BY JACINDA MITCHELL
There are several common perceptions as to why people choose to have an offshore trust. Some of these include protecting assets from future creditors, and building up their wealth for the benefit of future generations. While these are obvious useful reasons to establish a trust, there are also several not-so-obvious reasons that should be considered by everyone.
An issue that not many think about is privacy after death. In several countries if a person passes away and they only have a will, a person’s estate may go through probate. The result of this is that all information regarding assets, transactions, and names of the will’s beneficiaries will be available to the public upon application. With a trust, all the above information is kept private. This can be beneficial where the person who has passed away does not want beneficiaries to know which charities will receive a distribution. Another example is if the person who has passed away wanted to ‘favour’ one child over another and not want the other beneficiaries to know. For example, Jeff has always had a strong relationship with his eldest son and would like to leave more inheritance to him rather than his two other children as he knows his son would put it to good use. Jeff also does not want to his two other children to know as this could cause hurt feelings and cause disputes amongst his family. Rather than only leaving it as a direction in a will and risking it being made public, Jeff established a trust that makes his children beneficiaries and allows him to privately allocate who gets what inheritance.
The second not-so-obvious reason is the spendthrift clause that is placed in most trust deeds. A spendthrift clause allows assets intended for a beneficiary to stay in a trust where there is cause for concern if they were to inherit outright upon the settlor’s death. Using Jeff as an example again, let’s say one of his children (who is a beneficiary) has a known substance abuse problem. Jeff does not want his child to waste their inheritance on the problem. Jeff would like his child to be able to receive the inheritance when they are in a better position. The spendthrift clause allows the trustee to keep the inheritance safe in the trust until the child has overcome their problem. This clause also protects the trust and the beneficiary in the event that a beneficiary is sued and a judgement creditor attempts to attach the beneficiaries’ interest in the trust.
One may also have concern regarding the trustworthiness of their child’s (who is also a beneficiary) spouse or they may just want to ensure that their assets stay in the family in case of a child’s divorce proceedings or if the child were to pass away and the spouse remarried. For example if Jeff has a terminally ill daughter and wants to ensure that the assets she would have received go to her children rather than her husband, an effectively established trust will help provide that this happens. This is also applicable if Jeff had remarried and upon his death only wanted his assets to go to his children, not his wife, so only they would be listed as beneficiaries to receive an asset distribution.
Another not-so-obvious reason to have a trust is if you are a small business owner. Small businesses often have customers all over the world, especially if their business is internet-based. One may wish to establish an LLC offshore where taxes and registration fees are low. For example, Jeff lives in Australia and has started an internet based business which specialises in web design. Jeff’s main clients come from the United States, China, and the United Kingdom. In order to get maximum protection and the ease of ability to process payments from countries all over the world, Jeff sets up a Cook Islands trust which holds an LLC. This is practical and efficient for his business. There are many reasons to have a trust, some are clear and some are not so obvious.