The right jurisdiction vital
Selecting a trustee in a suitable legal jurisdiction is of paramount importance when choosing an offshore trust, according to Coutts & Co.
Coutts operates trust companies only in the Cayman Islands, the Bahamas, Bermuda, Jersey, Guernsey and the Isle of Man, together with an administrative arm in Switzerland.
'The jurisdictions which Coutts favours tend to err on the side of caution,' Robin Smith, Coutts' legal adviser in Hong Kong, said.
'Not all offshore [low or zero tax] jurisdictions are suitable. Stability should be accompanied by quality legal advisers and a reliable judiciary,' he said.
Although trusts could achieve extremely beneficial tax savings in countries including Britain, Canada and the United States, Mr Smith cautioned: 'Offshore trusts need to be structured correctly under legal advice. Tax advice in more than one jurisdiction may also need to be taken.' He said Coutts questioned the wisdom of selling trusts as packaged products distributed in bulk to clients without full consideration of the issues involved.
'A trust is essentially a legal relationship and no amount of packaging can alter its essential characteristics,' he said.
'The settlor needs to appreciate the full consequences of creating a trust - and the fact that trustees will not be his mere tools or agents.
'Those who promote the benefits of offshore trusts but seek to deny there is a cost in terms of loss of direct control over property transferred are unlikely to be doing their clients a service.' Mr Smith said sacrificing control over trust assets did not, however, mean the settlor would lose all influence.
'It is possible to incorporate methods by which a settlor can be comforted that the trustees will generally deal with his property as he would wish,' he said. Some institutions, for example, promoted more flexible discretionary trusts.
He said some seriously flawed trusts had been marketed in Hong Kong. Major faults included insufficient tax advice and inadequate records by low-cost trustees.
'The distinction between legitimate tax avoidance and illegitimate or illegal tax evasion often seems to be blurred by some structures put forward in Hong Kong,' he said.
Frequently, such structures had been designed to protect against estate duty. 'Professional advisers who step over the line will do their clients and trustees no favours.' Maria Travis, regional marketing director for Coutts, said: 'We believe that attitudes to trust and estate planning here will eventually change as the weaknesses in many of the trust structures set up in recent years become apparent.' She said it was only a matter of time before litigation was used against flawed trusts 'in such proportions that current practices in the marketplace will be fundamentally changed'.
Ms Travis said Coutts clients normally transferred at least US$1 million worth of assets, with several worth 'hundreds of millions, if not billions of US dollars'. Typical start-up costs ranged from $3,000 to $5,000, excluding independent legal advice.
She said annual fees started from $10,000 but 'can run into hundreds of thousands of US dollars in the very largest cases' since they involved hundreds of companies with business all over the world, as well as substantial investment portfolios.