Belize Offshore Trust
The offshore trust is very attractive to offshore investors as an investment tool due to its flexibility and adaptability to foreign investment anywhere in the world. Its flexibility lies in its character of dual ownership which makes the trust suitable for the manipulation of ownership and control of the trust to ensure its usefulness as an investment vehicle.
Even some civil law jurisdiction who are strangers to the concept of the basic trust which is a part of the English common law have borrowed from the principles of the trust and implemented their own versions of trust like offshore investment vehicles to take advantage of the lucrative offshore business. Examples are Liechtenstein and Panama.
The offshore trust is different from the traditional trust that developed as part of the law of equity in England. The offshore trust is a product of legislation. A good example of such legislation is the Belize Trusts Act Chapter 202
Belize as an offshore jurisdiction has advanced significantly in the codification of its trust laws in the form of the Belize Trusts Act 1992 to incorporate more modern developments in the law of trusts.
For example Section 7 (6) of the Belize Trusts Act specifically protects a Belize Trust from the laws or the order of a Court of another jurisdiction in respect of issues resulting from termination of marriage or succession right. Another example is that the Belize Trusts Act contains more contemporary provisions in relation to the rules on trustees’ duties with regard to investment. By section 9 (2) of the Belize Trusts Act the settlor may be a trustee or beneficiary or a protector. Section 12 (4) of the said act allows the settlor to have a reserved interest. Section 12 (4) of this act precludes the application of rules which prevent protective trusts. This section states as follows:
“Any rule of law or public policy which prevents a settlor from establishing a protective or spendthrift trust of which he is a beneficiary is hereby abolished”
Offshore trusts are particularly useful to persons with international estates or assets or business located in several different countries. There are numerous other functions the offshore trust may have even where they are designed for asset protection. These uses include:
- As a substitute to wills to avoid probate.As a means to provide for privacy by utilizing the confidentiality laws of offshore jurisdictions.
- To strengthen spendthrift provisions in order to prevent the wastage of other challenges to the trust assets.
- As a vehicle for global investment or other business.
- To plan for the unavailability of the settlor (called a grantor in the US).
- To enable self-settling to ensure some measure of control without usurping the powers of the trustee.
- To avoid the risk of expropriation and other political risks;
- To alleviate avoidable tax liabilities, including the avoidance of double taxation;
- To give to a settlor the freedom to choose the most appropriate law to govern the trust.
- To centralize assets dispersed worldwide under one expedient management structure for reasons of convenience, cost, and tax efficiency.
- To protect a family estate, or assets generally, from claims from potential creditors or challengers.
- To enable the original owner of the assets to have more freedom to dispose of his or her property by avoiding mandatory succession laws and regimes.
- To allow for more efficient management of assets through mechanisms more suited to the demands of modern international commerce and which allow a living settlor some ‘say’ in the direction of investment, including more flexible means of achieving philanthropic objectives through the use of the purpose trust;
- To minimize costly probate processes and incompatibilities between different probate procedures.
- To allow the acquisition of life insurance from foreign carriers under more favourable terms than under domestic, onshore laws, through the use of a non-resident person who is not subject to the law of the onshore trust;
- Conveniently to establish trusts on beneficial terms, for relatives not resident onshore;
- To be better placed to hold interests in foreign countries.
The Belize Trusts Act makes special provisions for Protective or Spendthrift Trusts. Spendthrift or Protective Trusts specifically protect against the reach of creditors. The interest of the beneficiary cannot be assigned to him or reached by his creditors. For example under section 12 (1) of the Belize Trusts Act, the terms of the trust may make the interest of a beneficiary:
- Subject to termination
- Subject to a restriction on alienation of or dealing in that interest; or
- Subject to diminution or termination in the event of the beneficiary becoming insolvent or any of his property becoming liable to seizure or sequestration for the benefit of his creditors.
Under the English common law the beneficiaries of the trust may come together to bring an end to the trust by agreement and to distribute the trust property among the beneficiaries. This is known as the rule in Sauders v. Vautier, 1842 4 BEAV 115, 49 ER 284. This rule can be found in section 47 (1) of the Belize Trusts Act. However the ability given to beneficiaries to defeat the trust in this manner is often unacceptable to offshore trusts and contradicts the intent of the inter vivos settlors. Section 47 (2) of the Belize Trusts Act specifically prohibits beneficiaries under a protective or spendthrift trust from concluding agreements which allow them to bring an end to the trust and distribute the trust property among themselves.
A most outstanding innovation of offshore law is the purpose trust. This type of trust is a statutory response to the common law that a trust must have identifiable beneficiaries to be a valid trust.
The major offshore jurisdictions have enacted provisions which recognize and give validity to non-charitable purpose trusts [called purpose trusts] thus seeking to avoid prejudicial and ambivalent common law rules relating to such trusts.
By section 15 of the Belize Trusts Act trusts that are non-charitable are valid where:
- The purpose is specific, reasonable and capable of fulfillment;
- The purpose is not immoral, unlawful or contrary to public policy; and
- The terms of the trust provide for the appointment of a protector who is capable of enforcing the trust and for the appointment or a successor to any protector.
The purpose trusts can be used to form part of a complex offshore arrangement which facilitates tax planning, asset protection, or business purposes aimed at commercial savings.
For further information please fill in the Trust Request Form