St Kitts & Nevis  – A Summary of the Benefits Available to Private Clients

Background

St Kitts & Nevis is a modern, forward-thinking financial centre located within the Eastern Caribbean.  It has a unique history of legislative and fiscal independence and is at the forefront in terms of providing practical solutions to an increasingly mobile and international client base.

Nevis has developed a number of attractive options, over the years, to meet corporate and individual needs, and to enable clients to organise their affairs in an efficient and confidential manner.

We at Dixcart Nevis can assist in the  establishment of; Trusts, Foundations, Companies and  help with Citizenship by Investment.

Estate and Succession Planning – a Number of Advantages

Some of the jurisdiction’s key benefits include:

  • Confidentiality – beneficial ownership information is confidential
  • Agility – a structure formed in another jurisdiction may easily redomicile to Nevis
  • Flexibility – with cutting edge foundation legislation, a multiform foundation can take or change its form from either a trust, a company, a partnership or a traditional foundation
  • Security – Trust Asset Protection Laws mean that any potential creditor must place a bond of US$100,000 before bringing any action or proceeding against trust property. The burden of proof is also placed completely on the complainant, who must establish their claim beyond reasonable doubt and within a 2 year statute of limitations period
  • Asset Protection – For Multiform Foundations, all creditors must place a bond of US$50,000 with the Minister of Finance in Nevis, before bringing any action or proceeding against a Nevis foundation. The burden of proof is also placed completely on the complainant, who must establish their claim beyond reasonable doubt and within a 1 year statute of limitations period
  • Friendly tax environment – no income tax, capital gains tax, estate tax, inheritance tax or gift tax

Services Provided by Dixcart Management Nevis Limited

Dixcart Nevis provides a wealth of solutions and expertise with respect to succession planning.  Our bespoke services include:

  • Formation of Asset Protection Trusts and Common Law Trusts, and the provision of Trustee services, and registered agent only services
  • Formation and management of Nevis Multiform Foundations, and registered agent only services
  • Nevis Company incorporation and registered office / registered agent services
  • Estate planning and family office services

Citizenship by Investment

We also offer Citizenship by Investment services for those wishing to relocate to Nevis or to apply for a St Kitts & Nevis passport.

Additional Information

If you require additional information regarding the jurisdiction of St Kitts & Nevis and the services offered, please speak to Beth Le Cheminant at the Dixcart office in Nevis: advice.nevis@dixcart.com.

Trusts Versus Foundations: Plus Benefits of Nevis Asset Protection Structures

Background

Both Trusts and Foundations are effective planning tools with unique legislation in place for both in Nevis.

This Article considers different factors that should be taken into account when deciding between the use of a trust or foundation, and what the specific benefits of using Nevis are.

It provides:

  • A simple summary of what trusts and foundations can be used for
  • Explores when a foundation might be more beneficial than a trust, and vice versa
  • Offers a brief overview of Private Trust Companies
  • Provides details as to what needs to be submitted to the Registry in Nevis
  • Presents the unique characteristics that Nevis offers, in relation to foundations and trusts including asset protection

Why Consider Using a Trust or Foundation: Summary

Trusts and foundations are flexible tools that allow arrangements to remain private.

 Whilst they differ in a number of important respects, they can be used to achieve similar objectives. Both can be effective structures to achieve succession planning, asset protection, charitable or philanthropic aims.  

The continuity of having such structures in place is an important factor, especially after the settlor/founder dies. It is important to ensure, that as far as possible, there is no room for dispute after the settlor/founder has passed away.

Factors to Consider When Choosing Between a Trust and a Foundation

There are a number of circumstances when a foundation might be more beneficial than a trust, one of these may well be the client’s country of residence. Civil law countries are more familiar with the concept of foundations, and common law countries are more familiar with trusts. 

Benefits of Foundations

Foundations have a separate legal personality and can enter into contracts, hold property, and sue, all in their own name. They may also offer a greater degree of control or involvement of the founder and/or family members in administering the structure, in comparison to a trust.

It is possible for family members to sit on the Foundation Council, or the Management Board as it is referred to in Nevis.

In addition, foundations may be better suited to holding high risk or speculative investments or trading companies, as they are separate legal entities.

Benefits of Trusts

There is a substantial body of trust-related case law, which means that there is a great deal of certainty when utilising trust structures.

Foundations are newer concepts in common law jurisdictions, and at present there is minimal supporting case law. The tax treatment of trusts is also better understood in comparison to the tax treatment of foundations in these countries.

It is also generally acknowledged that trusts are easier to establish. Provided that; the intention of the settlor to create the trust, the subject matter of the trust, and the objects of the trust (the beneficiaries and purposes) are all certain, a valid trust will be created.

Private Trust Companies (PTCs) For many years, PTCs have been a popular vehicle for administering the assets of numerous wealthy families.

One of the main attractions of a PTC is that decisions relating to the underlying trusts, are made by directors who are carefully chosen by the family or may even be family members themselves. There are a number of variants of the PTC, which can be limited by either shares or guarantee or even with separate classes of shares for voting purposes.

Careful consideration as to the level of control exerted over the PTC needs to be planned, to minimise the possibility of adverse tax implications. The PTC itself is usually owned by a purpose trust whose sole purpose is to hold these shares.

Nevis: What Needs to be Submitted to the Registry?

Nevis does not have a beneficial ownership register, public or private.

For a Nevis International Exempt Trust; the name of the trust, trustee and registered address must be submitted to the Registry but no details of the settlor.

For a Nevis Multiform Foundation; the details of the management board, supervisory board, purpose of the foundation and the address in Nevis, are required to be submitted to the Registry.

What Unique Characteristics does Nevis Offer in Relation to Foundations and Trusts?

Nevis Multiform Foundations

Nevis offers a unique structure; a Nevis multiform foundation, which can change its form throughout its life to be that of an ordinary foundation, a trust foundation or even a company foundation, so it can be adjusted dynamically, based on the client’s needs.

Unique Asset Protection Laws

Nevis trusts and foundations benefit from unique asset protection laws. If a creditor wishes to bring an action against one of these structures, they must first submit a bond of $100,000 for a Trust, or $50,000 for a Foundation to the Nevis Minister of Finance, before the court will consider the action, and no foreign judgements are recognised.

There is also a 2 year statute of limitations period for trusts and 1 year for foundations, within which a creditor must bring an action, with all proceedings being held privately ‘in camera,’ which is in the judge’s chambers.

Additional Information Regarding Nevis Trusts and Foundations

Existing trusts and foundations can easily be migrated to Nevis.

In addition, as mentioned above, a Nevis Multiform Foundation can ‘chop and change’ its form throughout its life. The fact that an existing company, incorporated either within Nevis or elsewhere and/or an existing trust, can be transformed into a Nevis Multiform Foundation can provide great continuity.

How Can We Help?

If you require any further information about Nevis trusts and foundations and the advantages that they offer, please contact: Beth Le Cheminant at: advice.nevis@dixcart.com.

Malta Charitable Foundations: The Law, Establishment, and Taxation Advantages

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhanced Malta as a jurisdiction for foundations designed for charitable and private purposes.

The Objects of a foundation may be charitable (non-profit), or non-charitable (purpose) and may benefit one or more persons or a class of persons (private foundation). The Objects must be; reasonable, specific, possible, and must not be unlawful, against public policy or immoral. A foundation is prohibited from trading or carrying on commercial activities, but it may own commercial property or a shareholding in a profit-making company.

Foundations and the Law

Despite the relatively recent implementation of the law on foundations, Malta enjoys an established jurisprudence relating to foundations, where the Courts have dealt with foundations set up for public purposes.

Under Maltese law, a foundation may be set up by natural or legal persons, whether Maltese resident or not, irrespective of their domicile.

Two main types of foundation are recognised by the law:

  • The Public Foundation

A public foundation may be set up for a purpose, as long as it is a lawful purpose.

  • The Private Foundation

A private foundation is a fund endowed to benefit one or more persons or a class of persons (the Beneficiaries). It becomes autonomous and acquires the status of a legal person when it is formed in the manner prescribed by law.

Foundations may be set up either during a person’s lifetime or as specified in a will, on that person’s death.

Registration

The law provides that the foundation must be constituted in writing, via public deed ‘inter vivos’, or by a public or secret will. The written act must include detailed provisions containing the powers and signing rights.

The setting up of a foundation involves the registration of the foundation Deed, with the Office for the Registrar of Legal Persons, through which it gains a separate legal personality. The foundation itself is, therefore, the owner of the foundation property, which is transferred to the foundation through an endowment.

Registration and Voluntary Organisations

For voluntary organisations in Malta, there is a further registration procedure which must be fulfilled.

A voluntary organisation must fulfil the following conditions to be eligible for registration:

  • Established by a written instrument;
  • Established for a lawful purpose: a social purpose or any other lawful purpose;
  • Non-profit making;
  • Voluntary; 
  • Independent of the State.

The law also establishes a procedure for enrolling Voluntary Organisations in a Register of Voluntary Organisations. Enrolment requires the fulfilment of several requirements, including the submission of annual accounts and identification of the organisation’s administrators.

The Benefits of Enrolling a Voluntary Organisation

Any organisation that fulfils the above criteria is designated as a Voluntary Organisation. Enrolment, however, confers essential advantages to the organisation, including:

  • Can be created by foreigners, hold foreign assets and distribute dividends to foreign Beneficiaries;
  • Can receive or be the beneficiary of grants, sponsorships, or other financial aid from the Maltese Government or any entity controlled by the Maltese Government or the Voluntary Organisations Fund;
  • Founders do not need to be featured in any public records;
  • Ability to benefit from policies supporting voluntary action, as may be developed by the Government;
  • Details relating to the Beneficiaries, are protected by law;
  • Receiving or benefitting from exemptions, privileges, or other entitlements in terms of any law;
  • Being party to contracts and other engagements, whether remunerated or not, for carrying out services to achieve its social purpose, at the Government’s request or the request of an entity controlled by the Government.

The formation and enrolment of a Voluntary Organisation does not automatically give rise to a legal person. Voluntary Organisations have the option to register as legal persons but do not have the obligation to have to do so. Similarly, the registration of a Voluntary Organisation as a legal person, does not imply the enrolment of the organisation.

Setting up a Foundation

A public deed or a will can only constitute a foundation, if a ‘general act’ takes place to establish a foundation, it must be published by a public notary and subsequently registered in the Public Registry.

The minimum endowment of money or property to set up a foundation is €1,165 for a private foundation, or €233 for a public foundation established exclusively for a social purpose or as non-profit making, and must contain the following information:

  • The name of the foundation, which name must include in it the word ‘foundation’;
  • The registered address in Malta;
  • The purposes or Objects of the foundation;
  • The constitutive assets with which the foundation is formed;
  • The composition of the board of administrators, and if not yet appointed, the method of their appointment;
  • A local representative of the foundation is necessary, if the foundation administrators are non-Maltese residents;
  • Designated legal representation;
  • The term (length of time), for which the foundation is established.

A foundation is valid for a maximum term of one hundred (100) years from its establishment. Except when foundations are used as collective investment vehicles or in securitisation transactions.

Setting up a Non-Profit Organisation

Purpose foundations, also referred to as non-profit organisations, are regulated under Article 32, where one of the essential requirements  is an indication of the purpose of such a foundation.

This can subsequently be amended through an additional public deed. This may include supporting a class of persons within the community due to a social, physical, or other type of disability. Such an indication of support, will not render the foundation a private foundation, it will remain a purpose foundation.

The deed of foundation, for such an organisation, may indicate how its money or property will be used. It is at the administrators’ discretion whether or not to make such a specification.

As the foundation is explicitly being established for a particular purpose, if the purpose is; achieved, exhausted or becomes impossible to accomplish, the administrators must refer to the Foundation Deed, to determine how the remaining assets, left in the foundation should be treated.

Taxation of Malta Foundations and Non-Profit Organisations

In the case of foundations enrolled under the Voluntary Organisation Act as long as they are purpose foundations and are non-profit organisations, there are several options available:

  1. To be taxed as a company, such a decision is irrevocable; or
  2. To be taxed as purpose foundation and pay a capped rate of 30%, rather than 35% tax; or
  3. If the foundation has not opted to be taxed as a company or as a trust and does not qualify for the capped rate above, the foundation will be taxed as follows:
    • For every euro within the first €2,400: 15c
    • For every euro within the next €2,400: 20c
    • For every euro within the next €3,500: 30c
    • For every euro of the remainder: 35c

The relevant provisions will be applied to the Founder of the foundation and to the Beneficiaries.

How Can Dixcart Assist?

The Dixcart office in Malta can assist with the efficient establishment and management of a foundation to meet the agreed Objects.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Nevis Trusts: The Logical Choice for Asset Protection Structures

The most commonly found type of Trust in an offshore jurisdiction is the Common Law Trust, which is usually Discretionary in nature. This is an incredibly useful tool for estate planning and whilst there is the option to establish a standard Common Law Trust in Nevis, there is also an additional unique and beneficial option for asset protection purposes, known as the Nevis International Exempt Trust.

What Added Asset Protection Does a Nevis International Exempt Trust Offer?

Typically, a Settlor is looking for a safe and stable jurisdiction to maintain their assets with a potential additional consideration to seek to protect the Trust Property from future litigants, who may attack the Trust in the hope of setting it aside in order to have access to the Trust Fund.

An attempt to attack a Trust could come from an array of complainants such as; a disgruntled Beneficiary, a divorcing spouse or a future creditor.

In the case of a Nevis International Exempt Trust, the Law states that:

  • A creditor must first pay a bond of US$100,000 to the Minister of Finance in Nevis, before bringing any action or proceeding against a Trust and before the Court will consider it.
  • The burden of proof is placed completely on the complainant who must establish their claim “beyond reasonable doubt.”
  • No action or proceeding to set aside the settlement or by any person claiming to have had an interest in assets before they were settled in a Trust will be entertained by the Court if the action or proceeding commences two years after the settlement of the Trust or the settlement of the property.

These unique aspects of the Nevis Trust legislation combined with ensuring that the goals and intentions of the Trust are discussed with the Trustee at the outset, the three certainties are clearly in place, and that the Deed is properly drafted on establishment, will provide the Trust with a high level of protection against any potential attack and produce a robust asset protection structure to suit the Settlor’s needs.

How to Help Ensure that a Nevis Trust is Set Up Correctly

Further information to help ensure that a Trust is set up correctly can be found in the following Dixcart Article:

Nevis International Exempt Trusts – Trust Creation and Practical Uses for Estate and Succession Planning

Criteria to Qualify as a Nevis International Exempt Trust

In order to be classified as a Nevis International Exempt Trust, the Trust must meet the following criteria:

  • At least one of the Trustees must be a Trust Company e.g. Dixcart Management Nevis Limited, licensed by the Government to undertake trust business in Nevis, or a corporation incorporated under the Nevis Business Corporation Ordinance (commonly known as a Nevis IBC); and
  • The Settlor and Beneficiaries must at all times be non-residents of Nevis; and
  • The trust property must not include any land in the Federation of St. Kitts and Nevis.

In conclusion, by selecting a Nevis International Exempt Trust as your estate planning vehicle to protect your assets and pass them on to future generations, you are afforded additional protective benefits to that of a Common Law Trust found in other offshore jurisdictions.

Additional Information

If you require any further information about Nevis Trusts and the advantages that they offer, please contact Beth Le Cheminant at: advice.nevis@dixcart.com.

Nevis International Exempt Trusts – Trust Creation and Practical Uses for Estate and Succession Planning

Further to the previous note, regarding the basics of Nevis Trust Structuring we look to explore the practical uses of Trusts and detail case studies where Trusts are used as an effective tool for Estate and Succession Planning, and Asset Protection.

A Trust creates a division of ownership between the Trustee, who is the legal owner of the Trust Fund, and the Beneficiaries, who are the equitable owners. The Trustee is bound by a number of Fiduciary and Statutory duties to, at all times, act in the best interests of the Beneficiaries as a whole, whilst adhering to the terms of the Trust Deed. In the meantime, they must also protect, preserve and enhance the Trust Fund.

Trust Creation

When setting up a Trust, there are three certainties which must be fulfilled to validate and establish the Trust.

These are:

  • The certainty of intention: a clear intention that the Settlor intends to create a Trust by transferring legal ownership of the Trust Property to a Trustee to hold for the benefit of defined beneficiaries. This is evidenced by an executed Trust Deed and supported by clear communication between the Settlor / their advisor(s) and the Trustee, discussing the goals and intentions the Settlor has for the Trust, prior to establishment.
  • The certainty of subject matter: clearly defined Trust Property, the initial settled funds are usually $1, $10 or $100 and this is indicated within the Trust Deed, with further assets to be added at a later date.
  • The certainty of objects – clearly defined Beneficiaries or a Beneficial Class who will benefit from the Trust, which can include the Settlor.

Other considerations that the Settlor should make at the outset include; whether there are any contingencies to the Beneficiaries benefitting, and whether a Protector will be appointed to provide some oversight to the structure and to select a trusted and experienced Trustee to administer the Trust on behalf of the Beneficiaries.

Whilst the Settlor has given up legal ownership of the assets, the Settlor can request the Trustee to undertake certain actions and to determine guidelines and conditions as to how and when the Beneficiaries are to benefit from the Trust. These should be expressed as the Settlor’s wish and are not legally binding. This protects the validity of the structure and supports the certainty of intention that the Settlor does intend to hand over the ‘reins’ to the Trustee. For a Discretionary Trust, the Trustee would make the ultimate decision as to whether a Beneficiary should benefit from the Trust, paying close attention to their fiduciary duty to consider the interests of all Beneficiaries, before making any distribution of trust assets.

Whilst a Settlor can reserve some powers, such as to retain investment powers over the trust assets (which is the most commonly used reserved power), by reserving too many powers, the Trust could be set aside as a sham, in contravention of the first certainty of intention.

We shall explore some case studies as to why a Trust might be settled in the first place and the benefits of doing so.

Case Study 1: The Spendthrift Beneficiary

There may be a family member who struggles to spend within their means, has faced trouble with addiction or perhaps has not had access to previous wealth and, on inheriting a lump sum, would risk quickly eroding their inheritance without saving for future events.

A Trust structure could protect this Beneficiary and the Trust Assets from depletion and provide continued support to the Beneficiary over their lifetime, without quickly diminishing the corpus of the Trust Fund.

Some examples as to how the Trust could assist would be; by paying the Beneficiary’s medical and educational bills directly, purchasing a home for the Beneficiary to reside in or by assisting with the financial support of the Beneficiary’s own child.

There could also be a contingent Beneficiary specified within the Trust Deed, that their benefit is contingent on a certain event, such as them attaining the age of 25, or upon their marriage. This provides flexibility regarding future needs and/or potential contingencies.

Case Study 2: Tax Planning and Passing Assets to the next Generation

Whilst independent tax advice should be taken by all clients, the utilisation of a Trust could be an effective tax planning tool and centralise the ownership of worldwide assets, legally owned by the Trustee.

For example, there would be no inheritance tax payable on the assets held within the Trust upon the Settlor’s demise. Although Beneficiaries should seek tax advice before receiving a distribution from a Trust.

Case Study 3: Preservation of Wealth and Selected Distribution of Assets

This leads us nicely onto the preservation of Family Wealth and Estate Planning.

By settling a Trust, this would ensure; an orderly succession of assets after the Settlor’s death, the retention of property within the family, continuity of ownership of a family business after the Settlor’s death, and protection of the family’s property.

The Trust would also establish a clear and unchallengeable basis for distribution of assets after the Settlor’s death and protects family property from dissipation

By securing the services of an independent, expert person to manage and control the assets (the Trustee), capital can be preserved for the next generation and property can be held for minors or other dependants.

Case Study 4: Forced Heirship

In some jurisdictions the local law requires assets held in a person’s estate to pass to specified heirs in stated proportions. By settling a Nevis Trust, the assets would be distributed in line with the provisions of the Trust Deed.

Case Study 5: Confidentiality

A common priority of a high net worth individual looking to establish a Trust is confidentiality. By transferring legal ownership of assets to a Trustee to hold within a Trust, this aids the Settlor in keeping their assets confidential.

There is no beneficial ownership register in Nevis, unlike a number of other offshore jurisdictions and when registering the Trust with the Nevis Registry, the only information which is required to be registered is the Trust name, registered address (the address of the Trustee), and the name of the Trustee. This information is kept confidential.

Case Study 6: Asset Protection

A client may seek the protection of a stable political and social environment for the ownership and management of their assets, or be looking for a safe jurisdiction to maintain their assets, if relocating or working abroad.

They may also be seeking to protect the Trust Property from future litigants who would come to the court in the hope of setting the trust aside in order to access the Trust Fund. An attempt to attack a Trust structure could come from an array of complainants such as; a disgruntled Beneficiary, a divorcing spouse or a future creditor.

The Nevis International Exempt Trust Ordinance states that any creditor must place a bond of USD100,000 with the Minister of Finance in Nevis, before bringing any action or proceeding against a Trust. The burden of proof is also placed completely on the complainant who must establish their claim “beyond reasonable doubt.”

By ensuring that; the goals and intentions of the Trust are discussed with the Trustee at the outset, the three certainties are clearly in place, and that the Deed is properly drafted upon setup, this will provide the Trust with a high level of protection against any potential attack.

Case Study 7: The Charitable Trust

Finally, a philanthropically minded individual might look to set up a Charitable Trust with a specific charitable purpose. This could include providing for; the relief of poverty, the advancement of education, the advancement of religion, the advancement of arts, culture, heritage, or science, and/or the advancement of animal rights, amongst others.

If the charitable purpose specified by the Settlor at the outset cannot be carried out for any reason, the law provides that the court can order that the property can be applied to another charitable purpose similar to that originally intended.

Summary

In summary, there are many modern uses for offshore trust structures and these continue to develop.

An emerging trend is the addition of cryptocurrency assets to a Trust structure, although it is worth noting that considerable due diligence is required when accepting these types of assets into Trust, and it is recommended that a specific clause be added to the Trust Deed to allow the investment of the Trust Property into such volatile, high risk assets.

