Establishing an Offshore Trust: Practicalities and Considerations

Whatever the reason may be, the processes and documentary requirements when establishing any structure offshore will always be consistent, and include the information and documentation that a trustee needs to properly establish a trust, the information required to correctly carry out its duties and the regulatory environment in which the trustee operates. 

Setting up an offshore trust can be a strategic way to manage and protect your assets, but the process involves careful planning and a thorough understanding of various legal and regulatory requirements.

To navigate the complexities of establishing an offshore trust, the following important points should be discussed and considered beforehand. These are vital to ensure the longevity of the structure, and allow it to pass between generations:

Selecting the Right Trustee and Jurisdiction

Choosing the right trustee is critical. The trustee is responsible for managing the trust's assets according to your wishes and the trust deed. We would encourage anyone seeking to establish a fiduciary structure offshore to look for trustees with a solid track record, financial stability, and a reputation for reliability and professionalism.

It is also very important to ensure that the trustee operates in a well-regulated jurisdiction and adheres to international standards of trust administration. It is equally important to ensure the Trustees are in tune with the current regulations and always one step ahead in terms of implementing any changes that may be required to ensure that the structure remains robust and compliant.

The jurisdiction you select for your offshore trust can significantly impact its effectiveness. The following key factors should therefore be taken into consideration:

• Regulatory Environment: Choose jurisdictions with robust legal frameworks and regulatory oversight, such as Jersey, which is known for its well-established trust laws and adherence to international compliance standards.
• Reputation: The jurisdiction's reputation for stability, transparency, and cooperation with international regulatory bodies is paramount. A reputable jurisdiction can enhance the credibility of your trust and provide peace of mind.
• Tax Efficiency: Some jurisdictions offer favourable tax regimes for trusts, potentially providing tax benefits for the settlor and beneficiaries. However, it is crucial to seek professional tax advice to understand the implications fully and not rely on advice that only covers a small portion of the bigger picture, which can only cause issues and additional costs later down the line.

It is also important to note that when family dynamics change, or when one’s circumstances change, for example when an individual decides to change their domicile of choice, it is crucial that the relevant tax/legal discussions take place beforehand to identify one’s obligations and considerations. Quite often individuals act before they receive guidance, and this almost always results in issues and problems – two words that will always come at a cost.

Information Requirements and Due Diligence

When establishing an offshore trust, expect to provide comprehensive information as part of the due diligence process. This may include:

• Personal Identification: Trustees will often require detailed personal information, including proof of identity (e.g. passport or ID) and proof of address (e.g. utility bills or bank statements) appropriately certified.

• Source of Wealth: Providing evidence of the source of wealth and funds is crucial. This information helps trustees ensure that the assets are legitimate and comply with anti-money laundering (AML) regulations. Documentation might include financial statements, sale agreements, inheritance documents, or business ownership records.

• Tax Advice: Engaging professional tax/legal advisors is often necessary to navigate the complex tax implications of an offshore trust. Tax/legal advisors can provide guidance on tax liabilities in your home country and the trust's jurisdiction, helping to avoid potential pitfalls and ensuring compliance with relevant tax laws.

• Due Diligence on Investments: Trustees will conduct due diligence on any underlying investments to ensure that they align with the trust's objectives and legal requirements. This may involve assessing the risk profile, legality, and compliance of the proposed investments.

Other important considerations

In addition to the above, the following considerations should also be taken into account:

• Compliance and Transparency: The rigorous documentation requirements and due diligence processes are designed to ensure compliance with international standards and prevent illegal activities such as money laundering and tax evasion. Transparency in providing required information is essential.
• Time and Costs: The process of setting up an offshore trust correctly, with the appropriate advice can be time-consuming. The establishment process and ongoing administration will involve costs, which may include legal fees, trustee fees, and ongoing administration expenses. Understanding these aspects upfront can help in planning and budgeting effectively.

When evaluating competing proposals, we recommend that you seek similar summaries that enable you to compare like for like. A transparent fee structure will not only help you to avoid hidden costs, it will also enable a better working relationship with your trustee. 

In summary, establishing an offshore trust requires careful consideration and professional guidance. Selecting a reputable trustee and jurisdiction, providing thorough documentation, and understanding the compliance landscape are all key to a successful setup that will ensure the preservation of family wealth. By seeking expert advice, you can navigate the complexities of offshore trusts and achieve your asset protection and wealth management goals.

A version of this article was first published in the TL4 Private Client_Issue 15 ‘Offshore, pp.20-21.