Offshore trust or offshore fund?

Differences between offshore trust and offshore fund

The information at https://offshorecitizen.net/ provides guidance on offshore trusts. The guide explains why offshore investors choose trusts.

An offshore trust … is an agreement between the “founder of trust management” and the designated “trustee” who performs the administrative functions and asset management of the founder of trust management in the interests of the beneficiaries. The trust is managed by the trustee on behalf of the founder and, as a result, the founder loses all legal ownership of his assets. The trustee fulfills all the requirements set forth in the trust agreement and, depending on the type of trust, manages the trust property at his own discretion. The trustee must be an adult in his right mind and act in good faith and prudently in the process of implementing the provisions of the trust agreement. As an additional precautionary measure, you can provide a guarantor. The guarantor controls and ensures strict correspondence between the actions of the trustee and the content of the trust agreement. Offshore trusts can be created in jurisdictions that recognize trust legislation and have legal leverage to regulate and enforce trust legislation. Where trust legislation is not recognized, offshore funds, also designed to protect assets, will be the most reasonable alternative to trusts.

An offshore fund … is a legal entity that owns the property of a person. To create an offshore fund, a founder, guarantor, beneficiary, and members of the board are required. The board of the fund manages the activities of the fund, while the guarantor protects the assets and ensures compliance with the legislation on funds in force in this jurisdiction. Of course, the founder is represented by any person or group of persons willing to establish a fund, and the beneficiaries are those people who benefit from the fund’s operations. As a rule, a foundation is created in cases where jurisdiction does not recognize trust legislation. In this case, the fund is considered a corporate alternative to trusting, since it retains all the main characteristics of the trust while offering additional benefits to the corporate plan.

Main differences

The most obvious differences between offshore trust and offshore funds are:

  • A trust is a “legal action” that draws up an agreement between the founder of trust management and the trustee regarding the custody of the assets of the founder. At the same time, the foundation after its establishment becomes an independent legal entity and bears its own legal responsibility.
  • The legislation on trusts does not require the registration of the fund with financial institutions, while the fund must be registered in the state register.
  • The activities of trusts and information about it are confidential, which allows the founder and its beneficiaries to remain anonymous, while the foundation is a registered legal entity bearing a corporate name and identification number. The fund contains information of a private nature, which is strictly confidential, and open to the public.
  • The trustee of the trust is obliged to act in good faith, fulfilling the requirements of the trust agreement, however, he has the right to act as his own discretion when necessary. A member of the foundation board must constantly act in the best interests of the foundation and fulfill their responsibilities responsibly in accordance with the memorandum of association.
  • Under trust law, a trustor may also be the beneficiary of a trust. At the same time, according to the legislation on funds, beneficial owners do not exist, and the property of the funds belongs to the fund itself.
  • Continuous succession is more typical of foundations than trusts since the trust legislation allows a trust to request renewal of its activities, sometimes up to 150 years. Funds are always created indefinitely.
  • The Fund may start its activities even in the case when the property is not included in it from the very beginning of its activity, while assets must be transferred to the trust immediately upon its establishment.
  • In general, a trust is a for-profit organization, and a foundation can be created in the form of a non-profit trust.
  • Typically, the founder of the fund must make a minimum contribution of $ 10,000, while the founder of trust management may make assets in the trust for any amount at his discretion.

The main similarity between an offshore trust and an offshore fund is related to the level of asset protection. The property of these organizations is not subject to claims by third parties and the claims of creditors, except in the case when it is indisputably proven that the assets were acquired by fraud. Moreover, both offshore funds and offshore trusts are in no way limited in terms of estate planning and can take advantage of tax-free zones in offshore zones.