Trusts

For more information on Trusts... 

Trusts

We are able to assist with the setting up and administration of Trusts.

HL Fiduciaries Limited is qualified to offer a broad range of trustee services with particular emphasis on implementing offshore tax planning structures, inheritance planning situations, purpose trusts for business purposes and trusts to deal with family issues.

What is a Trust?

A trust  may be described as an arrangement by which one or more persons (the "trustees") agree to accept property from another (the "settlor") and to deal with that property for the benefit of one or more persons ("beneficiaries"). If created during the settlor's lifetime, a trust will be established by deed or declaration. The trust deed will contain the terms on which the trustees are to hold the property, the powers the trustees may exercise and details of any protector (being an independent person appointed to monitor the actions of the trustees). It is also possible for an offshore trust to arise on death and specific trust provisions are often incorporated in a person's will.

 Trusts have a wide range of uses for both private and corporate clients. A small sample of uses for a trust would be as follows:

• For wealth protection say where external threats to family wealth exist
• To protect the education of a minor
• For wealth transmission (e.g. where a business is being sold)
• For wealth succession (e.g. to manage the needs of a spendthrift, a minor or an incapacitated beneficiary)

An "offshore" trust is a trust that is established and managed with Trustees who are usually based in a low tax jurisdiction.

Types of Trust

Discretionary Trust

These trusts are often used for offshore settlements because of the flexibility they can provide from a planning perspective. The settlement set out the discretionary powers available to the trustees, names the settlor, identifies the trust fund (the initial sum settled is usually nominal and the bulk of the assets are added by separate document) and the names of the beneficiaries either individually or as a class. It is usual for the settlor to provide the trustees with a letter of wishes indicating which of the beneficiaries he/she would most like to benefit (and how) during his/her lifetime and following his/her death. This is a purely informal document, not binding on the trustees, that may be altered at any time.

Interest in Possession Trust

This is also called a “fixed interest” trust whereby a particular beneficiary is entitled to the net income of the trust for a specified period In most cases the entitlement or “interest” will continue for the life of a beneficiary (life interest) and on his/her death the trustees will have a discretion to distribute the trust income amongst a class of beneficiaries or retain it and add it to capital. It is possible to to provide a further life interest in favour of, for example, a beneficiary’s spouse to arise on the death of a beneficiary. A power to advance capital of the trust fund to the person holding the life interest can also be included.

Protective Trust

Under this type of trust a beneficiary is given a life interest which ceases upon the occurrence of one or more specified events (e.g. bankruptcy of a beneficiary), following which the income is held on a discretionary trust (which could include the beneficiary concerned). Protective trusts are commonly used for children, disabled persons or other persons who might be incapable of handling their own affairs but whom the settlor would wish to support financially.  

Purpose Trusts

The Purpose Trust Act 1996 provided a statutory framework within which a trust could be validly established for a purpose or purposes. These may be particularly useful where a trust is used within a commercial transaction.

Why create trust?

Possible Tax Planning Opportunities

In theory the main tax planning opportunity which a trust creates is that the settler would cease to be the owner of the trust property and therefore not subject to tax on those assets. Instead, it would be the trustees who, in theory, would be liable to pay tax on the trust's income and realized gains. 

If the trust is located in an offshore centre (which will impose either no or low rates of tax) there can be considerable tax saving opportunities available. Of course this is an area that requires detailed tax and legal advice relevant to a client’s specific circumstances and HL Fiduciaries Limited are happy to assist in the introduction of relevant skilled advisors as required.

Family Succession Planning

A trust can be used to enable a settler to make financial provisions for himself, his spouse and his family (or indeed others) during his lifetime and also after his death.  

Provision for Those Who Cannot Manage Their Affairs 

A trust can also be used to make provision for those who, through whatever reason or incapacity, are unable to look after their own financial affairs. The individuals concerned would usually be included in the trust deed as beneficiaries but would only receive distributions at the discretion of the trustees.   

Similarly, a trust can be used to protect family funds from spendthrift members of the family. The person concerned would usually be entitled to receive the income from the trust fund but with no entitlement to the capital.

Asset Protection

Under certain circumstances, a trust can also be used to protect property from the claims of forced heirs and in some cases from future creditors; both uses require specialist legal advice.

In addition, a client might own a particular asset which he would like future generations of his family to enjoy or benefit from. Such as asset could be the family home, a valuable work or art or shares in the family business. A trust can be created to hold the asset with restrictions imposed relating to the disposal of the property.

To Avoid Probate Problems

 A trust can also help solve the probate together with the use of companies in a trust/company structure. Although at this time, the assets should be in the name of the trustees instead of the company.  

To Cover Emergencies

A trust could be used as a contingency planning vehicle to provide cover in the event of an emergency. For example, a client could put in place the paperwork and transfer of assets to create a trust which would only be activated on the happening of a particular event, such as his incapacity or perhaps kidnap!  

Once activated, the client's assets would be managed by the trustees and his family would continue to be provided for.

To Provide Greater Confidentiality

A trust is a confidential arrangement between the settler and the trustees with minimal or, in the majority of cases, no reporting requirements. Indeed, often the beneficiaries will not know of the existence of the Trust under which they have given an interest.  

The Isle of Man and setting up a trust

The Isle of Man is a highly favourable jurisdiction for setting up a trust. Isle of Man law is closely based on that in the UK, with the main difference being that there is no restriction on the period that income may be accumulated in a trust.

 Isle of Man providers are able to maintain the confidentiality of their clients, as there is no requirement to disclose trust details.       

Provided that the no person resident in the Isle of Man is a beneficiary the trust will be exempt from local taxation in respect of income arising outside of the Islands and bank interest arising in the Islands. No withholding tax applies to beneficiaries. In addition, there is no Capital Gains Tax, Inheritance tax or Death duties on the Isle of Man.

Trusts | Offshore Trust Company | Offshore Planning | Trust Companies Isle of Man