Inheritance tax is a type of applicable tax imposed on the inheritance received by a beneficiary from the deceased. Inheritance tax is assessed on the assets of the legacies received by the beneficiaries on the estate, whereas estate tax assesses the assets of the deceased. Typically, when inheritance tax is imposed, it is the responsibility of the beneficiary of the inheritance to pay the sum.

For more information on the varying aspects of inheritance tax, please view our Offshore Trusts page.

Inheritance tax requirements

Inheritance is typically awarded to the beneficiary or beneficiaries as a result of a will or a trust made by the deceased, as a result of intestacy or through joint ownership of the assets. Assets inherited can be both tangible and intangible, including property, insurance and jewelry.

Inheritance tax varies according the type of beneficiary receiving the inheritance. To further clarify, a spouse or civil partner receiving inheritance from their deceased partner will be exempt from inheritance tax regardless of inheritance value.

The amount of inheritance tax applicable to inheritance is dependent on a number of important factors. These include but are not limited to: the value of the inheritance, the type of beneficiary involved and whether or not the inheritance is eligible for the tax-free amount.

Inheritance tax is also highly dependent on whether the country of the inheritance follows civil or common law. Statistics taken and valid between 2011 and 2015 indicate that a sum of £325,000 in the UK can be inherited without the requirement of paying inheritance tax. This sum is referred to legally as the Nil Rate Band. The inheritance tax free sum will vary according to the country and government laws; however in the UK an estate is charged inheritance tax of 40% after the Nil Rate Band.

A trading trust is a particular type of structure that is usually established by individuals or businesses. It is established to carry on a business, and contains similar features to a traditional trust, such as a deed, trustees and beneficiaries. The main purpose for its creation is for asset management, as it enables the transfer of assets.

DeltaQuest can assist you with the formation of a specific type of trust. To learn more, please view our Offshore Trust Services page.

Trading Trust explained

A trading trust is established to carry on a business and may be used as an alternative to other business structures, such as the traditional Limited Liability Company. When a trading trust is established, it features a trust deed, which is a document that outlines all of the conditions and stipulations of the entity. This includes the appointed beneficiaries, who are the individuals benefiting from the formation of the structure. It also outlines how the beneficiaries will benefit and how assets will be distributed.

The deed also outlines the responsibilities of the trustee, who is the individual or corporate entity responsible for managing and administering the entity. The settlor is the individual who establishes the trading trust, and who initially chose to set up the structure.

In some circumstances, the trustee is a limited liability company which has powers to carry on business. In this respect, the trust has trading functions and employees to manage its business.

Typically speaking, third parties are not aware of the existence of a structure, as all documentation used is the name of the Trustee Company. This increases the privacy and confidentiality of the entity. The formation of this particular entity offers numerous tax advantages, for example, upon the distribution of assets to beneficiaries, no taxes will be charged.

The structure of trading entities differs from one country to the next and it is therefore fundamental for anyone who wishes to create a trading trust, to research the specific features provided by each jurisdiction.

A charitable trust is an irrevocable trust that is created and structured with the primary intention of benefiting those in need. Another reason for the establishment of a charitable trust is to help relieve and support community and economic issues. The purpose of creating a charitable trust is important to consider and a court of law will require proof of the purpose of the charitable activity of a trust in order to grant it as a charitable trust.

For more information on the types of trusts available, please view our Offshore Trusts services page.

Charitable trust explained

A charitable trust is a trust that is created for the purpose of charitable activity. Some examples of charitable activity include trusts supporting education, health, religion and support for the poor. A number of high-profile celebrities have set up charitable trusts as a way to support a cause or charity that is important to them. The assets are held and managed by the charity for a specific period of time, with some or all interest that the assets produce going to charity.

A charitable trust must essentially be for the benefit of the public or a section of society. In general, laws will favor charitable trusts due to the trusts acting in good will for the public. Not only are charitable trusts not subject to laws against perpetuity but in most countries a charitable trust is exempt from almost all taxes.

A charitable trust is also known as a public trust and in the view of the law in most countries, the legislation for charitable trusts is particularly advantageous, giving the trust a favorable tax status. In order to create a valid charitable trust you must be able to show that the trust acts in a charitable manner and poses benefits to a particular group. When considering the public benefit of a charitable trust, the ‘public’ cannot simply be a group of private individuals.

Asset protection is a way to protect the assets of an individual or company from external threats or restrictive legislations in their country of domicile. It is therefore a highly sought after business tool and many professional consultancy firms have the resources to help you achieve the asset protection you require on an international scale. There are a number of techniques that can be adopted to achieve asset protection, as outlined below.

For further information on how you can achieve asset protection, please view our Effective Asset Protection services page.

How to achieve asset protection

In order to achieve asset protection you should ideally consult a professional consultancy firm that is both well established and highly experienced in dealing with all aspects related to asset protection techniques and compliance with the relevant laws. This is because the process can be relatively long-winded and is usually dependent on the jurisdiction selected for asset protection.

A professional consultancy firm will assist you in selecting the most appropriate jurisdiction in which to achieve you asset protection in, and from there, will guide you on the most suitable forms of asset protection.

The most popular forms of asset protection selected by investors are typically offshore trusts, offshore foundations, estate planning, LLP or LLC formation and effective banking and investment strategies. The particular strategy that you select will be dependent upon your personal and financial preferences.

You can achieve asset protection in a way that will help you get the most out of your assets and protect your estate at a far greater level than you currently experience. Professional consultancy firms will typically have the necessary international resources available to be able to draw up an effective asset protection plan in any country which offers you a bespoke and highly advantageous environment to do so.

When establishing an asset protection strategy, you may be required to submit certain documents in order to facilitate the procedure and assist in the development and implementation of your asset protection plan.

A trust deed is a formal document that outlines the detailed terms expressed within a trust agreement. A trust agreement is established to protect the assets of an individual or company. It usually involves large portions of wealth and is protected by a legally binding deed, or trust deed.

To learn more about tailor-made asset protection solutions, please view our Offshore Trusts section.

Features of a trust deed

A trust deed is a document that is drawn up to detail the specific wishes of the founder. Each deed is unique in that it outlines the exact requirements of the owner, including the duration of the trust.

A trust deed involves three legal parties: the settlor, the trustee and the beneficiaries. If desired, a protector can also be appointed. The settlor is the individual or party who has chosen to establish the trust; the trustee is responsible for managing and administering the provisions within the deed, and the beneficiary is the individual or party who will benefit from the trust. In addition, if a protector is appointed, it is their responsibility to ensure that the trustee’s are administering the trust in accordance with the settlor’s wishes.

A trust deed essentially enables the owner to transfer property and other assets for the benefit of someone else. These assets are governed by a third party, who manages and distributes the assets as described in the trust deed. The deed is tailored to the exact requirements of the founder.

A trust is an excellent way to protect one’s assets, whether that is for the protection of bank deposits, real estate or other forms of wealth.

The exact structure of the trust itself is dependent upon the jurisdiction under which it is established. These terms are usually written down in the trust deed. The trust deed must clearly elucidate the specific wishes of its owner. The trustee is required to administer the trust based upon these wishes, as well as the governing jurisdiction under which it is established.

A foundation is an advantageous asset protection arrangement if you have a number of assets which require extra security from external creditor claims. These assets can range from tangible and intangible property, including real estate, intellectual property and life assurance policies. The main purpose of a foundation is to act as a form of asset protection.

DeltaQuest offer a range of services related to the formation of a trust or foundation. To learn more, please view our Offshore Foundations services page.

Opening a foundation

There are numerous reasons why individuals or companies choose to open a foundation. A foundation provides additional protection for one’s assets. Whether for charitable, personal or commercial use, the formation of the foundation will act as a strong security barrier for your valuable assets.

The primary reasons for establishing a foundation are the considerable tax benefits granted upon it. Most offshore foundations offer zero taxation fees on the assets and income of the foundation, dependent on the jurisdiction in which the foundation is established. This ensures that one’s wealth is fully protected from complex legal sanctions that often result in the relinquishment of assets under circumstances such as death.

In addition to the above, many offshore jurisdictions offer attractive foundation packages that comply with the specific needs of the founder. This can include complete privacy from public registry as well as the guaranteed protection of your assets during wealth transfer and estate planning. In addition, upon the death of an individual, the assets are protected from legal limitations.

Another reason to open a foundation is to consolidate all of your wealth into one location. This will minimize confusion, particularly in relation to taxes, and act as a strong preservation of wealth during economic or political uncertainty.  

In order to set up a foundation, it must be comprised of three basic components:

Founder: The individual or company who gifts assets to the foundation

Foundation Council: The officers who manage the foundation

Beneficiaries: The individual or institution who benefits from the foundation assets

There are a number of different trust structures to choose from, depending on the country you wish to create your trust in and the personal or financial requirements you want the trust to meet.  A passive trust is one type of trust formation and it is the popular choice of many from across the globe. It involves the transfer of property from the original owner to the trust structure, and does not involve the trustee performing any active duties.

For more information on the types of trusts available, please view our asset protection services page.

Passive trust explained

A passive trust is made up of a settlor, a trustee and beneficiaries. The settlor is the individual who has established the trust. The trustee is traditionally required to administer the trust in compliance with the settlor’s wishes, whilst the beneficiaries are those who benefit from the formation of the trust.

A passive trust is a trust where the trustee has no active role, other than to transfer the trust assets to the selected beneficiaries. The nominated trustee is not required to perform any active duties with regards to the management of the trust.

