Have you considered setting up a trust over your private assets, to ensure their preservation and steady growth? Or perhaps you have wondered about legitimate means of transferring your assets outside Nigeria to countries whose tax and local laws or regulations are extremely favourable; and offer a level of privacy? For both beginner investors, and the more experienced class, an off-shore trust remains a veritable tool for cross-border transfer and management of wealth.
An offshore trust, just like the traditional trust, is created when the owner of a property (settlor) assigns his property to another person (the trustee) to hold the same for the benefit of a beneficiary (ies). An instance where one might set up a trust is where the settlor is the owner of assets such as real estate or infrastructure and the intended beneficiaries do not have the capability, expertise, desire or in fact time to manage the assets being given to them. In such a situation, having trustees to manage those assets can solve the problem.
Trusts may also be used where the parties wish to avoid probate along with the lengthy process and payment of probate fees which would normally be incurred under a Will. Assets held in a trust fall outside of your estate and therefore do not require these. Moreover, a trust will preserve privacy and protect confidential information unlike a Will which becomes a public document once it is probated.
The distinction between a traditional trust and an offshore trust is simply that an off-shore trust is created outside the jurisdiction of a settlor. For instance, a settlor resident in Nigeria may create an off-shore trust in China for the management of his/her wealth in that country. This may be because in the settlor's judgment, there are more favorable laws protecting the assets of the beneficiaries of the trust in that foreign jurisdiction.
Why establish an offshore Trust?
Offshore trusts are regularly set up in jurisdictions with low-taxation regimes, or those best described as "asset safe havens". These countries have earned a global reputation and acquired the human expertise to manage and execute trusts with utmost discretion, and maximum value for investors. They essentially provide platforms for tax-free transfers of assets. Furthermore, upon the death of the settlor, the inheritance tax which would otherwise be assessed on the value of the assets, will usually be eliminated.
As already alluded, offshore trusts ensure utmost confidentiality of the settlor's assets. This means that the settlor can keep the assets or property to be held in trust, away from prying eyes, while still being cloaked in utmost legality. Offshore trusts also protect assets from business dissolution or the consequences of civil litigation and liability, especially where the trust is domiciled in a jurisdiction that emphasizes privacy and creditor protection.
While an offshore trust is generally a modern and reliable investment vehicle, it is important to ensure that where possible, certain mechanisms are inserted in the trust deed to enhance protection of the assets. A flee clause is a clause in a trust deed which automatically transfers the trusteeship and rights of administration of a trust to an alternative 'safe' jurisdiction; on the occurrence of certain triggering events. Such events may include; breakdown of law and order, natural disasters, the imposition of tax where such tax did not previously exist, or where a trust comes under attack from creditors.
Ability to appoint a Protector
A protector is a person who holds powers under a trust but who is not a trustee. His role is usually to monitor, oversee or control the administration of the trust by the trustees. With the appointment of a protector, the settlor is assured of the safety of his assets. The case of Minassian v. Rachins illustrates this. In this case, the trust instrument included in the trust protector's powers, the power to modify or amend the trust provisions to "correct a drafting error that defeats my intent, as determined by the Trust Protector in its sole and absolute discretion, following the guidelines provided in this Agreement." Upon examining this clause, the court concluded that the trust protector's amendments to the trust were consistent with the provisions of the trust instrument and as such were made to effectuate the settlor's intent and were therefore granted in the trust instrument.
It is important to note that the trust protector derives his powers and authority from the trust instrument.
Where to set up an offshore Trust?
Most low taxation and asset safe havens base their trust regulations and laws on the English common law. This is because the trust concept is a distinctly English creation. Other European jurisdictions that offer successful trust administration, such as Luxembourg, Malta, Switzerland, etc., have adapted their laws and regulations to conform with the trust administration models set forth by the English common law. The most recommended jurisdictions for asset protection are Cook Islands, Nevis, Cayman Islands, Belize, British Virgin Islands (the last of these, has the highest number of offshore companies and has been a trusted location for offshore financial institution for decades) amongst others.
Offshore Trust or local Trust; which is better?
Frequent users of the offshore trust model identify the fear of loss of property as one of its main disadvantages. The sense that a settlor's properties may be scattered far and wide and he may thus lose account of properties owned, gives some investors enough concern that they desist from further use of the offshore trust. It is also more complex to set up, as it involves understanding the laws of each jurisdiction where the trust is intended to be domiciled, their tax regimes, penalties and peculiarities. Also, setting up an offshore trust is more expensive than a local trust as the settlor will have to engage legal personnel as well as tax experts in the different jurisdictions, who will form the team advising in connection with those properties.
In deciding on a scheme of trust; whether offshore or onshore, the estate size should be a major consideration. Generally, for large estates prone to larger tax liabilities, the settlor can adopt the offshore trust, but should be careful to decide which jurisdiction is most suitable. For smaller estates, a local trust may suffice.
The rules relating to trusts are intricate, but the rewards are well worth the effort to understand this useful investment tool. Better yet, legal experts can provide much needed counsel to a potential settlor, as regards the use of an offshore or onshore trust.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.