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Asset protection

Asset protection goals and tools

As the name suggests, certain structures are not established primarily for the purpose of reducing taxes, but rather with the aim of the secure placing of assets, and the safe-keeping and/or continuous accumulation of valuables. In most cases, this involves a separate structure being established to administer the assets of

  • a private individual
  • a family, or
  • a group of companies

Over the course of history, two major asset protection instruments have been developed:

  • Trust
  • Private foundation

Both vehicles basically serve the same purpose, that is, asset protection, but a major difference between the two is that while the Trust is an agreement based on private law, the Foundation is an independent legal entity which is usually registered officially with a court of registration.

The Trust is popular primarily in the anglo-saxon world, where it enjoys a history dating back more than 800 years. The Foundation, on the other hand, is mainly linked to countries following the continental legal system, and dates back several decades now.


5 MINUTES OFFSHORE: THE TRUST

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Preferred asset protection jurisdictions:

Panama

 

A comparison between the Private Foundations and the Trust

The Foundation is the civil-law equivalent of the trust in anglo-saxon law. Where the trust has a settlor, trust property and trustees, the Foundation has a founder, foundation funds and the foundation council.

Both the trust and Foundation have beneficiaries and protectors. There are, however, significant differences between the two: the Foundation is, in itself, a legal entity, whereas the trust is not; in a trust there are legal owners and beneficial owners, whereas in a Foundation there is no such split as the Foundation itself is the owner of the Foundation funds.

Despite these differences, both trusts and Foundations are considered among the best vehicles for individuals wishing to arrange the succession of private assets.

