Offshore trust & Use of offshore trusts

An offshore trust is simply a conventional trust that is formed under the laws of an offshore jurisdiction.

Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settler transferring (or 'settling') assets (the 'trust property') on the trustees to manage for the benefit of a person or class or persons (the 'beneficiaries').

However, a number of offshore jurisdictions have modified their laws to make their jurisdictions more attractive to settlers forming offshore structures as trusts.

Also, two civil jurisdictions, who are sometimes considered to be offshore, Switzerland and Liechtenstein, have artificially imported the trust concept from common law jurisdictions by statute.

Use of offshore trusts

Official statistics on trusts are difficult to come by as in most offshore jurisdictions (and in most onshore jurisdictions), trusts are not required to be registered.

There is a common perception that offshore trusts are predominantly used by wealthy individuals and families as part of their tax planning. This may be true; however there are also other purposes that offshore trusts are used for.

Offshore trusts are also sometimes formed as unit trusts to operate as a mutual fund.

Offshore trusts are often used as part of an orphan structure in capital markets or trade finance transactions.

Pan-national non-governmental bodies are sometimes established as offshore trusts. For example, the International Cricket Council is formed in the British Virgin Islands.

Asset protection

Certain jurisdictions (notably the Cook Islands, but the Bahamas also has a species of asset protection trust) have provided special trusts which are styled as asset protection trusts. Whilst all trusts, to a degree, have an asset protection element to them some jurisdictions have enacted laws trying to make life difficult for creditors to press claims against the trust (for example, by providing for particularly short limitation periods). In practice the effectiveness of such trusts is limited as the bankruptcy and/or divorce laws in the settler’s home jurisdiction will usually operate to set aside transfers to the trusts, and most jurisdictions (including offshore jurisdictions) set aside transactions entered into defraud creditors.

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