Additional Information

Should you require any further information or wish to discuss your requirements, please contact Beth Le Cheminant at: advice.nevis@dixcart.com

Offshore Trusts: Misunderstandings, Pitfalls and Solutions (3 of 3)

Establishing an effective Offshore Trust that is both operationally sound and achieves the Settlor’s objectives is of paramount importance, but can be fraught with pitfalls. As a Trust service provider we often find that Settlors and individual Trustees can have misconceptions about their roles, responsibilities and the Trust itself. These misunderstandings can culminate in issues and create unintended liabilities. This series has considered the key elements of Offshore Trusts; If you would like to read the other articles in the series you can find them here:

In the final article in this series, we will examine the most common misunderstandings and pitfalls for Settlors and Trustees to be aware of. Where appropriate, we suggest some best practices for avoiding future problems and how a Trust service provider can help. We will be discussing:

Offshore Trusts – Common Misunderstandings

The Nature of the Legal Arrangement

On the subject of Trusts generally, it is important to note that Trusts do not have separate legal personality and therefore do not benefit from limited liability. It is the Trustees who are liable for any actions taken, or not taken, in respect of the Trust.

Often Settlors will either not be aware or overlook the basis of the legal arrangement – the transfer of beneficial ownership – this confers legal title onto the Trustees; the Settlor will no longer have any legal title to the settled assets. To continue to exercise control, as previously, will most likely result in the Trust being deemed a sham and therefore voidable.

Following this, there is also a common misunderstanding that the role of Trustee is simply ceremonial, purely an administrative requirement. Of course, this is not correct. The Trustees have a fiduciary duty to any named or class of Beneficiaries, to manage the Trust Fund in good faith, in line with the Trust Deed. As noted above, they hold legal title over the assets of the Trust. As legal owners, the Trustees are liable for tax due on the Trust assets, which may arise in jurisdictions other than their local jurisdiction of residence.

Subject to Tax Advice

Often, and understandably, clients that come to us directly are not aware of the significant changes in reporting, compliance requirements and the general approach to tax planning and anti-avoidance measures. These changes have made tax advice a necessity from outset. Such advice ensures that, where best practices are followed, business is conducted bona fide and is globally compliant.

The Perception of ‘Offshore’

This neatly leads us to our next common misunderstanding. The level of negative media coverage that Offshore structures have received over the last decade is unfortunate and often disproportionate or even misleading. For example, some of the most recent and prolific stories, the Panama Papers, Paradise Papers and Pandora Papers, all present the use of Offshore planning as immoral or even criminal – whilst the reports do highlight a minority of offenders, 95% of the leaked documents will have related to wholly legal and compliant planning, that is commonplace.

In fact, to use the UK as an example, it is mandatory for UK employers to provide a minimum 3% private pension contribution to employees. Those pensions will more than likely be linked to non-UK domiciled funds. 75% of UK households are directly or indirectly engaged in such asset management services and therefore many UK residents will already have some form of offshore involvement.

Hopefully the above example briefly illustrates the point I am driving towards; to many people, the word Offshore, especially in the context of wealth management, is synonymous with scandal. When, in reality, Offshore is omnipresent – it is the norm, wholly legal and it is almost always advised by highly qualified and regulated intermediaries. In summary, going Offshore should now be a transparent and compliant tool for sophisticated planning, which can lead to legal, tax and various other benefits. Offshore should not be seen as a shortcut to tax evasion or hiding wealth.

One Size Does Not Fit All

Finally, many UK resident and domiciled individuals are unaware of the various rule changes and subsequent erosion of various tax benefits, which previously flowed from the use of Offshore Trusts. Therefore, for many in the UK who are resident and domiciled, there are little to no benefits associated with using an Offshore Trust. The limited benefits can include the regulated nature of Isle of Man Trustees and the ability to benefit from gross roll-up, in certain circumstances.

Unlike Trustees in many other jurisdictions, providing Professional Trustee services is a licensed activity on the Isle of Man. Isle of Man Trustees require a Class 5 License from the Isle of Man Financial Services Authority, and are therefore properly regulated – ensuring that good levels of governance and compliance are followed and informed trustee actions. In addition, due to its illustrious heritage in Trust planning, both the Island and Dixcart have extensive expertise in this area.

Gross roll-up describes an offshore structure’s ability to benefit from untaxed compounded growth for the duration of its lifetime. Offshore Trusts may benefit from gross roll-up in certain circumstances – this has to be caveated as there may be tax to pay on establishing the Trust, periodically (e.g. on 10 year anniversaries), in respect of any distributions, on settlement etc. The taxation of Trusts is complex and will require specialist advice to consider your circumstances.

However, there can still be many benefits to using Offshore Trusts for UK Resident Non-Domiciliary individuals. This, among other topics, is considered in our summative video, available on our website and YouTube here. 

Offshore Trusts – Common Pitfalls

There are many issues that can be avoided by proper planning and expert guidance from outset. Some of the most common considerations include:

Allowing for Flexibility

The Trustees are mandated to follow the provisions of the Trust Deed; contravention of this can lead to legal action being taken against them for breach of fiduciary duty. Therefore, the Settlor needs to foresee the Trusts requirement for flexibility, ensuring that it is not blinkered in the approach to achieving its objectives, or ties the Trustees’ hands regarding effective management of the Trust.

There are several scenarios where an overly prescriptive Trust Deed can cause unintended issues. We will examine some brief examples below.

Distributions: Where, for example, the Trust Deed stipulates that a distribution or distributions are to be made to a Beneficiary on or following a certain milestone (e.g. upon a birthday, marriage, purchasing a first home, graduation etc.), the timing may not always be ideal as circumstances change. For instance, vulnerable or young Beneficiaries receiving a sudden windfall could lead to negative impacts/outcomes.

Further to this, where the distribution schedule is fixed, this can cause unintended tax consequences. Beneficiaries are taxed on distributions received, taxable at their personal rate in their jurisdiction of residence. If the Beneficiary’s income falls into a higher or additional rate of tax at the time of transfer, this can lead to the payment of unnecessarily high tax. Rather, given the flexibility, the Trustees could defer the payment until they either take tax advice or fall into a lower bracket e.g. on retirement, etc.

Asset Selection: It is not unusual for the Trust Deed to name or preclude certain types of activity regarding the management of the Trust fund. For example, it would be perfectly logical to limit the level of risk exposure to certain assets/activities owing to volatility – e.g. Bitcoin investment. On the flipside, where certain investments are specified, this can be far too restrictive and cause various longer-term issues – e.g. what happens if the fund or company specified ceases to trade?

Solution: Discretionary Trusts offer the Trustees complete control over how the Trust achieves its aims. The Settlor can still provide some guidance via a Letter of Wishes, which is persuasive but not binding. As long as the Letter of Wishes is reviewed regularly, the Trustees will be aware of the Settlor’s changing intentions and take this into account when taking any actions. In addition, Isle of Man Trusts can now continue in perpetuity, which provides additional flexibility when estate planning. Dixcart have significant experience in establishing and administering Offshore Discretionary Trusts.

Choice of Trustees

As I am sure you can appreciate by now, the choice of Trustee is extremely important. Several factors need to be considered when choosing who performs this vital role:

Longevity: A key consideration when appointing Trustees is their longevity – will the selected Trustee be able to fulfil their duty for the lifetime of the Trust? If not, you will have to consider succession planning to replace those Trustees as and when they pass away or lose capacity. Longevity also applies to the Trustees’ tax residency i.e. If the Trustee is living in an Offshore jurisdiction, but then moves to the UK, the Trust will also move with the Trustee and could be liable to UK taxation. The Settlor needs to ensure that the Trustee will provide continuity and stability.