The Panamanian law on Foundations Although Panama already had a modern trust law, Act No. 25 on Private Foundations (the Act), passed by parliament on June 12th 1995, provided Panama with a civil law alternative to the trust.
What is a Foundation? According to Panamanian law, a Foundation is a capital endowment made by one or several individuals or corporations, called Founder, for a specified purpose, such funds becoming thereby autonomous, the administration of which is committed to a governing body, called Foundation Council, for the purpose of implementing the founder’s intentions or objects of the foundation and for the benefit of one or several individuals or corporations, called beneficiaries, acquiring legal personality upon its registration in Panama’s Foundations Register in the form of a Foundation Charter. A Panama foundation may be formed either inter vivos (revocable) or mortis causa (irrevocable).
Basic documents The main documents of a Panama Foundation are the Foundation Charter, which must be registered for the foundation to become a legal entity and the By-Laws, which set down the rights and identity of the beneficiaries. The By-Laws, usually issued by the Foundation Council, are strictly private and 7confidential. (See below for more information).
Purpose According to the Act the purpose of a Foundation must be non-commercial and non-profit. A Foundation may not operate as a company, although it may own shares in other companies or invest in the finance industry, provided that any income generated be used exclusively for the specific purpose of the Foundation.
Initial Foundation Capital and subsequent changes The minimum initial capital required for a foundation is 10 000 USD, though this amount can be increased at any time after constitution and the change need not be notified in Panama. The Foundation funds may be paid in by the Founder or a third party, and no proof that this has been paid is required by the registrar prior to formation. Once the Founder has made the initial endowment, the Foundation Funds become autonomous and legally separate from any other assets owned by the Founder.
Foundation council The Foundation Council must contain at least three individuals or one company, or a combination of the two. These may be of any nationality, though it is usual for the Resident Agent (a local lawyer) to sit on the council as a fiduciary councillor.
By-laws or regulations The By-laws or Regulations are the documents which set down the identity and beneficial rights of the Beneficiaries. These are normally drawn up by the Foundation Council, and remain strictly private and confidential. There is no requirement for the details to be registered with either the Foundations Register or the Registered Agent in Panama, and all administration can be carried out abroad.
Beneficiaries The Beneficiaries can be physical persons of any age and/or legal entities of any nationality. They are not the owners of the Foundation, nor are they creditors. It is possible to appoint new beneficiaries at any time after the Foundation has been registered. The rights of the beneficiaries are set down in the Foundation Charter or the By-Laws, or by resolutions passed by the Foundation Council.
Protector(s) The Foundation Charter may stipulate the appointment of optional “protectors” to control or advise over the Foundation. The Act sets down the possible roles of such protectors, and the Founder or Foundation Council finalise the specific powers in each individual case.
Data required to be registered In order for the foundation to be registered and acquire corporate status the following minimum details must be stated in the charter (as required by the Act): foundation name, initial foundation capital, members of the board, domicile of foundation, local representative (registered agent), purpose, method of appointing beneficiaries, rights reserved by founder (if any), and duration of foundation. It is not necessary to register details of the beneficiaries or beneficial rights.
Amendments to charter and by-laws Generally, the Foundation Council has the right to make and register amendments to the charter at any time. The registered agent must file a memorandum of amendment with the Foundations Registrar. It is not necessary to register or make public amendments to the by-laws.
Accounting and Auditing requirements The Foundation is not required by law to file accounts in Panama. However, the Foundation Council is responsible for reporting the financial affairs of the Foundation to the Beneficiaries (or their representatives), and thus a bookkeeping requirement is implied. The Charter or By-Laws may, however, make other provisions.
Dissolution of a Foundation Art. 25 of the Act and the Charter and By-Laws of a Foundation set down the terms for dissolution. The Charter may state a fixed duration for the Foundation; if the purpose is deemed unattainable, or if the Foundation was formed subject to revocation, then the Foundation can be dissolved. If the Charter does not make provisions for dissolution, then any decision on dissolution is the responsibility of the Foundation Council. Whenever a Foundation is dissolved, this decision must be registered in Panama.
Transfer of Domicile It is possible for Panama Foundations to transfer their domicile abroad, and for foreign foundations to transfer their domicile to Panama. This does not entail loss of corporate status or a change in the obligations to third parties. From the date of transfer, the Foundation becomes subject to the law of the new country of domicile.
Registered Agent requirements In accordance with Art. 5 of the Act, all Foundations must have a local Registered Agent in Panama. The Registered Agent can be either a local lawyer or law firm.
Laws governing Confidentiality Panama has a strong tradition of protecting confidentiality and privacy. Both statutes and the penal code strictly govern this matter in the fields of law practice, banking, trusts and foundations etc. Abuse or unauthorised transmission of confidential information by anyone with access to such information may result in prosecution. Banking secrecy will only be over-ruled by court order and in criminal cases. Tax offences do not, however, result in criminal action.
Fiscal Territorial Rule and Inheritance Tax Fiscal law in Panama is based on territorial rules, which means that foreign-source income of individuals and corporations is free of tax and freely transferable. In addition, Panama has entered no agreements on juridical assistance on tax matters with any other countries. There is no inheritance tax in Panama, so companies or foundations inheriting assets can do so tax-free.
No Enforced Inheritance rights Panamanian law does not recognise enforced inheritance, and foreign judgements on such matters can not be applied. However, it is still not advisable for the assets of a Panamanian Foundation to be held in a country where forced inheritance exists, as this may lead to complications and conflicts.
What are Panama Foundations usually used for? The Panama Foundation is an ideal vehicle for the non-commercial holding and administration of assets and for estate planning. The Foundation provides suitable protection and ensures succession in an advantageous tax environment. The flexibility allows for changes in the beneficiaries, amounts of Foundation funds and rights of beneficiaries.
THE PANAMA FOUNDATION - FEE SCHEDULE
Compulsory costs
Formation Fee
1590 USD
 Annual Fees
Registered Agent
990 USD
Annual Tax
300 USD
Total Fee for Formation and First Year Fees 2880 USD
Optional costs
Foundation council 990 USD per year
Power of Attorney – non-registered 250 USD
Power of Attorney – non-registered + Apostille
250 + 250 USD
Power of Attorney – registered 350 USD
Extract of Public Registry 195 USD
Extract of Public Registry + Apostille 195 + 250 USD
Modifications of Foundation Charter 600 USD
Amendments to By-Laws (Regulations) min. 500 USD

