Assets in a Trust
What is a trust?
A trust is an agreement made when the ownership of assets, both equitable and legal, are transferred in trust to an entity to be managed by a second party, the Trustee, for the benefit of the first party (self-settling trust) or for the benefit of third parties.
The concept of a trust goes back hundreds of years to the Crusades. Before leaving their homes and families for the Crusades, English knights would leave their property and other assets "in trust" with a faithful friend for the benefit of the knight's heirs should he not return.
Having refined the concept over time, trusts have become an extremely effective means to protect assets and pass wealth to heirs while maintainting maximum privacy.
In the past, trusts were only available to the wealthiest individuals who could afford the high cost of establishing and maintaining asset protection trusts. However, thanks to progressive trust legislation in financially savvy international jurisdictions, international asset protection trusts are affordable for today's successful businessperson or professional.
There are many sound reasons why you might choose to form a trust, including:
- Asset Protection
- Estate Planning
- Preserving Family Wealth
- Business Continuation
- Tax Planning
- Avoiding Probate
The media is full of stories about staggering jury awards that are based on the most frivolous of lawsuits. Everyone is a target. If you have worked hard to build a financial nest egg for your retirement and your family's financial security, chances are good that you have become an even bigger target.
Less than five percent (5%) of the world’s population lives in the U.S., but seventy percent (70%) of the lawyers live in the U.S. Ninety four percent (94%) of the world’s lawsuits are filed in U.S. courts–100 million and counting, with 15 million new suits being filed each year. Frivolous lawsuits and incomprehensible jury awards are destroying medical practices, wiping out businesses and costing the world’s economy billions of dollars. The trend only appears to be growing worse. In fact, if you own a business there is a one in three chance that you will be hit with a lawsuit this year. You could lose everything.
Companies and individuals worldwide are seeking to reduce their taxes and guard their assets against monetary judgments. At the same time, individuals wish to maintain a high degree of confidentiality over personal affairs and maintain the ability to transfer their wealth to their heirs without paying confiscatory taxes, hiring costly lawyers, or losing control of their estates to the courts.
The FFT Asset Protection Trust (APT) is inherently more protective and can provide major advantages over U.S. domestic trusts. Unlike a U.S. domestic trust, FFT's properly structured APT can maintain control of present and future ownership and provide income and estate tax savings. Perhaps the most important difference between the FFT formed APT and a U.S. Domestic Asset Protection Trust is that FFT allows the grantor/settlor to be a discretionary beneficiary of the trust (self-settled trust) without losing the ability to protect the trust assets. Although a few U.S. states have amended their trust statutes to allow self-settled trusts, there is no case law to support the Domestic Asset Protection Trust.
Assets entrusted to FFT are often held in custody with stable, well-established international banks, with no U.S. presence, to ensure maximum protection and privacy
While some international banks are notorious for holding wired funds for several days, living on the "float," FFT’s banking relationships facilitate same day transfers. FFT maintains its securities portfolios in the safekeeping of major securities clearinghouses.
At your direction, FFT will work with your independent investment advisor who may recommend prudent investments that meet your objectives and goals.
FFT strives to be a leader in complying with Anti-Money Laundering guidelines and requirements, Know Your Customer rules, and cooperates fully with the Financial Action TAsk Force. FFT conducts all business in a manner that is fully U.S. Treasury Department and Internal Revenue Code compliant.
With an impeccable track record for integrity and honesty, FFT provides the highest degree of confidentiality, anonymity and asset protection.
Trusts simplify estate planning. Utilizing an international trust allows you to remove assets from your taxable estate while you maintain the freedom to plan your estate without compromising your own financial needs now or in the future.
An international trust accommodates each of these estate planning goals. In addition, the establishment of a trust removes the apprehension of losing control of your assets prematurely. A properly designed and structured trust will ultimately remove assets from the grantor's estate, beyond the reach of the U.S. probate system, and allow the estate to be distributed according to the grantor's wishes. (NOTE: the trust never removes anything beyond the reach of the U.S. tax system for U.S. grantors and beneficiaries).
A properly designed trust will give you comfort in knowing that you have provided for a spouse, family member, or loved one. If your goal is to provide for the education of your children or grandchildren, or to provide a charitable contribution, a trust is probably the most flexible and satisfactory way to make sure your wishes are carried out.
You should know that the trustee must, by law, act at all times for the benefit of those persons specified by the settlor.
One of the most important reasons for using a trust is to protect your family's assets, shield your wealth, and eliminate the possibility of your assets being mismanaged, misused, or diverted toward frivolous pursuits.
