Offshore trusts not just for tax cheats - Spear's Magazine
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Offshore trusts not just for tax cheats

Offshore trusts not just for tax cheats

Establishing a foundation is not necessarily aimed at cheating the tax man, Rebecca Waterhouse says.

David Hamilton arrived in England on a Jewish evacuee ship from Germany in 1938, a boy refugee and the sole surviving member of his family, who were victims of the Nazi regime. Following the war, Mr Hamilton went on to make his millions, through property and in the fashion trade, and died in 2007 a wealthy businessman. It was reported that on Mr Hamilton’s death, his £4 million residuary estate was split between his two children, but trouble and strife ensued when additional assets from an offshore trust were distributed.

Mr Hamilton’s children are now locked in a High Court battle surrounding the assets in a Lichtenstein foundation established by Mr Hamilton during his lifetime. Mr Hamilton Jr has realised that his sister received more than double the £1 million that was distributed to him from the foundation after his father’s death. Mr Hamilton Jr has launched an attack on the foundation, and on his late father, claiming that his father only established the foundation to keep funds away from the eyes of the tax man.

Trusts, and particularly offshore trusts, seem to have a, perhaps undeserved, reputation synonymous with tax avoidance. Although the foundation is, legally and technically, a different animal to a trust and more common in civil law jurisdictions, the rationale for their establishment is often similar for those who settle trusts.

While both foundations and trusts have historically provided a tax efficient way of preserving wealth, there are a number of other reasons why Mr Hamilton, and many others besides, may have wanted to establish such a structure.  Three such reasons are considered below:

 

Succession advantages

Setting up a trust is a way of making sure that an individual’s assets are used for the benefit of the family members in accordance with their wishes. The trust deed will include detailed rules setting out who is to benefit from the assets and the settlor can share his thoughts on how and when those people should receive benefits in a non-binding letter of wishes to the trustees. This gives settlors reassurance that, after their death, their children and grandchildren can be protected from exposure to wealth at too early an age and hope that it will be less easily squandered by an overenthusiastic heir (and his ne’er-do-well friends).

Asset protection

Offshore trusts in certain jurisdictions can be an effective way of safeguarding property that might otherwise be vulnerable to attack, or preserving assets for those who are unable to help themselves. Where an individual decides to set up a trust rather than holding the assets himself, this can help to protect those assets against third party claims, particularly if the trust property is situated outside the jurisdiction in which it is likely to be attacked. This can be helpful if a settlor is particularly concerned about the effect that marriage, divorce or even mental incapacity or speculative claims could have on the family’s wealth. Once assets are put into trust they are no longer the property of the settlor and are more difficult to access, if not quite ‘out of reach’ of third parties.

Flexibility

A trust structure can often accommodate changes in an individual's personal circumstances. The identity of the beneficiaries of the structure can generally be changed with ease, as can any letter of wishes from the settlor to the trustees. It is even possible to migrate the trust to a different jurisdiction if that were ever desirable.

 

It has been suggested that Mr Hamilton, far from wanting to cheat the tax man, could never shake the fear of a repetition of the Holocaust and was looking to safeguard an element of his hard-earned fortune from any future attack. It remains to be seen whether Mr Hamilton Jr will be successful in his claim to have the Lichtenstein foundation set aside.

While the tax net has been tightening around trusts over recent years, as seen by George Osborne’s recent changes to the taxation of offshore trusts, the uses of a trust in succession and estate planning should not be underestimated.

Rebecca Waterhouse is a lawyer at boutique private wealth law firm Maurice Turnor Gardner LLP



 

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