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What are offshore trusts and foundations?

The definition of trusts and foundations are the same for this article, as this is an introductory explanation. Offshore means outside your own country. Offshore trusts and foundations then are those entities organized or placed abroad.

Trusts are entities setup under common law to keep assets for beneficial parties by an individual or a group of people, to be administered by a trustee in the country of settlement. This trustee would manage these assets on behalf of the beneficiaries and in line with the wishes of the settlor.

Offshore foundations are the civil law entity equivalent of the common law trust and work along much the same lines as a trust.

As offshoring has became more popular, different countries have begun constructing their laws to be as competitive as possible and making the requirements to establish and maintain these entities as easy as they can be. As expected, wealthy individuals and corporations have begun choosing countries with the most attractive and convenient laws.

But why do people opt to place their trusts and foundations offshore?

The Benefits of Offshore Trusts

The benefits of having offshore trusts can be looked at in two different perspectives: protecting assets and preventing liabilities.
An offshore trust protects and even increases your assets through the following:
1. International Diversification. Placing a portion of your assets in a trust elsewhere is a way of insuring your future. The offshore country serves as another nest for your valuables creating a barrier between your onshore country in the event it falls and there’s no way you can access what’s rightfully yours. You will have to select a stable and favorable country to store your wealth.

2. Reduced taxes. Some people choose to put their trusts offshore because of the efficient nature of their tax system, The assets will accrue lesser taxes in the offshore country, thus creating a larger pool of assets to further grow your wealth.

3. Privacy and flexibility. Holding assets offshore is a great way to add privacy from nosey parties that are seeking to cause you harm or loss. They are also flexible for transfers from one owner to the next or from one jurisdiction to the next. This flexibility creates more room ultimately for increased profitability.

4. Sustainability. Trust based assets will be entirely detached from your personal estate and ownership. This is one way of preventing onerous forced heirship rules that are present in some jurisdictions from freezing your assets. A Trust Deed will ensure the succession of the trust to the next generation. Offshore trusts can also be a means of centralizing assets making for a sustainable legacy.

5. Business opportunities. Revenue could start flowing in fast through sharing schemes with other organizations. The trend in employee benefit trusts can be used in favor of making your offshore trust highly profitable.
On the other hand, an offshore trust can also protect you from your liabilities as they will remain confidential to your creditors. Think of it as a reduced publicized wealth, the less you flaunt, the lesser civil money judgment received. Assets can be legally shielded from creditors through offshore trust formation. This goes to say that when extreme unfavorable situations happen in your primary country, life could still continue because you have assets kept and protected somewhere.
So if you have significant assets and you have existing creditors, the recommended immediate strategy is to protect your assets.

The Benefits of Offshore Foundations

In this section, questions like why there are people willing to spend on charitable organizations are quite funny. Think harder and you will see the fact that some people were really born rich and some have really serious social responsibilities attached to their names. In the same way that corporate social responsibility makes organizations look good to the community, philanthropic deeds of wealthy individuals and corporations increases name recognition, forms stronger alliances and increases influence and power.

But then again, why would they opt to place these foundations in another country? Because putting them up offshore satisfies their charitable goals legally while investing and profiting at the same time.

Tendai Musakwa enumerated some of the benefits of having offshore foundations in his article, The Benefits of Offshore Charitable Organizations. The following reasons are the most significant:

1. Barriers to Entry. International charitable organizations are often easier to be established in some countries like China than the local ones. While local foundations are having a hard and meticulous registration process in setting up their organization, offshore foundations undergo easy breezy entries and operations.

2. The Ability to Build and Accumulate Capital. Compared to onshore charities’ tremendous amount of required donations and taxes, offshore foundations have close to none – most of the jurisdiction would not require payout requirement and a low tax to non-taxable operation. This would mean having a very attractive income statement.

3. Business Restrictions. The low tax nature of offshore charities enables them to engage in businesses not directly related to the charity. The end result is obvious.

Offshore deals are clearly useful tools in maximizing your assets and minimizing costs. If you have a great deal lot of money and you haven’t ventured in any of these options yet, now is the best time to further protect and increase your assets.