Expertise: Depending on the assets held in Trust, or the activity undertaken, there may be certain expertise required to meet the Trust’s objectives. For example, when managing assets such as investments, the Trustees will have to be comfortable dealing with the assets, their administration and any third party professionals involved. This also extends to knowledge of the Trust, as well as the legal and regulatory requirements.

Liability: As noted previously, the Trust does not benefit from limited liability, and therefore the Settlor will need to take the potential risks e.g. litigation etc. into consideration when selecting who to appoint as Trustee. The tax aspects are also worth considering here, as mentioned above, the Trustees will be liable for any due tax on the assets. Therefore, the Trustees will need to be willing and able to perform the role and understand the implicit risks of the undertaking.

Protectors: In many respects Protectors police the Trust, in theory providing a stopgap to wayward Trustees. In practice, giving a third party too much say in how the Trust is run, can make administration of the assets onerous and potentially negatively impact its objectives. Further to this, where a Protector is given too much scope, they can be deemed a de facto co-Trustee, and therefore beholden to the same fiduciary duties and liability as a Trustee. Where a Protector is desirable, ensuring that their powers are narrowly defined is vital to ensuring they add to rather than detract from the objectives of the Settlor.

Alternates: Where the Settlor has appointed an individual to act as Trustee, this can cause issues further down the line. Where the individual is the sole Trustee, if they pass away without making proper provision, there can be unintended burden and unwarranted cost involved in remedying the situation. Where individual Trustees are desirable, you must ensure that a minimum of two are appointed at all times, and ideally provision made for replacement within the Trust Deed to protect against unforeseen events.

Neutrality: Where family members are appointed as Trustees, it is not uncommon for relationships to faulter and communication to breakdown. Such issues can present significant administrative barriers, potentially affecting the Settlor’s intended outcome.

Solution: All of these issues can be abated via the appointment of a professional Trustee rather than individual Trustees. Professional Trustees, such as Dixcart, can provide an unbiased and expert service for the lifetime of the Trust. Using their technical knowledge and adhering to best practices, they can administer the Trust effectively and efficiently, reducing the burden placed on both the Settlor and their loved ones. And as previously noted, unlike in some other jurisdictions, professional Trustees located in the Isle of Man are licensed and regulated – so you can rest assured that the Trust is in capable hands.

Settlor’s Involvement

It is understandable that Settlors may wish to retain control over the Trust assets for as long as possible; after all, they have more often than not spent a lifetime accumulating the wealth they want to pass on. Some may even seek to appoint themselves as Trustee, however, too much involvement from the Settlor can lead to the Trust being deemed a sham, and therefore the Trust assets could form part of their estate for tax purposes. It is worth underlining the fact that there needs to be clear separation between the Settlor and the assets, ensuring that the Settlor cannot be deemed to have retained any unintended beneficial interest. 

A Settlor may also wish to name themselves or their spouse as beneficiary, however, this requires very careful consideration. If the Settlor or his or her spouse can benefit in anyway, the Trust is deemed to be a Settlor Interested Trust, giving rise to adverse tax consequences.

Solution: The Settlor needs to be clear about what they want to achieve from outset. This way, the correct form of Trust and appropriate provisions can be included at planning stage. The client will need to work with the adviser to come to a decision. Referring to my note above, regarding professional Trustees, this can also provide comfort. The Settlor should be able to have confidence that their chosen service provider will always act in the interests of the Trust, taking into consideration the Settlor’s Letter of Wishes where appropriate.

Beneficiaries

The selection of Beneficiaries needs to be carefully thought out – sometimes it is immediately clear who should benefit, and other times it can be a ‘Sophie’s choice’ dilemma. Of course, the choice will be directly influenced by the type of Trust being setup i.e. in the case of a Discretionary Trust, specific Beneficiaries or classes of Beneficiaries are selected for the Trustees to determine who should benefit. In addition, the Settlor must choose whether or not to make Beneficiaries aware of their interest in the Trust. Depending on the type of Trust, a Beneficiary can have a legal right to the assets held in Trust or information about them. Additionally, the Beneficiary can have a tax liability in certain circumstances.  

Solution: This needs to be considered on a case-by-case basis and will very much depend on the Settlor’s personal circumstances. It can be very useful to either make the Beneficiaries aware, so that open discourse can be had between Trustee and Beneficiary, or alternatively in some cases retaining privacy in this matter until time of distribution may be preferrable – note that depending on the constitution of the Trust, the Beneficiary may have an immediate tax liability, and therefore would need to be immediately notified. Either way, the level of communication desired can be facilitated by professional Trustees, such as Dixcart.

Costs

Before establishing the Trust, the Settlor needs to take the costs of administering the assets into account – whether this is for trading investments, the procurement or sale of property, potential tax consequences, professional services, etc. An additional consideration will be the impact of increased regulatory and compliance reporting required in today’s world – this means that administering an Offshore Trust is no longer an exercise that incurs nominal fees.  

Solution: Whilst fees can be paid from an alternative source i.e. outside of the Trust fund, this can provide operational issues. For example, where the Settlor was paying the operational costs of the Trust and the Trust continues after death, alternative provision must then be made for the fees to be met. It is often far simpler to apportion a percentage of the Trust fund to cover the administration in achieving the objective of the Trust. In prosperous times the growth of the Trust Fund often more than covers these costs – however, in times of low interest, depressed markets or even depending on the assets held, such fees must be seriously considered in light of the Trust Fund’s sustainability. Such costs should be illustrated by service providers on receipt of the full details.

Working with a Trust Service Provider – Dixcart

Dixcart have been providing Trustee Services and guidance for over 50 years; assisting clients with the effective structuring and efficient administration of Offshore Trusts.

Our in-house experts and senior employees are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for the Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. If required, the Dixcart Group can also assist with individuals seeking to immigrate to the UK and the required tax and wealth planning. 

We have developed an extensive range of offerings, which includes an array of Isle of Man structures. From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues, we can support your goals at every stage.

You can read more about our Trust services here in this helpful guide.

Get in touch

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Steve Doyle at Dixcart:

advice.iom@dixcart.com

Alternatively, you can connect with Steve on LinkedIn

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Trusts and Foundations: Current Perspectives from Dixcart Isle of Man

Background: Isle of Man Trusts and Foundations

The Isle of Man is a jurisdiction well known for the establishment and management of both Isle of Man Trusts and Foundations. We have recently drafted a series of three comprehensive Articles in relation to Offshore Trusts, as well as a video. Similarly you can find three Articles, featured on our website, on the topic of Isle of Man Foundations.  

This Article is more of a discussion piece, with the case study demonstrating how Trusts and Foundations can be used in combination, to achieve specific objectives. It also explores forthcoming changes to Isle of Man Trust Law.

Are Trusts and Foundations the Best Structures for Asset Preservation and Succession Planning?  

Recent changes in the global landscape, both in terms of taxation, but also public opinion, mean that HNW families need to look at a range of solutions to achieve their aims.

Where individual circumstances allow, Trusts and Foundations, however, continue to play an important role in HNW family estate planning. The public generally still have the perception that tax mitigation is the sole purpose of establishing a Trust or Foundation structure, when in fact they have a much wider purpose, especially in relation to succession planning.    

The characteristics offered by Trusts and Foundations include:

  • The ability for families to set out how they would like assets to be held and distributed in the long-term.
  • Oversight in relation to family assets, with appropriate ‘checks and balances’ regarding trustees or foundation board members, who take on the responsibility to look after things in a way that meets the needs of the specific family.
  • A structure that ensures that the intentions of a deceased or disabled wealth owner regarding how assets should be administered and distributed, are fully taken into account.

