WHAT IS AN ASSET PROTECTION TRUST?
An Asset Protection Trust is an offshore family trust established in a common law jurisdiction such as Gibraltar. An APT is designed to provide security for personal investments as a complement to overall estate and financial planning. The APT can protect inherited or earned wealth from certain types of subsequent creditor claims.
The Settlor's family may benefit from the assets settled into trust but legal title of the assets is transferred to the Trustees. This allows the Settlor to divest himself of part of his overall wealth, thereby making it unavailable for the claims of creditors whose interests arise after a period of time determined by the law. At the same time, high net worth individuals can settle assets (typically cash, investments or other property) in an APT to plan for retirement and invest prudently.
Specific legislation has been passed in Gibraltar enabling trusts which comply with certain requirements to avoid legal attack by a subsequent creditor of the Settlor. This vital benefit is discussed further below.
Gibraltar law is generally modelled on English law and this includes the Gibraltar Bankruptcy Ordinance. The law provides that, in the event of the bankruptcy of the Settlor, trusts settled by him may under certain circumstances be set aside. These circumstances usually relate to the length of time that elapses between the creation of the trust and the date of bankruptcy. If the trust is set aside this allows the Settlor's creditors access to the assets owned, until that point, by the trust. Most major jurisdictions the law of which is based on the English model retain such a feature.
On 1 December 1990 amendments to the Bankruptcy Ordinance were made which ensure, in certain circumstances, that the settlement of assets by an individual into a Gibraltar trust will not be voidable by creditors of the Settlor. The effect of this is that, providing the requirements of the legislation have been met, creditors who are aware of the existence of the settlement and who attempt to pursue the assets through the Gibraltar courts will be denied the opportunity to do so. The Court will not set aside such a trust, even if the Settlor has become bankrupt since the date of the settlement and within the period otherwise prescribed by law, providing that the establishment of the APT has been conducted in accordance with the requirements of the APT legislation.
In order for a trust to be protected by the legislation andbecome an APT, three key requirements must be fulfilled.
(1) The Settlor must:
- be an individual;
- not be insolvent at the date of settlement;
- not become insolvent by virtue of settling assets
- into the trust;
- not be subject to any outstanding litigation.
(2) All trusts that are to be protected must be registered with the Registrar of Dispositions. Upon application for registration an initial fee of £300 and an annual fee of £100 are payable. As part of the registration process the following information must be disclosed to the Registrar of Dispositions:
- the name, date and duration of the Trust;
- the name and address of the Trustee;
- the country of residence of the Settlor.
The information is provided for administrative reasons and does not disclose anything about the Settlor.
(3) The Registrar of Dispositions will only register an APT if he is satisfied that the Trustee:
- is the sole corporate trustee of the trust;
- is considered by him to have adequate financial and
- administrative resources to act as a trustee of an APT;
- has ensured that the Settlor has completed forms of enquiry approved by the Registrar. This enquiry relates to the financial circumstances of the Settlor. In addition, the Trustees are required to ensure that the Settlor has given an Affidavit of Solvency sworn before a Commissioner for Oaths. As a matter of internal procedure, and where appropriate, the Trustees may also require that court searches are carried out in the jurisdiction where the Settlor is resident to ascertain whether there is any current or prospective litigation against the Settlor;
- has adequate professional indemnity insurance which in any event must exceed £1 million.
Coopers & Lybrand Gibraltar have received the appropriate accreditation from the Registrar of Dispositions allowing us to act as Trustees of APTs.
The new Regulations provide that the Registrar's Office is to keep all information confidential; any breach of confidentiality other than for the purpose of criminal or civil proceedings in Gibraltar is a criminal offence. Furthermore no person involved in the administration of the Regulations is required to produce in any court or before any authority any document in his possession or disclose to any court any information, other than in criminal or civil proceedings in Gibraltar in which the document or information is relevant.
All APTs created in Gibraltar will be Gibraltar tax exempt if the Trust Deed specifically excludes Gibraltarians or residents of Gibraltar from the class of beneficiaries. In such circumstances any income arising will be free of Gibraltar tax in the Trustee's hands. There is no capital gains tax in Gibraltar.
However, it is imperative that the Settlor take professional advice in the jurisdiction in which he is resident for tax purposes. In any case, under normal circumstances, an APT is established as a tax neutral vehicle, thereby having no effect on the Settlor's tax position in his country of residence.
In each case a corporate Trustee is used by us. This company is wholly owned by Coopers & Lybrand.
PROFILE OF THE FIRM
Coopers & Lybrand and its predecessor firms have been in Gibraltar for over 30 years. We are one of the leading firms of accountants and professional trustees in Gibraltar.
Our expertise in Gibraltar covers a wide range and for further details please see our brochure entitled "Profile of Our Firm".
THE WAY FORWARD
If you would like to discuss the use of Asset Protection Trusts further please contact.
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.