Cyprus

The possession, handling, and management of wealth - whatever the amount of wealth involved - provides an extremely divergent task for all of those who have acquired, possess or, as agents, merely manage wealth. The problem is probably as old as the notion of private property itself. This is particularly true today, when business possibilities know no frontiers, and if we compare the situation today with the situation at the beginning of the last century, then it becomes even more true, as the production and concentration of wealth has never been so widespread throughout the world. While at the beginning of the last century records showed 60 people in the USA with wealth exceeding one million dollars, today there are almost 300 people there whose fortune is greater than one billion dollars.

As we have already mentioned, the management of wealth is a task of significant importance, but investing that wealth securely and arranging for its secure transfer to the next generation and future owners is no less significant. The fact that many unauthorised people may make claims on their often hard-earned fortune can cause problems in the lives of possessors of wealth. Another problem is that no one is immortal, and an unexpected event can occur at any time in a person's life. What would happen if a person became permanently incapacitated, or even, Heaven forbid, died? How can the assets be transferred to the family members without allowing unauthorised persons to take advantage, and how can the maximum amount possible be retained by the family members and loved ones? Every rational businessman has probably spent some time pondering this question. But what offshore solution can provide the perfect possibility of fulfilling this role? Maybe an offshore company? Yes, up to a point, but it does not provide 100% security, as an offshore company by itself does not guarantee that the assets will automatically be transferred to the beneficiaries. The shares can be lost, bearer shares may find their way into unauthorised hands, and there is no guarantee that the director will act in accordance with the wishes of the original owner.
In this brochure, we would like to briefly introduce an offshore vehicle which, after centuries of refinement, may be able to provide the solution to the problems described above. In the opinion of numerous experts, the Trust of Shares system can, if properly structured, provide asset holders with complete assurance that, in the aftermath of an unexpected event, their wishes will be adhered to as fully as possible. This will be so even if they themselves are unable to intervene in the matter personally.

What is a Trust?

A Trust is that agreement which is entered when the person establishing the Trust - the Settlor - transfers his assets, or a part of them, to an independent third party asset controller - the Trustee - on the understanding that following the agreement, the assets will legally belong to the Trustee, and the Trustee will manage the assets, while the Beneficiary or Beneficiaries will continue to enjoy the profits earned by the assets. They also appoint, or can appoint, a so-called Protector who provides the Trustee with advice and instructions if the Settlor is prevented from doing so.


The institution of the Trust in the United Kingdom has a tradition dating back some 1000 years. It was developed in the Middle Ages, at the time of the Crusades, when the king summoned his lieges, who, obedient to the wishes of their sovereign, followed him to the Holy Land. Their wealth and assets, however, remained in England, albeit now unmanaged and unsupervised. And, in the Middle Ages, this wealth usually meant physically enormous assets, which required daily management and handling. In many cases, the management and protection of assets could not be entrusted to family members (disputes between brothers, a young and inexperienced spouse, etc.), so the asset-holder was forced to look for a person who could fulfil the role until he returned and took charge once more of his affairs. The institution and tradition of the Trust continued to thrive and develop over the centuries, and, in particular, during the Victorian era. There was always some kind of assets which required management, and thus there were always entrepreneurs ready to take on the role. All of this, of course, could not escape the notice of the legislators, and laws related to Trusts were introduced not only in England, but in numerous countries which adopted English law, such as the USA and Australia, as well as the countries of the former British empire and the territories which even today fall under the jurisdiction of the United Kingdom, though have independent legislation (Isle of Man, Gibraltar, British Virgin Islands etc.).


The principle of the Trust has remained unchanged throughout the centuries. At most, it is legislation and the enormous number of cases relating to lawsuits that have turned the thousand year-old institution into one of the most refined tools in asset planning.

Who are the main players in a Trust?

Settlor: this is the person who initiates the establishment of the Trust, and transfers his assets to the Trustee, on the understanding that the assets are then no longer the Settlor's, but the Trustee's. Generally, the Settlor tends to be a natural person, but it can also be a company.

