Trust Services

Litigation, government seizures, lost privacy, pursuit by creditors, forced heirship – these are just some of the reasons why you need to protect and preserve your assets. Asset protection is simply the process of shielding your assets against future claims and the use of an offshore asset protection trust is one of the most common ways of achieving this goal. However, offshore trusts are also widely used to satisfy a variety of tax and investment planning objectives.

The trust is a legal concept that has its origins in medieval English law. Today, the trust concept is firmly established in many countries around the world including most of the leading offshore jurisdictions. This unique arrangement allows an individual (the ‘Settlor’) to transfer assets to a third party (the ‘Trustee) to be administered for the benefit of persons chosen by the Settlor (the ‘Beneficiaries’) strictly in accordance with the provisions of a document (the ‘Trust Deed’).

A trust is one of the most secure and flexible financial planning vehicles available today, particularly when established offshore. It allows you to make long-term plans for the distribution of your wealth after your lifetime in precisely the manner you wish. By transferring property into a trust you can ensure that the management of that property will not be interrupted, on your death, by probate or other formalities since the trust property will continue to be held and administered by the Trustee in accordance with the provisions of the Trust Deed. A trust can also provide complete confidentiality and can protect assets form the risk or unforeseen financial difficulty.

Following the introduction of the Belize Trusts Acts in 1992, Belize has become one of the most sought after centres for the establishment of Exempt Trusts – which offer unparalleled advantages in terms of tax and investment planning, asset protection and confidentiality.

At BOSL, we are able to create and administer trust arrangements to meet the requirements of both individual and corporate clients. We will co-operate fully with the prospective client’s tax, legal and other professional advisors to establish the best possible structure that is tailor-made to suit their specific circumstances. Alternatively, for those with very simple and straightforward needs, one of our standard ‘Short Form Trusts’ may be more appropriate and will be less expensive to create and maintain.

The most common form of trust for which BOSL provides trustee services is a private asset protection trust, whereby BOSL will actively manage an underlying holding company and establish the necessary bank and brokerage accounts or administer an investment portfolio. Some clients choose to be granted a Power of Attorney or appointment as an authorised agent to allow them to handle certain transactions on behalf of the holding company, which is allowed under a general indemnity to BOSL.

A trust can be used for a variety of applications, such as:

Personal:

• to protect and preserve assets – including bankruptcy, divorce and forced heirship
• to preserve complete anonymity and confidentiality
• to preserve valuable personal and family assets – including majority or wholly owned private businesses
• to provide for continuity of ownership and management of business assets
• to avoid disruption of and to distribute assets on death
• to form an essential part of an overall tax or investment planning strategy
• to plan for immigration/emigration

Corporate:

• to act as custodian for mutual funds
• to act as custodian for pension and provident funds
• to manage employee payroll and share option schemes
• to manage escrow services

• Protection against high taxation:

By transferring property to a trust the property ceases to be owned by the Settlor. It may then be possible to avoid taxes that would have become payable on that property if the Settlor had continued personal ownership.

• Protection against economic instability:

By using an offshore trust worldwide investments can be made free from the economic restrictions imposed by any particular country.

• Obtaining confidentiality:

A trust is private to the parties concerned whereas when a person dies his estate will normally be open to public inspection. A corporate Trustee does not die and the continuity of a trust is not affected by the death of the Settlor. Also, in Belize, only limited information about a Trust is registered in a closed Registry which is not open to public inspection.

• Organising collective investments:

Where several people wish to join in making investments together a trust can provide the basis of their agreement and the proportions in which they are to benefit.

• Holding property that cannot personally be held:

A minor may not be able to hold property in his own name but a Trustee can often hold it for his benefit.

• Protection against spendthrifts:

Trustees can protect family fortunes for future generations by safeguarding capital and avoid it being frittered away by spendthrift beneficiaries.

• Promoting causes and charities:

Where a person wants to provide for a charity, promote a religious or artistic cause, or establish a foundation to support a worthy project, a trust can provide the legal framework and administrative organisation to achieve his objectives.

