Overseas Trust versus Foundation – Asset Protection

The History

For many hundreds of years, Trusts have been used as a means of securing assets or wealth for later distribution to their respective beneficiaries. It has been claimed that Trusts originated at the time of the Crusades when Barons, Knights and the like left to fight in the Holy Land and left their lands and castles in the trust of a third party with instructions on what to do should they not return. Henry VIII is said to have been responsible for committing Trusts to the written word.

Whether the above statements are factually correct or not is of little importance. Of far more importance is the fact that Trust Law around the world is based on English Trust Law and that the majority of the world’s wealth is said to be held in Trusts. How much this is no one knows for sure but it surely demonstrates that there is serious value in Trusts no matter which way you look at them. UK pension schemes are a good example of the use of Trusts in that literally billions of £’s worth of assets are held in trust for the benefit of pensioners, employees, deferred members and so on. These assets are controlled by Trustees who are required to act under general Trust law and the specific Trust Deed relating to whatever fund or assets under their control and to act in the interests of the beneficiaries. To do otherwise would be a serious criminal offence.

One important fact well worth knowing is that a Trust of itself cannot own anything. It is simply an arrangement governed by a Trust Deed laying down the rules under which the Trustees must act, the overriding requirement as stated above being that they act in the best interests of the Beneficiaries under the Trust. It is the Trustees of a Trust who actually take ownership but even then, only on behalf of the Beneficiaries.

In more recent times, Trusts have been used as part of both large and small company structures to aid in the safekeeping of business assets through their continued existence. Where some Trusts are used simply to retain funds or physical assets, there is now an ever increasing trend in effectively gifting the ownership of companies and corporations into Trust for protection purposes and to ensure that the ownership the corporations can be correctly transferred to the owner’s heirs, next of kin or intended successors in the event of their passing.

Overseas Trust and Foundation

When Companies, particularly overseas companies are established for asset protection, the ownership of them is often transferred to Trustees, who will retain control until such time as the Trust is wound up. They can appoint individuals as directors to actually run the company and are able to delegate significant powers to the directors. Where larger or overseas companies are concerned and an overseas Trust is used, a Licenced Trust Company would usually take on the responsibility as Trustee on behalf of the business owner. Although this has become standard practice in many jurisdictions, some business owners require even higher levels of security for the ownership of their companies.

In response to these requirements, many overseas jurisdictions now offer “International Foundations”. Although the basic premise remains the same to that of a Trust, there are a number of benefits (depending on the applicant’s requirements) over the formation of a Trust. Unlike a Trust, a Foundation is a legal entity of itself (just like a company) and can own assets including shares in a company, property, money in bank accounts etc. etc. Instead of Trustees, foundations would typically be controlled by Foundation Council Members who are appointed when the Foundation is created. The Council Members of registered Foundations are bound by law to act in accordance with the Founder’s wishes and to act in the best interests of the beneficiaries. It is worth noting that there is no requirement to name the beneficiaries and a foundation can simply be set up with a purpose, not a named beneficiary. Notwithstanding, the Foundation Council must still act according to Foundation Law of the jurisdiction in which it is created and the Foundation Deed.

In summary, both Trusts and Foundations can offer benefits to both individuals as well as to a range of corporate entities.

Turner Little

Turner Little offer the creation of both Trusts and Foundations alone or in conjunction with the incorporation of UK or Offshore Companies. For further assistance please contact us on 01904 783101.

Explaining the different types of trust

There are different types of trust that can be set up for inheritance purposes. Selecting the right one for your needs is important. Here are some examples to help you understand the different types.

Simple

Also known as a ‘Bare Trust’, this allows the beneficiary to gain absolute control over the assets in the Trusts immediately. They will therefore have control over the income generated.

When a settlor (the person entrusting money to the trust) selects the beneficiary (or beneficiaries) they know for certain who will benefit. When it has been set up, the beneficiaries can’t be altered.

Accumulation or Discretionary

Assigned trustees are given the discretion of how the income of the Trust is used. Trustees for a Discretionary Trust are the legal owners of the assets and must run it in favour of the beneficiaries. An Accumulation Trust’s board of trustees are given powers to accumulate the income until the beneficiary is legally allowed the income or property.

Charitable or Heritage

This is a business-related Trust set up to benefit a historic or charitable cause. For example, Heritage Maintenance Funds are set up to pay for the maintenance of historic buildings. In a similar way, Charitable Trusts are established to benefit a group of people or society in general rather than individual beneficiaries. Charitable Trusts are entitled to various forms of tax relief that private trusts don’t get.

