Trust Services <ul><li>Proteam specialises in the tax efficient planning of client's international financial affairs, offering a discreet, personal and independent service.With our offices and associates throughout the world, our clients value us for our ability to advise on all jurisdictions helping them to make the best choice for their circumstances. </li></ul><ul><li>Our experts can help you with:- </li></ul><ul><li>International financial planning including detailed advice on how to organise international trade, asset protection and the holding of foreign assets. </li></ul><ul><li>Full incorporation services which encompasses advice on the best jurisdiction for the business and consideration of the most appropriate management location. </li></ul><ul><li>Provision of worldwide registered office facilities, nominee shareholders and directors. </li></ul><ul><li>Full company management services, including the organisation of day to day activities. </li></ul><ul><li>Preparation and filing of accounts and all other statutory matters. </li></ul><ul><li>Advice on the manner of ownership of shares whether through a direct shareholding, nominee shareholders or by means of a trust. </li></ul><ul><li>Advice on the usage and suitability of trusts. </li></ul><ul><li>Dealing with all matters regarding the formation of trusts, including provision of settlors and trustees. </li></ul>
What is a Trust? Trusts have been used for hundreds of years in common law countries and are created when an individual (the Settlor) transfers part of his assets to an individual or corporation (the Trustee) to control and manage on behalf of a specified individual or group of individuals (the Beneficiaries). The Beneficiaries may include the Settlor and his or her family (see Example 1). The 1985 Hague Convention recognised the concept of a trust and that although assets transferred into a trust were the legal property of the Trustees, these assets were not accessible to any personal creditors of the Trustees. The trust concept is similar to that of the Dutch "stiftung" and the Liechtenstein "anstalt" and is now generally recognised in civil law countries. It is important to remember that the trust is an independent legal entity and that the assets of the trust belong to the Trustees and not the Settlor. However, it is normal practice for the Settlor to provide the Trustees with a letter of their wishes as to how they would like to see the trust assets eventually distributed. This letter is not binding on the Trustees but would normally be welcomed by them for guidance (see Example 2).
Example 1 TRUST Trustee Beneficiaries Council of 4 Settlor (These can be the Settlor, his wife, children, future children, charities or anyone the Trustee chooses. The Beneficiaries are entitled to the Trust funds.) (Occasionally a Council of 4 is appointed by the Settlor to ensure his intentions are respected. The council will usually have the power to change the Trustee.) (manages the Trust, Trustee is normally a limited company) (usually the Client) Introduces Trust Funds into the Trust (sometimes called a settlement)
Example 2 Property Company Trading Company Investment Company Holding Company Settlor Beneficiaries Trustee TRUST (The trust can hold the Trust Funds directly or through a number of companies which it owns. These companies can then make distributions to the Trust which will in turn make distributions to the Beneficiaries.) Distributes to … Introduces Trust Funds into the Trust (Trustee manages the trust Funds)
Parties to the Trust The Settlor When an individual decides to set up a trust he will arrange for a portion of his assets (initial settled funds) to be transferred to the Trustees and an Agreement or Deed will be prepared which sets out the duties and powers of the various parties to the trust. This Agreement will normally be signed by the individual, known as the Settlor, and the Trustees and is known as the Trust Deed. If the Settlor would prefer not to be referred to in the document itself, then it can be signed by the Trustees on their own. Such an Agreement is known as a Declaration of Trust. Beneficiaries The Trust Deed will state who the initial Beneficiaries are and may include the Settlor, the spouse, children, grandchildren, any future children not yet born, or any other parties the Settlor may wish. In a discretionary trust, a description of which is provided later, the Trustees will normally have the power to remove existing Beneficiaries or appoint additional Beneficiaries. It is therefore possible that the initial trust deed will not list any of the eventual Beneficiaries. This allows for the provision of a further degree of confidentiality, since the deed can be updated at any time in the future
condt Trustee It is normal to appoint professional Trustees or a corporate entity managed by a professional firm authorised to act as a Trustee. A corporation allows for continuity as it is not necessary to appoint a new Trustee if any one individual dies. It is important that the Settlor selects a reputable and professional company to act as the Trustee, and should the Settlor feel that they would like an independent third party to monitor the Trustees, he may also wish to appoint a Protector or Council. Protector or Council The Protector is usually a trusted friend or professional adviser of the Settlor. The principal right of the Protector is the appointment and removal of the Trustees and the nomination of additional Beneficiaries. The power of the Protector is a protection to the Settlor should the Trustees not act in accordance with the provisions of the trust and to the satisfaction of the Beneficiaries. There is a danger that where a sole Protector is appointed, the authorities within the country of the Protector could influence their actions with regard to the removal and appointment of new Trustees. This could result in the tax residence of the trust being changed.
condt <ul><li>This problem can be overcome by the appointment of a Council of Four instead of a Protector. This Council would be appointed to consist of four individuals resident in four different countries who would act by a majority. Each member of the Council of Four has the power of appointing a successor and the survivors of the Council of Four also have the Power to appoint successors. The appointment of such a council has a number of benefits including </li></ul><ul><li>Continuity, in that protection is provided to the Beneficiaries beyond the life of any one Protector </li></ul><ul><li>Security, since by appointing four trusted friends or professional advisors in four different countries no one country can block the actions of the Council and no two countries can force action by the Council. This protection against political change can be useful should, for example, the country of residence of the Trustees suddenly impose exchange control restrictions requiring a change of management of the trust to an alternative jurisdiction. </li></ul>
Types of Trust Discretionary Trusts Discretionary Trusts are the most flexible form of trusts and by far the most popular in offshore tax planning and wealth protection. They will normally allow the Trustees to appoint additional Beneficiaries or to remove existing Beneficiaries. They will usually also allow the Trustees to distribute the income and capital of the trust between the Beneficiaries as they see fit. Interest in Possession Trusts Interest in Possession Trusts differ from discretionary trusts in that the Settlor will normally be automatically entitled to the income and capital of the trust. At first sight this may appear attractive to an individual wanting to establish a trust but who also wants to be the prime beneficiary. However, as the Settlor is specifically included as the prime beneficiary, many of the tax benefits applicable to discretionary trusts would normally disappear.
condt Accumulation and Maintenance Trusts Accumulation and maintenance trusts are, when created, almost always established for the benefit of the Settlor's children. The trust deed will specify that the trust funds are to be used for the education and maintenance of the children up to a certain age at which point they are entitled to their share of the trust capital. The same result can, depending upon the tax residence position of the Settlor and Beneficiaries often be achieved through the use of a discretionary trust which can also then provide a number of tax benefits. Asset Protection Trusts Asset Protection Trusts have increased in use in recent years with the rapid increase, primarily in the USA, of litigation against professional firms and the medical profession. Many individuals have as a result elected to create offshore trusts in which to place part of their assets in the hope that they will be safe from any future claims. Although offshore trusts can undoubtedly be used for future creditor protection, it is an area which must be treated with care with specialised advice taken. Since the benefit of these trusts would also normally be held available for the Settlor, the absence of tax saving opportunities is not normally a factor.
condt <ul><li>Purpose Trusts </li></ul><ul><li>Purpose trusts are a fairly new innovation in the trust world and are rarely used. The main features of a purpose trust are that:- </li></ul><ul><li>The trust is established for a specific purpose, and </li></ul><ul><li>No Beneficiaries are identified. </li></ul><ul><li>The main uses of purpose trusts have been for charitable purposes and one-off projects such as commercial ventures. </li></ul><ul><li>Hybrid Companies </li></ul><ul><li>Hybrid companies have the attraction of looking like companies but with many of the same features as a trust. A typical example would be a company limited by guarantee and having shares. These allow the shareholders to have the voting and administrative powers, while the beneficial owners could be non-shareholder members in whom would be vested all the rights to income and capital. Such a structure would separate the beneficial interest from the control. These companies although unfamiliar to many, do have a number of benefits, one of which is that as a company, they may be more readily accepted as an investing entity in civil law countries than would a trust. </li></ul>
Why use a Trust? Preservation of Wealth and Selected Distribution of Assets The classic use of a trust is by an individual with substantial assets who wants to ensure that this wealth is distributed to his family in a manner of his choosing. With a discretionary trust the options available are numerous. The Settlor can arrange for himself and his wife to receive the income of the trust funds until their death, at which point the capital can be distributed to their children. Alternatively, the trust funds may be held for the Settlor's children but will only be distributable upon the child reaching a predetermined age such as twenty-five, although the Trustees may have the discretion to distribute the capital and/or income to the Beneficiaries when they think it appropriate. The Settlor may issue further Letters of Wishes as his own or his family circumstances change. It is this flexibility which is one the great attractions of a discretionary trust.
contd Certain countries have various laws which determine how an individual's estate should be distributed on his death. Such laws are known as forced heirship laws. Where some of the assets of an individual are held outside that country, it may be possible to use a trust to distribute those assets in a manner which would not be possible under the forced heirship laws. Once a discretionary trust has been created, it is normally desirable to arrange for any trust funds to be held in the name of a holding company. A holding company, wholly owned by the trust then in reality represents an extension of the activities of the trust. The value of the holding company is that it can invest and enter into trading transactions as a company and is a readily recognisable commercial vehicle in those jurisdictions which do not within their own laws provide for the establishment and taxation of Trusts.
