This article looks at the topic of offshore trusts with details on some of the most popular offshore jurisdictions.
In it, you will learn how international trusts work and how they can help protect assets while also ensuring you don’t pay taxes unnecessarily. We examine all of the top jurisdictions for offshore trust formation in terms of tax savings and privacy and also look at which foreign jurisdiction offers the best asset protection.
Offshore trusts offer a range of benefits to HNWI entrepreneurs and investors, but with literally a world of options out there, you could spend forever researching each one and talking to service providers in all of the different jurisdictions.
Knowing the ins and outs of each of the offshore jurisdictions can help you make a more informed decision. You may wish to look at Caribbean jurisdictions like Saint Kitts and Nevis or the Cayman Islands or go further afield and establish an offshore trust in the Cook Islands.
At Nomad Capitalist can save you a lot of legwork and give you straight info on all the top jurisdictions to help you make the best decision the first time around. Talk to us about how we can create an all-in-one solution for your taxes, citizenship, offshore bank accounts and asset protection needs.
Offshore Trust Jurisdictions TLl;DR
Choosing the right offshore jurisdiction to establish your trust makes all the difference.
And the various offshore trust jurisdictions each have their own pros and cons. Generally speaking, common law jurisdictions offer the best in terms of asset protection. They also work well for succession planning, removing the need to pay taxes unnecessarily.
Ultimately, however, the best offshore trust jurisdiction will depend on your precise needs, which is why at Nomad Capitalist we take a holistic approach to ensure you are completely compliant while at the same time enjoying maximum tax savings. Talk to us about creating a bespoke Action Plan today.
Offshore Trusts – Overview
The Bahamas, the Cayman Islands, the Cook Islands, Belize…
Choosing the right trust jurisdiction to set up an offshore trust can seem daunting at first, so it helps to understand what benefits each offshore jurisdiction has to offer.
The first thing you will need to look at is the country’s tax situation. Many offshore jurisdictions allow you to become a tax resident and only pay tax on your local source income, allowing your worldwide income to remain untouched.
Some offshore jurisdictions have zero tax, while others are low-tax rather than no tax but still do not levy capital gains or inheritance taxes, making them suitable for trust formation.
Since traditionally, trusts have been used, and indeed continue to be used for the purposes of estate planning, establishing an offshore trust for this purpose makes sense. But in doing so, you are barely realising the full potential of what an offshore trust can do.
An offshore trust is a type of trust structure which you establish in an offshore jurisdiction. These specialist offshore entities are used for their enhanced levels of flexibility, privacy and security when compared with their domestic equivalents.
To establish an offshore trust, you employ the services of an offshore trustee or trustee company.
The trustee can be a local lawyer or attorney who is familiar with trust law. Trust companies are specialist companies which manage trusts for their clients.
Obviously, if you are new to the territory, you might be hesitant to employ a foreign trustee without first checking them out, learning about their reputation and track record, etc.
Alternatively, you can contact us to discuss it, and we can help you find exactly what you’re looking for, thanks to our network of global professionals.
Once you have established the trust and created all the relevant paperwork, the next step is to actually transfer the trust assets into the offshore trust.
If the end goal is asset protection then we recommend you establish an offshore asset protection trust. At Nomad Capitalist, we can help you establish these types of structures with minimal fuss while also advising on a wide range of additional asset protection strategies to ensure your wealth is safe and secure.
Benefits Of An Offshore Asset Protection Trust
One of the most common uses of offshore trusts is for the purposes of asset protection.
This is because, by creating an asset protection trust in an offshore jurisdiction, you can add additional layers of protection to better shield your trust assets from dangers such as asset seizures, creditors or predatory litigation.
If you are looking for the best asset protection, then offshore asset protection trusts are the logical choice since they effectively remove your assets from the reach of your home country, making them safer overseas.
If you are worried about predatory litigators coming to take away the wealth you have worked hard to build, then an asset protection offshore trust is the solution since it immediately hands you the home-field advantage.
It is, therefore, up to the plaintiff to come to the offshore jurisdiction you have chosen and make a clear case, usually unsuccessfully, while incurring sizable financial outlay in doing so.
