The trust – a perfect instrument for asset protection

The trust – a perfect instrument for asset protection

• Tax planning via a network of international tax advisers and attorneys
• Why form a company in a foreign country with a tax accountant specialized in international tax law?
• Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries
• Offshore Company Formation: Tax haven rankings
• Examples for the legal reduction of corporate taxes
• DTA permanent establishment concept – Our services and fees
• Parent companies and their subsidiaries in the European Union
• Beware of cheap founders!

Establishing Foundations and Trusts in the English-Speaking Legal Area

Services of Our Legal Firm within the Context of the Establishment of A Foundation or Trust

Our legal firm establishes foundations/private foundations and trusts on behalf of clients in Liechtenstein,Switzerland,Cyprus,Panama, Belize, Jersey or the Cayman Islands. The fees depend on the location/country, the services and the drafting of the foundation/trust deed. We will gladly send you a list of fees. Within the context of the drafting the trust deed we invoice according to the hourly rate for a lawyer. Our consultancy services within the context of the establishment of a foreign trust or foundation include:

• the selection of the correct country for the setting up of the trust/the foundation
• the transfer of assets
• deed of trust, trust agreements
• the insertion of trusts in the business succession, the trust as an umbrella company for a foreign holding company 
• the corporate trust: organisation,deed of trust, management company etc.
• the corporate trust to limit liability: setting up the management company and corporate trust, family trust, if applicable

The Trust: Basic Principles on the Subject of Trusts Abroad (Offshore Trusts)

A trust works in a similar way to a foundation: if it is set up on the Channel Islands of Guernsey or Jersey, for example, Anglo-Saxon law applies, provided that all the preconditions similar to those for business premises (pivotally “location for decisions”, no “discernible” remote control from Germany, for example) exist. The trust is frequently managed through a bank, in Switzerland, for example (which we can, however, no longer recommend due to the “banking secrecy which has softened” and/or agreements on the exchange of information, G20 agreements etc.).

The beneficiaries are, in most cases, relatives or the founder himself. The latter lays down what happens with the assets of the trust. In fact, the trust is thus a way of managing assets incognito. Taxes are only due locally, if the beneficiary also lives on the islands. However, that is an exception. The motives for establishing a trust can be very different: the creation of assets tied to the family, control by the beneficiary, preventing third parties from getting their hands on the assets, the protection of business assets etc..

Benefits of Trusts:

• In the event of the demise of the owner of the trust this form of company allows family members or third persons specified beforehand to take over the available assets of the estate quickly and tax-free.
• A usufructuary right over it in favour of the surviving spouse can also be secured, for example.  

But beware ! People who are liable for tax in Germany, for example, (other countries are familiar with similar or analogous regulations) should bear in mind that setting up a testamentary trust, due to the German law on inheritance which must be stringently applied, is  “actually” not possible (unless “organisational options” are correctly and consistently implemented); there is only one exception in individual cases with regard to real estate located abroad. In addition, however, the setting up of a trust in one’s lifetime is also subject to severe restrictions: as German law does not permit the split beneficial ownership of the trust, properties located in Germany, for example, holdings in German private companies and shares in public limited companies with a head office in Germany cannot effectively be transferred into a trust. Also shares, securities or other capital assets that are subject to German law cannot be transferred into a trust. However, this shortcoming can be got round through capital investment in foreign investment funds or investing the asset in a foreign public limited company, in which the trust is involved.

Establishing a Trust for Germans or Persons/Companies from the Non-English-Speaking Legal Area

The main thing is that discernible “remote control” from Germany, for example, can result in the failure of the trust to be recognised. For this reason, most trusts are established by persons or companies from the English-speaking legal area, as the legal position is different here. As outlined above, the watchword for German clients, for example is “Get out of Germany”. Within the context of companies, foreign trusts, for example, can effectively be used as the umbrella company of a foreign holding company. Consequently, in the planning stages, foreign public limited companies are set up, as a rule, which have their business premises abroad and a foreign holding company as the owner of the basic companies. The umbrella company – the company that owns the holding company – is then the foreign trust. However, beware !: “cheap set-ups” that do not stand up to inspection will quickly become a tax trap. As always, evidence must be avoided in the foreign tax plan that, in the case of the companies (and the trust), it only involves intermediate companies in the context of the letter-box company, the sole purpose of which is to illegally circumvent domestic tax law. To be avoided even more so in this context are arrangements of the letter-box company, the use of a nominee director, the ease with which remote control from Germany, for example, can be picked up on etc .. . At trust level the professional preparation of the deed of trust and the selection of a respectable administrator for the trust are of crucial importance. Since, with the setting up of a trust, a far-reaching and permanent arrangement over the property is reached, it would be a mistake to cut corners at this point.

At the level of the natural person it is also a case of “Get out of Germany” and, as a rule, “Get into a foreign public limited company” that is subject to English-speaking law. German assets should, as far as possible, be “transferred” abroad and held by the foreign public limited company.

The term “Trust” is widely known and used, however there are often many misunderstandings as to what a Trust actually is. The correct definition of a Trust is an agreement or contract. It is not, as many believe a special type of company. It is purely an agreement -albeit a very special one, between three parties:

1. The Settlor

The Settlor is the transferor of the assets into the Trust. Any kind of asset can be transferred, funds, shares, cars, boats, real estate and even non entities such as patents or rights. Once the assets have been transferred into the Trust this can not be revoked. Once the Settlor has transferred all the assets into the Trust he can legally declare that he does not then own them. This is of special interest in cases of bankruptcy, divorce and inheritance or legal claims. Trusts are one of the most preferred methods employed by US medics to protect their assets in case of malpractice claims being  brought against them.

2. The Trustee

The Trustee is the official manager of the Trust. Officially the Trustee must be independent from the Settlor and has all rights and full control over the actual running of the Trust. Obviously few people would wish to pass that amount of control over their assets to a third party so generally the Trustee will always act unofficially on instruction from the Settlor. It is possible to draft a separate agreement between the Settlor and Trustee ensuring the Settlor retains full control. In order to act as Trustee over any Trust, the Trustee must hold a special license. WSR have the benefit of using the services of a long established and reputable Trustee.

3. The Beneficiary

As the name suggests, the Beneficiary is the person or persons who finally receive the assets from the Trust. The Settlor can be a named Beneficiary. All entitlements to beneficiaries must be set at the commencement of the Trust and can not be revoked or changed. Once the beneficiary has received the assets from the trust he is then liable to declare this and pay due taxation. The Beneficiary can receive regular payments from the trust, for example from the interest or can wait for the expiry of the Trust and receive all assets and interest in full.

Advantages in forming a Trust

• The Settlor can transfer any assets he has and legally declare he does not own them
• No assets that belong to the Trust can be seized
• Potential inheritors can not make claims against the Trust
• Trusts are free from taxation

Disadvantages in forming a Trust

• Trusts can not engage in business but purely manage and protect the existing assets
• Trusts have a maximum duration period of 99 years
• The Beneficiaries are liable for taxation upon payout of the assets
• Once a Trustee has been selected it is almost impossible to replace him