Trusts

Expat estate planning with trusts

Richard Colburn

For expats around the world, trusts are one of the easiest and most inexpensive forms of financial planning to put in place which, like good investment vehicles, are designed to save you money.

Trust structures

The concept of a trust is quite simple. Assets such as property, shares, cash etc are transferred by contractual agreement into a trust, by the legal owner, known as the ‘settlor’. The trust is managed by trustees, for the benefit of the beneficiaries, chosen by the Settlor.

So how does it all work?

One of the main reasons for expats setting up a trust is the legitimate avoidance of tax. By transferring assets into a trust, the expat settlor can avoid future taxes that would have arisen both during their lifetime as well as on death. By locating the trust in an offshore, international financial centre, the trust assets are able to grow free of tax.

Writing policies into trust

One of the simplest financial planning applications of trust law is ‘writing a policy into trust’. This is most commonly applied to life insurance policies. By writing an insurance policy into trust, expats can avoid the proceeds being included in their estate and therefore can be distributed free from inheritance tax or other death duties. This provides a useful piecemeal approach to expat financial planning and legitimate tax avoidance but has limited scope for comprehensive financial planning.

Forced Heirship

Some countries have ancient laws that prevent disinheritance of children and spouses.The effect of this is that an expat’s will can be challenged and overturned if it does not meet the minimum statutory legacy requirements. Assets that have been legitimately transferred to a legal trust as part of an expat’s overall financial planning strategy are no longer the property of the deceased expat and so would be beyond the reach of such laws. Such trust assets can then be applied in accordance with the wishes of the expat settlor, for the benefit of those selected by the deceased and not those nominated by the government in their country of origin or death.

A protected inheritance

Any estate planning must take account of the financial planning needs of the surviving partner/family and/or other beneficiaries of expats. Not all beneficiaries are able to prudently manage what are often very large legacies. Placing assets into trust can provide a vital element of prudence. Most trusts with beneficiaries under the age of 18 whether or not children of the expat Settlor, contain provisions that prevent them taking ownership of trust assets until they at least reach majority. At the same time, other provisions will usually ensure that such beneficiaries receive income from the trust for their day to day living expenses and education. Restricting access to trust capital for beneficiaries is sometimes prudent regardless of age.

Another common use of a trust is for the maintenance of a widow or widower. This would typically provide for the use of the family home for the remainder of their life with perhaps an income from some or all of the remainder of the estate. Sometimes the greatest legacy that can be left is the legacy of a protected inheritance.

Probate avoidance

When an expat Settlor dies, the trust assets do not form part of the expat’s estate. Therefore the trust does not become subject to time consuming and distressing effects of probate. The trust continues to run, providing income to beneficiaries and eventually distributing the capital to them, unaffected by the death of the expat Settlor.

A living will

It is quite common for an expat Settlor to be still living whilst his or her trust is in place. This allows the dual benefit of reducing the tax liability of the expat Settlor, whilst retaining a large degree of control over assets no longer legally owned and is a popular financial planning tool with expats.

Avoidance and evasion

It is the task of tax collecting authorities to extract all of the tax to which they are legally entitled. It is your right to part with no more money than you are legally obliged to pay, which for some expats is nothing.

There are mechanisms available to help expats to legitimately avoid significant amounts of tax and ensure that your worldly goods are distributed as you intend. Professionally exam qualified financial advisers can help you to design a structure that best meets these objectives.

A valuable option

Trusts are a common law invention and do not exist in most Asian (civil law) countries. For those expats living or settled here in Asia, the use of an offshore trust can be a valuable estate planning, asset protection tool and overall financial planning option. There are many different forms of trust and a professionally qualified financial adviser can help select the right one for you.

Make sure that you pay your legacy forward in full and as you choose.

It’s your money and your peace of mind.

Richard Colburn is a UK exam qualified financial adviser with Sterling Assets.

For more information: email us

www.sterling-assets.com

Published on August 10, 2007 at 11:01 am  Leave a Comment  

The URI to TrackBack this entry is: https://sterlingassets.wordpress.com/trust-planning/trackback/

RSS feed for comments on this post.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: