Land Trust

Why do People Form Trusts?
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Quite simply, if one is concerned about tax issues, or protection from legal attack (creditors or lawsuit), the formation of a common law trust might be one possibility to consider. In truth, it is not our favorite structure, or one that we suggest to most clients. The purpose of this article, is to highlight some of the benefits that may be available to someone considering such a structure.
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Another key advantage to the trust structure is the benefits achieved when planning for estate taxes or transfer of assets to heirs. By maintaining a trust structure in an offshore tax haven, one has the opportunity to pass along trust assets free from inheritance taxes. In addition, if one is concerned that a child may squander the inheritance, the trust vehicle provides a mechanism where not only there are tax benefits, but also controls as to how the beneficiaries are to obtain funds.
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Trusts also provide another advantage. Should you become injured or incapacitated to such a point that you have difficulties physically or mentally, you have some security knowing that a trust third party is capable of assessing you with your affairs (specifically assets or property management)

Definition of Terms Used in a Trust Document
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A Settler or Grantor: Most likely, this would be you. That is to say, the person or entity placing property or assets inside the trust.
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A Trustee: The person, persons, company, bank, attorney or whom-ever has been assigned with the task of managing and safeguarding trust assets. In reality, the trustee could be either a natural person or a company. Regardless of who is named as the trustee, it is that entities responsibility to manage the trust assets sensibly and to make sure that the wishes of the grantor are carried out.

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The Trust Deed: The document you use to establish a trust entity is usually referred to as a deed. This trust deed or agreement normally indicates the beneficiaries, the trustee, the role of the trustee and what assets are included in the trust itself.

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The Beneficiary: This is the person, persons, or entity that are entitled to receive any income generated from trust assets and, if so stipulated, the individuals who may receive assets upon the settlers or grantors death.

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What Are the Different Types of Trusts
and Which one is best for Me?
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There are a number of Trusts that carry a variety of confusing names, such as Grantor Trust, Discretionary Trust, Asset protection Trust ~ and the list goes on. Rather than attempting to memorize the names or terms, the following are some key points you should be aware of when deciding to form a trust structure.
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Most countries, such as the US, which honor trusts ~ have some specific litmus tests or guidelines in order to determine if a trust can be treated as a tax free vehicle or offers true protection from creditors.

Point # 1 - In order for a trust to gain certain types of tax or creditor protection, it must be irrevocable. This simply means once you place your assets in a trust, you cannot ask that those assets be returned.

Point # 2 - Many tax authorities and courts will look at a trust to determine if you, the grantor or settler, have any control of the trust assets, or are receiving the trust income. If that is the case, they certainly may decide to assess tax liabilities because your are still benefiting or controlling the assets. This has been the case, in the past, with US domestic trusts ~ whereby courts have invaded trust assets or whereby the Internal Revenue has claimed the right to assess taxes even though assets are physically domiciled within a trust entity.
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What then is the Solution?
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Anyone considering the formation of a trust, should only consider using a jurisdiction outside their home country, or the country where they are presently residing. In addition, they should make sure they find a jurisdiction that strictly honors the law and provides protection to the individual or entity that is being used.
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Trust assets should also be physically moved or domiciled someplace other than where you live. If one establishes a trust in Belize, for example, but all of the trust assets are readily available for seizure in your home country or place of residence, in reality ~ you would have accomplished very little in the way of asset protection.
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Consider the use of another offshore structure as the beneficiary or recipient of trust income. Ideally, one may even want to use a separate jurisdiction for this purpose. This further separates the grantor or settler as being a named participant that is benefiting directly from trust income.

Reference:

Schroder, J. (2003). Why do people form trusts? Ascot Advisory Services. Retrieved June 10, 2005 from http://www.ascotadvisory.com/OffshoreArticleAPT.html.