Best Jurisdictions For Offshore Asset Protection Trusts
Domestic asset protection trusts can only do so much, particularly when it comes to privacy and asset protection.
If you truly want to protect assets, you need to take them out of reach of your home country’s government and legal system. By transferring them to an offshore jurisdiction, you guarantee the maximum security of your trust assets by adding additional layers of protection around them.
Setting up in an offshore trust jurisdiction allows you to take advantage of a special anti-duress clause, which ensures that, even if under legal duress, the trustee can not divest assets from the trust.
Offshore jurisdictions generally do not accept foreign judgments. So even if a creditor, for example, has won a case in your domestic jurisdiction (e.g. in an American court if you are a US person) and has a legal claim to your assets there, this judgment will not have any impact on the assets that are held in your trust. However, it should be noted that this is only valid if there were no existing lawsuits before the trust was created.
That means that whoever wants to come after your assets will have to come and hire a local lawyer in the the offshore jurisdiction you have chosen and fight a whole new case on foreign soil.
The cost of this is prohibitive, and the success rates are generally low, serving as a strong incentive against legal action and the perfect defence against predatory litigation.
The Cayman Islands
The Cayman Islands is a British overseas territory. It’s often labelled as a tax haven, and although, technically speaking, that term no longer applies, this jurisdiction nonetheless offers an appealing tax system.
First off, it has no personal income tax, no capital gains tax, plus no wealth tax or gift tax. So already, you can see the value of this jurisdiction for tax savings, as well as for succession planning.
A Cayman Islands trust offers asset protection under trust law, and there are a variety of different options available. Cayman trusts are most commonly used for tax purposes and for estate planning.
As it does not recognise foreign rulings, including inheritance laws, litigators looking to gain access to trust assets, therefore, have to do so through the Cayman court system.
The Cook Islands
The Cook Islands are a self-governing group of Pacific islands operating in what’s known as a free association agreement with New Zealand. This means that it is technically not a de facto territory of New Zealand, and so, unlike some of the countries on this list (which are British overseas territories), it has full autonomy over its own foreign policy.
The Cook Islands’ legal system, however, is closely based on New Zealand law, which means it is, by extension, based on English common law. Unlike New Zealand, however, the Cook Islands is not a member of the British Commonwealth.
The unique nature of the Cook Islands makes it an ideal offshore jurisdiction for a variety of purposes, including offshore company formation (Cook Islands LLCs are a popular structure). It’s also a crypto-friendly jurisdiction.
With no stamp duty, wealth tax or taxes on capital gains, inheritance, gifts or capital transfers, the Cook Islands ticks many boxes from a taxation and inheritance planning perspective.
A Cook Islands trust, meanwhile provides high levels of asset protection and reassurance.
In fact, the Cook Islands was one of the pioneers when it comes to providing more robust asset protection, under the provisions of the Cook Islands International Trusts Act of 1984.
Cook Islands trust advantages include a short statute of limitations (just 1-2 years). Also, the jurisdiction does not act on foreign rulings, so any claims to assets would have to go through the local courts.
So if additional layers of security are important to you, then you should give serious consideration to setting up a Cook islands trust.
Saint Kitts And Nevis
In addition to being the pioneer of citizenship by investment, Saint Kitts and Nevis is also another popular asset protection trust jurisdiction.
It consists of two islands, Saint Kitts to the north and Nevis to the south, each have its own distinct legislation. Therefore, technically speaking, when discussing trusts in Saint Kitts and Nevis, what we really mean is offshore trusts formed on the island of Nevis.
Nevis Trusts have a sound reputation globally for being particularly impregnable. Firstly, they don’t recognize foreign judgments, so any disputes would, therefore, need to go through the Nevis court system.
This, in and of itself, can be rather prohibitive. Fighting through foreign courts can be expensive and time-consuming and, as with a Cook Island trust, the statute of limitations is between 1-2 years.
Nevis trust law generally sides with trustees and beneficiaries. Finally, the onus is on the plaintiff to be able to prove, beyond a reasonable doubt, their claim and if not, they could also be liable to pay for the legal fees of the defendant.
