The income and gains arising within trusts created in Gibraltar are free from Gibraltar tax, provided that Gibraltar residents are specifically excluded from benefit under the terms of the trust deed. However, at the time of creating the trust, the settlor should consider the legal and tax effects of doing so in his country of residence/domicile, the country of residence/domicile of the beneficiaries and the country or countries where assets to be transferred to the trust are located. Clearly, the effect of creating a trust will vary in each jurisdiction and professional advice should be sought in all cases.
Coopers & Lybrand will be pleased to consider these aspects in conjunction with the client's advisers including, where appropriate, the relevant member firm of Coopers & Lybrand International.
Gibraltar trusts can be very effective in reducing taxation on assets particularly for residents in countries with less sophisticated taxation legislation in relation to trusts than is the case in, for example, the United Kingdom or the United States. The trust may be effective protection for the settlor, the beneficiaries and the trust assets from such legislation. A prominent use for trusts is in the mitigation or avoidance of inheritance tax in the Settlor's jurisdiction although this will, naturally, be subject to appropriate tax advice being obtained.
Protection of assets
The legal ownership of trust assets is vested in the trustee and not the beneficiaries. The settlor and beneficiaries have no control over the assets. This can be particularly useful where declarations of wealth have to be made by individuals in their country of residence, in countries where exchange control laws may apply, or where the political and social situation is or may become unstable. In such cases, a trust may be a safe haven for a family's assets.
Preservation of family wealth
Trusts may be used to own specific assets, such as land or interests in a family company, which it would not be appropriate or practical for a settlor to divide between individuals. The use of a trust will allow them to benefit from the assets despite the fact that they do not own them. A trust will also preserve the ability to maintain the capital value of such assets for future generations.
Avoidance of probate
As legal title of the assets passes from the settlor to the trustee, there is no change of ownership when the settlor dies. This will obviate the need for probate of a will. Grants of probate are also a matter of public record. A trust is a completely confidential unregistered arrangement which will, in turn, avoid the economic hardship sometimes suffered by a surviving spouse whilst waiting for probate to be granted. The complexity of obtaining probate in one country of a will executed under the law of another can often be distressing for bereaved relatives.
When a person and/or his family moves from one country to another this is often an ideal time (and maybe the only time) to set up a trust to avoid taxation in the destination country, thereby preserving the family wealth and flexibility in managing it. It also allows members of the family to enjoy the income and capital in the most advantageous way.
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.