Offshore trusts can offer you asset protection

For starters, trust is a separate legal entity. It is created by a notarial contract. As such, the settlor transfers assets to the trust so that they can be managed by the trustee (s), as originally intended. The main benefit will be to be able to share the income and capital that will flow from the property with the beneficiaries of the trust. 

There are several types of trusts, determined by the manner in which they are established and their purpose. The legal and fiscal impacts may vary according to the established model. At the tax level, there are two major families of trusts, those inter vivos, created during the lifetime of the settlor, and those called testamentary, set up when the settlor dies.

Asset protection tool- offshore trusts

From a legal perspective, trust is a way to protect assets- read more at Since these are separated from their original owners, they are protected from potential creditors (subject to a solvent balance sheet at the time of incorporation). In addition, the settlor may put in place, when creating the trust deed, limits on the use of the transferred property. For example, the trustee may not be allowed to pay funds to a beneficiary until the beneficiary reaches a certain age, or the distribution of funds may be limited each year so as not to squander the assets transferred to the trust.

Fiscal advantages

In terms of taxation, the trust can serve as a “conduit” for sharing revenue among its beneficiaries, which can be a tax-efficient situation when optimizing sharing. A caveat must be raised here regarding the rules on income splitting, which have been tightened since January 2018. Indeed, the rules that previously only affected minors have expanded and can now apply to any taxpayer who would receive income of a related company. Some exceptions exist, among others for individuals who work on the farm. So you have to be careful about allocating income from a trust to beneficiaries.

Also at the tax level, the trust also allows the use of the capital gains deduction to be multiplied when selling property eligible for this deduction. In this way, each beneficiary could be likely to be allocated a portion of the capital gain realized by the trust and thus be able to use its own deduction.

For the transfer of the company

In a business transfer planning, the trust could serve in a stub period. When we know that we want now to transmit the added value of a farm and that the next generation is not ready, it would be possible to “freeze” the current value of the company in favor of owner and set up a trust to hold the units that will give entitlement to future appreciation. Then, it can be distributed to any of the beneficiaries of the trust that could be the next generation or the current owner if it does not occur.

There are several rules for creating trust properly. It is therefore important to surround yourself with knowledgeable and experienced people to put in place planning that includes trust. A simple constitution error can cancel complete planning.

In conclusion, trusts provide the opportunity for attractive tax planning and asset management when potential recipients are not prepared to receive them when planning is in place. Trusts may not be suitable for everyone, especially in an agricultural context where other parameters than taxation come into play, such as certain succession programs that may require the direct holding of investments.

You may also like...

Leave a Reply

Your email address will not be published.