What Should Multi-jurisdictional Families Consider When Setting up a Trust or Foundation?

Each client must consider their individual circumstances, followed closely by what they are looking to achieve.

Once these two points have been identified, the next step should always be to seek tax advice specific to the circumstances.

Case Study

The Dixcart office in the Isle of Man, recently assisted a client who was looking to put in place asset protection and succession planning for their family business. 

The principal was a UK resident non-dom, whilst the wider family were based in various Civil Law jurisdictions.

On first examination, given the connection to Civil Law jurisdictions, a Foundation seemed likely to be the best fit, however, given the UK’s treatment of Foundations as a corporate vehicle, at least at the time, this could have been disadvantageous to the principal, who would have received greater certainty via a Trust structure. 

Conversely there was a concern that as the majority of the family were located in Civil Law jurisdictions, their local tax authorities may not recognise a Trust structure. 

  • Ultimately, and of course subject to specialist advice at the time, we put in place a Trust/Foundation Hybrid structure which provided protection to the family as a whole. An Isle of Man foundation was created, with the sole purpose of acting as Trustee of an Isle of Man trust.

As such, from a Common Law perspective, the structure was recognised as a trust structure, however should the structure be challenged within a Civil Law jurisdiction, the courts would recognise the legal status of the Foundation, thus preserving its asset protection characteristics.

Is Anything About to Change in the Isle of Man Relating to Trusts?

The last major review of Trust Legislation in the Isle of Man was the Trustee Act 2001, so a revisit was definitely overdue.

The Trusts and Trustees Bill 2022 received its first reading in Tynwald, the Isle of Man Parliament, in June 2022.  The draft bill aims to further modernize the Islands Trust Legislation and proposes several amendments to the current legislation.   

Two of the amendments which are of particular interest are:

1. Duty to Disclose Trust Information

Trust ‘information’ is defined as information or documentation relating to a Trust, including the Trust accounts.  The Bill sets out provisions that the Trust Instrument may confer and/or indeed restrict who has the right to receive Trust Information.

It also proposes to confer the right to certain parties, specifically the beneficiaries and Protector(s) of a non-charitable Trust and Protectors, to request information. 

2. Power to Declare Exercise of a Power Voidable

This provision allows the court to set aside the exercise of a power by a trustee(s), where the Trustees exercised their powers validly, but failed to take into account relevant considerations, and if they had done so, would not have carried out the action that had been taken.

Additional Information

If you require further information regarding trusts and foundations and how we can assist, please feel free to get in touch with Paul Harvey at the Dixcart office in the Isle of Man.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Offshore Trusts: Types and Uses (2 of 3)

This series considers the key elements of Offshore Trusts, particularly Isle of Man Trusts. This is the second of three articles, which examines some of the most common types of Offshore Trusts and their uses. If you would like to read the other articles in the series you can find them here:

From protecting family legacies, to ensuring proper succession planning, providing for dependents or even employees, the Offshore Trust is still an extremely flexible tool at the advisers’ disposal – hopefully the following article will help illustrate this point.

Article 2 of 3, Offshore Trusts: Types and Uses will explore the following:

Offshore Discretionary Trusts

The Discretionary Trust is one of the most commonly used types of Trust and can provide maximum flexibility for the Settlor and Trustees in terms of how the Trust achieves the desired objectives.

For instance, a Discretionary Trust can provide the Trustees with the ability to make distributions in a way that avoids wasting or depleting the Trust Fund unnecessarily and in line with changing circumstances – this can be for many reasons, including the protection of vulnerable Beneficiaries, tax planning or even asset protection with regards to Beneficiaries personal liabilities, and more.

Additionally, whilst a class of Beneficiaries may be apparent, the Settlor may not know what the best way of dividing the fund will be and may wish to allow for future changes in circumstances and even additional beneficiaries to be considered – for example, unborn grandchildren.

Discretionary Trusts can be formed during the Settlor’s lifetime, either as a living settlement or written into their Will, coming into existence upon death. If created as a living Trust, the Settlor may be liable to taxation on the chargeable transfer value. Furthermore, the Trustees may also be liable to a periodic liability on 10 year anniversaries, and on any distributions to Beneficiaries. For this reason, tax advice should be sought at the outset in respect of the circumstances of the Settlor and Trustees.

The Settlor must not retain any beneficial interest in possession or control over the assets settled into the Discretionary Trust, otherwise the Trust may be considered a sham or voidable, and the assets may still form part of the Settlor’s estate.

Instead, the Trustees are empowered to administer the Trust Fund in the interests of the Beneficiaries and the Trust itself. The Trustees are also able to make distributions at their discretion, to any beneficiary at a time they deem appropriate. Whilst the Discretionary Trust provides Trustees with complete control over the arrangement, their actions must still be compliant with the Trust Deed.

The provisions of the Trust Deed can provide for restrictions that the Settlor wishes to put in place. In addition, the Settlor may elect to appoint a Protector, who is usually a trusted professional adviser, to oversee the Trustees and ensure compliance with the Trust provisions. The Protector retains certain powers as desirable, to make sure that the Trustees achieve the objectives of the Trust in congruence with the Trust Deed. Whilst the inclusion of the Protector can provide controls, it is important to not restrict the Trustees so as to erode the effectiveness of the Discretionary Trust.

Finally, the Settlor can guide the Trustees by providing a Letter of Wishes. The Letter of Wishes provides a statement of the Settlor’s intentions at that point in time, allowing the Trustees to take this into consideration when making decisions and distributions. So long as the Letter of Wishes is regularly reviewed, it can provide fantastic insight into the Settlor’s mind as circumstances change – albeit, this document is persuasive and not binding; it creates no legal obligation on the part of the Trustees.

The Discretionary Trust is a very attractive solution that delivers maximum flexibility and gives the potential to remove tax liability from the Settlor’s estate – although this flexibility comes at a price. Discretionary Trusts can be complex, requiring specialist knowledge to avoid pitfalls – the Settlor needs to understand that they are placing their assets under the control of their chosen Trustees, who must act bona fide in line with the Trust Deed, but not necessarily in line with their wishes – so long as they consider it is in the best interests of the Trust and Beneficiaries.  

Offshore Interest in Possession Trusts

Less common, but still widely used, is the Interest in Possession Trust. This type of Trust can have a myriad of uses, all of which hinge on this instrument’s ability to provide the Settlor with access to the Trust Fund during their lifetime – in fact, sometimes this type of Trust is called a Lifetime Possession Trust.

The interest in possession can either be for a fixed period of time or indefinite. It is very common for provision to be made for the remainder of the Settlor’s lifetime.

In an interest in possession arrangement, the Settlor places the assets into Trust, thus transferring legal title to the Trustees (as per every Trust arrangement) – but here the settlor carves out an interest in possession, giving themselves an immediate and automatic right to the income flowing from the Trust assets.

Sometimes the Settlor of an Interest in Possession Trust is referred to as an Income Beneficiary or a Life Tenant, because of this legal right. The carveout can provide the Settlor with rights to enjoy the assets and/or all income generated from the assets during their lifetime. For example, to live in a property, pay living expenses or pay for long term care etc. from the gains of investments or other assets such as dividends from shares in a family business.

There can be more than one Income Beneficiary or Life Tenant, who will not typically have any beneficial right to the settled assets themselves, such as a spouse. In the case of income payments, this is paid to them periodically as set out in the Trust Deed.

