Fiduciaries

The Ultimate Guide to Offshore Trust Jurisdictions

Top-places-to-set-up-a-trust

The concept of the trust was created in England, but many Commonwealth jurisdictions have since adopted the concept into domestic law. A trust is a legally binding arrangement where someone transfers property to another person or legal entity for the benefit of a third party.  

What is an offshore trust?

Trusts are commonly used for the purpose of ensuring all assets of the trust will be protected and managed properly under legal obligation and in line with the desires of the trust settlor. 

The three key benefits of setting up an offshore trust are that they can provide asset protection, favourable tax benefits, and more confidentiality than is possible with a domestic trust. If the settlor is from a country with political or economic instability, it can also offer a haven for assets away from any turmoil.  

Although there are multiple jurisdictions where it is possible to set up an offshore trust, not all of them have developed trust legislation to suit modern needs.  

Major offshore trust jurisdictions have aimed to modernise trust legislation, understanding the importance of having legislation and wealth planning options which are flexible and easy to understand to best serve the needs of private clients. 

But there is no one-size-fits all when it comes to trust jurisdictions. Deciding which one is best for you will depend on your investment objectives, the size of your trust, your level of risk of litigation, the banks you wish to open accounts with, and what assets you will place into the trust. 

When deciding which jurisdiction is the most suitable for an offshore trust there are several factors to consider:  

  • Trust Laws – Look for a country where trust legislation is modern, and easy to understand. Most trust laws originate from English Common Law, making the Crown Dependencies a popular choice for offshore trusts.  
  • The tax regime – Establish whether income or inheritance tax will apply on the trust.  
  • Political and economic stability – A stable jurisdiction enables confidence that assets are safe and secure in the offshore trust.  
  • Confidentiality – This can add an additional layer to asset protection, clearly identify what details may have to be divulged by trusts in the jurisdiction 
  • Exchange controls – Assess how easy it is to move funds without much invasive oversight from authorities 

Although each trust jurisdiction has a lot of similarities in these factors, there are a few subtle differences that should be taken into consideration. 

The best offshore trust locations

Jersey
Jersey flag

Trust Laws

While trusts have been established in Jersey for many years their operation is now governed by a modern, comprehensive statute entitled The Trusts (Jersey) Law 1984 (the ‘Trusts Law’). The Trusts Law provides that a trust exists, and will be enforced by the Jersey Courts, where a trustee holds or has vested in him assets for the benefit of a beneficiary, whether or not yet ascertained or in existence, or for a specified purpose. Unlike the position in certain other offshore jurisdictions, a Jersey trust can be of unlimited duration. Jersey is a party to the International Hague Convention on the Law Applicable to Trusts and on their Recognition. 

Tax regime

There are no inheritance, wealth, gift, or capital gains taxes levied in Jersey nor is there any stamp duty, value added tax or equivalent forms of indirect taxation charged on the creation or transfer of assets to a trust. Where all the beneficiaries are resident outside Jersey a Jersey trust will be exempt from assessment both in respect of Jersey income tax on income arising outside the Island and income on bank deposit interest arising inside Jersey. 

Political and economic stability

The Island is independent from the United Kingdom and is self-governing, but the UK is constitutionally responsible for the defence of Jersey. With complete economic and political stability, Jersey operates under its own judicial system based on common law practices. 

Confidentiality

In Jersey, there are no public filing requirements and there is no public register of trusts, enabling a high level of confidentiality. 

Trust law in Jersey permits trust deeds to include provisions which preclude the disclosure of information to beneficiaries. 

Exchange controls

There is no exchange control in Jersey and currencies are freely transferable.

Guernsey

Guernsey flag

Trust Laws

Guernsey’s trust law is a non-codified statutory framework. Where the Guernsey statutory provisions are silent, or the issue is absent in customary law, the Guernsey courts look to English and other Commonwealth authorities for guidance. 

Tax regime

There are no capital gains or inheritance taxes in Guernsey. Income tax is chargeable on persons who are resident or ordinarily resident in Guernsey. 

Political and economic stability

Guernsey has a long history of financial and political stability. The Island’s good banking and professional infrastructure, GMT time zone and proximity to both the UK and Europe, have ensured that Guernsey remains a leading international finance centre. 

Confidentiality

Similarly to Jersey, trust law in Guernsey permits trust deeds to include provisions which preclude the disclosure of information to beneficiaries. There are no requirements for the public filing of trust deeds, or trust accounts, or for trusts to be registered. 

Exchange controls

There is no exchange control in Guernsey and currencies are freely transferable. 

Isle of Man

Isle of Man flag

Trust Laws

Isle of Man trust law has its roots in English law. It is based on common law principles, supplemented, and enhanced by legislation which mostly mirrors its English equivalents. The decisions of the English courts are highly persuasive in the Isle of Man courts and the Judicial Committee of the Privy Council is the highest court of appeal for the Island.