Interest in Possession

This allows the beneficiary to use its income as it is generated. The selected Trustee must pass all income received from the trust (except the expenses generated by the Trustee) directly to the beneficiary. The beneficiary is known as a ‘life tenant’ if they are entitled to this income for their lifespan.

Mixed Trust

These are simply a mixture of different types of trusts. Some of the Mixed Trusts’ assets can be treated in the same way as those of a Discretionary Trust. They are generally used for the benefit of siblings who reach the majority age at separate times.

Parental Trusts for Minors

These are set up for the settlor’s underage, unmarried children. The child’s income from the Trust is treated as if it is the income for the settlor for tax purposes.

Vulnerable Beneficiaries

These are set up for beneficiaries who are mentally or physically disabled. They are also set up for beneficiaries under the age of 18 whose parent has died. Trustees can claim special treatment in terms of income and capital gains taxes if it’s designated a ‘Qualifying Trust’. This is a trust where the settlor does not receive any benefit.

Settlor-Interested

These are Trusts which can also benefit the settlor or the settlor’s civil partner or spouse. For example, a Trust set up by a settlor who knows they will be incapacitated by illness in the future. It will then form income either for themselves, or for their family.

Turner Little

Turner Little offer the creation of both Trusts and Foundations alone or in conjunction with the incorporation of UK or Offshore Companies. For further assistance please contact us on 01904 783101.

Ten reasons why you need to make a will

Everyone should have a will, especially if you have savings, investments or own your own business or a property. Around 56% of people who die in the UK every year do so without having made a will. Dying without a will (known as dying intestate) can mean that your wishes for your ‘estate’ aren’t fulfilled the way you’d want them to be and can cause problems for your loved ones. Even to the point that if you die intestate and without heirs, your entire Estate can become the property of the State.

While it might sound simple enough to do alone, it’s important to draw up a legally binding Will that is difficult to contest after you die. Not only does it relieve stress for those left behind, it provides you with peace of mind regarding the future of your estate.

Here are ten reasons why you should make a will

  1. You’ll be in control – making a will puts you in the driving seat regarding your estate. You choose exactly who should benefit from your savings, investments, property, business, what people are entitled to and who controls them and to what extent. You also decide who manages (administers) your estate after your death.
  2. It’s your decision that counts – if you die without a will then intestacy rules apply. This can obviously cause problems for your family, as your wishes may not be followed. Intestacy law also lays out instructions as to who handles your affairs after death. This can be problematic if the person left in charge is unsuitable due to their location, health, or age.
  3. It reduces potential problems – making a will cuts the chances of a dispute or problem coming up after your death. Disputes often occur when someone dies without making a will. Certain people in the family hierarchy are entitled to use their right to apply to court to challenge any intestacy rules if they don’t agree with them. As an example, intestacy rules provide nothing for a long-term unmarried partner, so they would need to apply to the court to be awarded any share of their deceased partner’s estate.
  4. Lessens the chances of court challenges – it is possible for a will to be challenged in court on the basis that it’s unfair, but it’s far less likely than an intestate ruling.
  5. Administering your estate will be smoother – it is likely to be faster, less expensive and generally easier for loved ones to administer an estate that has a will. Dying without a will means there may be additional charges, such as commissioning research to find lost relatives. This can take a long time and it’s very expensive.
  6. Allows you to preserve your assets – making a will means you can preserve certain assets for specific beneficiaries. For example, if you have a property portfolio or business concerns, then these can be treated separately and go to certain people. If you die intestate, your estate is treated as one entity, which can cause uncertainty and unfairness.
  7. You can provide for specific situations – a will allows you to decide when and where your money goes, while protecting assets for other beneficiaries. For example, a married couple can write wills that protect some of their home from being used later on to pay for any care fees. This enables them to feel secure that their home will still be available to the survivor as long as they want to stay. Another good example is couples who have children from previous marriages. A trust can be set up to save (ring fence) part of the estate for those children. If this doesn’t happen, intestacy rules could mean all assets go to the surviving spouse, and the children from the first relationships are left with nothing.
  8. You can protect vulnerable beneficiaries – by drafting a trust in your will you can protect any inheritance left to a vulnerable or disabled person. It can instruct someone to manage their inheritance, and help the beneficiary not to lose his or her benefits.
  9. You can speed up inheritance for vulnerable beneficiaries – if you die intestate and want to leave some of your estate to a vulnerable or disabled person, then the administrator might insist on someone applying to the court to be the court-appointed deputy of the beneficiary, before they can receive their share. This is a time-consuming, stressful and expensive process. It’s considered necessary by intestacy rules as the beneficiary could lack capacity to administer their share.
  10. You can choose your funeral – as well as nominating a guardian to look after your children should you die when they are young, you can also record your funeral choices in your will. Formally expressing these wishes can help family and friends left behind.

