10 considerations when choosing a trust jurisdiction
Choosing the right trust jurisdiction is a pivotal decision with profound implications for asset protection, tax planning, succession planning and overall wealth management. Leevyn Isabel, Commercial Director – Middle East, and Novia Lu, Commercial Director – APAC, guide us through the key factors to consider, ensuring that your trust choice aligns seamlessly with your unique goals and circumstances.
1. Jurisdiction's trust law framework
When establishing a trust, it is crucial to ensure that the jurisdiction's trust laws are both robust and flexible. This means they should adequately protect your interests while also allowing for adaptability as your needs evolve. The Cayman Islands and British Virgin Islands are renowned for their well-developed trust laws and extensive experience in trust administration.
Unlike some jurisdictions, the Cayman Islands and British Virgin Islands offer specialised trust structures, such as STAR Trusts and VISTA Trusts, that provide additional flexibility. These structures often include provisions that allow the settlor or a designated individual (like a protector) to retain control over certain aspects of the trust, such as income and capital distribution, beneficiary changes, and even the removal and replacement of the trustee. This level of control can be invaluable in ensuring the trust aligns with the settlor's evolving intentions and circumstances.
2. Asset protection strength
The effectiveness of a trust as a shield against claims hinges on the jurisdiction's laws governing creditor protection, fraudulent conveyance, and asset tracing. For instance, the Cayman Islands and the DIFC have specific legislations in place to protect assets transferred into a trust or similar structure from creditor claims.
3. A stable, reliable legal system
People establish trusts for various reasons, but continuity is often a key factor. Settlors want their wealth to be securely passed down through generations. Therefore, choosing a jurisdiction with a strong and stable legal system is essential. The Cayman Islands, Singapore, and Jersey, for example, all have well-developed legal and judicial systems rooted in English common law. Additionally, the trust regime's recognition and enforceability in other jurisdictions can be crucial for effective cross-border asset management.
4. Tax implications
Understanding the tax consequences for the settlor, beneficiaries, and the trust itself is crucial. Factors to consider include income tax, estate tax, inheritance tax, gift tax, and capital gains tax. If tax planning is a primary goal, jurisdictions with low or no estate, inheritance, and gift taxes, such as the Cayman Islands, British Virgin Islands, or Mauritius, might be considered.
5. Privacy & confidentiality
The level of privacy afforded to trust information is essential for maintaining discretion. Jurisdictions like Jersey, with strong confidentiality laws, can be attractive to clients seeking maximum privacy.
6. Succession planning needs
The trust regime should align with the settlor's succession plans, providing flexibility in distributing assets to beneficiaries. If complex family dynamics or multiple generations of beneficiaries are involved, a jurisdiction with flexible trust provisions, like Jersey, might be suitable. Notably, STAR and VISTA trusts offer additional flexibility, as they are managed by the settlor or a designated person.
7. Regulation & compliance
The right jurisdiction will have a well-developed regulatory compliance framework in areas such as anti-money-laundering and know your client. Jurisdictions like the Cayman Islands and Jersey strike a balance between appropriate protection, operational freedom, and privacy, ensuring they maintain a strong reputation while allowing for efficient business operations.
8. Availability of expert trustees & service providers
A strong trust jurisdiction offers a wealth of high-quality service providers with expertise in key fields like trusts, law, tax, and more. The presence of local ancillary services, from top accountants and major law firms to corporate and fiduciary providers and major international banks, is also crucial.
9. Cost & efficiency
The establishment, administration, and ongoing costs of the trust should be evaluated. For example, a DIFC trust governed by DIFC Trust Law can be administered from Mauritius by a Mauritian-based trustee, offering flexibility in terms of location and cost.
10. Other considerations
Political & economic stability: A stable political and economic environment is essential for long-term trust planning.
Language: Consider the language of doing business. While English is spoken in places like Jersey, the Cayman Islands, and Dubai (DIFC), the latter is a multilingual jurisdiction where Arabic and other Asian languages are widely spoken.
Time zones: The time zone can impact the ease of collaboration. While Singapore may be the most convenient for Asia-based clients, consider the accessibility of different jurisdictions to various global markets. For instance, Jersey is physically close to European markets, while the Cayman Islands and British Virgin Islands have strong connections with the United States.
How can Ocorian help?
Protect and manage your private and family wealth with Ocorian's comprehensive trust services. Our global team of experts will collaborate with you to create a tailored trust structure that aligns with your specific needs and goals.
We offer highly experienced trustees and trust administration services for all types of trusts, including private trust companies, managed trust companies (MTCs), and private unit trusts (PUTs).
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