• Protection of assets:

Assets can be placed into trust to safeguard the interests of a beneficiary, such as the inheritance of a daughter being sheltered from claims if she divorces her spouse. Professional partnerships may also find that a trust assists in providing custody for personal assets and safeguarding them from loss through litigation or pursuit by creditors in the event of bankruptcy or divorce.

• Management planning:

Companies can provide pension schemes, benefit plans and profit sharing arrangements by using a trust with their employees forming the class of beneficiaries. The Trust provides a most effective method for grouping and sharing benefit and it has the added advantage of being able to accommodate a rule book designed to suit each specific and individual circumstance.

Although there are several offshore centres in which trusts can be established, Belize ranks highly when applying all of the relevant criteria:

• political stability
• modern and flexible legislation
• full exemption from taxes (provided the Settlor and Beneficiaries reside outside Belize and the Trust does not include any land situated in Belize)
• experienced professional support
• excellent telecommunications
• convenient time zone
• a sound system of courts based on Common Law

The Belize Trust legislation offers some of the most flexible and robust features available anywhere today. These include:

• the English law against perpetuities does not apply
• the powers and duties of a Protector are set out
• the status of a Letter of Wishes is clarified
• Trustee appointment and removal provisions are flexible and allow for the appointment of a sole Trustee
• the law contains provisions to simplify the drafting of Trust documents
• asset protection provisions so that a Trust may not be set aside on the basis of claims from creditors or the order of a foreign court on account of divorce, bankruptcy, etc.
• prospective Settlors may create protective Trusts in their own favour
• Purpose Trusts do not need to name Beneficiary
• other types of Trusts may be recognised (e.g. the Islamic Waqf and the Chinese Family Settlement)
• registration of the Trust in a closed Registry (i.e. not open to public inspection)
• both charitable and non-charitable Trusts are allowed
• non-charitable Trusts may have a maximum duration of 120 years
• Trustees may be given full discretionary powers

Full asset protection is best achieved when an IBC is used in combination with an offshore trust. In general, a standard IBC/Trust structure would be set up as shown below:

Flowchart – Standard IBC/Trust Structure

The most common form of offshore trust is the discretionary trust. As its name implies, this type of trust gives the Trustee wide discretionary powers over the administration of the trust property. Accordingly, the key element in the success of the trust is the transfer of control of the property from the Settlor to the Trustee. The Settlor transfers legal ownership to the Trustee. As the owner of the trust property under a discretionary trust, the Trustee has a degree of freedom or discretion as to how he shall care for this property. Limitations to his discretion may be imposed by the Trust Deed and by law.

In order for a trust to exist there must be a relationship between the Settlor and the Trustee. The main criteria for a trust to be considered valid are:

1. the intention to create a trust;

2. the property to be subject to the trust is actually and properly transferred to the Trustee;

3. the identity or classification of the Beneficiaries and the terms upon which they are to benefit.

The Trust Deed will set out what a Trustee may and may not do. There are basically two types of Trust Deed that are commonly used – these are known as the “settlement’ and the ‘declaration’ respectively. The only difference between the two is that the settlement Trust Deed names the Settlor and it is also signed by him; whereas the declaration Trust Deed is signed by the Trustee only – usually in accordance with a letter of intent provided by the Settlor. A specimen letter of intent is given below.

Specimen letter of intent [Addressed to the Trustee]

Dear Sir 

The ‘ABC’ Trust

I hereby irrevocably instruct you to execute a Declaration of Trust substantially in the terms of the draft as discussed with me. You are to hold the assets detailed below upon the trusts therein contained and any other assets that may be transferred to you from time to time. 

The following assets are being transferred into your name as Trustee:

[ insert details of assets ]

Yours faithfully,

[Settlor]

Assets of any description may be settled into trust – e.g., money, land, shares, personal property (such as jewellery, etc). In order to constitute a trust properly, the property must be transferred to the Trustee in such a way as to make him legal owner subject to local legal requirements, e.g., land must be conveyed to the Trustee, money and shares must be transferred, jewellery must be delivered. Having done so it is possible for the Trustee to permit the Beneficiary use of the assets and receive income or capital.

