The Nature of the Legal Arrangement

[sumaiyakhatun26]

Offshore Trusts: Misunderstandings, Pitfalls and Solutions (3 of 3)
Publication 7 June 2022


| Reference IN831

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:

Offshore Trusts: An Introduction (1 of 3)
Offshore Trusts: Types and Uses (2 of 3)
In the final article in this series, we will examine the most common misunderstandings and lithuania mobile database 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:

Common misunderstandings of Offshore Trusts?
Common pitfalls when establishing Offshore Trusts
Working with a Trust Service Provider

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.