An offshore trust is a trust set up in a jurisdiction outside the one in which the person endowing the trust lives. The person who holds the assets in the trust, who is also known as the settlor, chooses the foreign location because it offers friendly tax laws. This allows the assets within the trust to be safeguarded from heavy taxation. Assets within the offshore trust are doled out by a trustee to beneficiaries, who may include the settlor and also any friends or family members he has chosen.
Wealthy individuals looking to provide wealth for their family in their lifetimes and beyond may consider trusts as the best way to achieve this. Although establishing a trust means relinquishing some control over the assets within, it also provides for some protection for those assets. Trusts may be subject to estate tax laws and other tax laws that can take a large chunk of the wealth away. For that reason, an offshore trust is often chosen as a way of circumventing taxation.
With an offshore trust, an individual can choose a jurisdiction in which tax laws are either extremely lenient or may not even apply at all to the wealth within the trust. It is important that an individual establishing such a trust do extensive research to make sure that such tax havens are reliable places to store wealth. The trust company is ideally located in a place that has no legal obligation to respond to the tax laws of other jurisdictions.
Once an individual chooses the location of her offshore trust, she must then decide upon a trustee. The trustee can be an individual or a company who will be in charge of administering the wealth within the trust. This trustee follows the directions of the trust deed and is responsible for doling out the assets of the trust to beneficiaries, who can include the settlor. In some cases, the trustee may also be required to invest the assets of the trust to grow the wealth within for future generations.
There are many different types of trusts available to individuals who choose to pursue them. An irrevocable trust is one that is set in stone and may not be changed, even by the settlor, while a revocable trust gives a little more leniency in altering trust terms or revoking it completely. In the case of an offshore trust, the settlor often chooses a discretionary trust, which gives the trustee much more leeway in choosing how to dole out the trust's assets.