All of these together combine to make St. Kitts and Nevis one of the best offshore jurisdictions for asset protection trusts.
The Bahamas is another popular Caribbean destination we often discuss here at Nomad Capitalist.
From a tax perspective, the Bahamas is equally enticing with its tax-free regime, as it imposes no personal income tax, corporate tax, capital gains tax, sales tax, withholding tax, gift or inheritance tax, or other probate fees.
Once again, this Caribbean jurisdiction provides reassuring levels of privacy and asset security, as foreign judgments are not enforced.
Belize is a popular destination for expats and HNWIs alike. Belize has no capital gains tax, and although its income tax of 25% is quite high, this only applies to locally sourced income. So if you’re coming to Belize from a foreign country and all your money is earned overseas, then you don’t need to worry.
Belize is another popular choice for asset protection trusts. As previously, courts in Belize do not recognise foreign judgments helping to shield your assets from seizures and predatory litigation.
British Virgin Islands
The British Virgin Islands is a popular jurisdiction for many reasons.
Firstly, there is no income tax, capital gains tax, wealth tax, gift tax or wealth tax. Plus, you can set up a BVI company and not pay any corporate income tax.
In addition to being a leading offshore banking jurisdiction, BVI trusts are also popular vehicles for both succession planning and asset protection. The BVI does recognise foreign judgements in some cases, though only if the judgement has first been submitted and subsequently recognised by the BVI courts.
So, What Is The Best Offshore Trust Jurisdiction?
The answer to that question really all depends on exactly what you’re looking for, but as you’ve seen, there are some common factors in our above picks.
Common being the opportune word here since these are all common law jurisdictions. This means they are either current or former British territories which have since retained aspects of the British legal system.
This makes sense since the whole concept of trusts was originally a British invention, so you obviously want to make sure you choose someplace where asset protection is enshrined in law.
Your choice of jurisdiction will also depend on your unique circumstances and other factors, including where you’re located.
For US citizens, it might make sense to pick a Caribbean jurisdiction like St. Kitts and Nevis, the British Virgin Islands or the Cayman Islands.
For Brits, a combination of legal and financial compatibility and geographical proximity means it might make sense to use one of the Channel Islands, like Jersey or Guernsey.
Or you may decide to go even further afield and enjoy the redoubtable asset protection available in the Cook Islands.
Putting You In Control
Choosing the best offshore jurisdiction, be it for offshore trusts or offshore banking, can be a painstaking process, and it’s easy to be led astray as each jurisdiction competes for your custom.
There’s a lot of legwork involved, and every lawyer, every banker, every service provider, they’ll all tell you their jurisdiction is best because it’s the only one they’re selling. So, instead of catering to your needs, they will try to distract you from that fact with a whole lot of razzle-dazzle.
Like a giant pinball table, we’ve seen too many people get attracted by all the flashing lights and noises only to realise later they’re not the player but the ball, constantly being bounced around the place without any real control over the game.
But as a Nomad Capitalist client, you get access to our international team of financial wizards that really listens to you, digs deep to find the most suitable solution and ultimately puts you in control of the game.
The Best Offshore Trust Jurisdiction FAQ
Some of the better jurisdictions for offshore trusts include:
The Cayman Islands
The Cook Islands
Saint Kitts And Nevis
British Virgin Islands
If you have concerns about a particular creditor using predatory litigation or, indeed, fears of government agencies targeting your wealth, you can employ trusts in these offshore jurisdictions to help safeguard your assets.
It should be noted that, as with offshore accounts, foreign trust reporting rules may apply. For example, if you are a US citizen, you need to take particular care in this case.
Incorrect structuring can result in unwanted legal and/or financial penalties, so don’t take the risk. Instead, we advise you to get in touch with us to ensure things are done in a proper, legally compliant fashion.
A self-settled trust, also known as a spendthrift trust, is a trust whereby the settlor and the beneficiary can be the same individual. Assets are then managed by the trustee on that individual’s behalf.
An irrevocable trust is a type of trust whereby once the agreement is established no changes can be made to the trust without the consent of the beneficiary.