Trustee: the future owner and manager of the assets, who holds and handles the assets in accordance with the agreement, and, in the event of certain circumstances, divides the assets up between the beneficiaries. The Trustee can be a natural person, but nowadays it is more usual for this role to be filled by a company specialising in this field; these companies tend to be legal offices, banks, notaries public etc.

Beneficiary: these are the people who enjoy the profits of the assets placed in Trust. These are usually natural people, and generally include the Settlor all the while that he is still alive. In most cases the beneficiaries are the Settlor's close family members (spouse, children), and other people named by the Settlor in the Declaration of Trust (brothers, friends etc.). The beneficiaries could, however, be companies or other organisations, in accordance with the wishes of the Settlor.

Protector: this is the person who provides the Trustee with instructions regarding the management of the assets if the Settlor becomes incapacitated or dies. In many cases, the role of the Protector is extremely important, as he is the one who knows the situation and peculiarities of the Settlor's assets better even than the Trustee, so is able to give the best advice as far as the handling of the wealth is concerned. From this it is clear that there must be a relationship of complete trust between the Settlor and the Protector. Thus, the Protector can be a close friend, a private lawyer or a trustworthy business partner.

The assets placed in Trust: The assets placed in Trust can be practically any movable property or real estate, or any goods, material or immaterial. Generally, there are no restrictions on the assets of the Trust, but the legal transfer of the assets can be a lot more complicated. This is particularly the case when, for example, a piece of real estate has to be transferred to the Trustee, or when the Trustee legally takes possession of a racehorse.

Declaration of Trust: Early Trusts were not recorded in writing, and even today it is legally possible to establish a Trust without preparing any formal documentation. If the formal requirements are all in place, then the parties can form a Trust by entering a verbal agreement. Nowadays, however, most Trusts are formed in writing. The parties set down the regulations for the establishment and operation of the Trust in the Declaration of Trust, a document drawn up specifically for the purpose.

Letter of Wishes: this is a one-sided declaration, in which the Settlor sets down the principles according to which the Trust should be organised, and how it should be operated (who the beneficiaries are etc.).

How does the Trust work?

When the Trust is established, the Settlor transfers his assets to the Trustee, who, from that point, administers and manages the assets; the transfer in this case is not for money, as this is not a purchase, but, legally speaking, a type of gift. Although the Trustee becomes the holder of the assets, the duality of ownership remains, as the legal system also recognises the Settlor's ownership rights. However, once the Settlor has transferred the assets, he can declare: "Those assets are no longer mine." The regulations for the establishment and operation of the Trust are set down in the Declaration of Trust. The beneficiaries are also named here, and typically the Settlor stipulates that while he is alive, he will also be a beneficiary. In the event of his death, however, the assets and/or the profit from the assets, must be transferred to the Beneficiaries named in the Declaration of Trust, in accordance with the conditions defined. In the event of the unfortunate and tragic death of the Settlor, it is the job of the Trustee to arrange matters in accordance with the Declaration, and to see to it that the assets are transferred to the beneficiaries, and that this is done correctly. It may be, for example, that the Settlor stipulates certain conditions relating to the transfer; for instance, children must come of age or must complete university studies, or his widow must remarry etc.

What are the main reasons for establishing a Trust?

The Trust is one of the most important tools in modern-day asset protection. The uses of Trusts have become very varied, as it offers a solution to many of the problems which arise during the management, handling and protection of assets. Some of the reasons for establishing a Trust are as follows:

The secure deposit of assets. It may be particularly important for residents of areas which are politically unstable to have their assets held and managed by a person resident in a stable area. This is even more important in cases where foreign exchange restrictions exist in parallel with political instability.

Protection of private assets from claims by creditors, lawyers specialising in damages, and divorced spouses. As the assets are no longer the property of the Settlor once the Trust has been established, claims of this nature will be fruitless as the Settlor officially has no assets to claim against: he is no longer the owner, and the Trustee can not be the subject or defendant in such a case.

