Estate Planning & Trusts

Trust planning can provide Protection of Wealth as well as Asset Control. If appropriate, they can be of tremendous benefit.

A Trust can make sure that only your chosen beneficiaries receive your money.

BGFS Associates can offer experienced advice regarding Trusts. You can request information about Trusts by accessing the “Help Me With” link on this website

A simple way to understand Trusts

Let’s suggest that you’re on a night out with a group of friends. Imagine that you choose to have  a trusted member of the group to look after your money (the investment) during the evening. In addition to handing over the money to the trusted friend (the trustee) you inform him or her (letter of wishes) when and for whom you will buy drinks (beneficiaries) from the money being held (on trust).

Should anyone not on the list of names (named beneficiaries) provided to the trusted friend request drinks, they will be refused!

Good reasons why a person should set-up a Trust:

1. Forced Heirship Laws
2. Asset Control
3. Confidentiality
4. Trust Company (offshore)
5. Efficient tax planning
6. Inheritance tax mitigation
7. Bridging Generations
8. Probate from Isle of Man, Channel Isles
9. Political Stability
10. Business Risk

Forced Heirship Laws

How does a government distribute your wealth upon your death?

France, Spain and the Philippines, as well as many Muslim countries have legal restrictions on how an estate is disposed after death. Even under UK law a divorced person, who at the time of death, was living with a new partner in a foreign country, can have a ‘Will’ contested by a former spouse.

By setting up an offshore Trust a person can avoid restriction rules in their own country that may not match their intended wishes.

In addition, an offshore Trust established prior to a marriage failing would ensure a spouse could not attach your Trust assets in divorce proceedings.

Asset Control

Financial planning after death is rarely successful! If someone died “intestate” (no Will or Trust) then the government would administer and distribute their wealth. An offshore Trust can avoid the genuine distress caused by assets being frozen while a government assesses unpaid death duties.

A ‘letter of wishes’ (which can be altered daily) with an offshore Trust, provides the confidence that any wealth will be distributed according to the deceased’s last instructions.

For example, income may be paid from a Trust to a widow, while keeping the main assets safe from any greedy relatives. In addition, future school fees could be paid, by making a provision for the capital to be made available when a child reached a certain age Important note. During the investors lifetime he or she can still be a beneficiary of the offshore Trust.

An offshore Trust could be used to ‘drop off’ assets before arriving in higher tax zones, or even for disposing of low value assets that are likely to increase substantially in value.

Careful planning can assure heads of family are told about ‘secret’ bank accounts and offshore assets, so that those accounts aren’t forgotten and perhaps lost forever.

Confidentiality

Tax avoidance is acceptable, however tax evasion is illegal.
Trusts can be established in the Isle of Man or Channel Isles.
The Isle of Man has built its financial credibility on the ethos of ‘confidentiality’ It has been graded a ‘Category 1’ offshore financial center alongside Switzerland, Jersey and Guernsey, by installing strict money laundering measures.

In order to maintain its superior status, financial service companies have agreed to pass information to government authorities only in the following instances:

• When Fraud has been committed (still must be proven in the Isle of Man courts before information is released).
• When a UK domiciled client returns to the UK and provides a UK address. Investment providers must then inform the UK government of any gains encashed that are over 50% of the basic rate tax.

Trust Company (offshore)

Although a ‘Will’ is designed to help distribute assets on death, it is also a public document which enables everybody, including the authorities in a person’s country of residence, to know the full estate details.

Why make public any assets which may incur death duties when it can be avoided?

As an alternative, an individual Trust can be set-up, free, by most Life assurance companies. However you will be required to choose your own trustees (never advisable to be husband and wife only - in case of an accident). Some people may not wish other family members or friends to know their financial affairs – plus there’s always the possibility that the trustees may not survive to carry out their trustee responsibilities.

If people don’t want to involve family members and friends, then most Life assurance companies have professional Trust company facilities available.

Efficient tax planning

By having an assett within an offshore Trust, the Trust will ensure a person is not subject to any income tax, capital gains tax, or trustee tax; i.e. the person is no longer the owner of the investment placed within the Trust. With careful Trust planning, investments within the offshore Trust will not be taxable in the country you live in.

Inheritance Tax mitigation

Most countries operate a tax-on-death system. Investing in an offshore Trust can avoid or reduce your Inheritance Tax bill.

Bridging generations

When acquiring wealth a person may forget to set-up procedures to protect their assets in the future. By writing their investments within an offshore Trust they can be sure the money stays within a tax-free environment for 80 years. The Isle of Man is currently updating Trust legislation to increase this limit to 150 years. This would be of tremendous benefit to as many as 4 or 5 generations, who would benefit from such forward-thinking estate planning.

Probates

An investment established which is not covered by a Will or Trust, will be subject to Probate. This involves a solicitor going through the deceased persons affairs to ensure the estate assets are distributed according to the laws of the deceased’s nationality. The government would want any unpaid taxes paid without delay, which may involve next of kin having to borrow from their bank to advance all the costs.

Political Stability

Investing through an offshore Trust means you are no longer the legal owner of the investment (although you can still be a beneficiary). This can help investors living in politically unstable countries protect their wealth from future exchange controls, capital taxes and other government restrictions. An offshore Trust based in the Isle of Man or Channel Isles, offers a political, legal and strongly regulated environment for a persons investments.

Business Risk

If a person has their own business, then investing, for their family’s benefit, through an offshore Trust can protect their investment from possible future insolvency or bankruptcy. The Trust must be set-up in good faith, and before any problems with the business occur. Few courts will recognize a Trust that appears to have been intentionally set up to defraud creditors. As long as a problem is still ‘over the horizon’, then an offshore Trust can protect the business assets against business ventures that may turn into a liability.