A passive trust is also known as a dry trust, simple trust or nominal trust. The basis of a passive trust is to hold the assets for the benefit of the beneficiaries, as stipulated by the settlor.

In many trust structures, the trustee will take on the legal titles of the assets held in the trust until the assets are distributed to the beneficiaries, however in a passive trust this is not necessary. In other words, a passive trust is simply a trust structure that holds the assets of a settlor until the transfer of the assets is initiated to the beneficiaries. The transfer of title of the assets held in a passive trust will be transferred directly from the settlor to the beneficiaries.

A non-charitable trust, also referred to as a purpose trust, is structured in such a way that it has no direct beneficiaries. Instead, it is formed for an alternative purpose, and is said to be a non-charitable trust where it fails the charitable test. Understanding the characteristics, benefits and obligations of a non-charitable trust is complex and as such it is advised to enlist the help and advice of a professional consultancy firm that specialize in the formation of trusts.

For more information on the different types of trusts available or to find out how DeltaQuest can assist you with your non-charitable trust, please Contact Us.

Non-Charitable Trust Explained

A non-charitable trust is set up by an individual, or settlor, to serve a specific function or purpose. Non-charitable trusts are typically developed to help maintain or fund the upkeep of animals, land, buildings, grave stones and so on.

When forming a non-charitable trust, it is important to choose the most favorable jurisdiction for the specific purpose of the trust. The perpetuity of a non-charitable trust is subject to a ban, as this type of trust is formed for a limited period of time, meaning that it cannot continue forever. However the specific duration of time permitted for the trust will depend upon which jurisdiction it is established in.

Beneficiaries of a non-charitable trust have to be specifically detailed as such within the trust’s deed, as they are not subjected to the cy-pres doctrine, which is a legal doctrine stating that the trust deed is open to interpretation of the court.

A non charitable trust can be used by the following parties:

Private trust companies – for the purpose of holding shares

Special purpose vehicles (SPVs) – to hold shares

Altruistic activities – for example, to promote public interest objects that are not of a charitable nature

Trade associations – promotion of interests of particular trade associations, clubs or other unincorporated bodies which are not charitable.

A fixed trust, also known as a non-discretionary trust, is a type of trust structure in which a person or entity controls money and assets for the benefit of the appointed beneficiaries. This type of trust is often set up by settlors, who have chosen to have overall control of who the beneficiaries of the entity will be. In this particular instance, the trustee plays a minimal role in the administration and management of the trust.

For more information on the different types of trusts available or to find out how DeltaQuest can assist you with your trust requirements, please Contact DeltaQuest.

Fixed Trust Explained

A fixed trust allows the settlor to determine the entitlement of the beneficiaries, and permits the settlor, who is the individual responsible for the formation of the trust, to have beneficiaries fixed to the trust. This ultimately means that unlike many other types of trust structures, the trustee has little or no discretion when it comes to deciding on the beneficiaries and their entitlement. To contrast, in traditional trust structures, the trustee plays a greater role with regards to managing and administering the trust.

The main examples of fixed trusts are where the trust is set up for future generations. With a fixed trust, there is no restriction with regards to the number of beneficiaries that a settlor can choose to benefit from the trust assets.

One of the main advantages of setting up a fixed trust is that the settlor can decide who will receive his or her assets, and by how much, as once the beneficiaries are named in the trust deed this cannot be altered.

It is important to be aware of the available types of trust structures that your chosen jurisdiction offers and by what name the trusts go under. This is because in certain countries, fixed trusts are known as non-discretionary trusts.

In common law legal systems, a trust is the relationship between one’s property and the transfer of that property into a legally binding entity. In order for the entity to become legally binding, it must be compliant with the relevant laws of its jurisdiction. Trust law is defined as the legal regulatory framework adopted by each jurisdiction which allows for the set up of such an entity.

For more information please view our Offshore Trust Guide.

Principles of trust law

When setting up a trust, the entity will be subject to the laws and regulations of the jurisdiction that it is established in. Trust law provides the terms by which a trust can be established and managed in that country. It is essential that all wealth management and asset protection strategies developed and established within a specific country are compliant with the relevant laws and acts.

In most jurisdictions, trust law will adopt a similar structure, by which it will provide regulations with regards to the creation and administration of a trust and the distribution of assets from the deed to its beneficiaries. The scope of trust law extends to the formalities of the entity, the requirements and role of a trustee, the applicable beneficiaries, various types of trusts, the terms and conditions and the types of trusts available.

Most trust laws will stipulate the types of assets that can be held within the entity. Also provided for under law is the permitted duration of the entity and the potential for estate planning through the use of such an entity.

Trust law has several areas of enforcement with regards to the administration and regulation of the entity. In the case where the appointed trustee does not administer the structure in accordance with the relevant law, prosecution and remedies can be sought.