Discreet asset holding. In numerous cases the Settlor is in a position where it is not desirable to show the true extent of his wealth, as this may lead to certain negative consequences and judgements.

Inheritance and capital gains taxes. In many countries with developed tax systems, asset holders can be hit with significant capital gains taxes on their growing wealth even during their lifetime, while upon the death of the asset holder, his heirs are required to pay exorbitantly high inheritance taxes (in some cases up to 50 %). However, if the Settlor handed over his assets to a Trustee while he was still alive, his heirs will not be subject to inheritance tax upon his death.

What is meant by the term offshore Trust?

So far, we have been following the tradition and model of the classic Anglo-Saxon Trust. The offshore Trust is a specialised version of this, in which the Trustee is resident in a jurisdiction whose laws generally do not place any taxation requirements on the assets of Trusts established according to the laws of the jurisdiction. This requirement applies not only to the assets themselves, but also to growth in the assets, profits arising from the assets, and inheritance. It is important, therefore, for an offshore Trust to be established in such a jurisdiction, as any advantages to be gained through taxation, or rather lack of taxation, can only be achieved if this is the case. Furthermore, it is only worthwhile if the Settlor is resident in a jurisdiction where the taxes and duties mentioned above are very high.

Which are the most popular centres in Europe for offshore Trusts?

Although this list is by no means complete, it can be said that the legislation and judicial practice in Alderney, Guernsey, Jersey, the Isle of Man, Gibraltar, Malta, Cyprus, and Liechtenstein make it possible for offshore Trusts established in these jurisdictions to offer the maximum security and convenience to the beneficiaries of those Trusts.

What are the most important considerations when choosing the jurisdiction in which to establish a Trust?

Political and economic stability.

The legal system must follow the traditions of Common Law (Anglo-Saxon law); this is necessary both from the point of view of the written Trust laws and the use of case laws.

Exemption from tax on the Trust assets, gains of the assets and in the case of inheritance.

The jurisdiction must have a suitable infrastructure, capable of serving the needs of investors from various different countries. In this sense, infrastructure means primarily the necessary experts, lawyers, bankers, financial advisers, accountants and notaries to deal with this area of business; in short, the people who participate in the establishment and management of Trusts. It is not just the professional expertise which counts, but, in certain cases, the approach of people and their attitude towards clients can be just as important.

An advantageous regulatory environment - this means that the local financial controller can work efficiently, and that laws and regulations relating to secrecy are strongly adhered to and enforced.

Good telecommunication possibilities, and maybe easy to reach, both of which facilitate the management and handling of assets, particularly when decisions have to be taken and acted upon regularly.

What is a "Trust of Shares"?

The Trust of Shares is a special type of Trust, where the assets of the Trust are comprised solely of shares; the Settlor transfers these shares to the Trustee, who takes possession of the shares not only in theory, but physically as well. Trusts established in this way have no assets other than the shares placed in the Trust. These shares are usually shares in offshore companies, which form part of the wealth of the Settlor, which is held as money deposited in bank accounts. Basically, therefore, the only asset of a Trust established in this way is money held in bank accounts, which is officially the property of the Trustee, while the person managing the account(s) is very often the Settlor himself, or the beneficiaries. Briefly then, it can be said that the Trust of Shares is a simplified form of Trust, as the assets involved only take the form of money in bank accounts, and only formally appear as the property of the Trustee, given that the person managing the account usually remains the Settlor himself while he is alive, or the people appointed by him.

Why Cyprus?

If we look at the international requirements for the support of offshore Trusts in order, then it can be seen that Cyprus passes with flying colours and satisfies all of the conditions generally required for the establishment of international trusts.

Political and economic stability. The Republic of Cyprus has been an independent country since 1960. Political life in Cyprus is stable, and the principles of parliamentarism are followed to the letter. The economy is at a level that many EU members would envy, as the rate of inflation is very low, while at the same time there is hardly any unemployment on the island, and, in fact, as a result of the growth in the tourist industry, many foreigners are also employed.

