Offshore Trusts

The Offshore or Foreign Trust

     A Foreign Trust may be described as a fiduciary relationship in which rights to property are divided between a trustee, who holds legal title, and a beneficiary, who holds equitable title.  The essence of a Pure Foreign Trust, both then and now, is that it allows people to reconfigure ownership of assets such that they avoid the consequences of legal ownership. After establishing a Pure Foreign Trust, an individual may continue to enjoy the benefits of the underlying asset. A Pure Foreign Trust, like a corporation, is a legal entity with its own property, distinct from the individuals associated with it.

     There are three central participants, or roles, to be fulfilled in a Pure Foreign Trust arrangement. These are "foreign settlor," "trustee" and "beneficiary." The settlor, who may also be known as the trustor, donor or grantor, is the person who establishes the trust. The trustee is the individual or entity who holds legal title to the trust property. If a trust is "passive," the trustee has no duties beyond holding title, but if the trust is "active," the trustee has affirmative duties. A beneficiary is the person for whose benefit the trust is established and the for whose benefit the trustee holds the property. Usually, there are several beneficiaries.

     A Foreign Trust is established when the four basic elements have been established. These elements include: intent, identification of property, designation of parties and articulation of trust purpose. Intent is satisfied when the settlor has objectively manifested definite and specific intent to establish a Pure Foreign Trust with regard to property. Identification of trust property, or "res," requires that the settlor's interest be an existing interest and that the property be capable of being owned and adequately identified. In designating the parties, the settlor must have mental capacity, the trustee must have the capacity to take and hold title, and the beneficiaries must either be identified, or be reasonably ascertainable within a specified period of time. The trust purpose may generally be anything which is not illegal or contrary to public policy.

     A Foreign Trust is usually established through a written legal document which, depending on the jurisdiction in which it is formed, may or may not be registered with a governmental agency. A modern Pure Foreign Trust is usually expressed by a written "Trust Agreement" or "Deed of Settlement" which specifies how the trust's capital and income are to be held, managed and distributed. It is a living concept supported by law from thousands of cases and legislative enactment's. It is extremely flexible and can provide for almost any eventuality. There are few restrictions and therefore most Pure Foreign Trust agreements are customized to accommodate the personal wishes of the settlor.

     Because the Offshore Trust is a separate legal entity created when the settlor transfers assets by deed to a trustee for the benefit of named beneficiaries, the need for probate or letters of administration on the death of the settlor is eliminated. After a Pure Foreign Trust is established, the general rule is that creditors cannot reach the trust assets unless the creation of the trust was a fraud on such creditors. A Pure Foreign Trust may be challenged as being invalid if it can be shown that the settlor was attempting to accomplish an end that is illegal, requires the commission of a crime or tortuous act, or generally offends public policy.

Today, people typically use Pure Foreign Trusts to achieve the following objectives:

• Administer family wealth for investment purposes ("Family Trust");