Belize: Information On Trusts

Last Updated: 5 March 1997
The concept of a trust is well-known and well-established in common law countries such as the United Kingdom and the United States. A trust is a collection of legal rights brought into being by a legal process under English law. In legal terms, a trust is an equitable obligation, normally established by a written document, binding a person to deal with property over which control has been passed to him for the benefit of one or more beneficiaries.

Trusts are created by a deed of trust (the trust deed) recording the creation of such a trust which may or may not be signed by the settlor, but is signed by the trustees.

The essence of a trust is the separation of control from ownership. The person who establishes the trust no longer thereafter owns the assets which he has put into the trust. A trustee is a separate legal entity and can be either an individual or a company, which accepts the responsibility of holding rights or property so that the value accrues to the beneficiaries. The obligations of the trustee concerning the property of the trust will be regulated according to the terms of the deed constituting the trust, and the law of the trust. The trustee is personally liable for his actions as a trustee and has the power and the duty in respect of which he is accountable in law, to manage, employ or dispose of the assets in accordance with the terms of the trust document and the special duties imposed upon him by law.

Trust property can include cash, securities, real estate, etc., situated anywhere in the world providing the trustee can obtain a legitimate title to the property.

USES OF TRUSTS

The importance of the trust concept in common law jurisdictions is reflected in its special position and use in the fields not only of tax planning but also of property law, business law, family law and the law of estates.

Most wealthy people prefer to decide for themselves how their assets are to be passed on at death. For example, a wealthy individual will probably wish to make gifts not only to relatives but also to charities and perhaps for other public purposes. Arrangements of this kind are best made before death although they will continue to have effect after death.


While a will can achieve some of these objectives, a trust involving the legal transfer of ownership of assets to trustees with defined objectives as to how and for whose benefit the assets are to be held and administered is probably the ideal medium. Where the death of a person, particularly a wealthy individual, takes place, in the absence of a trust, it will be necessary to obtain probate of any will or wills, or in the case of intestacy a grant, or grants of letters of administration. This is a bureaucratic process which normally involves considerable delay, expense and publicity. The problems of obtaining a grant, or several grants, of either probate or letters of administration can be overcome by the use of a trust. The trust can therefore achieve continuity without the public process of obtaining a grant and also without the delay, bureaucracy and expense which so often occurs following death.

A trust offers a sophisticated vehicle for long term estate planning and preservation and protection of assets and wealth. A trust also protects one's assets from succession duties, inheritance taxes and estate tax. Furthermore, it avoids delays in proving a will upon death. For those with loved ones, a trust can provide for the education of children by setting aside funds for their future benefit. A settlor may also desire to protect and preserve assets from threats of expropriation, regulation, exchange controls, creditors, taxation, former spouses, family members or forced inheritance laws. A discretionary trust can also be used as a means to control imprudent beneficiaries who may squander and waste assets.

The establishment of a trust enables the owner of assets to transfer legal ownership of those assets whilst retaining influence, and in some cases control, over the devolution and management of those assets. Trusts are commonly employed to avoid, mitigate or defer tax liabilities. There are many ways in which a trust can assist in achieving the desired objectives: trusts can be used to ensure that assets pass easily on death avoiding the costs of probate and restrictions and complications normally imposed when passing assets from one generation to the next; trusts can protect assets from being seized as legal ownership and can be vested in trustees residing outside the country/jurisdiction in which the assets are located; trusts can be used for the creation of wealth in a tax efficient manner and also as an investment vehicle in the form of a unit trust or through the creation of a pension trust fund.

USE OF CORPORATE STRUCTURE

The use of offshore trusts, usually in association with offshore asset holding companies, has become more and more common with increasing personal wealth around the world. A corporate structure can be used to give a settlor a measure of control over trust property without affecting the validity of the disposition. An underlying company is often utilized as a vehicle to hold trust assets. This is achieved by the settlor establishing a trust and then an offshore company. The settlor then makes a disposition of assets to the trust which in turn capitalizes the company with the assets in exchange for 100% of the shares of the company. The trustee thus becomes a 100% shareholder in the company and appoints the settlor as the sole director of the company. This maximizes flexibility and enables the settlor to exercise a greater degree of control over the administration of the assets and does not require the settlor to rely wholly upon the fiduciary duties of the trustee.

Funds can be drawn through the company through arms length transactions such as salary, consulting fees, etc. The use of a company and a trust together form a powerful combination of flexibility, efficiency and financial privacy.

Belize is a well established common law jurisdiction. The powers, duties and obligations of trustees under Belize law are essentially identical to those which apply under English law. Since it is a common law jurisdiction both settlor and beneficiaries of Belize trusts exist within a legal system established over many centuries. The trust law of Belize is ideal for the tax planner and provides the client with confidentiality and protection while maintaining the fundamental, equitable trust concept thus ensuring that should the assets come under attack at any time, the legislation would stand up to scrutiny in any foreign jurisdiction's court of law.

There is no mandatory requirement to register or record the establishment of a trust in any way. No evidence will exist that any assets held by Belize trustees are held on the terms of a trust, particularly if these assets are held by a company (as described under corporate structure) underlying the trust.

GENERAL

A settlor can retain extensive powers, including the power to revoke a trust, etc. However, one must be careful that the trust is not subject to attack as a mere sham or nomineeship. A discretionary trust can be accompanied by a letter of wishes from the settlor to the trustees which, while not binding upon the trustees, will guide them as to the settlor's wishes, and during the lifetime of the settlor may be reviewed or changed depending on circumstances. The advantage of the discretionary trust is that the settlor can be a potential beneficiary of the trust, without being legally entitled to the trust assets thus avoiding any tax attributable to the settlor. For all the reasons mentioned above, and more, the offshore trust is an attractive commodity especially to those in the high income bracket.

TRUSTS SERVICES

The specific needs for establishing a trust structure will vary from case to case and the structure may range from a straightforward discretionary trust to a complex series of trusts and underlying companies.

Clients are able to set up and establish offshore, tax exempt trusts from within Belize and can devise and establish a structure designed to achieve the specific goals they wish.

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.

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