Anglo-Saxon type legal system. Cyprus, as a part of the former British Empire, follows the traditions of common law, in both its old legislation and in the introduction of new laws. The influence of the Anglo-Saxon legal system is further reinforced by the fact that a significant number of Cypriot lawyers study in England, or rather the United Kingdom.

Tax exemption. There are no taxes on assets placed in Trusts in Cyprus, on the growth of those assets, on profits arising from the assets or on inheritance, provided that the beneficiaries are not residents of Cyprus.

Suitable infrastructure. The lawyers, accountants, auditors, financial advisers and bankers participating in financial life in Cyprus are highly prepared experts, who, through both their professional training and human approach, deal with all demands directed to them with a totally client-orientated attitude. All professionals speak English, with many also having knowledge of at least one other foreign language.

Suitable regulatory environment. The Cyprus offshore trust is a well-regulated institution legally. Prior to the establishment of a Trust, permission is required from the Central Bank of Cyprus, which means that in practice it is not possible for something which is against the law in Cyprus, or damaging to the client, to be established.

Good communications and links with the rest of the world. Cyprus has a telecommunications system equal to those of the most developed countries, and this system is also available to the general public. Although Cyprus is an island, the telecommunications are comparable to those of any major city, such as Tokyo, New York or London. The transport network is excellent; there are several flights each day to and from Europe and North America, as well as to many countries in the Arab world.

What are the most important characteristics of the Cyprus Trust?

The Settlor must not be resident in Cyprus.

At least one of the Trustees must be permanently resident in Cyprus.

The beneficiaries must not be residents of Cyprus.

Generally, the assets of the Trust may include any movable or fixed objects, with the exception of real estate in Cyprus, and anything else which the Central Bank of Cyprus may stipulate.

Cyprus Trusts may be established for a maximum period of 100 years from the date of establishment; in the case of Trusts established for charitable purposes, however, there are no restrictions on the duration of the Trust. At the end of the 100 years, the assets must either be divided between the Beneficiaries, or disposed of as defined earlier.

According to the legal regulations in Cyprus, Cyprus Trusts may be transferred to other jurisdictions, just as Trusts established in other jurisdictions may be transferred to Cyprus. It is important that this possibility be included in the original foundation documents of the Trust. It is also a requirement, in cases where Cyprus Trusts are transferred to other jurisdictions, that the legislation of the new jurisdiction recognises the validity of the Cyprus Trust as well as the rights of the beneficiaries. In cases where Trusts are transferred to Cyprus from another jurisdiction, the laws of the original jurisdiction must permit the transfer of the Trust from that jurisdiction.

According to the regulations regarding international Trusts, neither the Trustees, nor the government, nor the Central Bank may publish information regarding Trusts, unless they are ordered to do so as a result of a decision taken by a civil or criminal court.

Neither the assets of the Trust, nor the beneficiaries are subject to tax in Cyprus with regard to income arising from the growth of the Trust assets or its profits. Similarly, income arising from the inheritance of the assets is not taxable in Cyprus. As a brief summary, in practice no taxes arise in Cyprus in relation to Trusts, other than the 250 Cyprus pound registration duty.

A Trust can only be established with the prior permission of the Central Bank of Cyprus. Permission for the establishment of the Trust is granted if the following conditions are met:

  • The assets of the Trust, with the exception of the shares of offshore companies and deposits placed in Cypriot commercial banks or their branch offices, must be situated outside Cyprus,
  • The Settlor and Beneficiaries must not be residents of Cyprus,
  • The Trust may receive no income of a Cypriot source, other than from deposits opened in Cyprus and incomes arising from shares,
  • The fees payable to the Trustees, and any other similar fees, must be converted to Cyprus pounds through an officially authorised financial institution,
  • The Central Bank of Cyprus has the right and possibility to examine any of the documents of the Trust, and will have access to any information it may require during the examination,
  • The Trust is subject to Cypriot law.

What guarantee is there that the Trustee will not steal my money?

