Tax Haven Trusts

1. When is a trust not a trust? The need for caution with tax haven structures

You need to ensure that you receive an asset protection plan from an offshore financial center - not just a trust or other entity.

A trust on its own is of limited use in achieving your objectives and can be dangerous. It must form part of a comprehensive asset protection plan to be effective and safe.

For information on the dangers of using a tax haven trust without expert advice from a trust expert in your country of residence go to our section on sham trusts.

Recent overseas cases and commentaries show that many trustees and their advisers are skating on very thin ice. Many problems are arising because trusts are being promoted by people who do not understand the basics of what is legally required to create and administer a valid trust.

A number of Tax havens have passed legislation in an attempt to overcome such difficulties. The problem is that while the so called trusts may be valid in that tax haven, they will not be recognised as trusts under the law of the settlor's home country or the country where the assets are situated if they do not comply with basic trust law requirements.

In summary the areas in which trusts are facing litigation include:

failure to implement an effective asset protection plan;
invalidity as a result of failure to of the trust to meet the criteria essential for the existence of a valid trust.
in the case of tax haven trusts that they are not recognised as trusts under the law of the settlor's home country.
invalidity of trust transactions on the basis that they are shams due to a failure of trustees to properly administer the trust.
failure to legally transfer ownership of the assets to the trustees of the trust.
challenges on the basis that the trust is in fact a will which is invalid because the signing and witnessing formalities required by law before it is valid have not been observed.
the assets are not owned by the trustees for the above reasons.
liability of advisers in relation to defective trusts (on the part of the advisers forming them); defective trust transactions (on the part of the advisers forming them who fail to give adequate running instructions; and the accountants preparing their accounts who fail to advise them of such deficiencies); and failure to invest prudently.
attempts to set aside trustees limitation of liability clauses on the grounds that they are inadequately drafted or contrary to public policy.
disputes as to the rights of beneficiaries to obtain trust records and information.

For further details:

Ross Holmes book "Sham Trusts" is now available at a cost of NZ$29.95 (plus postage and packing). To place an order please enter here
Sham or invalid trusts
Sham or invalid trusts - United States
The Sovereign Society
A "right wing" organisation dedicated to protecting individual sovereignty, and promoting tax minimisation.
Tax haven asset protection planning and trusts resources

Trust Law - Tax Haven Trusts