HOLDING assets offshore to minimise tax has become increasingly important for private investors. Offshore structures can be used to protect assets from the Inland Revenue, creditors or even former spouses. But many investors are wasting money on offshore structures that will fail to meet any of these objectives, according to experts. Offshore companies are easy to establish, but trusts could be a more effective option in many circumstances. Barry Lea, regional director financial services and marketing at Hill Samuel, said: 'It comes down to what the client is trying to achieve.' Mr Lea said the starting point was to look at the problems the client needed to address, taking into account the overall position, personal finances and future plans. Without clear objectives, Mr Lea believed, investors could be wasting money on offshore structures. Howard Bilton, chairman of Sovereign Trust International, said there were many misconceptions about offshore companies. 'A lot of people believe that if they put assets into an offshore company they can avoid Hong Kong estate duty. This could be true, but only if the company is correctly managed and structured. 'If an offshore company issued bearer shares and the certificates were held in Hong Kong, the shares would be treated as Hong Kong-sited assets and subject to estate duty under the circumstances. 'All the assets of the company would be subject to estate duty, even if many of those assets were situated outside Hong Kong and would not normally fall within the estate duty charge.' Another trap is transferring Hong Kong property, which includes land and buildings, bank accounts and company shares, into an offshore company owned by the client or his family, Mr Bilton said. 'If you receive any benefit whatsoever from that company during your lifetime, then the assets of that company may be treated as still belonging to you upon your death and Hong Kong estate duty would therefore apply.' Many also believe that assets owned by an offshore company are protected from bankruptcy or divorce claims. Mr Bilton said: 'This does not work. You don't own the assets which you have transferred to the company, but you do own the shares in the offshore company. 'Your ownership of the shares may be confidential, but in any court proceedings you would be likely to have to sign an affidavit listing all your assets, and failure to do so would be a criminal offence. 'However, if the shares in your offshore company were transferred into an offshore trust then they would normally be protected from future claims against you.' Jim Eberwein, senior adviser of trusts and taxation at Clerical Medical International, said appointing nominee directors of an offshore company might achieve greater confidentiality but this was an additional expense. Mr Eberwein believed that trusts were generally far superior to investment companies for ensuring that assets were passed down generations. But he found many people were afraid they would lose control of their assets if they were given to a trust. One way to retain control is to appoint the person giving assets to the trust as a trustee. 'Trusts have been around for nearly 1,000 years, and we know how people can control them.' Ted Powell, managing director of Offshore Incorporations, said the most suitable offshore structures often involved companies and trusts. He said: 'The two go hand in hand: the common thing is to have a company, through which you make investments and do what you will, owned by a trust.' The cost of companies has remained static. Mr Powell has been selling British Virgin Islands companies for US$750 for the past six years, for example. But, he says, time-related fees of specialists and solicitors have risen. Costs for setting up an offshore company now start at about $1,500 to $2,000. This would include accounting and secretariat services to meet the requirements of the offshore centre's law for one year. Trustee services are usually charged as a percentage of the value of the underlying assets. In the case of Hill Samuel Jersey, they start at one per cent per year on sums of up to GBP500,000 (about HK$6.15 million) and reduce on higher amounts. Mr Lea said fees were negotiable for large sums. Mr Bilton estimated the full cost of setting up a trust started at about US$3,000. He said: 'As this is such a technical area of the law, it would be dangerous to try to cut corners and costs. Specialist advice should always be taken.' Mr Lea said trusts were particularly useful for people relocating to Britain or Canada, for example. 'Investment trust structures mitigate tax considerably,' he said. But he added: 'For some people, it could make perfect sense to use an offshore company.' Mr Lea said offshore companies were often used by investors buying British properties who were not British and had no intention of living there. 'People forget about British inheritance tax, which is charged on UK-situated assets of non-UK-domiciled people.' A British property purchased by a non-British person could be taken out of the British inheritance tax net if it was owned by an offshore company, Mr Lea explained.