Whether intentionally or not, the above question invariably arises. From one point of view, the answer could be that there is no guarantee, as the Trustee becomes the owner of the assets, and can do what he wants with them. I either trust him or I don't. This argument could undoubtedly be true, if we didn't take a closer look at the documents which are prepared when the Trust is established.

The first and most important of these is the Declaration of Trust. This document sets down quite clearly who is entitled to what part of the assets. This document does not just gather dust in the safe of the lawyer's office; a copy is deposited in the bank in which the offshore company holds its account. Thus, the bankers also know exactly who the Trustee is holding the assets for, and who the beneficiaries are.

If the Trustee does manage the bank account of the offshore company, then he can not have access to the money while the Settlor is alive. Even if he does manage the account, he can only initiate transfers from the company's account in accordance with pre-arranged instructions, and there will also be a written record of this.

Upon the death of the Settlor, the regulations of the Declaration of Trust come into force, and the bankers are able to check this too, as a copy was deposited with them in advance.

It can be seen from this, that the possibility of the Trustee truly gaining access to the assets are regulated as effectively as is possible; he can not act arbitrarily with possessions placed at his disposal by other people.

What must I do in order to establish a Trust in Cyprus?

It is not possible to give a simple answer to the above questions which would cover all cases. In all cases where a Trust is to be established, we insist on meeting the person or people establishing the Trust; during the course of a personal interview we have to be convinced of the intentions of the client, and, at the same time, have to be able to prove to the beneficiaries that our company is capable of meeting their requirements.

We would like to emphasise that we deal exclusively with the establishment of the Trust of Shares type of Trust introduced above, that is, where the assets of the Trust consist entirely of the shares of an offshore company, which, in turn, is only used to hold financial resources.
In our opinion, it is not possible to give thorough information in this short brochure, which is designed rather to provide some food for thought. Therefore, if you have any questions on this subject, please feel free to contact any one of LAVECO's offices, where our colleagues will be at your disposal.

How much does it cost to establish and maintain a trust?

It is not possible to give a simple answer to the above questions which would cover all cases. In all cases where a Trust is to be established, we insist on meeting the person or people establishing the Trust; during the course of a personal interview we have to be convinced of the intentions of the client, and, at the same time, have to be able to prove to the beneficiaries that our company is capable of meeting their requirements.

We would like to emphasise that we deal exclusively with the establishment of the Trust of Shares type of Trust introduced above, that is, where the assets of the Trust consist entirely of the shares of an offshore company, which, in turn, is only used to hold financial resources.

In our opinion, it is not possible to give thorough information in this short brochure, which is designed rather to provide some food for thought. Therefore, if you have any questions on this subject, please feel free to contact any one of LAVECO's offices, where our colleagues will be at your disposal.

The St. Kitts Foundation

 

A comparison between the Private Foundations and the Trust

 

The Foundation is the civil-law equivalent of the trust in anglo-saxon law. Where the trust has a settlor, trust property and trustees, the Foundation has a founder, foundation funds and the councillors; both the trust and Foundation have beneficiaries and guardians.

There are, however, significant differences between the two: the Foundation is, in itself, a legal entity, whereas the trust is not; in a trust there are legal owners and beneficial owners, whereas in a Foundation there is no such split as the Foundation itself is the owner of the Foundation funds.

Despite these differences, both trusts and Foundations are considered among the best vehicles for individuals wishing to arrange the succession of private assets.

The law on Foundations of St. Kitts

 

Although St. Kitts already had a modern trust law, Act No. 8 on Foundations (the Act), passed by the national assembly on September 18th 2003, provided St. Kitts with a civil law alternative to the trust.

 

What is a Foundation?

 

According to the law of St. Kitts, a Foundation is a capital endowment made by one or several individuals or corporations, called Founder, for a specified purpose, such funds becoming thereby autonomous, the administration of which is committed to a governing body, called Councillors, for the purpose of implementing the founder’s intentions or objects of the foundation and for the benefit of one or several individuals or corporations, called beneficiaries, acquiring legal personality upon its registration in the Register of St. Kitts.

