Where are trust assets actually located? This is another key point to consider.
If a trust is administered in one jurisdiction, then that would by definition not be a good jurisdiction in which to keep the actual assets.
By diversifying internationally, confidentiality is dramatically increased.
For example, we believe that New Zealand currently has some of the best trust law - and it has the added advantage of being generally seen as a high tax country, so it is not blacklisted.
New Zealand is neutral and well respected, and therefore enjoys excellent relations with other countries big and small.
It is possible to structure a New Zealand trust so that there is no record kept in New Zealand of who the actual settler or beneficiary is - and what they don't know, they can't tell.
However, New Zealand is not a banking secrecy jurisdiction.
A carefully structured trust could easily be blown apart by the bank where the assets are held being forced to reveal all.
This risk is easily neutralized by simply taking the trust documents and opening a bank account elsewhere - preferably on the other side of the world.
In this case, anyone who pierces the first layer of protection and discovers the existence of the New Zealand trust, still has no way of knowing who are the people behind it, nor where the assets are located.
Taxation of Trusts Trust tax law is a complex area, and the principles vary according to the jurisdiction, so this report must be very general in nature.
We will point out once more that reading this support is no substitute for proper professional advice.
Talk to a professional who is experienced in international tax planning, not your local accountant or book-keeper.
Assuming you go ahead and form your trust in an offshore jurisdiction, then it will not be liable to tax there.
Nothing could really be simpler - no need for you to worry about tax returns.
The only tax issues occur as assets either enter or leave the trust.
A trust beneficiary who lives in a high-tax 'onshore' country may be liable to pay tax separately on any income they receive from a trust.
Besides that, sometimes inheritance or capital gains taxes may also be payable upon the transfer of property into trusts.
Trusts may or may not produce income.
For example, an antique painting held in trust constitutes capital, but it will not produce any direct income, whereas $100,000 sitting in a bank will produce bank interest.
The income, and the capital, may go to different beneficiaries, and different taxes may apply on the different elements: income tax, capital gains tax and so on - each of which may be taxed at different rates.
The UK, for example, currently has an income tax rate and an inheritance tax rate of up to 40%, and 18% on capital gains.
Legal Tax Mitigation through Trusts A trust creates a distinction between the legal owner, the trustee, and the beneficiary, and this naturally complicates the issue of how to tax the trust.
This creates many avenues for both avoidance and, for the unscrupulous, evasion.
In theory, once a settlor passes the assets into a trust, he or she no longer owns them - and cannot therefore be taxed on the resulting income.
For this reason, a settlor should not normally be a beneficiary too.
If a settlor says in the deed of settlement (which is certainly possible from a legal point of view): "make all the assets available to me whenever I want them" then the tax authorities could judge that person still to be the real owner of the asset - and tax them accordingly on the income The question of whether or not the settlor has really become separated from the assets is therefore crucial, but at the same time it can quickly turn into a legal minefield.
Jurisdictional Arbitrage If the trustee, the beneficiary, and the trust assets are located in the right combination of jurisdictions, tax can completely legally be avoided altogether.
A Canadian resident, for example, should generally expect to pay tax on his or her income and capital gains, wherever in the world they are realised.
But wealthy individuals considering a move to Canada - or any other high tax country - are typically advised to place their assets into a trust.
That way, once they move onshore, the income from those assets will not be considered part of the individual's taxable worldwide income.
A tax bill on a trustee can be made to fall upon a beneficiary, if so intended, perhaps because of where the trustee and beneficiary are located.
So a trustee may distribute all the trust income to beneficiaries, then legally deduct these distributions from its taxable income, reducing its taxable income, and its taxes, to zero.
If the trust is offshore, the tax rate on trust income may well be zero in any case.
Doing business across different jurisdictions is easy these days for individuals, but still adds a layer of privacy and potential tax advantages at each stage.
For example, you might have a trust whose trustees are a Channel Islands law firm (but which is not registered), whose trust assets consist of shares in a company in Luxembourg which has nominee directors.
The company might have a bank account in Liechtenstein, but the bank account might be managed by a private banker based in Switzerland, who actually invests the funds in Singapore.
As one former professional trustee put it: "You will not get any disclosure of who's behind them.
There will be no register anywhere of who is the real owner, or who is the beneficiary.
You will never find them - trusts are far more secretive than mere bank accounts protected by bank secrecy.
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