The income received will be less the expenses of the Trust – it is important to remember that this will include any costs of administering the assets (custodian fees, investment adviser fees, property management etc.) along with potential remuneration of Trustees, which so long as fair is allowable under Trust Law.

When making investments decisions, Trustees will have a duty to both the Income Beneficiary / Life Tenant and the Beneficiaries who are entitled to the assets, making such decisions by considering the competing needs of income and longevity, unless otherwise stated in the Trust Deed.

As per the Discretionary Trust, the Trust assets will be held by the Trustees for the benefit of the named classes of beneficiaries or named individual Beneficiaries contained within the Trust Deed. These Beneficiaries can benefit after the set period that the Income Beneficiary or Life Tenant can enjoy the interest in possession – this is normally after death.

There are tax implications for the implementation of this type of Trust, and as ever, it can be quite complex. Therefore, tax advice should be sought in all cases.

Offshore Accumulation and Maintenance Trusts

Accumulation and Maintenance Trusts are somewhat of a hybrid approach between a Discretionary Trust and a Bare Trust. At its core, this type of trust places the Trust Fund under the care of the Trustees until a child or young Beneficiary reaches a specified age, up to 25 years.

For the intervening period, the Trustees will have discretion over the administration of the settled assets and how best to use them for the benefit of the Beneficiary – of course in compliance with the provisions of the Trust Deed. Broadly the Trustees may accumulate the income and gains to build the Beneficiaries capital entitlement or can apportion elements for the ongoing maintenance of the Beneficiary.

Prior to the Finance Act 2006 changes to the treatment of Accumulation and Maintenance Trusts, these Trust arrangements were set up to achieve certain IHT planning benefits – however, in the modern day, and due to the changes in the Relevant Property Regime (RPR), this benefit has now been removed. Accumulation and Maintenance Trusts will need to consider the RPR, which can result in periodic 10 year anniversary charges, as per Discretionary Trusts discussed above.

For those Accumulation and Maintenance Trusts settled pre-2006, there was a window until the 5th of April 2008, whereby the age of majority could be increased from 18 to the maximum of 25 years. These Trusts will continue to receive the same pre-2006 IHT treatment for the lifetime of the Trust i.e. before the Beneficiary reaches the age of majority. However, it is important to note that any additional settlements post-2006 will render the trust subject to the RPR changes. Furthermore, if there is no absolute interest in the trust i.e. it is a Discretionary Accumulation and Maintenance Trust, and the age of majority was not amended before 6th April 2008, the RPR changes and periodic charges will be applicable.

Before maturity, whilst the Trustees can elect to roll up the income and growth of the Trust assets, they can also defer or even reallocate them depending on the Trust Instrument. This can only be actioned before the Beneficiary gains an interest in possession at age 18 or 25 as per the trust terms.

If done so bona fide and in line with the Trust Deed, the Trustees could invest the Trust Fund into certain specific fixed form assets before the Beneficiary’s 18th birthday e.g. real estate, bonds, fixed term deposits etc. This means that the value could be released in tranches over time or produce ongoing income via maturing investments, rent etc. in turn avoiding wasteful behaviour and allowing the Beneficiary to mature beyond the age of Majority.

In summary, Settlors may feel more comfortable establishing an Accumulation and Maintenance Trust, rather than a full Discretionary Trust – this is because the Trustees will have the flexibility of administration during the Trusts lifetime, whilst the Beneficiaries’ position can be fixed. However, the drawback is that the child Beneficiary will have an automatic right to the Trust Fund at the age of majority, which might be considered detrimental depending on their character and level of maturity.

Other Forms of Offshore Trust

In addition to the above, it is worth noting some other commonly used types of Trust. For brevity these have been listed below with a short description:

  • Purpose Trust – Rather than being set up for the benefit of an individual Beneficiary, the Object of a Purpose Trust is to achieve a specified commercial or charitable objective e.g. financing transactions, acquisition or disposal of property etc. On the Isle of Man, there is a dedicated piece of legislation that caters for this Trust – Purpose Trusts Act 1996.
  • Employee Benefit Trust (EBT) – Employee Benefit Trusts are created by employers for the benefit of past, present or future employees, dependants and relations. They can be a vehicle for conveying any number of benefits, and useful for companies of any size – especially those that have a global footprint. Common uses include operating share purchase schemes, discretionary bonuses, pensions etc.

There are of course many more Trusts available, and we would recommend speaking with your professional adviser to assist with choosing the right type of Trust for meeting your objectives.

Working with Dixcart

Dixcart has been providing Trustee Services and guidance on Offshore Trusts for over 50 years; assisting clients and their advisers conduct their offshore planning.

We have in-house experts with a wealth of experience in all matters relating to Trusts; this means we are well placed to support and take responsibility for any Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. You can read more about our Trust services here in this helpful guide.

Due to our diverse offering, which includes an array of Isle of Man structures, we can assist From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues. We can support your goals at every stage.

Get in touch

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Steve Doyle at Dixcart:

advice.iom@dixcart.com

Alternatively, you can connect with Steve on LinkedIn

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

What’s the Interest in Investing into Africa?

Introduction

The fiduciary world expends much effort and resources in establishing suitable structures for the migration of wealth out of Africa, particularly South Africa.  However, little thought is given to the vast opportunities for inward investment into the African continent itself, investment that will also require structures.

Over the past few years Dixcart has seen a steady stream of enquiries for structuring investments into the African Continent for family offices, Private Equity (PE) Houses and groups of mutual interest investors.  Structures are usually bespoke and often feature an ESG (environment, social and governance) investment strategy. Both corporate and fund vehicles are typically used with Private Investment Funds (PIFs) the favoured fund route.

What has been particularly interesting is the high number of acquisitions or investments targeted at the sub-Saharan region ranging from process and production facilities, mining and mineral exploration, through to infrastructure projects such as renewable energy and water.

Whilst these investment structures are applicable to investments around the world the question is what is it that attracts investors to the African Continent and why use Guernsey structures for inward investment?

The African Continent

The big opportunity is the fact that the African continent is one of the final frontiers as other emerging markets such as Asia Pacific are maturing.

A few key reminders about this amazing continent:

  • The Continent of Africa
    • Second largest continent by area and population
    • 54 countries fully recognised by the United Nations
    • Significant natural resources
    • Africa’s complicated political situation, history of colonialism, and ongoing insurrections in many countries has largely kept multinational and institutional investors away from some countries
  • South Africa – probably the most developed country, driven by raw materials & mining industries (largest producer of gold / platinum / chromium in world).  Also, strong banking and agricultural industries.
  • Southern Africa – Generally the more developed market with strong mining industry
  • North Africa – Similar to the Middle East with oil reserves attracting oil related activities and industries.
  • Sub-Saharan – The lessor developed economies and often untouched by international investors where infrastructure type projects are key opportunities.

What are the patterns being seen in investing into Africa?

From working with our clients, Dixcart see the targeted countries are driven by the client’s specific sector of interest (see above) and have noted the following general trends:

  • Often the targeting of successful investments / projects in the more developed Southern African countries first; then,
  • Expanding into the lesser developed countries thereafter, once having gained an understanding and track record in order to provide confidence to investors (as more challenging to invest into the lesser developed countries but may ultimately produce greater returns).

What type of investments and investors are being attracted?

