Establishing overseas trusts: benefits now and in the future

Sovereign (UK) has seen a marked increase in the number of enquiries from internationally mobile families who are seeking to take advantage of the benefits offered by the establishment of overseas (non-resident) trusts in respect of tax neutrality and succession planning. Managing Director Simon Denton examines some recent case studies to help explain why an overseas trust can be such a valuable structure.

• The head of a European family has chosen to settle his liquid assets into an overseas trust because of concerns about current political and economic uncertainties in Europe. Asset protection with assured succession planning is the key driver for this move. The settlor does not want to be reliant on the domestic banking services available in his home country and wants to place his capital in a jurisdiction that offers political security, tax neutrality for ongoing investment purposes, access to high quality wealth management services and freedom from forced heirship rules.
• A European client, who has inherited wealth from her late spouse, has decided to contribute a portion of this inheritance into an overseas trust to provide financial security for her adult children and infant grandchildren. She also wants a percentage of the trust fund to be donated to charitable good causes in the future.
• A family is moving from Southeast Asia to a country that imposes taxation on a worldwide income basis for employment purposes. It is not known how long the client’s career assignment will last, so their capital assets have been settled into an overseas trust, which was established pre-migration. The assets will remain invested in Singapore and will therefore be excluded from taxation in their new country of residence, provided that no income is distributed from the trust. It is anticipated that the assets will not be required until this career assignment has concluded, so the overseas trust will offer wealth protection, investment certainty and diversity, and will serve as a form of savings vehicle for the client’s retirement.
• An Asian entrepreneur with a young family has generated wealth from a variety of business ventures but currently resides in a country where the banking system is unreliable, where there are currency controls and where investments can suffer from government interference. An overseas trust will therefore offer them increased security and will help to mitigate any adverse risks.

Sovereign is to establish an overseas holding company to ensure that the management and control is exercised from a stable and tax-neutral jurisdiction. This will enable the entrepreneur to invest in foreign real estate, to access quality fund management and to invest in start-ups, without geographic restriction. The ownership of this holding company is to be settled into an overseas trust and a non-resident family member is to be appointed as protector, with powers of veto over decisions of the trustees. In this way the protector will be able to assist the trustees in the event of the settlor’s demise. The names of the beneficiaries will also not be disclosed on a public register of beneficial ownership, which offers an added benefit in view of the country where the family currently resides.

Eventually this client anticipates moving to the UK and the overseas trust will then provide significant capital gains tax and inheritance tax benefits. With a trust in place the settlor can shelter foreign gains from UK capital gains tax providing that the gains are retained in the offshore trust. Foreign assets settled on trust by a non-UK domiciled settlor are defined as ‘excluded property’ and are not subject to UK inheritance tax. Excluded property retains this feature even if the domicile of the settlor subsequently changes.

As can be seen from these recent examples, substantial advantages can be derived from establishing overseas trusts and potential tax benefits are very often not the main motive. The Sovereign Group holds professional trustee licences in eight leading onshore, mid-shore and offshore financial centres worldwide and has been delivering trust solutions to clients globally for over 35 years.

For further information and advice, especially to evaluate how a trust arrangement might offer a range of benefits, both now and in the future, for you and your family, please contact Simon Denton by email to sdenton@sovereigngroup.com of by phone on +44 (0)207 389 0555.