Tax regime

There is no capital gains tax and there are no inheritance, gift or estate taxes in the Isle of Man. Trustees may be income taxpayers, however, and may be obliged to file tax returns when they are resident in the Isle of Man.

Political and economic stability

The Isle of Man offers wealthy families a politically stable, well-regulated, and practical base in which to establish wealth and business succession planning structures.

Confidentiality

Under current legislation Isle of Man trusts are not required to provide information on public record, offering an additional level of confidentiality protection, for trust Settlors and Beneficiaries, nor do they need to be registered (unless they hold Isle of Man real estate or are charitable).

Exchange controls

The Isle of Man has no exchange controls and currencies are freely transferable.

Cayman Islands

Cayman Islands flag

Trust Laws

The local legislation relating to trusts is the result of a close partnership between the government and the private sector. This has enabled the Cayman Islands to create modern, innovative legislation. Cayman law is derived from English common law and has led the way amongst the offshore countries with its legislation, which makes it one of the most favourable destinations for trusts.

One difference in the Cayman Islands, ordinary non-charitable trusts governed by Cayman law may now exist for periods of up to 150 years, and trusts established for charitable or non-charitable purposes, or otherwise under the STAR legislation, may exist in perpetuity.

Tax regime

The Cayman Islands’ competitive strength lies in its ability to provide an effective and cost-efficient tax-neutral platform for international capital flows. Cayman offers a one-stop shop for clients, supported by an excellent professional infrastructure in an environment of economic and political stability.

Political and economic stability

The Cayman Islands offers a stable political system based on a foundation of an adaptive regulatory structure which is a rare find in most nations. Entrepreneurs can take comfort in the fact that the country, as a British Overseas Territory, has strong political and economic stability, and its legal and court system is based on English Common Law. The country has its own democratically elected parliament, which has consistently maintained responsibility for domestic affairs including fiscal matters.

Confidentiality

The flexibility and confidentiality of the trusts regime in the Cayman Islands is underpinned by its well-respected legislation and judiciary and is supported by the effect of the Confidential Relationships (Preservation) Law. This means that Cayman Islands trusts are widely used and highly respected throughout the world by ultra-high net worth individuals, international families and trusted advisers, as well as institutional and independent trustees.

Exchange controls

There are no exchange control or currency regulations.

British Virgin Islands

British Virgin Islands flag

 

Trust Laws

British Virgin Islands trust law is based on English trust law but has developed beyond English law to permit purpose trusts, extend the perpetuity period to 100 years and most notably to create the unique VISTA trust. The governing law is the Trustee Ordinance Act 1961 ("the Act") (most recently updated by the Trustee (Amendment) Acts of 2013 and 2015) and is supplemented by the Virgin Islands Special Trusts Act 2003 (the "VISTA legislation") (most recently updated by the Virgin Islands Special Trusts (Amendment) Act 2013).

Since the introduction of the VISTA legislation, it has been said by leading practitioners that the British Virgin Islands has one of the most modern and coherent legislations for trusts globally.

Tax regime

BVI trusts are exempt from all taxation. The only exception is if beneficiaries are resident in the BVI or VI trusts own land or carry out business in the BVI.

Political and economic stability

The British Virgin Islands (BVI) enjoys responsibility for its own internal self-government. The BVI is considered the region’s most stable, prosperous, and secure territory. The Country enjoys the important added benefit of having the US Dollar as its currency, thereby offering a special combination of financial, economic, and political stability.

Confidentiality

Trusts are exempt from needing to be registered under the BVI Registration and Records Act. Trustees are also exempt from reporting and filing requirements, to maintain high levels of confidentiality.

Exchange controls

There are no exchange control or currency regulations.

Bermuda

Bermuda flag

Trust Laws

Bermuda has enacted legislation designed to facilitate the use of trusts for modern commercial or private-client applications. While domestic legislation has kept Bermuda’s trust laws progressive and innovative, UK case law remains of persuasive authority today, providing certainty and comfort to international families and advisors.

Tax regime

In Bermuda there are no taxes on profits, income, or dividends, nor is there any capital gains tax on trusts. There is a nominal stamp duty on certain trust documents where the trust fund holds non-Bermuda property. The position, however, is different where the settlor is a Bermudian national or where the assets are Bermuda dollar assets.

Political and economic stability

Bermuda is politically and economically stable. Its well-developed infrastructure and regulation relating to the provision of trust services and tax neutrality make Bermuda a world leader in trust services.

Confidentiality

Trusts do not have to register with the government so no public records exist, ensuring a high degree of confidentiality.

Exchange controls

There are no exchange controls and currencies are freely transferrable for exempted businesses and non-resident individuals.

 

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