 

Basic documents

 

The main documents of a St. Kitts Foundation are the Articles of Foundation, which must be registered for the foundation to become a legal entity and the By-Laws, which set down the rights and identity of the beneficiaries. The By-Laws, usually issued by the Councillors, are strictly private and confidential. (See below for more information).

 

Purpose

 

According to the Act the purpose of a Foundation must be non-commercial and non-profit. A Foundation may not operate as a company, although it may own shares in other companies or invest in the finance industry, provided that any income generated be used exclusively for the specific purpose of the Foundation.

 

Initial Foundation Capital and subsequent changes

 

There is no minimum initial capital required for a foundation. The Foundation funds may be paid in by the Founder or a third party, and no proof that this has been paid is required by the registrar prior to formation. Once the Founder has made the initial endowment, the Foundation Funds become autonomous and legally separate from any other assets owned by the Founder.

 

Councillors

 

The Councillors must contain at least one individual or one company. These may be of any nationality.

 

By-laws or regulations

 

The By-laws or Regulations are the documents which set down the identity and beneficial rights of the Beneficiaries. These are normally drawn up by the Councillors, and remain strictly private and confidential. There is no requirement for the details to be registered with either the Foundations Register or the Registered Agent in St. Kitts, and all administration can be carried out abroad.

 

Beneficiaries

 

The Beneficiaries can be physical persons of any age and/or legal entities of any nationality. They are not the owners of the Foundation, nor are they creditors. It is possible to appoint new beneficiaries at any time after the Foundation has been registered. The rights of the beneficiaries are set down in the Articles of Foundation or the By-Laws, or by resolutions passed by the Councillors.

 

Guardian(s)

 

The Articles of Foundation may stipulate the appointment of optional “guardians” to control or advise over the Foundation. The Act sets down the possible roles of such guardians, and the Founder or Councillors finalise the specific powers in each individual case.

 

Data required to be registered

 

In order for the foundation to be registered and acquire legal personality status the following minimum details must be stated in the charter (as required by the Act): foundation name, initial foundation capital, councillor, domicile of foundation, local representative (registered agent), purpose, method of appointing beneficiaries, rights reserved by founder (if any), and duration of foundation. It is not necessary to register details of the beneficiaries or beneficial rights.

 

Amendments to articles and by-laws

 

Generally, the Councillors have the right to make and register amendments to the charter at any time. The registered agent must file a memorandum of amendment with the Foundations Registrar. It is not necessary to register or make public amendments to the by-laws.

 

Accounting and Auditing requirements

 

The Foundation is not required by law to file accounts in St. Kitts. However, the Councillors are responsible for reporting the financial affairs of the Foundation to the Beneficiaries (or their representatives), and thus a bookkeeping requirement is implied. The Articles or By-Laws may, however, make other provisions.

 

Transfer of Domicile

 

It is possible for St. Kitts Foundations to transfer their domicile abroad, and for foreign foundations to transfer their domicile to St. Kitts. This does not entail loss of corporate status or a change in the obligations to third parties. From the date of transfer, the Foundation becomes subject to the law of the new country of domicile.

 

Registered Agent requirements

 

In accordance with the law, all Foundations must have a local Registered Agent in St. Kitts. The Registered Agent can be either a local lawyer or law firm.

 

Laws governing Confidentiality

 

St. Kitts has a strong tradition of protecting confidentiality and privacy. Both statutes and the penal code strictly govern this matter in the fields of law practice, banking, trusts and foundations etc. Abuse or unauthorised transmission of confidential information by anyone with access to such information may result in prosecution. Banking secrecy will only be over-ruled by court order and in criminal cases.

 

What are St. Kitts Foundations usually used for?

 

The St. Kitts Foundation is an ideal vehicle for the non-commercial holding and administration of assets and for estate planning. The Foundation provides suitable protection and ensures succession in an advantageous tax environment. The flexibility allows for changes in the beneficiaries, amounts of Foundation funds and rights of beneficiaries.

 

 

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