Formation and Registration of an International Trust
The concept of an International Trust (“trust”) is a foreign one to many people however the actual formation and execution of a trust is relatively straightforward. That said, there are several pitfalls to be avoided and so settlement of a trust should only be undertaken in conjunction with your tax planner and an experienced Trustee. What we would like to accomplish in this section is give a general overview of what a trust is, how it works and the benefits to be obtained by using one.
Simply put, when you create a trust, you are renouncing your interest in whatever property you transfer to ( “settle on ” ) the trust. This can be either real property such as cash, stocks, real estate or intangible items such as trademarks, royalty rights. The trust is located offshore and is managed by a professional called the Trustee. The trustee assumes all of the responsibilities of ownership of the assets. This may be as simple as selecting a suitable bank to hold cash right through to appointing an investment manager through to arranging insurance and paying property tax on real property settled onto the trust. The key figure is the Trustee and we would urge anyone thinking about establishing a trust to make sure they select someone they feel comfortable with and who has the requisite experience.
On the surface this may seem an odd thing to do. A lifetime of work goes into building up your wealth and then you simply give it away? Why would you do this? A variety of reasons exist
- but the most common are to allow the assets to increase in a tax-free regime;
- to protect them from seizure by creditors in the event of future lawsuits and
- to avoid onerous estate taxes (commonly referred to as death duties).
How does this actually work ? The concept is simple. If you give your assets to a trust in a country with no income tax, then the assets can be invested and earn returns tax-free. If a creditor, or client, or patient sues you, and they get a judgment against you – you don’t own the assets – you gave them away to a trust. If (well, when) you die, and estate taxes are levied on your estate – you don’t have anything to pay tax on – you gave it away to a trust. Obviously this is somewhat of a simplification but it conveys the general idea.
So, now you give your assets away to a trust. How do you live? How do you access your funds? There are two answers to this. Every trust has one of more beneficiaries. The concept of a beneficiary is simple. It is the person or people whom the assets in the trust are meant to benefit – either through regular income or a lump sum payment at some future time. You can be a beneficiary of your trust and receive regular payments. Only take what you need, plan carefully any major asset purchases and you should have little income tax burden to worry about.
The other approach is a little more complicated but more efficient as well. When we form the trust we also create a company (an IBC – refer to our web page on this topic) and it actually holds your assets. The trust in turn holds the shares of the IBC. We make you a director of the IBC and effectively you have a measure of control over “your” assets again.
The last question that everyone wants to know is what happens if I pick the wrong trustee. What if he or she is unscrupulous? Can’t I lose all my assets? The answer is yes, its possible. But that’s why St. Lucian law allows for – and at ADCO we insist upon – a Protector being appointed. This can be a trusted friend, family member or professional adviser. This person has the power to fire the trustee and appoint someone else if he feels the trustee is acting in an inappropriate way.
These are very general overviews of how and why trusts may work or you. Below are a few more specific pieces of information. While trusts are conceptually simple they are easy to get wrong and if for no other reason we urge you to take professional advice before going further.
- A copy of the Trust Deed. (This is usually prepared by ADCO in conjunction with your lawyers or estate planners)
- A statement from the settlor that the transfer or disposition of assets to the trust will not leave the settlor insolvent nor is it being done with the principal intent to defraud creditors.
- Written notification of who the Trustees are and where the registered office of the Trustee is located.
- An attorney’s certificate confirming that the trust, once formed, will meet the criteria of an international trust as defined in St. Lucia law.
The Registration Process
Once all of the items listed above are gathered, the registration process is straightforward and involves the following few steps:
- The registration forms are filled out and submitted in duplicate along with all the required information above and the US$300 per annum registration fee.
- The Registrar reviews the forms and the supporting material and replies to ADCO either informing us of any deficiencies or confirming that the trust has been registered.
- Upon correction of any deficiencies, the registrar registers the trust and issues a Certificate of Registration.
- Assuming the trust has been registered ADCO then proceeds to form the International Business Company (IBC), which will be owned by the trust if this is required. . This will also require an annual registration fee of US$300 per year (refer to our web page on the formation of an IBC for details)
Other Relevant Facts
Much of what follows in this section presumes a working knowledge of trust concepts and principles. For people to whom the concept and workings of a trust are new, (and even for those conversant with the concept), ADCO always recommends you speak to your financial planner or legal counsel to learn more about how a trust might suit your needs.
- St. Lucian International Trusts can be Protective (meaning the interests of any beneficiary can be reduced, terminated, or suspended in the event certain events transpire) or Purpose Trusts (both charitable and non-charitable).
- Trusts formed under our Act can have a Protector. Our law allows the Protector to be a settlor, beneficiary or anyone else, including a trustee.
- Retention of a measure of control by the settlor does not invalidate the trust nor do we recognize foreign laws as relevant to the validity of a trust incorporated in St. Lucia.
- Foreign judgments against a trust are generally unenforceable or, if upheld by our High Court, are only permissible to the extent necessary to satisfy a judgment.
- Our limit on commencement of proceedings against a trust is two years and anyone who brings suit against a trust is required to post US$25,000 in security against costs before the action proceeds. This is to protect the trust from frivolous or unfounded actions.
- The Statute of Elizabeth (fraudulent Conveyance Act) does not apply to the trust or its asset, nor are Forced Heirship rights recognized.
- The rules of law known as the “rules against perpetuities” and the “rule against accumulation” do not apply to a trust. Trusts may have a maximum duration by law of 120 years; with the exception being purpose trusts which may continue in perpetuity.
- St. Lucia recognizes the need for confidentiality in business and personal financial affairs. To this end, the country’s IBC Registrar only registers a copy of the Trust Deed by stamping it and returning it to us. He does not retain a copy. Only ADCO knows the beneficiaries, shareholders and directors. Both ADCO and the Registrar are required by law, under threat of severe fines and penalties, to keep confidential all information obtained whether it be during the incorporation process, ongoing trust management or a Director’s examination of the trustee.
Professional fees are a mixture of set charges for certain functions and time-based billings for other situations. Please contact us to discuss your requirements and allow us to prepare a fee quote for your unique needs.
We hope that you have found this information to be helpful in providing the basics of International Trust formation. Please do not hesitate to contact us if we can be of further assistance. We look forward to working with you.