While many people know they can protect their assets from seizure by creditors or legal judgments with a trust, understanding international trust law for offshore trusts is a little more complex. One type of offshore trust, a Gibraltar Trust, offers significant protection for foreign settlors who create trusts based in Gibraltar.
If you’re considering protecting your assets with a Gibraltar Trust, what should you know about tax planning, inheritance planning, and asset security? This guide will provide answers to these questions. Keep reading to learn more.
What Is a Gibraltar Trust?
A Gibraltar Trust is a trust based in the country of Gibraltar. These trusts adhere to English common law, and trusts based in Gibraltar are domestic trusts in that country, even with foreign settlors (trust creators) and beneficiaries.
Laws regulating trusts in Gibraltar include the Trustee Act of Gibraltar of 1989, the Trusts (Private International Law) Act of 2015, and a 1990 amendment to the Bankruptcy Act. These laws protect the assets held in trust in Gibraltar against creditors, legal judgments, and taxes.
Gibraltar Trusts offer several benefits over other types of trusts, although not as much asset protection from claims (such as lawsuits and legal judgments) as a Cook Islands Trust. Still, Gibraltar Trusts offer protection for assets under many circumstances, especially when you create a discretionary trust with confidentiality protected by the Bankruptcy Act amendment.
Benefits and Features of a Trust Based in Gibraltar
Asset protection is a key feature of wealth management and inheritance planning. It allows you to enjoy your wealth during your lifetime, knowing your assets have protection in an offshore trust and will pass on to your intended heirs rather than going through probate or being used to repay debts or taxes.
Common benefits of a Gibraltar Trust include:
- Confidentiality: Assets held in the trust are private, and although the trust must register, the settlor and beneficiary names do not enter the public record.
- Tax Avoidance: You do not pay taxes on any assets held directly in trust. However, if you receive income from trust assets, your taxable income laws for your home country will apply. For example, in the U.S., investors who earn income from trust assets must declare this income.
- Avoidance of Stamp Duty: Asset protection trusts in Gibraltar do not require a Stamp Duty Tax on assets transferred into a Gibraltar Trust.
- Asset Protection Against Creditors: Creditors from your home country cannot pursue trust assets in Gibraltar unless they can prove a very high standard of proof showing a fraudulent conveyance has occurred.
- Trust Control by the Settlor: In some circumstances, the settlor of the trust can alter the trust terms during their lifetime if the settlor is also a beneficiary of the trust.
Steps for Formation and Termination of a Trust in Gibraltar
Formation and registration of a Gibraltar Trust does not take long, typically taking a few days to gather and process all formation documents and to register the trust after formation. But what documents do you need to create and register a Gibraltar Trust?
To form a trust, the settlor must select an eligible trustee to manage the trust and execute the trust agreement while maintaining the trust assets on behalf of the trust beneficiaries. A trustee for a Gibraltar Trust must reside and operate in Gibraltar and is usually a private asset management company. Additionally, the settlor must fund the trust with their intended trust assets by transferring the assets into the trust.
Some trust types in Gibraltar do not require government registration. However, asset protection trusts must be registered. Registration requires several documents and pieces of information, including:
- The trustee’s name and address
- The name of the trust
- The date of the trust’s establishment
- The settlor’s country of residence
- Forms of requests completed by the settlor or founder
- Forms of requests completed by the trustee to confirm settlor statements
- A statement made under oath by the settlor that he or she is not bankrupt
The lifespan of a trust in Gibraltar is 200 years. If a trust terminates naturally, the trustee must distribute the remaining trust assets to the beneficiaries or the closest relatives or causes as described in the trust agreement document. Discretionary trusts in Gibraltar are irrevocable trusts, meaning a settlor may not revoke, amend, or add or remove assets from a trust without authorization from the trustee.
Registration and Confidentiality in Gibraltar
Asset protection trusts in Gibraltar require registration with the government. While you must provide key information about your trustee and swear an oath that you are not currently bankrupt or at risk of becoming bankrupt, your name and the names of your beneficiaries will not enter the public record.
Gibraltar Trusts are confidential and offer many layers of asset protection. For example, creditors can typically only pursue trust assets by filing a claim under bankruptcy law rather than fraudulent asset transfer claims. Under bankruptcy claims, a creditor must prove the settlor lives in or is domiciled in Gibraltar or that the settlor committed an act of bankruptcy in Gibraltar.
The Trusts (Private International Law) Act of 2015 protects the assets in a Gibraltar Trust from seizure by legal judgments based in foreign countries. This law places trusts under the jurisdictional control of Gibraltar courts and limits the powers of foreign courts over assets held in Gibraltar trusts.
Trustee’s Role and Duties
What does a trustee do when managing a Gibraltar Trust? The trustee has several responsibilities, including:
- Holding and managing the property in trust for the lifetime of the trust
- Ensuring the execution of the trust agreement according to the settlor’s terms
- Maintaining the confidentiality of the settlor, beneficiaries, and trust assets
- Receiving transfers of assets into the trust
- Ensuring all applicable steps for registration of the trust are completed appropriately
- Executing the trust agreement at the time of the settlor’s death or another predetermined event to distribute the trust assets to the named beneficiaries
Types of Trusts in Gibraltar
Gibraltar offers different types of trusts for foreign settlors to protect assets from creditors or future court judgments. Trusts you can establish in Gibraltar as a foreign settlor include:
- Discretionary Trusts
- Asset Protection Trusts
- Private Trust Companies
- Purpose Trusts
In a discretionary trust, the trust manager or trustee learns more about a beneficiary’s current income and other pertinent information to determine tax liability for trust distributions and will attempt to reduce a beneficiary’s tax burden. Additionally, the settlor may amend the Memorandum or Letter of Wishes to include a new family member, disinherit a beneficiary, or make other changes.
Asset protection trusts are irrevocable, meaning the settlor may not make any adjustments to the trust agreement without first petitioning the trustee. The trustee then makes a decision based on the information available.
Trust Administration and Distribution
Placing most assets in an offshore trust generally only requires that you change the name on the deed to the name of the trust and file any documents necessary with the trustee to transfer the assets to their control as trust assets.
The trustee will follow the settlor’s instructions to administer trust assets and income from the assets stored in the trust. For example, stocks, cryptocurrency, rental property, and other assets may generate income from interest, rent, or accrual in value. What happens to the income generated?
Many settlors also name themselves as beneficiaries in their Gibraltar Trust. As a beneficiary, a settlor can collect income from their assets in the trust according to the agreement instructions they lay out when creating the trust.
Some settlors also choose to add the income back into the trust for a larger distribution to their beneficiaries when they pass away. An offshore trust allows settlors to manage wealth and assets during their lifetime, protecting assets from creditors and legal settlements while helping them provide a secure inheritance to their loved ones.
Trust Services Providers
Unless you know someone in Gibraltar, you will probably need to seek a professional trustee through a licensed offshore attorney. Professional trustees must have the appropriate licensing according to the Financial Services Act of 1989 and meet regulations set forth by the Financial Services Commission (FSC).
While settlors must hire a professional trustee for a fee, the cost comes with several benefits. Hiring an experienced professional trustee means they know how to execute and administer a trust while maintaining client confidentiality and privacy around the type of assets and their value held in trust.
Contact Blake Harris Law for Asset Protection With a Gibraltar Trust
If you need asset protection or tax planning help for assets you want to store in an offshore trust, a Gibraltar Trust might be the right option for you. For more information about offshore trust options, types of trusts for asset protection, and how much protection different jurisdictions offer, turn to our experienced team at Blake Harris Law. Call us or contact our offices online today to schedule an appointment with Blake about your offshore trust options.