The Trust Deed will set out the initial property of the trust. This is often stated as a fairly nominal sum in order to get the trust started. However, because it is a nominal sum this does not mean that it can be overlooked. If the Trust Deed states that the property is US$1,000, and such other property as may be delivered, then US$1,000 must be delivered to the Trustees. Until the original US$1,000 is delivered the trust is not considered to be properly constituted because the subject of the trust is not in the hands of the Trustees. Therefore, they have nothing over which to act as Trustees.

While it is usual for the Trustee to seek the advice of the Settlor during his lifetime in connection with the more major decisions that he may wish to make, this may not always be practical. In these circumstances, the Settlor may decide to appoint a ‘Protector’ to whom the Trustee can look for advice instead of the Settlor. The appointment of a Protector is usually to cover such matters as distributions of capital and income, the addition or removal of Beneficiaries, the appointment of new Trustees or to change the law and forum of the trust itself.

Protector provisions can be included in or added to most forms of trust. The role of a Protector is one of some responsibility and the person named must be carefully chosen. It is also important that the Trustee should be able to freely contact the Protector since he will require his consent in writing before he can implement certain decisions.

The Protector provisions most often used usually require prior consent in writing for some or all of the following:

• nomination of additional persons to the beneficial class
• exclusion of Beneficiaries from benefit
• variation and rectification of administrative provisions
• change of law and forum of the trust
• appointment of new Trustees
• distributions of income
• distributions of capital

It is not mandatory to follow these options and different powers can be incorporated in the Trust Deed, subject only to their feasibility and legality being confirmed.

The Settlor is usually requested to deliver a Letter of Wishes to the Trustee to guide him as to how he should consider administering the trust.

Once the Trust Deed has been executed it is not easily changed. However, the Letter of Wishes is not part of the Trust Deed and can therefore be amended or added to at any time to take account of changes in circumstances in the family or a change of mind on the part of the Settlor.

Matters covered by the Letter of Wishes will often take the form of asking the Trustee to consult the Settlor during his lifetime and in particular what action he would like the Trustee to consider taking following his death, such as requesting him to care for dependent relatives, attend to the education of children, provide an income allowance for a young person, provide maintenance for a widow or attend to those other matters that are often covered by a will.

A specimen Letter of Wishes is given below.

Specimen Letter of Wishes [Addressed to the Trustee]

Dear Sir

The ‘ABC’ Trust

You are the Trustee for the time being of the above-named Trust Deed dated the _____________________ created by me which sets out the trusts upon which you are to hold certain assets received by you from time to time.

I know that I cannot fetter your discretion or determine the way in which you exercise your powers, and the following notes are only intended to explain the circumstances and the principles which I wish you to consider when administering the Trust.

During my lifetime, I would like you to consult me regarding distributions of capital and income, changes to the beneficial class and the appointment of any advisors to Trust. In the event of my becoming incapable of managing my own affairs or my death I would like you to consult _____________________ as you would have consulted with me.

[EXAMPLES OF FURTHER PARAGRAPHS]

[After my death, I would like you to hold the Trust Fund for my wife absolutely if she shall then be living and subject thereto upon trust for my children and if more than one in equal shares absolutely.] 

or

[After my death, I would like you to hold the income of the Trust Fund for my wife absolutely, if she shall then be living, and, subject thereto, the Trust Funds shall be apportioned equally between my children.] 

or

[After my death, I would like you to consult with my executors for guidance in respect of the disposition of the Trust Fund.]

[OTHER PARAGRAPHS DEALING WITH THE SPECIFIC MATTERS MAY BE INCLUDED.] 

Yours faithfully,

[Settlor]

Accounting records are maintained for all trusts. Annual accounts are prepared by the Trustee but typically no additional reporting is made unless specifically requested.

All day-to-day administration is undertaken by the Trustee and the following are some of the services that BOSL can provide:

• the management and maintenance of bank accounts;
• the banking of funds received;
• the handling of correspondence in connection with trust business;
• the maintenance of correspondence and document files;
• the administration of investment portfolios in conjunction with investment advisers;
• the management of property portfolios in conjunction with agents;
• the monitoring of income;
• the collection of rents and other payments;
• liaison with professional and specialist advisers.