As mentioned previously, the
residence of the trust for tax purposes will usually be determined
by where the management and control lies. To avoid possible
problems, the management and control of an offshore trust should be
exercised by trustees who are resident in an offshore centre,
preferably in the centre chosen as providing the proper law.
However, if someone other than the trustees are making the decisions
and managing the assets, the residence of the trust will, in all
probability, be deemed to be where the management and control is
actually being exercised. If the settlor, through his wish to have
say in the decision making process, effectively has these powers
then serious and damaging consequences could result.
Appointed As Co-Trustee
Generally, it would not be advisable for the settlor of an
offshore trust to be appointed a co-trustee alongside an offshore
trustee. This is because all the trustees will have equal powers and
responsibilities in relation to the management and control of the
trust and its property, and as a result the trust might be deemed to
be resident where the settlor is located. If he is resident onshore,
serious tax consequences could result.
Completing a Letter of Wishes
The Settlor of a discretionary trust should be encouraged to
complete a letter of wishes if he feels it will provide him with
comfort in the knowledge that he has been able to provide the
trustees with guidance and advice in relation to how they may wish
to exercise their discretion.
Appointed Investment Adviser or
Other Agent
There is generally no restriction on who can be appointed as
investment adviser or as any other designated agent, provided that
the person who the trustee appoints is suitably qualified or
experienced in the area concerned. As a result the settlor could be
appointed to such a position. However, the trustees should look at
the extent of the powers such an agent has been given and in
particular whether they can be perceived as being able to exercise
management and control over the trust property.
Appointed as a Beneficiary
The settlor could, of course benefit under the terms of the
trust which he has created but he should consider whether there
would be any possible taxation consequences of having an interest
(either absolutely or at discretion) in property which he has placed
into trust.
Control
The settlor could be appointed to the board of the Company (as
too could members of his family and his advisers) which would enable
him to have control over the trustee functions. However, if
challenged it is doubtful whether this type of arrangement would
create any tax savings, in view of the fact that the settlor would
have retained the management and control of the trust property
through his role as director of the trustee company.
Cost Savings
A fee for acting as trustee would not be charged and the only
expenses which would have to be met would be the cost of
incorporating the company and keeping it in good standing. There may
be a requirement that the company has to be licensed to act as
trustee (and possibly have a locally licensed trust company to act
as its agent) and if this is the case additional cost would be
involved.
Limited Liability
In theory, a limited liability company with no assets of its own
would be better able to take on the trusteeship of assets which
might be viewed as being of a speculative nature. In addition, if
the trust is designed to provide creditor protection, a private
trustee company might be a better option to act as trustee in view
of its limited liability features.
Confidentiality
Private limited companies, especially those in offshore centres,
can be structured to maintain confidentiality. They also prevent the
possible worry over secrecy which some settlors have when appointing
outside trustees.
It has been common practice in
Bermuda for a purpose trust to own the shares in a private trustee
company which would further increase the confidentiality
possibilities.