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

For more information, please contact us on 01904 783101.

Why you should consider setting up a Trust

Trusts can be confusing, and with so many variations around it’s not easy to work out which you need, or whether you need one at all. The factor that differentiates trusts is the reason for them being set up in the first place. It is important to understand the purpose of a trust before it’s set up, and whether the agreement is what you need. At Turner Little, we can help you choose the right trust for your purposes. We’ve come up with reasons why you should think about setting up a trust:

  1. To manage your assets

Your beneficiaries may not be capable of managing the assets you give them, or perhaps won’t want to. This problem can be solved by having trustees in place to manage the assets for them. Common reasons for this kind of trust is when children are minors or have a disability. You can manage the assets when you’re alive, but after you die a trust can take over and carry on your wishes.

  1. To protect your assets

A trust is an effective way of protecting your assets from potential creditors, a marriage breakdown or from anyone who could influence your beneficiaries. You will need legal advice on this as there is legislation surrounding which assets you can transfer in specific circumstances.

  1. To control the distribution of your assets

You may not trust your beneficiaries to own the assets directly. This could be for many reasons, including that they are minors or are known to be poor at handling finances. With certain trusts you can distribute assets to your beneficiaries over a period of time.

  1. To keep personal details private

After you die, your will can become a public document. This would include the value of your estate and assets, and certain people could be allowed to access a copy of your will by law. By contrast, a trust is a private document and must be kept confidential.

  1. To avoid challenges to your wishes

While it’s possible for someone to challenge your will after you die, and for it to be changed (this is called ‘compulsory succession), a legally drafted trust is watertight and can mitigate challenges to your wishes.

  1. To cut Inheritance Tax (IHT)

If you put assets into a trust and they meet certain conditions, then they legally no longer belong to you. This means that after you die, their value generally won’t be included in your estate for IHT purposes. So, when property is held in trust, it is then outside your estate and will therefore cut your IHT.

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

For more information, please contact us on 01904 783101.

What is a Power of Attorney and how is it used?

It’s a phrase most people have heard of, but do you know exactly what ‘Power of Attorney’ means? We’ve put together a handy breakdown of what it could mean for you and your family. In simple terms, Power of Attorney is a legal document in which one person (known as the ‘donor’) gives other people (their attorneys) the right to act on their behalf.

There are different types of Power of Attorney, depending on how long you want it to be in action. An Ordinary Power of Attorney is a temporary convenience, while longer-term arrangements are known as Enduring power of Attorney (EPA) or Lasting Power of Attorney (LPA).

What is Enduring Power of Attorney (EPA)?

This system changed in 2007, and while any EPAs set up before October of that year can still be legally used to control the financial and property affairs of the donor, no new ones have been set up since then.

If the donor is considered to still have the mental capacity necessary (this means the mental capacity to understand information, analyse it and communicate their decision), then an existing EPA can be used without being registered at the Office of the Public Guardian.

However, if the donor doesn’t have mental capacity (for example, resulting from a stroke or dementia) then the EPA cannot be used until it has been registered. All EPAs that have already been created and completed remain valid and can be registered.

What is Lasting Power of Attorney (LPA)?

LPA is the current form of Power of Attorney, and there are two different types:

  • Property and financial affairs LPA

This gives the donor’s attorney the power to make decisions about their property and money. This includes managing building society and bank accounts, paying bills, collecting benefits and pensions and selling their home if necessary. When it’s registered with the Office of the Public Guardian, the LPA can be used immediately or held until needed.

  • Health and welfare LPA

This gives the donor’s attorney the power to make decisions about their daily routine (including dressing, eating and washing), medical care, moving into a care home and medical treatment. It is only used when a donor can’t make their own decisions.

Three times as many property and financial LPAs are set up for every one personal welfare LPA, but it’s a good idea to set both up at the same time. They can only be created while donors have full mental capacity.

Power of Attorney in Scotland and Northern Ireland

There are different rules in Scotland, in that Ordinary Powers of Attorney are called General Powers of Attorney (GPA) and don’t need to be registered before they can be used.

If a donor lacks mental capacity, then a Continuing Power of Attorney (CPA) is needed to control their financial matters, and this must be registered with the Scottish Office of the Public Guardian. For legal decisions about health and welfare, a Welfare Power of Attorney (WPA) is needed. This can only be used when a donor lacks capacity and also needs to be registered.

EPAs are still used in Northern Ireland and can be ordinary POAs if the donor has mental capacity. If they don’t, only an EPA registered with the Office of Care and Protection can be used.

For more detail and information on POAs, and how to set one up, talk to the team at Turner Little.

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

For more information, please contact us on 01904 783101.