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SCMP Reporter

Are offshore or overseas trusts just for the wealthy? Not necessarily so. In fact, trusts also can be seen as an investment vehicle and can be used to achieve a number of aims.

 Tax professionals say using a trust is a suitable option if your family has assets of US$500,000 or more. With Hong Kong property so highly priced, this is a position in which many middle-class families will find themselves.

 'Offshore' simply means the trustee is located in a different country from the client and his assets. Usually, the trustee is in a jurisdiction with low tax or no tax, such as the Cayman Islands or the Channel Islands.

 Trusts also can be invaluable tools for people planning to emigrate.

  Someone moving to Canada, New Zealand, or Britain, for example, should consider using a trust to hold offshore investment assets, a tax professional said.

 The rules for the United States and Australia on residents using offshore trusts are much tougher.

 Specifically, in becoming a tax resident of Canada, an individual would be subject to Canadian income tax on his world-wide income, at tax rates up to 54 per cent.

 A new resident can hold non-Canadian investment assets in a properly structured offshore trust and be protected from Canadian tax on such income for up to the first five years of their residency.

  There also are opportunities to extend this tax holiday beyond five years.

 Use of overseas trusts in this way became popular with the high rate of emigration from Hong Kong to Canada in the past decade.

 Another good reason for setting up an overseas trust is to provide protection from creditors.

 There are concerns about the growing trend towards litigation in Asia.

 Doctors, for example, are seeing more claims being made by patients for negligence, or perceived negligence.

 Other unincorporated professionals, such as lawyers and accountants, face the same type of unlimited financial exposure.

 Worse, individuals who carry on a profession through a partnership usually are jointly and severally liable for claims made against their partners.

 If assets are placed in an offshore trust before any problems occur, the assets normally would be beyond the reach of a creditor.

 The basis for this is that the legal ownership of the asset has been removed and invested with the trustee.

 Some offshore tax jurisdictions even have 'asset-protection legislation' to help thwart a third-party challenge.

 Any discussion about trusts cannot be completed without mentioning the unpleasant business of marital break-up.

 One of the most important reasons why people establish trusts is to protect assets from 'outsiders' - and it is usually more effective than a pre-nuptial agreement.

  Parents considering providing a substantial gift to one of their married children may be worried that any subsequent divorce could lead to the gift being split between the warring parties.

 A trust can eliminate this problem.

This article is based on information provided by HSBC Trustee International and PricewaterhouseCoopers, Hong Kong 



Versatile trusts serve many needs - and not only for the rich