Trusts can be utilized in a way that is similar to a Last Will and Testament for planning business ownership, investments, or other wealth distributed to beneficiaries. Trusts may alleviate difficulties with probate and inheritance laws in the grantor/settlor's country of domicile. Trusts can also be easier to administer than a wills, are less vulnerable to legal challenges, and ensure that beneficiaries will receive the assets as the grantor/settlor intended.
If it is your desire to maintain family wealth under the guidance of a trusted administrator and increase wealth for the benefit of future generations, a trust is a most desirable planning tool. The trust may provide for payments to family members, heirs, or named entities as the need arises or as pre-determined by the grantor/settlor.
If properly structured, trust assets can minimize taxes, and protect your family's privacy by avoiding public probate proceedings and estate administration.
Effective transfer of your business to your successors is critical to ensure its continued success. The business you have spent years building will not be in jeopardy of being divided up, liquidated or sold-off upon your death. By transferring ownership of a company into a trust, the businessperson can be assured that the company will continue to function after the death of the primary owner. In addition, provisions for the planned distribution of income from the business to family members or other entities can be structured within the trust.
Confidentiality is a hallmark of trusts. The establishment of a trust, and the transfer of assets, is not a matter of public record. An international trust is treated as a private matter between the grantor/settlor, the trustee, and the beneficiary.
The international trust may provide confidentiality as to the existence of the trust; the terms and provisions of the trust; the value and nature of the assets in trust, the identities and activities of the trustee and protector; and, the identities of the settlor and beneficiaries. First Fidelity Trust complies with all reporting required by law. While there is a great deal of confidentiality surrounding the formation of a trust, a trust is not a means to avoid legally required reporting in your jurisdiction of residence.
Assets irrevocably transferred to a trust are owned by the trust and managed by a trustee. For U.S. grantors/settlors, the Internal Revenue Code (IRC) has specific provisions for assets transferred to an international trust. The IRC specifies that the grantor/settlor shall pay all applicable taxes or receive deductions for losses incurred by the trust. These gains or losses are reported on the grantor/settlor's IRS 1040 return. Therefore, international trusts are tax neutral to the settlors of these trusts. Although a trust is tax neutral, a trust can be combined with insurance products which provide excellent tax benefits - please refer to the Fidelity Insurance Company Ltd. website for more information.
The international asset protection trust can provide estate tax planning benefits, but the U.S. settlor is still responsible for reporting gifts and trust transactions to the IRS, as well as making informational reports. Therefore, a grantor/settlor should seek the advice of competent tax counsel in determining whether an international asset protection trust meets your estate tax planning needs.
Tax advantages can be obtained through the purchase of U.S. Internal Revenue Code approved tax-deferred instruments such as annuities and life insurance policies.
In most U.S. jurisdictions, estates will often have to go through probate. This can be a long and costly process. By its very nature, probate involves publicly disclosing information about the estate.
By establishing a trust, probate can be avoided because ownership of the trust assets is transferred during the life of the settlor and is not part of the settlor’s estate.
What can happen if you fail to act?
- Your company, retirement, and net worth could be devastated by a judgment based on a frivolous lawsuit.
- A malpractice suit could destroy your professional practice.
- Catastrophic medical bills could leave you destitute.
- Your business could be sold and liquidated upon your death.
- Your private financial information could be accessed and made public in a court action.
- Your ability to accumulate wealth could be hindered by exorbitant tax rates.
Elements Of A Trust
The Trust Document
The Trust Deed or Declaration of Trust is a legal agreement that outlines, in detail, the relationships among the parties and the responsibilities of each party. The parties are the settlor(s), the trustee, the beneficiary (ies) and the protector (if desired). The Trust Deed will also describe the assets held in trust. (NOTE: “Deed of Trust” is like a mortgage).
The Settlor (Grantor)
The settlor is the entity that transfers ownership of its assets to a trust. The settlor can be a corporation, a person, or other legal entity capable of owning assets. The settlor is said to have created the trust. The settlor then has the right to appoint the trustee, name beneficiaries and select a protector if so desired.
The trustee is a corporation, person, or other legal entity named in the Trust Deed to manage the trust property. (NOTE: The trust, not the trustee, owns the property.) The law requires the trustee to manage the assets in accordance with the terms of the Trust Deed for the benefit of those beneficiaries named by the settlor.
The person(s), corporation, or other legal entities named by the settlor to benefit from the assets placed in the trust. The rights and benefits of the beneficiaries are spelled out in the Trust Deed.
The role of a protector is to monitor the major acts of the trustee. The protector acts not as Trustee, but rather, as the "guardian" of the trust. Appointing a trust protector provides added protection features in that the protector may exercise the power to remove the trustee, appoint a successor trustee, and take certain actions to protect the trust in cases of emergency. Like the trustee, the protector has a fiduciary duty to the grantor/settlor and the beneficiaries of the trust, and as such, must follow the purpose for which the trust was created.