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GIBRALTAR OFFSHORE TRUSTS
Law
Trusts may be created in Gibraltar under the Trustee Ordinance which is based on the UK Trustee Act of 1893.
Legal Structure
The Settlor (the Client) will transfer his assets into a Trust which will be administered by Trustees appointed by him for the benefit of beneficiaries named in the Trust. The result is that legal ownership of the assets passes from the Settlor to the Trust and the Trustees.
In this way, the Settlor is relieved from all responsibility and liability for the assets. The Settlor would, therefore, not have any liability for tax on the assets nor, on his/her death, would his/her estate (even that outside Gibraltar) be subject to inheritance tax.
Upon the occurrence of a pre-determined event, such as the beneficiaries attaining a certain age, the Trustees will transfer the assets to the beneficiaries plus any income earned form the investment of the assets of the Trust.
Advantages
The income received by a Trust or beneficiary is tax-free provided that: the Trust is created by or on behalf of a non-resident of Gibraltar and the income is derived from outside Gibraltar or from income from bank deposit accounts which would not otherwise be liable to local income tax.
- No stamp duty is payable on the transfer of any assets held by such a Trust except in the case of real property situate in Gibraltar.
- No gift, wealth, inheritance or any other taxes are payable in Gibraltar.
- The Gibraltar trust enjoys total confidentiality.
- The assets of a Trust can be held in any currency.
- There is no requirement to file accounts or to register a trust (other than an Asset Protection Trust).
Trustees
The Settlor will appoint Trustees of his choice, normally two in number, to administer the trust for the benefit of the beneficiaries. Trustees are normally persons of the Settlor's confidence or professional persons. The Settlor will make his wishes clear to the Trustees, although he may change his/her instructions to the Trustees as often as required.
Protector
It is advisable and normal for the Settlor to appoint a Protector of the Trust. He/she would normally be a person who enjoys the confidence of the Settlor and will control and supervise the exercise of the powers of the Trustees.
On important matters, such as the addition or removal of beneficiaries or the change of the proper law of the Trust and its place of administration, such powers cannot be exercised by the Trustees without the explicit consent of the Protector. The Protector will frequently have the power to remove and appoint Trustees.
Discretionary Settlements
Discretionary Settlements are Trusts peculiar to English Law and are popularly used in Gibraltar.
The Settlement names a number of possible beneficiaries and the Trustees, in their discretion, can choose between them as to who will ultimately receive the benefit of the assets (in practice, the ultimate beneficiaries are known to the Trustees). This makes it impossible to establish at any time who the actual beneficiary is or may be under the Settlement.
In practice, Trust assets are normally held by Offshore Companies whose shares are owned by the Settlement. This gives both flexibility and enables the Settlor to exercise a greater degree of control in the administration of the assets whilst distancing himself/herself from the Trust. The reason for this is that, as a commercial vehicle, a Company is a more convenient entity to own and deal in and with assets rather than a trust.
Asset Protection Trusts
Gibraltar's asset protection trust laws are contained in bankruptcy legislation of 1990 rather than falling, as with other jurisdictions, within the ambit of fraudulent conveyancing laws.
This type of trust seeks to protect the assets of a Settlor from risks arising out of damages awarded in actions for professional negligence, political instability, confiscatory taxes, excessive awards in matrimonial suits and other risks associated with commercial activity and every day life.
Creditors of the Settlor seeking to set aside transfers of assets into an offshore asset protection trust will seek to do so in one of two ways; under fraudulent conveyancing rules or under bankruptcy rules. Fraudulent conveyancing rules in most jurisdictions depend for their effect upon the definition given in the relevant statute to "intent" to defraud. If the creditor is able to meet such standards and to show that the creditor's intent was to defraud when the trust was settled, he may successfully be able to initiate proceedings in the jurisdiction where the trust was settled for the recovery of his debt.
Since asset protection trust legislation in Gibraltar is part of the bankruptcy laws where there is no definition of "intent", the only direct action which can be commenced is a bankruptcy proceeding where the standard of intent to defraud that must be met is much narrower and more difficult for the creditor to satisfy. The creditor's right of access to the Courts of Gibraltar is significantly restricted since, in order to commence bankruptcy proceedings, it must be demonstrated that the Settlor is resident or domiciled in Gibraltar or that an act of bankruptcy was committed here.
Asset Protection Trusts are registerable in Gibraltar. The Trustees must be companies or individuals with permanent addresses in Gibraltar and must be authorised by the Financial Services Commission to act as such.
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