  • Start-ups are the most high-risk but often need the least investment.  Dixcart see PE Houses / Family Offices / HNWI’s often involved at this stage taking up equity as the early money secures the projects and gets the higher return.  PIFs are particularly being used at this stage.  Later, these initial investors have the choice to exit when larger sums of investment are needed to progress projects.  This is now at a time when the project is proven and less risky meaning institutional investors are interested and will pay a premium due to the risky stage now having been cleared.
  • ESG factorsare attracting the larger / institutional investors looking to increase their ESG activities and potentially offset an existing high carbon footprint.  Green programmes with a low return will often still be commercially acceptable to these types of investors.  The bespoke nature of PIF and corporate structures makes establishing a dedicated ESG strategy, unique to the investor pool, very straightforward.

Dixcart have also noted Investment Banks, particularly European Banks being used for leveraging of projects.

Why Structure through Guernsey?

Guernsey has a long standing and successful track record for servicing Private Equity and Family Office type structures either through the use of corporate vehicles (utilising the flexible Guernsey company law), Trust and Foundations or via the use of internationally recognised collective investment schemes such as the PIF which provides a lighter touch of regulation.

Guernsey provides security with experienced service providers in a mature, well-regulated, politically stable and recognised jurisdiction. 

Guernsey has a good track record for adherence to global tax harmonisation requirements and is a recognised jurisdiction with banks for setting up banking and lending facilities.

Conclusion

We are all aware of the huge amounts of capital available from international investors looking for investment opportunities and the African Continent, as one of the final frontiers left in the world provides attractive investment opportunities and returns.  These international investors need their capital invested through robust structures registered in an appropriate jurisdiction and Guernsey is one of the leading choices for such structuring.

Corporate structures are often favoured for single investors while the Guernsey PIF regime is attracting PE Houses and Fund Managers as an excellent vehicle for structuring through for their networks of professional and institutional investors.

Additional Information

For more information on Guernsey, and the investment structures for Africa (or indeed anywhere else in the World) and how Dixcart can help, please contact Steven de Jersey or Bruce Watterson at the Dixcart Guernsey office at advice.guernsey@dixcart.com and visit our website www.dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart Fund Administrators (Guernsey) Limited, Guernsey: Full Protector of Investor Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 68952.

Nevis Trust Structuring – Benefits and Protections

Nevis has long been recognised as a jurisdiction with some of the most modern and comprehensive asset protection trust legislation in the world.

Within Nevis there are two options for the establishment of trusts. These can either be created under the general laws of trusts, applicable internationally, which are referred to as Common Law Trusts, or created as Nevis Asset Protection Trusts registered under the Nevis International Exempt Trust Ordinance. The latter benefits from some additional provisions, detailed below, which may be of value in helping achieve the ultimate objectives of the Settlor in creating a Trust.

What is a Trust?

A Trust is a legal arrangement whereby an individual known as a Settlor transfers the legal ownership of assets to the Trustees to be held in a Trust for the benefit of defined Beneficiaries. The details of the arrangement are contained within a Trust Deed, which is the constitutional document of the Trust. Trusts are not incorporated and therefore do not benefit from the features of a legal entity, such as a separate legal personality and limited liability e.g. it cannot make contracts or create charges in its own name. Instead, the legal title of the assets is transferred to the Trustees, who owe specific duties to the Beneficiaries.

Parties

A typical Trust consists of the following parties:

Registered Nevis Asset Protection Trusts – Benefits and Protections

Under the Nevis International Exempt Trust (Amendment) Ordinance, a Trust can be settled and registered in Nevis which provides a number of benefits and protections to the Settlor and Beneficiaries of the Trust.

Some of these advantages include:

  • Dynasty Trust – The Trust can have an unlimited duration
  • Retained powers – Certain powers can be retained by the Settlor
  • Confidentiality – The only information which is required to be registered with the authorities is; the trust name, the registered address and name of the Trustee and a signed declaration by the Trustee. This information is kept confidential
  • Creditor claims – any potential creditor must place a bond of ECD270,000 / USD100,000 before bringing any action or proceeding against trust property in a Nevis Trust, and the burden of proof is placed squarely upon the creditor, who must establish their claim “beyond a reasonable doubt”
  • Commencement of Proceedings – No action or proceeding to set aside the settlement, or by any person claiming to have had an interest in property before it was settled into a Trust, will be entertained by the Court, if the action or proceeding commences two years after the settlement of the Trust or the settlement of the property
  • Forced Heirship – any forced heirship rights in the jurisdiction of the Settlor or Beneficiaries do not overrule the provisions of a Nevis Trust
  • Validity – the Trust is valid and enforceable, regardless of whether it is invalid in the Settlor’s domicile or jurisdiction of residence
  • Foreign judgements – Any foreign judgements are not enforceable in Nevis
  • Taxation – All trust assets and any income deriving thereof are totally exempt from; estate, corporation, gift, income, inheritance, withholding, succession and stamp taxes in Nevis

A Registered Nevis Trust – Details Needing to be Submitted

A Registered Trust is one where the Trustees must register the trust details with the authorities.

In Nevis this registration includes detailing:

a) the trust name

b) the registered address of the trust

c) the name of the Trustee; and

d) a signed declaration stating that the trust complies with the Ordinance and is an International Trust.

This is all the detail which currently needs to be filed and the provision of this limited information ensures that the confidentiality and anonymity of the client is still able to be maintained.

Criteria to Qualify as a Nevis International Exempt Trust

In order to be classified as a Nevis International Exempt Trust, the Trust must fulfil the following requirements:

  • At least one of the Trustees must be a Trust Company eg Dixcart Management Nevis Limited, licensed by the Government to undertake trust business in Nevis, or a corporation incorporated under the Nevis Business Corporation Ordinance (commonly known in other jurisdictions as an IBC); and
  • The Settlor and Beneficiaries must at all times be non-residents of Nevis; and
  • The trust property must not include any land in the Federation of St. Kitts and Nevis.

Common Law Trusts

Common Law Trusts have been used for many hundreds of years in Common Law countries deriving their basis of law from the United Kingdom. They are created when an individual (the Settlor) transfers assets to a Trustee to control and manage the assets on behalf of specified individuals (the Beneficiaries). The Trust is a legal arrangement whereby the assets of the Trust belong legally to the Trustees to hold for the benefit of the Beneficiaries.

As long as the Trust is established with a Nevis Trustee and the Settlor or Beneficiaries are not Nevis residents, then no taxation will arise on the income or gains within the Trust. As no income is to be subject to tax in the island, there is no need to register the Trust with any authorities or to file any details of the activities within the Trust.

A Common Law Trust appointing a Nevis corporation as Trustee and which does not seek registration under the Nevis International Exempt Trust Ordinance does not need to file details of any aspects of the Trust with the authorities in Nevis.

Additional Information

In conclusion, Common Law Trusts can be established in Nevis without any registration of detail and are a well-known and dependable vehicle for asset management and family control.

Registered Nevis International Exempt Trusts can secure additional advantages for the protection of assets. Coupled with the Nevis LLC to hold the underlying assets of the Trust, these two entities together make a powerful defence for your assets.

The Nevis Registered Trust Ordinance is considered to be one of the most appropriately framed forms of trust legislation in the world. With Dixcart’s experience and management on the island, you and your clients can be reassured that the placement of assets in any such Trust will be managed and maintained to exacting professional standards.

If you require any additional information or wish to discuss your structuring needs further, please contact Beth Le Cheminant at advice@nevis.com.

Whilst this note is intended to provide information regarding Nevis Trust structures and examples of how these can be used, it is not intended to form any sort of legal or tax advice. We strongly recommend that any individual considering setting up a wealth planning structure seek independent legal and tax advice before doing so.