Trusts and Wills for Expats

When it comes to the ultimate and final protection of your finances and your assets, you will need to consider how your estate will be managed and distributed upon your death. As an expatriate it is essential to get your affairs in order as soon as you arrive in your new nation because different countries have different laws and rules relating to succession, inheritance taxation and how an estate is divided up and passed on. In addition to this fact, depending on the nation you herald from and are deemed domiciled in, your estate may incur a dual inheritance tax liability upon your death. Estates not carefully protected and wishes not correctly formalised and made clear can result in an individual effectively dying intestate, an estate’s assets being frozen, and spouses and dependent children being left out in the cold – so always have a will.

The History of Offshore Trusts

The use of a ‘trust’ in the financial planning sense can be traced back to around 400 BC when Plato was using a non-profit trust to finance his university in ancient Greece. Around 800 BC there is certain evidence to suggest that trusts were used by the Roman Empire, and around that time trusts were also being utilised in Britain.

In Europe during the Middle Ages excessive taxes, strict limitations and general restrictions were increasingly being placed on landowners. In an attempt to circumvent this restrictive situation landowners began to make use of trusts. Legal titles of any property the landowners held were transferred to a trustee, and the landowners’ heirs became the trusts’ beneficiaries. The secrecy of this transfer to trust was key. Many of the taxes and restrictive legislation that applied to the landowner before transfer of deeds did not apply to the trustee after transfer and could therefore simply be ignored.

Throughout history the concept and form of the ‘trust’ has been developed upon, but the most basic goal has always remained constant, i.e. to preserve assets and wealth from threat and uncertainty whether that be political, economic or familial.

What is an Offshore Trust?

An offshore trust is a legal entity into which you can pass ownership and control of assets; once created, the trust and the assets within it are managed by a neutral third party called the trustee. The person who establishes the trust by placing the assets with the trustee can be referred to as the donor, grantor, settlor, or trustor. For the purposes of this guide, the term settlor will be used; note a settlor is the original owner of the assets. Upon transfer of assets to the trust, the trustee becomes the legal owner of the trust property and the beneficiaries are the equitable owners.

The trustee does not hold the assets within the trust for their own use or personal benefit; rather they are bound to administer the trust and its assets for the benefit of the beneficiaries. The trustee of an offshore trust is generally a trust company. An offshore trust is usually set up in a tax haven or a low tax jurisdiction – it makes little or no sense, especially if using a trust to reduce taxation liability, to establish trust in a country with higher taxation than your own. The trustee is responsible for the management of the assets within the trust and for the distribution of any income or interest etc., to the beneficiaries of the offshore trust. The beneficiaries of the offshore trust can in certain circumstances include the settlor, i.e., the individual, (or company), who transferred the assets to the trustee originally. An offshore trust arrangement is normally recorded in a written document called the trust deed, and any distribution of assets by the trustee is in accordance with the terms of the original trust deed.

When is an Offshore Trust the Right Decision?

It is not necessarily of benefit to establish a trust. According to the professionals who have overseen the creation of this guide, in their collective experience often a trust is just a high cost pushed by a trust company on to an unsuspecting client. Offshore trusts don’t always work in the way you want them to, and once created they can be very costly and complicated to unwind. That said, the advantages of ‘offshore’ in trust terms are generally threefold: –

  • Tax – If the trustees, settlor and beneficiaries of the trust are resident elsewhere to the jurisdiction in which the trust is held then generally the trust will be subject to little or no taxation. The obvious advantage of this is that the value of the trust fund will accumulate at a greater rate. Furthermore, by establishing a trust in an offshore jurisdiction, the assets within may very well be protected from any future taxation changes in the settlor’s country of residence and/or domicile. An offshore portfolio bond can often do this just as well at a fraction of the cost.
  • Politics – The protection of a settlor’s estate from governmental interference may be another reason for the establishment of a trust. Examples of governmental interference would include the imposition of specific rules and laws relating to succession – i.e., to whom you can leave assets upon death – or the imposition of exchange controls for example. It is extremely unlikely that most offshore centres would ever introduce such controls.
  • Confidentiality – An offshore trust in confidential jurisdiction is a private and confidential arrangement between the settlor and the trustees. Confidentiality can be assured because a trustee may not have to disclose the names of either the settlor or any beneficiaries of the trust that they manage to any legal authority – depending on the jurisdiction in which it is established. Therefore, the confidentiality applied to a trust, its settlor and beneficiaries is often a key factor when establishing a trust offshore and when choosing the right jurisdiction to establish it in. Finally, a large number of offshore jurisdictions have managed to avoid double taxation and exchange of information agreements as well – unless of course a court order has been obtained, or a serious crime is suspected to have been committed.

The question of whether you could benefit from such a structure for the protection of your assets and the management of your estate’s future inheritance tax liabilities is difficult to answer. Generally speaking, an offshore trust can be an incredibly complex and expensive structure that does little to benefit the ordinary expatriate. There are many structures available and ways in which you can protect your assets and ensure your affairs are in order for the future though, and if you would like to talk through the options that are available to you or learn more, please contact us as Expat Money Guide because we can put you in touch with the right advisers to help you.

Wills for Expats

If you die intestate, i.e., without a will, your entire worldwide assets will suddenly become of maximum interest to the UK taxman if you were deemed domiciled in Britain at your time of death, and the assets you hold abroad will be of interest to the specific nation in which they are located. Additionally, the country in which you were resident as an expatriate at the point of your death will also be potentially interested in your worldwide estate, and an incredibly complex period of probate will begin. During this time, international tax authorities will be greedily trying to get their hands on as much of your estate as possible, meanwhile everyone will have a legally valid opinion about how your assets should be divided up. In the background of this your grieving spouse and family will be left in a state of complete turmoil and uncertainty, simply because you never got round to writing a will. You owe it to your heirs to write a will both in your nation of origin and in the nation in which you have assets and/or reside. Look into whether it is better for you to joint own assets with your spouse. And finally, ensure that you keep your will refreshed and up to date to reflect any changes to your family status or your asset base.

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