Favourable Tax Treatment The major tax benefit in using a trust is that the assets held by a trust belong to the Trustees and not the Settlor. By taking the assets out of the Settlor's estate, they would normally cease to be taxable on the Settlor. This can often be very useful for inheritance taxes and for deferring capital gains. The tax benefits will depend on where the Settlor and Beneficiaries reside. Assuming that the Settlor chooses to use a Guernsey trust, any capital gains made by the trust or any income received by the trust will not be taxed by the Guernsey Authorities. Creditor Protection If an individual transfers part of his assets to a Guernsey Trust, these assets cease to be part of his estate and as such any future claims by creditors will not normally be enforceable against the Trustees. It is important to note that if the Settlor creates the trust with the intent to avoid creditors, it is most likely that the trust will be set aside. Advantages
Anonymity Guernsey trusts like most other trusts are not required to file any information with the authorities, either on creation or on an annual basis. It is also possible to create the trust through a Declaration of Trust without identifying the Settlor in the document itself. Continuity Should a wealthy individual die, even with a detailed Will it can be a lengthy process before that individual's estate can be distributed. If that estate had been placed in trust, then on the individual's death there would be no such problem of delay since the Trustees would already be in possession of the assets and could continue to hold or distribute to the Beneficiaries the trust assets. By placing assets within a trust and with the letter of wishes, the Settlor will have created a vehicle which is much more flexible to him than a Will, as well as being much easier to change to reflect his current wishes.
Practicalities Location of Arrangements It is important to locate any arrangements in countries which do not impose Exchange Control restrictions and are preferably free from taxation since there are greater opportunities of increasing a capital fund if there is no taxation on income or capital. The companies to be owned by the Trust can be incorporated in a number of tax-free jurisdictions, and consideration as to the appropriate location of incorporation are specific to each particular case. Management and control of these companies may be established free of tax in the Channel Islands, and Proteam is able to provide full management and secretarial facilities to holding companies operated in this way. We also generally advise that the location of incorporation of the holding company should be somewhere other than the location of the management and control, in order to provide a degree of political protection in respect of the country of incorporation and the country of management. It will be appreciated that once the basic arrangement of a Discretionary Trust and a holding company has been established, the holding company may set up its own trading companies elsewhere in the world, which will be subject to taxation liabilities in their country of operation.
contd Choice of Trustees and Directors It is possible for Proteam to provide trustee and director services, in the Channel Islands, or to provide suggestions for directors and trustees in a number of areas around the world through our many overseas associates. In the event that operating companies and holding companies could more effectively be managed and controlled elsewhere, Proteam could again assist in the incorporation and organisation of these companies and provide advice on local management and directors to assist the operation.
Introduction of funds into the Trust The trust deed will confirm details of the initial settled funds. It is normal to show initial settled funds of a limited fixed amount with the bulk of the trust funds being introduced later as additional settled funds. Another way of increasing the funds in a trust is the use of a company owned by the trust, to act as a principal in commercial activities. Many forms of international commercial operations can be carried out through a company owned by the trust. Such operations can either be in the normal merchant trade, or the development of asset values, such as property. The company can, of course, also be utilised for normal investment holding activities. Investment into a country which has Exchange Control regulations and taxation liabilities obviously involves complying with normal restrictions in these regards applicable to non-residents of that country.
The form that the distributions to the Beneficiaries will take will normally depend on the tax position of the Beneficiaries. A trust can make a distribution of income or capital or advance monies as loans. If the Settlor does not wish to have, or is otherwise precluded from receiving a direct distribution from the trust, but requires some form of income from the trust assets, it could be possible to appoint him as a Director of an underlying company owned by the trust from which he can be paid a reasonable salary for services rendered. Distributions from the Trust
Our Services <ul><li>Incorporation and Management of Legal Entities from over 20 Jurisdictions </li></ul><ul><li>Post compliances of the incorporated entities </li></ul><ul><li>Global Tax Structuring </li></ul><ul><li>Structuring and execution of Cross Border Investment, Trading, Licensing, Financing and Leasing Transactions </li></ul><ul><li>Structuring and Administration of Investment Funds </li></ul><ul><li>Company Secretarial Compliances </li></ul><ul><li>Trust & Trustee Service </li></ul><ul><li>Succession Planning and Asset Protection </li></ul>
About us <ul><li>Founded in 2003 </li></ul><ul><ul><li>Part of a 30 year old CA firm – Pradeep Bhandari & Associates </li></ul></ul><ul><li>Headquartered at Chennai with offices in Mumbai and international office at Dubai </li></ul><ul><li>Expertise in outbound & inbound investment structuring, global tax structuring, company management, </li></ul><ul><li>Comprehensive knowledge about the domestic and global markets </li></ul><ul><li>Responsive and cost-effective solutions based on individual client needs </li></ul>
Conclusion This presentation is intended only to be a preliminary consideration and outline of arrangements to create and maintain an overseas capital fund which requires the formation of a Trust. Experience shows that all practical problems that might occur can be met by suitable additions or adjustments to the basic trust arrangements without affecting any protection. Arrangements along these lines are an essential requirement for the retention of the wealth generated by internationally spread families. Before any arrangements are entered into it is essential that principals are satisfied that they do not give rise to any reporting requirements which could give rise to additional taxation liabilities on the principal in his country of residence.