation designed to combat money laundering and the financing of terrorism. Trustees are required by legislation to prove source of funds and source of wealth to obtain a good understanding of where a client’s funds have originated from or how they were obtained, and by doing so Trustee’s minimise the chances of proceeds from crime being settled into offshore trusts.  Should a trustee find themselves in a situation where it is possible that a transaction or settlement is of a suspicious nature, it is a required practise to report its nature to the regulating authority in the Trustee’s jurisdiction.

Giving up control of my assets means I lose them:
This is untrue. The point of a trust is to protect your assets and plan for your future. Part of protecting your assets is assigning or transferring the ownership title to your Trustee.  While the title to the assets is no longer in your name you are still able to be a beneficiary of the trust, you may still have use of the asset in question. Many grantors want to appoint a domestic trustee as Managing Trustee to allow themselves a quicker response time and still maintain some domestic control.  This position has its risks and can result in problems should litigation arise.  The grantor maintaining control can give the illusion that the trust is a sham in nature.  It is essential when establishing a trust that it is clear in its nature that the trust is and will be used for its intended purpose.

Is my money safe with a foreign trustee?
It is critical when selecting a foreign trustee that you work with your onshore advisor to find a trustee and a jurisdiction that meets your own needs.  As with anything, not all trustees and jurisdictions are created equally and this is why you need to ask a few questions before you make your selection.  The questions you need to ask are:
• Is the jurisdiction well regulated;
• Does the jurisdiction regulate the trustee;
• Does the trustee have a complaints process;
• Is the trustee insured;
• How long has the trustee been in business and working with my advisor;
• Are there any adverse new reports or findings on the trustee;
• Does my trust deed allow for a Protector/Enforcer to approve any distributions or asset changes;
• Will my trustee properly monitor the assets I have settled on the trust; and
• Will the trustee accept my communications for my wishes for the trust.

A professional trustee in most jurisdictions will fall under a regulatory regime and you should be able to contact the regulator directly to raise any issues you might have. Additionally, you should expect to provide your trustee with a good deal of information so that they can understand who you are (this is called KYC – or know your client), you should also expect that your trustee will perform due diligence checks on any potential investment advisors, custodian banks, insurers and asset managers before they invest your hard earned funds.  They will also ask you for tax information to make sure that you are paying taxes in your home country. Make sure you ask the questions above and if your selected foreign trustee can’t answer those questions with ease then you should keep looking.

PEP’s use offshore trusts to hide their assets:
A PEP is a politically exposed person, and is generally someone who works for the government.  This term can sometimes extend to being a PEP by association.  By association includes people who are immediately related to a PEP or are employed by someone who is a PEP.  If you are or intend to use someone who fits into the PEP category, you should be aware that professional trustees will require enhanced due diligence on that party.  Enhanced due diligence is required for PEP’s because of the potential for use and abuse of power and resources.  With the implementation of enhanced due diligence through legislation and regulations for Anti Money Laundering and Countering Financial Terrorism hiding money and assets becomes more difficult.

Offshore trusts are used for tax evasion:
In this day and age where FATCA rules apply, most things are reportable to the IRS at the person level, not at the Trustee level.  There are certain obligations that US people have to abide by and tax reporting is one of them. The Cook Islands, New Zealand and Nevis Jurisdictions are tax neutral, so taxes will generally  not be paid in those jurisdictions but will be payable at the US end, we ensure that our entities complete the necessary tax forms annually. The offshore trust could be tax deductible as part of your asset and estate planning. The tax neutral benefit does not mean they are havens for tax evasion.

To summarise, offshore trusts are not only for the wealthy, they can benefit anyone who has assets that should be protected, they are no longer viable for criminals, and are not safe havens for tax evasion. Southpac as your trustee will not steal your assets, contrary to what some people may think, and last but not least, giving up title to your assets does not mean you lose them, you are simply protecting them from the possibility of litigation. While you may no longer have legal control over them you still benefit from them thanks to an effective estate planning structure.  If you are considering an offshore trust, please visit our website and submit a general enquiry and one of Southpac’s helpful team will contact you to discuss any questions you may have.

Please note that Southpac does not provide legal, tax or accounting advice and we recommend that you contact a professional to discuss any onshore obligations you may have.

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